Market Factors of New Products
Prof. V N Achutha Naikan
IIT Kharagpur
Marketing Vs R&D
A proactive strategy must integrate R&D and Market
• R&D:
•US Fed. Govt. $50bn/yr
•Private Industry $60bn/yr
• Marketing:
• Survey, Research
• Customer based innovations
• About 80% of successful products are developed based on customer demands
• R&D alone is not worth
• Marketing inputs are must for the success
• Effective communication should be established among specialists in sales, marketing, production, R&D to see that opportunities are not overlooked
R&D Expenditures for New-Product Development in Various Industries
Industry Companies in sample Percentage of Total Expenses
Electrical Equipment
28 79%
Chemicals &
pharmaceuticals
34 82
Instruments 16 88
Machinery &
computers
19 68
Aircraft 6 84
Food 7 96
Product Innovations Resulting from Market Needs and Technological Opportunities
Type of innovation (Sample size) Market or Product Needs
Technical
Opportunities
British firms (137) 73% 27%
Winner’s industrial research award (108)
69 31
Weapon systems (710) 61 39
British innovators (84) 66 34
Computers, railways, housing (439) 78 22
Materials (10) 90 10
Instruments (32) 75 25
Other (303) 77 23
Market Failures
Why products fails ? How to avoid failures ?
• Market too small:
Insufficient demand for this type of product
• Poor match of company to product
Company capabilities do not match product requirements
• Not new/not different
A poor idea that really offers nothing new
• No real benefit
Product does not offer better performance
• Poor positioning/misunderstanding of consumer needs Perceived attributes of product are not unique or superior
• Inadequate support from channel (network) Product fails to generate expected channel support
Market Failures….
• Forecasting error: under/over estimation
• Competitive response: quick/effective copying
• Changes in consumer’s tastes
Substantial shift in consumer preference before product is successful, too much lead time for product introduction in the market
• Changes in environmental constraints Drastic change in key environmental factors
• Insufficient ROI : poor profit margins and high costs
• Organizational problems, conflicts, poor management policies:
Intra-organizational conflicts and poor management practices
Safeguards against Market Failures
1. Market is defined and rough potential estimated in the opportunity identification and concept test phase 2. Opportunities are matched to company’s capabilities
and strategic plans before development is begun
3. Creative and systematic idea generation. Also, early consumer check to see how idea is perceived
4. In the design stage, perceived benefits of concepts as well as benefits from actual products use are tested 5. Use of perceptual mapping and preference analysis to
create well-positioned products
6. Assessment of trade response in pretest-market phase
Safeguards against Market Failures…
7. Use of systematic methods in design, pretest, and test phase to forecast consumer acceptance
8. Good design and strong positioning to preempt competition.
Quick diagnosis of, and response to, competitive moves 9. Frequent monitoring of consumer's perceptions and
preferences, during development and after introduction 10. Incorporation of environmental factors in opportunity
analysis and design phases. Adaptive control
11. Careful selection of markets, forecasting of sales and costs, and market-response analysis to maximize profits
12. Multifunctional approach to new product development to facilitate intra-organizational communication.
Recommendations for a sound formal and informal organizational design
Cost of NPD
Cost : Limited resources
Typical Management budget : How much each phase cost
High cost : Testing & Introduction
Conclusion : 1. Early phase is less risky
2. Eliminate failures early before they lead to higher investment
Opportunity Identification Design
Testing
TOTAL DEVELOPMENT
Consumer products (lakhs) Industrial products 100 - 500
200 - 1500 1000 - 6000
50 - 200 500 -5000 300 -3000 1300 - 8000 850 -8200 Introduction
TOTAL INVESTMENT
5000 -20000 1000-10000 6300-28000 1850-18200
Time for NPD
Time:
Too long a development process loss of opportunity
Too short a development process may ignore key issues failures
Difficult to estimate in advance
Depends on creative breakthroughs and getting product and market strategy at start
Opportunity identification
Months 04 - 08
Design 02 -15
Testing
Pretest
Test market
02 -05 06 -12
Introduction 02 - 06
Total Time 16-46
Time….
If R&D is substantial, add at least 12-24 months 2 ½ years is reasonable
18 months is very fast schedule 5 years Industrial product
Products Requiring Major Break through : Many years Xerox → 15 years
Penicillin → 15 years
TV → 55 years
Risk of NPD
Risk:
Probability of successful design : Pd (50 %)
Pr of successful test market, given design = PTM (45 %)
Pr of Market success, given successful TM = PM (70 %)
Over all success = Pd · PTM · PM = 16 % (consumer product)
= 27 % (for industrial product)
Risk starts from very beginning of PD.
Careful management is essential
One is every 6 consumer products only succeed
