Financing and Marketing Management

Unit 15 - Product Management

15.3. New Product Development
Every company must develop new products. New products development shapes the company’s future. A company can add new products through acquisition or development. The acquisition route can take three forms:-

• The company can buy other companies
• It can acquire patents from other companies
• It can buy a license or franchise from another company

The development route can take two forms:

• The company can develop new products in its own laboratories; or
• It can contract with independent researchers or new-product development firms to develop specific new products.

Competition is strong and dynamic in most markets. So it essential for a firm to keep developing new products-as well as modifying its current products-to meet changing customer needs and competitors’ actions.
Booz, Allen and Hamilton have identified six categories of new products:-

• New-to-the world products
• New-product lines. New products that allow a company to enter an establishment market for the first time.
• Additional to existing product lines: New products that supplement a company’s established product lines (package sizes, flavor and so on.)
• Improvements and revisions of existing products: New products that provide improved performance or greater perceived value and replace existing products.
• Repositioning existing products that are targeted to new markets or market segmentation. 6. Cost reduction: new products that provide similar performance at lower cost

An Organized New-Product Development Process is Critical Identifying and developing new-product ideas and effective strategies to go with them is often the key to a firm’s success and survival. New-product development demands effort, time and talent-and still the risks and costs of failure are high.
A new product may fail for many reasons. Most often, companies fail to offer a unique benefit or underestimate the competition. Specific reasons are:

• A high-level executive pushes a favorite idea thru’ in spite of negative market research findings
• The idea is good but the market size is over-estimated
• The product is not well designed
• The product is incorrectly positioned in the market, not advertised effectively or over-priced
• Development costs are higher than expected
• Competitors fight back harder than expected

Several other factors hinder new-product development

• Shortage of important ideas in certain areas.
• Fragmented markets
• Social and governmental constraints.
• Costliness of the development process.
• Capital shortages
• Faster required development time
• Shorter product life cycle