The New Product Development Processes

This paper focuses on New Product Development processes which show a high failure rate that has compelled businesses to rethink over their modus operandi towards NPD by emphasizing on upfront marketing and commercialization. Unfortunately, there are no hard and fast rules so far discovered for successful commercialization and marketing practices in order to achieve a sustained competitive advantage. This has lead companies to adopt a more customer oriented approach where previously unheard voice of the customer is now taken into consideration. Companies should seek feasibility of their products or services first and think of commercialization later. While launching new products level and form of innovation that a particular market could absorb should be determined first and then new product or services should be launched accordingly. Once the success formula is acquired then the company can further capitalize on the existing products goodwill and launch new improvements in the form of line extensions and brand extensions. Apples frequent usage of its brand name (i) as in iPod, iMac and iPhone as well as in many other new products symbolizes the company’s intentions. It has been observed that other than costs many products fail because of a universal but largely ignored psychological prejudice, as consumer resist any distortion in their current-state-of-affairs. This occurs mainly due to nostalgic fondness or brand loyalty created over the years. The loyalty may arise due to emotional, price, incentives and monopolistic factors. However, shrewd companies like Apple devises strategies like planned obsolescence where a customer is forced to switch to the newer or improved versions of the product so as to stay cool and control of the world around him. Companies must also realize the fact that new approaches to marketing, commercialization and NPD are prerequisite for maintaining market leadership. In such a case companies must strive hard and use concurrent engineering process so as to attain first mover advantage to the market and beat the competition with speed, quality and price.

Keywords: Job based segmentation approach, Product associations, competitive advantage, first mover advantage, network externalities, and brand loyalty, line or brand extensions, Planned obsolescence, critical mass, & Voice of customer

Introduction

According to Gourville (2006) new product failures show that new products fail at a dramatic rate of between 40% and 90% depending on the product category. The commercialization and marketing stages come in the later stages of New Product Development processes; however, they play a pivotal role in the new product success. As a consequence there is greater focus on commercialization and marketing issues up front than ever realized before. That is why companies are now taking into consideration a more detailed job based segmentation approach. Because sometimes the consumer cannot precisely express why he or she buys a certain product as they use these products for getting done various jobs in various situations. Consumers follow a six step process in order to completely adopt innovative products. However, these steps may vary and overlap each other due to level of consumers brand loyalty, transactions costs, learning costs, obsolescence costs and network externalities. Another important factor is that consumers over the years develop associations (brand loyalty) with existing products or services. Therefore they resist any change in the status quo by over valuing the old products too much. On the other hand, companies commercializing new products over estimate their innovative features, design and differentiation. This creates a complex situation where companies need to create awareness about their new products through innovative new product launching campaigns. Companies need to find out the success recipe first and then they should launch their products or services. If the success formula is attained then the company can once and for all use it by launching new and improved versions of the products. Another interesting case in point is that companies also try to influence demand with the practice of planned obsolescence. Meaning that the product or service the company has launched would become out of date after a certain period of time as the company would launch a new improved version to the market for the purpose of repeated business.

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PROBLEM & PURPOSE

A large number of new products fail because the innovators (suppliers) and the end-user do not see and appreciate from the same perspectives on what the product is supposed to do. There is a difference between the buyer and the seller’s thoughts and actions. A company sells their innovative products to consumers for solving a certain problem but consumer lacks awareness about the general usages of the product. Therefore voice of the customer should be taken into consideration while embarking on a new product development process. However, once the right combination of people, resources and process is attained in the launch of a really hit product and the success formula is revealed it becomes easy launch even more success stories in the form of new products or services.

RQ: To analyze the high rate of new product success on a companies like Apple vis-à-vis a higher than normal rate of failures in other firms.

The purpose of the study is to find out ways and means that would help managers in matching their products with their customers. This is in line with basic marketing principle which stresses that the wants needs and demands of the customer should be taken into consideration first and then a product or service should be commercialized so as to satisfy the consumer better than the competitors. However, in practice this is the other way around especially companies coming up really innovative products face difficulty in testing their products on the market as the demand is latent and consumer needs are not clear. The consumer needs to be educated first about the concept and how the product will revolutionalize the way consumers do things currently. Specifically, main purpose of the article is to find out the success recipe for New Product Development and how companies like Apple, Sony, Philips, and Dell make good advantage of the success recipe.

METHOD

Limited duration for writing a scientific article reduced many options of finding out relevant information. Therefore the author has incorporated desk data heavily. To be able to get a thorough understanding of the topic under study the researcher took into consideration many scientific journals, articles, reviews and the World Wide Web.

The article is organized as follows. Initially, the author consulted course literature and several articles for understanding the New Product Development Process. Then afterwards six other articles given in Commercialization module of our course were studied which were then incorporated in a detailed frame of reference. Then for empirical evidence Apples marketing and commercialization practices over the years were studied in relation to earlier developed frame of reference. After comparing the company’s practices with the standard practices in analysis section conclusions were drawn.

LITERATURE REVIEW

According to Song and Montoya (1998) new product development is a high risk proposition for firms to start as it involves high level of risk in targeting a budding market segment where customer wants are hidden and service or product requirements are implicit. On the other hand, new products often create considerable opportunities for firms to differentiate their offering (product or service) and helps in attaining a lead from competitors through differentiation. This lead can be termed competitive advantage (ibid).

Steven, Wheelwright and Sasser (1989) proclaim that a successful new product launch creates industry wise unique standards, which may become barriers of entry for new firms trying to penetrate. It also helps in refreshing the minds of the engineering personnel; sales force and give them a sense of accomplishment. It also provides opportunity for corporate renewal and redirection to the firm for its long run planning (Steven et al. 1989).

A study of the US market conducted by John and Gourville (2006) reveals that nearly 30,000 products are introduced yearly in the packaged goods industry. Almost 70 to 90 among these percent fail to occupy store shelves for more than a year. Another study, shows that almost 47 % of the companies who enjoyed first mover advantage by commercializing before others in a particular line of business had failed, meaning that firms that introduced new product categories left pursuing those modern ideas (John & Gourville, 2006). One prime example where innovator who was out run by followers is RC Cola, a small who first commercialized cola in a can, as well as the first mover to launch diet coke. Coke and Pepsi entered the market immediately depriving RC Cola of any significant gains from its innovation (Teece, 1986). Similarly, Bowmar the inventor of pocket calculator lost market share to Texas Instruments and Hewlett Packard. Xerox office computers failed to gain any significant economic returns as market share went to Apple Macintosh which had similar features like mouse and the icons (ibid). Steven et al. (1957) makes an interesting analogy to compare a new generation of products and a journey into an uninhabited area. No one can fathom going out without a blueprint for guidance. Homewood, Illinois and Irwin (1957) calls NPD as a process of reducing uncertainty in the minds of managers. As a matter of fact the level of uncertainty associated with new product development process depends on the degree of innovativeness of the offering. This view is in conformance with the information processing theory that as the degree of unpredictability and uncertainty enhances, there is more need for information coordination. According to Bonabeau et al. (2008) companies normally view NPD as a process of total uniformity, but it can be divided into two separate stages. Pre-Launch and post launch. They refer to pre-launch stage as truth seeking stage, focusing on assessing the innovative products or services potential and removing the irrelevant or non functional parts. In the early stages the product designs are fluid and firms compete on the basis of designs until the emergence of dominant design such as Model T Ford, IBM 360 and Douglas DC-3 in automobile, computer and aircraft industries respectively (Teece, 1986) and these firms with dominant designs survive others normally disappear after this shakeout stage (Mueller, 1997).

According to the article by Christensen, (2007) most firms segment their target market by population characteristics or their product attributes and try to create differentiation with added features and functions. However, the customer simply wants to just carry out a job by hiring a specific solution in the shape of some product or service. The “job”, is an unsatisfied state of consumer need which he or she wants to satisfy by hiring a certain product and these jobs may vary from situation to situation (ibid). According to Peter Drucker cited in Clayton et al. (2007) the author proclaims, “The customer rarely buys what the business thinks it sells him.” Firms many a times find to their amusement that customers are using their products for getting done tasks other than the firm intended to serve. The basic marketing literature indicates that general stages for new product development consist of idea generation, idea screening, and concept development. Afterwards, a marketing strategy is developed leading to business analysis and test marketing before full fledge launching (Jobber, 2009). In this domain Cooper, (1993) in his identified five additional steps NPD process such as preliminary technical and business assessment, alpha tests, beta tests, final business plan and production ramp up. These stages are sequential just like a rally race; however, in a dynamic industry companies are using concurrent engineering which is similar to rugby game where the moves forth at back as many firms have more than one new product under development (Cooper, 1996) and many companies in Japan and US have also adopted the same holistic approach as mentioned in the rugby game (Takeuchi & Nonaka, 1986). Lieberman and Montgomery (2002) states that that firms entering the market first are known as market pioneers. The competencies and skills of these pioneers mainly depend on better product or process development, marketing research and technology. With the passage of time if the firm relentlessly preserves these competencies by making them an integral part of the corporate culture, then the probability of investments in new product development activities is high and the firm would stress on major breakthrough innovations. Whereas, Henderson, (1993) argues that competitive advantage is a function of predictably predictable activities, such as capitalizing on historic research and development capabilities as in such a situation small incremental innovations would mainly take place like better or improved version of products or simply brand extensions. FRAMEWORK KE LIYE BAAT BANAO According to Schnaars (1994) late entrants can also overtake the first mover. The late comer may use superior placement, aggressive promotions, or may even engage in a price war. Therefore these late entrants stress on non-product competition, that’s why do not invest heavily in research and development and mostly comes up with imitative products mainly through the concept of reverse engineering. The model proposed by Shrivastava and Sounder, named as 7s framework was used by Johne & et al.() coupled with another framework by Griffin & Hauser and some previous research done by Cooper reveals that a company’s performance as a whole relies on the processes, organization, strategy, culture and commitment. In their research process refers to a companywide approach to new product development processes and the activities carried out under this banner. Organization means the manner in which the projects within a program are organized ranging from a cross- functional approach where personnel from functional departments like Marketing, Human resource, finance, R&D are taken in the NPD process. Strategy refers to the overall new product strategy of the company as an essential part of the total corporate strategy. Culture means the inside environment for innovation where intrapreneurship is encouraged as part of the company’s culture. Finally, commitment from top management with positive involvement in the new product development process is also a prerequisite. According to the article by Steven C. Wheelwright & W. Earl Sasser Jr (1989), p.113 managers tend to see new product launching as a golden opportunity to steal a lead from competitors. However, quite often the much anticipated success is not achieved in reality.

Some pitfalls of the NPD process as pinpointed by Steven et al, (1989) are moving target, lack of product distinctiveness, unexpected technical problems, and mismatches between functional departments. Better planning leads to efficient courses of action and the likelihood of success is increased (ibid). From a marketing orientation viewpoint, there are five competing concepts under which organizations conduct marketing activities namely, “production concept, product concept, selling concept, marketing concept, and societal marketing concept, and holistic marketing concept” (Kotler, 2000). The holistic marketing concept is emerging as new concept which takes into consideration almost all the previous concepts. However, generally majority of the businesses are driven by a product oriented strategy.

Normally organizations try to launch superior products or services and improve their quality gradually, making implicit assumption that the customer is knowledgeable and differentiates between quality and ordinary products. This is even true for companies like GM where a top notch executive once said many years ago, “How can the public know what kind of car they want until they see what is available?”

This notion was also common place in the history where phrases like “Good wine needs no bush” were used meaning that a good product does not require any promotion. This theme generated here goes in conformance with Kotler and Armstrong, (2001) where companies try to come up with a better “mousetrap” are wonderstruck to reveal that consumer are not necessarily looking for a better mousetrap but for a better solution to the mouse problem. In an ideal situation where other things remain the same, normally consumer follow steps such as seeking awareness about a product or services, then comprehending the information, afterwards they form a positive or negative attitude about the product. If they value it positively the start considering it legitimate to use the product, then the customers uses the products or services on a trial basis so as to check efficiency of the product. If the product matches expectations they adopt it (Stanton & Kotler 2000). According to (Schiffman et al. 2009) cited in (Tariq & Ghaffar, 2010) diffusion is a macro process encompassing the spread of a new innovation from its creator to the general masses. Whereas, adoption is a micro process which is concerned with the steps through which a customer passes when accepting or rejecting a new innovation. Everrett M. Rogers, (1967) has proposed a six step profile of consumer innovators stretching from innovators to laggards. Innovators are the pioneers of adopting a new technology and laggards are the last ones. These six steps as shown in the Figure (2-15) are innovators 2.5%, early adopters 13.5%, early majority 34%, late majority 34%, and at the end laggards which constitute 16% of the population (ibid). Schiffman et al. (2009), stresses that time is the backbone of diffusion process as it determines the rate of adoption of new product (s) or service (s).

Source: (adopted from Everrett M. Roger, 1967)

In the case of Apple Family consumers who purchased MP3 can be termed innovators. Afterwards early adopters bought the first iPod. Early majority purchased the second and third models of iPod. We can say that Late Majority purchase models which came after third iPod. Finally, laggards or hard core loyal would normally buy a used or cheaper version of iPod.

The relationship marketing ladder of loyalty

Source: Christopher, Payne and Balantyne (2002)

As evident from the above process the consumer behavior can also be traced by a careful examination of the customer buying and usage behavior. So to speak consumers often need to modify their behavior for new products. Mueller, (1997) states that companies are well aware that such a change is not easy as it involves learning costs, planned obsolescence, switching costs, network externalities and so on. For instance, cost of learning by changing from PC to Macintosh operating system. The planned obsolescence is a deliberate ploy such as fashion and fads (Armstrong & Kotler, 2007). Similarly, switching costs are incurred when consumers switch from compact disc to DVD players, their previous CD collection becomes obsolete. Finally, the value of mobile or a telephone service increases with the rise in number of connections and so does is the case with credit cards whose utility increases with the number of shops accepting them. These products are characterized by a phenomenon known as network externalities (Muller, 1997).

However, according to John T. Gourville (2006) there are also psychological costs associated with the change in behavior. This phenomena is termed as psychological prejudice as people tend to overestimate the advantages of products they own vis-à-vis to the new products. Whereas, companies tend to overestimate the value of their new products launched on the market. Here disharmony is created in the perspectives of the both parties. That’s why consumers first simply refuse new offer in the first choice, whereas, the company is expecting success. So this is termed as a double-edged sword. Generally, companies should think from the perspective of customers. The Commercialization Process Model developed by Dr. Randall Goldsmith and the Mid-Continent Technology Transfer Center defines the process of bringing a product from the idea stage to a full-fledged manufacturing company. The Model breaks the process down into three categories: technical, marketing, and business.. There are important steps and crucial activities within the three phases. The matrix explains in detail how these variables must work with each other for a successful new product development.

Figure: The commercialization Process Model

(Source: Mid-Continent Technology Transfer Center)

REAL TIME CASE: APPLE

Due to the strong marketing focus Apples has been very successful in creating a very loyal customer base that think, live and act in a different way. In the year 1998 Apple was born again when Steve Jobs launched the iMac. This new computer comes with a complete collection of software’s and new operating system called MAC OS X. It was a success. Then after Apple launched its iBook (laptop). However the home run was scored by the introduction of iPod in the year 2001 grabbing more than 70 percent of market share in the US. Furthermore, Apple made a deal with Intel to become compatible with Microsoft Windows. Since then, iPod is enjoying market leadership in the domain of competition.

Ever since its inception, Apple has remained busy with developing more than one product at a time. In retrospect we find that in the year 1984, Apple commercialized two products namely Apple C and Macintosh, in 1986 it launched Apple llgs and Macintosh Plus, 1987 it launched Macintosh II and Macintosh SE. In 1989 it commercialized three computers namely Macintosh Portable, Macintosh IIlci and Macintosh IIfx. In the year 1990 it launched another three computer models Macintosh Classic, Macintosh IIlsi and Macintosh LC. Similarly in the year 1993 Apples commercialized seven products namely Color Classic, Quadra 800, Macintosh centris, Macintosh LCIII, Power book 180c and Macintosh LC 475. In the year 2001 Apple again launched three products namely Power Macintosh Quick silver, iMac Patterns its home run product under the name of iPod first generation. In the year 2004 Apple commercialized four products namely xServe G5, iMac G5, iPod click wheel and iPod Mini and in the year 2005 again Apple launched four successful products namely, iPod shuffle, iPod Nano, Video iPod, and Mac Mini. In the year 2006 again four successful products namely iPod shuffle, iPod Nano, iMac slimmer Intel and Mac Pro. As we all know that in the year 2007 Apple scored a home run by launching its premier iPhone. By analyzing the above trends in NPD and commercialization it can easily deduce that Apple is constantly churning out new innovative products at unprecedented rate. This is mainly due to the fact that at Apple is using concurrent engineering philosophy to good effect. As earlier on stated in such a process the product under development may lie in more than one stage of development and thus we can also deduce that Apple is following a rugby approach to new product development which can go back as well as in forward direction simultaneously. These factors have enabled Apple in terms of speed, accuracy, and quality.

Similarly, referring to Lieberman and Montgomery (2002) we can interpret that Apple has invested heavily in new product development process and therefore attained the status of market pioneer. This was especially true for Apple a couple of decades ago as well as today. Because with the advent of iPod first generation in 2001, on the market it revolutionalize the electronics industry and had a major impact on competitors. Ever since, Apple has successfully launched several other line extensions of the older version with small incremental improvements. For example in the year 2003 Apple launched iPod 3rd Generation and in the subsequent year 2004 it launched two more extensions of the products namely iPod

Mini and iPod click Wheel. Again in the year 2005 Apple came up with some improved products in the form of iPod Shuffle, Nano and Video iPod. And finally in the year 2007 iPhone was launched under the same brand umbrella term (i). Therefore the view point of Henderson, (1993) who states that gaining competitive advantage is a function of predictably predictable activities within the firm. Thus we see small incremental changes in Apple product line as well as the view point of Lieberman and Montgomery is best exemplified by Apple launch of iPhone in the year 2007. If we consider the case of NeXT, a desktop computer developed by Steve Jobs, the legendary founder of Apple, Customers did not want the optical drive instead of the floppy drive. Because the new feature makes it difficult for end-users to switch work from a personal computer to a NeXT. The machine enjoyed other superior features like hi-fi sound; end-users never look beyond the initial resistance. Many people found it far too expensive, while engineers reckoned workstations with superior value.

Therefore, Steve Jobs has to abandon the 200 million dollars product. Here it is suggested that if Steve has listened to the customer voice he could have been successful, because in this scenario customers were expecting an incremental innovation. However, for almost thirty long years Apple has remain the trend setter to foresee and foretell the future of the domestic computers. The balance of probability is high that it would continue to lead the way. The success recipe came to Apple in the form of iPod, and even Apple personal computers sales started going up because of this hit product. Apple has been very clever in its ploy of planned obsolescence as it is launching iPod after iPod and that too with new improvements. The new improved product has the cool feeling assorted around it. Therefore it is compelling customers to engage in repeat purchase, which serves the long term purpose of the company. Thanks to planned obsolescence. Another very interesting case in point relating to Apple is launch and commercialization of Apple Macintosh personal computers line. The new Apple Mac customers encounter mistakes while using Mac because it doesn’t work the same way it would be expected to on a Windows computer? Simply the Windows users follow and expect everything to word the same way as in Windows. And on the other hand Macintosh users see and expect their Macs to work in its original way (Macintosh way). There are substantial commonalities between Apple and Windows operating systems, but there are some differences which I am reckoned worth mentioning. The number of mistakes lie somewhere in the neighborhood of 25 to 30. However, I am listing down the five most common mistakes of new users of Mac OS X as pointed out by Damien Barrett (2006). (1) They close an application’s windows thinking the program has quit. (2) They’ll download Firefox and then run the browser from the disk image and then not be able to throw away the disk image because the program is still running. See number (1. 3).exe files lie scattered around the desktop from aborted downloads of Flash Player or some screensaver-cursor-spyware doodad. (3) Untitled folder. Untitled folder 2. Untitled folder 3. Untitled folder 4… (4) Using Safari’s Google search field to get to hotmail.com. (5). Desktop Picture or Wallpaper is not a synonym for Screensaver. However, majority of these problems are not problems.Simply they relate to the differences in Windows way of doing things and the Mac way of doing things. Consumers can be taught by programmers so as to educate them about it. In this regard Apple should make some changes in its Mac operating systems as well as its hard ware. These issues could also be addressed in advertising, so as to remind consumers that Macs are not going to work the way Windows computer does so that they may capitalize in totality what Apple is offering. An interesting case in point is that in the year 1985, Bill Gates was literally begging Apple CEO Steve Jobs to license his Mac operating system to Personal computer vendors. Apple did not agree and later on Bill Gates came up with a stone crushing reply and now the situation is that Apple has only 4 percent of market share in PC business. However, this time around the buzz is related to digital music, encompassing iPod music player and its iTunes made it cheaper and convenient to download songs at a rate of 99 cents only. But the irony is that Apples iPod music player only plays songs in the company’s “FairPlay” digital rights management (DRM) format and songs downloaded from iTunes play only on iPod.

For example, a customer who gets a song downloaded from Apples iTunes and wants to play it on his or her real player would be highly disappointed (www.macnewsworld.com). On the other hand an iPod owner is left limited to get music from iTunes, even though there are many other services on the Web, such as Napster and Real Networks. But the customer can’t help the situation. Apple must hear the voice of the customer otherwise the customer is unhappy which isn’t what a company as innovative as Apple would like.

CONCLUSION

The new product development activities differ from company to company especially in stages of commercialization and marketing. Often times the companies overvalue their new product quality, features and adoptability, whereas the consumers are reluctant to switch the existing products thus showing a high level of brand loyalty. This is mainly due to the fact that switching entails costs which can take many forms. Also important is the fact that consumers develop nostalgic fondness with products therefore not ready to accept innovation. Means that consumers form associations with certain products and therefore become reluctant to other alternatives because of their habits. Then the sequential new product process is seldom followed in true letter and spirit. Because big companies like Apple are continuously developing three to four products in pipeline. This practice is also done at Apple with its concurrent engineering. Companies should bear in mind that apart from internal sources of innovation there is a much neglected and overlooked source of new product development i.e. the voice of the customer. It has to be taken into consideration. Because by design or by default it’s the basic purpose of marketing i.e. matching products with customers. It’s good to have a visionary and charismatic leader like Steve Jobs and Henry Ford. However, these leaders should not impose their own prerogatives. In Apple case it lost market share to Microsoft in past because of the rigidity of then CEO Steve Jobs. Similarly, Mr. Henry Ford was also fond of influencing the new product development process. Someone asked him in how many colors do you produce cars. He replied cars in all colors as long as the color is black. Some of the top notch companies make silly blunders as they do not do proper research before they commercialize their products. They misunderstand between needs, wants and demands. For examples a person who goes to office daily may say that I need a car so that he may reach on time. However, the person himself may not know that actually he doesn’t need a car as car is not the basic need. The basic need is transportation and car is a want in terms of marketing. So if consumer is not clear himself about the job he wants to get the product for how can companies doing marketing research for their new product development elicit the right information from consumer. So I reckon it’s better to analyze the market by a job based approach.