EUT 441E

New Product Development

Prof.Dr. H. Alpay Er
ITU Dept. of Industrial Product Design

Office: EUT 7, Phone: 2931310 ext. 2201, E-mail: [email protected]

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 Aims

• EUT 441E New Product Development

(NPD) course aims:
1. to familiarize ID students with the basic
concepts of NPD and,
2. to help students understand how ID fits
into NPD in a business context.

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 Agenda
• Main topics to be covered:
Importance of NPD,
NPD Strategies,
Factors Affecting NPD at firm-level,
Product Life Cycle,
Organisation of NPD,
NPD Process,
The Role of ID in NPD,
Prototyping,
Management of NPD.

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 Evaluation
• Mid-term % 20
• Term Paper % 20
• Attendance & Participation % 10
• Final Exam % 50

• TOTAL %100

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 Main Sources
• Ulrich, K.T.and Eppinger S.D. (2000) Product Design and Development,
Mc Graw-Hill Inc., NY.
• Urban G.L. and Hauser, J.R. (1993) Design and Marketing of New
Products, Prentice Hall, New Jersey.
• Rosenal, M.D. (ed.) (1996) The PDMA Handbook of New Product
Development, John Wiley and Sons Inc., NY.
• Cagan, J. and Vogel C. M. (2002). Creating Breakthrough Products,
Prentice-Hall Inc., New Jersey.
• Bruce, M. and Bessant J. (2002) Design in Business, Pearson, Essex.

• Design Management Journal

• Journal of Product Innovation Management
• Harvard Business Review

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 Introduction
• New Product Development (NPD) is a
cognitive and organizational process by
which new products or product systems
are conceptualized, designed and
developed to address opportunities and
problems in an industrial context.

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 Characteristics of NPD

• NPD is risky!

• failure rates of new products are high.

Average %35 of new products fail in the
market.

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• NPD is costly !

• Large investments are made in NPD. But

not all new-product ideas are carried to the
commercialization phase. Only one of 7
NP ideas reaches to the market. This
means that the successful product must
cover not only its own NPD cost but also
the cost of other 6.
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 “Characteristics of NPD”
• However, NPD is rewarding and necessary to
maintain a healthy organization in a market
economy.

• Because NPD is the main source of

differentiation in a market where the price and
quality are not enough to differentiate products
anymore.

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 Economics of NPD

• Classical theory of economics

concentrates on quantity and price,
assuming that product has more or less
standard quality.

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• In markets where large numbers of people
are hungry for products, quantity and price
of a product are more important.

• This type of markets are called as “Sellers’

Market”

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 Economics of NPD
• When the number of companies offering similar
products increases in a market, then first the
price, and gradually the quality become
standardized factors.
• Companies start designing and developing new
products with new or improved features in order
to attract customers.
• Such markets are called as “Buyers’ Market”.
• NPD is a function of ‘Buyer’s Market’

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In order to differentiate its products
• A company can;

– buy other companies with attractive new

products (Acquisition).

– buy patents of promising new products from

other companies or individuals.

– manufacture ‘new’ products under the license

of other companies

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 or

A company
can design and develop
its own new products!

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 “New Product Development”
• NEW: new to the world
new to the company
new to the market

• PRODUCT: anything for sale for the

purpose of satisfying a want or need on
both sides of the exchange process.

• DEVELOPMENT: Iterative process that

covers from the idea to the market launch.
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 Related Concepts & Definitions
• Invention: Act of discovering new methods and
techniques.
• Innovation: Commercialization of invention.
• Innovation is the transformation of an idea into a new or
improved saleable product or process in industry or
commerce. Technical, Organizational, Product or
Process Innovations. Design Innovations…
• R&D: The commitment of resources by a company to
scientific research and the refinement and modification
of research ideas aimed at ultimate development of
commercially viable products or processes..

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 Definitions
• NPD: The process that transforms ideas, market needs
and opportunities into a new product to be launched on
to the market. NPD may involve changes in form,
components or even just packaging rather than chances
in operating principle or technology.

• Product Design is the core of innovation and NPD

(OECD, 1982).

• Design is the process of converting an idea into

information from which a new product can be made.
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Why do firms design & develop new products?

• 1. Financial goals :
• Pressures for Profit maximization, firms
generate about %40 of profits from new
products in the US.

• NPD is linked to financial planning.

• The need for sound profit making is a

strong motivation behind NPD.
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Why do firms design & develop new products?

• 2. Sales and Market Share Growth:

• Firms can capture a large slice of market share
by NPD, and then through incremental product
modification and experience cost advances can
be achieved.
• NPD becomes the chief means of market share
growth in a focused market strategy.
• As Japanese did in the past, and as Koreans
have done recently.
• Vestel in CTV market ?

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Why do firms design & develop new products?

• 3. Competitive actions:
• It means what competitors doing.

• An indication of unfavorable competitive

change is a strong motivation for NPD.

• Office furniture and electronics industries

in Turkey.
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• 4. Product Life cycle: As a product matures, its
sales begins to decline, so do profits.
• Then the movements of existing products in their
life cycle towards decline crates a motivation for
NPD. (Cars. Renault 9. Fiat 131)

• 5. Technology: Technological change puts

extreme pressures on firms to innovate or give
up.
• A major technological change always forces
firms towards NPD

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Why do firms design & develop new products?
• 6. Globalization creates two new dimensions:
new competitors entering home markets
(threats) and opportunities abroad.
• NPD is always an important part of firms’ global
business strategy.

• 7. Regulation: Government regulations and

deregulations causes firms to consider NPD.
• Environmental standards imposed by
governments - e.g. Downsizing of cars,
packaging
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 Why do firms design & develop new products?

• 8. Material Costs and Availability: due to material cost

and availability, new product may have to be developed.
• Oil crises of the 70s led to the design and development
of small cars.
•

•  9. Invention. Start up companies, new inventions

usually led to NPD.
• 10. Demographic and life style changes: as
consumers ages, their needs change, so they need new
products, drug and medical services, diet, decaf
products, teenage as a consumer, liberation of woman.
• Health conscious products. Environmental sensitivity.

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Why do firms design & develop new products?
• 11. Supplier Initiatives and Reactions
can also be a source for NPD.

• 12. Customer requests. Especially in

industrial goods.

• 13. Alliances among firms: New NPD

opportunities in NPD or pressures for
growth through NPD.
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 New Product Strategies
• Firms develop their own managerial
strategies to deal with NPD. These are
called New Product Strategies.

• NP strategy is part of the overall corporate

strategy.

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 What is corporate strategy?

• Corporate strategy is a framework that

gives a company its overall direction.

• The strategy formulation begins with a

systematic diagnosis of the threats and
opportunities, the organizations weakness
and strengths, and understanding of the
demand and competition in the market.
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 Basic New Product Strategies
• The basic strategic NP decision is whether to be
reactive or proactive.
• A reactive strategy is based on dealing with
initiative pressures as they occur, whereas a
proactive strategy would explicitly allocate
company resources to preempt undesirable
events in the future or achieve goals.
• Each strategy is appropriate under certain
conditions.

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 Reactive NP Strategies:

• Defensive
• Imitator (me too)
• Second but better,
• Responsive

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 Proactive NP Strategies:
• R&D based
• Marketing-led
• Entrepreneurial
• Acquisition
• Alliances

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 PLC
Product Life Cycle

Sales Volume

Maturity

Introduction
Growth
Decline

Time

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