PD Strategies
Prof. V N Achutha Naikan
IIT Kharagpur
PD Strategy: More Crucial in Future
1. The cost of capital will be high
2. Competition will be tough and global in scope
3. Organizations will be searching into areas outside current operations
4. Industrial nations will be increasingly aggressive in
supporting high-technology, growth-oriented businesses 5. Markets will become increasingly mature and saturated 6. Consumer lifestyles will continue to change
7. Buyers will become more sophisticated 8. Technological change will be rapid
9. Product life cycles will shorten
10. Environmental pressures from government, consumers, and labor will increase, and
11. Shortages of resources and fluctuating prices of critical raw- materials will make cost control very difficult
Product Strategy and Innovation Process
Products are added to the product portfolios of firms in a variety of ways
Strategies to add new products/adjust existing products - Innovative and imitative
- offensive and defensive
- entrepreneurial and bureaucratic
- internal development and external acquisition
Turbulent and risky environment for decision
Offsetting the risk and uncertainty are the rewards of good strategy
Rewards : profits, market dominance, customer loyalty, invulnerability to external forces
A good strategy is double rewarding: not only increases revenues and returns, it preempts sources of risks such as competitive
actions and regulatory constraints.
Corporate, Market and Product Strategies
Corporate Strategy :
- Overall direction-giving framework for an organization
- In a competitive world, C. S. should confer on the firm a unique differential advantage
- Clear strategy is essential for successful and timely PD
- Requires careful analysis of products and markets, find the right gap
- Diversification
- Appropriate market
Range of Strategic Responses
• In the competitive market, a number of strategic responses are required
– Create successful new product – Protect existing products
• To make intelligent strategic responses, we
must know our capabilities and the
environment in which we operate
Setting Strategic Goals:
Start with an audit of company’s capabilities and its environment.
- What are our strengths/weaknesses?
- What are our competitors’ strengths/weaknesses?
- What are our present products and Life cycles?
- Reliability, Maintainability, Availability, cost?
- What technological changes are expected?
- What Government regulations affecting us?
- What consumption change can we exploit?
- Fix our business goals after analyzing these - Quantify the goals to monitor progress
- Gap analysis to put additional effort to achieve goals
Setting Strategic Goals….
• A large private firm:
10% growth in earning/share, 20% increase in sales, at least 5%
market share and Rs. 100 crore revenue/year for launching a NP
• A small, high tech entrepreneur:
50% sales growth achieved through products with less than Rs 50 crore sales per year and less than 1% of the market
• A public mass transfer service:
Reverse the decline in ridership over 5 years and reduce the deficit by 5% per year
• Set goals, quantify them to provide measure of achievement, current level and gap.
Alternative Product Strategies
Once the goals and measures are set, decide:
Reactive or Proactive ?
Reactive : Wait until the competitors introduce a product, copy it if it is successful Proactive : First to introduce a NP and exploit the opportunities
Each Strategy is appropriate under certain conditions
Reactive Proactive (Taking initiative)
Defensive- guards against a NP after their success.
May not be successful over long time.
Preemptive /counteroffensive defense: offensive against NP by competitors
Offensive or Initiator, need strong and active R&D: IBM, Xerox, Soni, Phillips, GM
Imitative : Ex: “me-too”, NY copying fashion design cloths in 24 hrs.
Marketing – Strong marketing capability, find and promote consumer needs. Ex: Proctor &
Gambles, General Foods, McDonalds…
Second but better: Minimum R&D Entrepreneurial- a person-entrepreneur has an idea- make this happen
Responsive- reacting to customers’ requests Acquisition- purchase other firms with products new to the acquiring firm & market
Reactive vs Proactive Strategies
To select any strategy we must understand the situations:
1. Growth opportunities
2. Probable protection for innovation 3. The scale of the market
4. The strength of the competition
5. The organization’s position
1. Growth Opportunities
There are 4 possibilities
Existing Products New Products
1 Increase market share, sales & production, better distribution NW. Reactive strategy in best. PD only when competition is expected. Ex: KFC focus on
“We do chicken right”. Defensive strategy
2 McDonald, Coca Cola, and recently KFC, & others.
3 McDonald introduced Mc Nuggets to widen its product line
4 McDonald entered the B/F Market with early hours of operation
2,3,4 Proactive strategy- innovation, R&D, marketing are more suitable
1. Market
Penetration
3. Product
Development
2. Market
Development
4. Diversification Existing Markets
New Markets
2. Protection for Innovation
-
Patenting to get ROI on PD- A good product enduring market share to the pioneering brand.
McDonalds’ is still the leader even after Burger King, Wendy’s, Burger Chef, and others have copied its products.
-Mc Donald’s, HLL, Philips, about 60% M. Share in their areas -If a firm can achieve good protection then
Be Proactive
- If the innovative/first product can be easily copied and if the firm has no strong legal cell, protection is difficult
Better be Reactive
3. Scale of Market
Market size & Margin are important
Large Markets: Mass production, distribution,
marketing dominance, good returns, early ROI
- Be Proactive
Small Markets: Produce what the customers want Example: Process machinery, boilers, engines
tailor the design/custom made
- Better be reactive
4. The strength of the competition
• Competitive environment→ reactive strategy is sometimes feasible
• Time To Copy: if shorter, no patent protection,
better imitate
• A small firm: Vulnerable to competitive reaction so better be reactive, no innovation
• A big firm: Proactive to protect its level and image - no imitation
- innovation is essential to keep leadership
Example: GE in home appliances brings innovative products
5. The Organization’s position
Position in Vertical system
- In a distribution chain (S.C.) one firm may be proactive while others reactive to support it
- Producer is innovator of most consumer products, some times a supplier may be an innovator
- Whether a firm is proactive also depends on relative positioning/power
- Some firms actually gain power as well as profit by innovation
- Haines Corporation was simply another apparel producer until it introduced L’eggs, a distinctive packaged panty hose, through innovative distribution in super markets and drug stores.
Synthesis and Recommendations
• All organization do not have to innovate new products
• Reactive strategy may be best for some organizations
• Sometimes reactive strategy is unavoidable
Reactive Strategies:
Organizational Characteristics
If the organization
1. Require concentration on existing products or markets
2. Can achieve little protection for innovation
3. Are in markets too small to recover developmental costs
4. Are in danger of being overwhelmed by competitive imitation
5. Are in distribution chains dominated by another innovator
Then Reactive Strategy is better (No innovation)
Proactive Strategies:
Organizational Characteristics
If the organization has
1. Overall policy of growth
2. Willingness to enter new products and markets
3. Capability of achieving patent, legal support and market penetration
4. Ability to enter high-volume or high-margin markets 5. Resources and time necessary to develop new products 6. Competition unable to rapidly enter with a second-but-
better strategy
7. Reasonable power in the distribution channel
Then better to be proactive (Do Innovation)
End
