New Product Development

Ganesh N Prabhu
 01.
Introduction
 New Product Development
• This is multi-disciplinary course – it covers areas
like strategy, design, marketing and operations.
• We will cover the product development process
from idea to launch. We will learn how to make
the new product process efficient and effective.
• We will focus on both business and social value
creation through new products and services.
• Such courses are offered in business schools
jointly with design and engineering schools.
 Bottle Loft by Strong Like Bull Magnets
• Bottle Loft is a plastic strip with three flat strong
magnets mounted in it and stuck with a strong
adhesive to the inside roof of any refrigerator.
• Kickstarter video emphasized the value of space
saving and use of the space under the bottles.
• Video over emphasized on the high strength of
the flat magnets that are used by the company.
• Video ignored the high strength of the special
low temperature 3M adhesive also used by them.
 Bottle Loft by Strong Like Bull Magnets
• Users are equally or more concerned about the
strong adhesive holding three bottles on one
strip as they are of a magnet holding one bottle!
• Very high bond 3M adhesive is effective but not
as well emphasized – as this company makes the
strong magnets but not the 3M adhesive tape!
• They had to make a choice on what to cover in a
one minute video and the emphasized their own
magnets over the good 3M adhesive they used.
 Bottle Loft by Strong Like Bull Magnets
• But the adhesive is as important as the magnet
from the users’ viewpoint and therefore it being
ignored in the video causes some dissonance!
• A user centric view rather than a product centric
view can resolve such common user dissonances.
• What does this imply? It shows that companies
have to be more product centric during product
development and then they have to be more user
centric in their marketing pitch to potential users!
 New Product Development
• This course covers how companies can identify
some significant existing or latent user needs.
• We will cover how to use this understanding to
develop new products or services to meet needs.
• We will cover innovation and technology led
new products. We will cover adapting existing
products to new users. We will also cover the
adaptation of business models to new contexts.
• We use both product & user-centric viewpoints.
 Why Study New Product Development?
• Product development requires making many
critical tradeoffs in features to match latent
customer requirements and competitive offers.
• Most product characteristics and key features
are decided at the early product development
stages. These may pre-fix their market scope.
• Changing such product characteristics later to
meet new demands or correct any mistakes is
often expensive, unviable or just not feasible!
 Why Study New Product Development?
• Decisions taken at the early stages can have
major strategic and operational impact on the
success of the new product when launched.
• Bad decisions at early stages can restrict the
range of customers that find it very suitable.
• Role of the product developers is critical in
meeting two major targets (a) product is both
suitable and viable to users and (b) time to
reach the market is as less as possible.
Cost of Late Design Changes
Design Process
$ 10 Design Production
$ 1000 Change
$ 100

Time
 Time to Market of New Products
Major Improvements Were Made in the 1990s
Company Product Time to Time to
launch launch
1980s 1990s
Honda Car 5 years 3 years

AT&T Telephone 2 years 1 year

exchange
Hewlett Printers 4.5 years 2.2 months
Packard
 02.
Business Models for New Products
 What is a business model?
A business model tells a good story about:
1. Who are the customers? What do they value?
2. How do we make money? How do we deliver
the value at a reasonable cost?
A business model require articulation of:
1. How will you make the product/service?
2. How will you deliver the product/service?
Innovation may focus on either or both areas.
New resources may be required on both areas.
New products require new business models
New products can fail due to failed business models
New or proposed business models fail when they
cannot pass either of these two tests:
1. The Narrative Test – the story about who are the
customers, what they value and why they will
buy your product makes no sense.
2. The Numbers Test – the projected profits do
not add up to make money. We are unable to
deliver value to customers at a reasonable cost.
When do existing business models fail?
• Business models are built on very specific
assumptions about customer behavior.
• If these assumptions become faulty then the
projected returns may not materialize.
• Business models also have specific limits (eg.
willingness to pay) within which they work.
• If these limits get stretched too far then too
the projected returns may not materialize.
When do existing business models fail?
• If the business model is very robust to the
variations in customer behavior and the limits
can be stretched to some extent then the
business may survive with corrective actions.
• If the business model is very sensitive to
variations in customer behavior or the limits
cannot be stretched then even prompt
corrective actions may not save the business.
Business Model: Customer Questions
• Who are the customers? Who are not? What
do these customers value in your business?
• What specifically will you offer to customers?
What will you not offer even if asked for?
• How much will your customers pay? How
much will your customers be willing to pay?
• How will your customers behave? What will
make them opt or drop the product/service?
 Business Model: Cost Questions
• What will you offer? What activities will you
perform? What is the cost of offer + activities?
• Is any high upfront investment required? Is
there float (advance) or high working capital?
• How much will it cost to deliver the value
promised? Does the cost depend on scale?
• Will cost to deliver the value vary for different
types of customers and will it grow over time?
The Uber Taxi Service Business Model
• How is Uber better than a call taxi service?
• Uber essentially links customers with drivers
who are very near and can reach them fast.
• Uber links customers to drivers faster - this
enables customers to get early confirmation.
• Uber customers thus have to wait lesser to
get a pickup compared to call taxi services.
• Uber drivers thus have to “dry” drive (empty
drive) the least to reach their next customer.
The Uber Taxi Service Business Model
• Uber’s business model increases efficiency
and lowers costs for drivers – thus increasing
their income while providing fast availability
of cars – that is very valuable to its users.
• Does Uber create equity among stakeholders?
• Uber raises prices during taxi shortages to get
more drivers. This increases car availability
and builds market supply while others do not
get any cars at all during such a shortage!
 Business Model vs Business Strategy
• Business Model depicts specifically how a
firm creates value for its target customers.
• So business model is opportunity centric –
creating value by exploiting the user context.
• Business Strategy depicts how the firm
captures the value that it has created.
• So business strategy is competition centric
– how to gain advantage over its rival offers.
• Value created by good business models may
not be captured if the business strategy fails.
 03.
Managing Product Development
 Mission Statement for Kids Calculator
• Product Description: Small hand held electronic
calculator for children
• Key Business Goals: Product introduced in
fourth quarter of 2017;
50% gross margin;
10% share of kids
calculator market by 2019.
• Primary Market: Kids in the 6-8 age group.
• Secondary Market: Kids in the 4-5 age group
Kids in the 9-10 age group
Mission Statement for a Kids Calculator
Assumptions: Only solar power operated
Sealed and waterproof product
Stakeholders: Users – children in target group.
Buyers – parents and teachers.
Retailers and their sales force.
Production and quality control.
Packaging environment standards.
Servicing or replacement norms.
Legal standards for kids products
 Managing Product Development
• How to reduce time to market while aligning
new products to the users and market needs?
1. Portfolio Management – doing right
things – Balancing the product portfolio
2. Project Management – doing things right
– Product Development Funnel
– Stage Gates on the Development Funnel
 Doing Right Things – Balanced Product Portfolio
New core product New benefits Improvement Variant No Change
Customer Needs/Value
Radical
Breakthrough

Platform
Base Incremental Generation
Next

Derivative
Technology
Enabling

Brand
Portfolio Decision– Adding New Products
• Brand – same or different? Does quality match?
• Market – is it the same customer? Is it the same
use occasion? Is it the same value proposition?
• Pricing – is it a premium product? If so is the
premium justified? If not can you lower price?
• Cost – is it a cost effective product? Is the cost
under control? Any cost elements can you drop?
• Operations – can you use the same resources?
 Portfolio Decision– Adding New Products
• Distribution – Can you use the same support?
• What about accessories? Service requirements?
• Is the current Retail Design appropriate for it?
• Is there product level competition? Alternatives?
• Is there also competition at a component level?
If so that component cannot be over-charged.
• Is there also competition for service? If so then
such services cannot be over-charged.
 Doing Things Right
Product Development Funnel
Customer Needs

Concept Concept Product Develop- Prototype Product

Generation Selection Design ment Testing Release

Technological
Possibilities
 The Product Development Funnel

Maximum flexibility is at the beginning of the

project. As the project evolves,
commitments are made to
• Specific concepts
• Product design
• Product architecture etc.
…. the funnel narrows
 Stage-Gates on Product Development Funnel

Gate 1
Gate 2
Gate 3 Funnel Gate

Gate Document

Idea Launch
Generation Feasibility Business
Check Capability Preparation

Launch

Launch
Contract Proposal Innovation idea
Charter
Innovation project
Product Development Activity in Stages
• Idea Generation Stage – initial market choice
and product concept is discussed within group
• Feasibility Check – refine concept, establish
customer relevance, technical and commercial.
• Business Capability – proven technology,
finalize mix, establish commercial viability
• Launch Preparation – commercial production,
commence marketing and sales activities
 Effective Management of Stage Gates
• Communication of process to all employees
• Transparency in assessment process at all gates
• Top management commitment to the process
• Periodic review against set and agreed standards
• Good documentation for review and analysis
• Cross functional teams with project champions
• Clear that not all projects will get fully funded.
Flexibility in Product Development
• Flexibility is an alternative to better market -
technology research (with high uncertainty)
• Flexibility entails both benefits and costs
– Efficient development later design changes
– Benefits in adapting product line over time
– Overheads/poorer products with flexibility
• We need to view these as economic tradeoffs
and choose best flexible options in each case.
Increasing Development Flexibility
•Adopt flexible technologies that allow for fast
and low cost design iterations. Structure design
tasks to allow for progressive commitment.
•Progressively lock down requirements and keep
viable back-up approaches – revisit tradeoffs.
•Use modular product structures – Reduce
coupling between modules and isolate volatility
in the design to enable easy replacements.