1. Lecture 1: New Product Introduction LECTURE OUTLINE Importance of New Product Development New Product Classification Why New Products Fail New Product Development Process Economics of New Product Development Idea Generation

2. New Products 26% 20% 10% 26% 11% 7% New to the world products Addition to existing product line Revisions/ improvements to existing products Repositionings Cost reductions New product lines New to the company New to the market LOW HIGH

3. What It Takes to Launch One “Commercially Successful” New Product 3,000 300 200 100 0 “Raw” unwritten ideas Ideas submitted to firm’s patent department “Small” projects “Significant” developments “Major” developments Commercial “product launches” “Commercially successful” new product 3,000 300 125 94 1.7 1 Time Number of ideas, projects, and products

4. About 80% of New Products Fail Reasons New Products Fail too small a target market or market size overestimated Hasty introduction without adequate information poor product quality bad timing bad execution of the marketing mix

5. New Products from Sony 1950s1960s1970s1980s1990s2000s 2000s: MD Walkman Cyber Shot DVD Handycam 1995: PlayStation video-game system captures 80% of U.S. 32-bit market. 1985: 8mm Handycam arrives. 1979: Walkman revolutionizes personal stereo tape players. 1982: Compact- disc player becomes first digital consumer electronics product 1975: Betamax VCR has initial success but loses out to better-marketed VHS VCRs. 1968: Its Trinitron TV becomes and remains the standard for color TV quality. 1955: First Japanese transistor radio starts its record of successes. 1946: Sony founded in bombed-out store. Its rice cooker never gets to market.

6. Why new product development can be a dice roll: some forecasts “I think there is a world market for maybe five computers.” Thomas Watson chairman of IBM, 1943 “The radio craze will die out in time.” Thomas Edison, 1922 “There is no reason anyone would want a computer in their home.” Ken Olson chairman and founder of Digital Equipment Corp., 1977 “Video won’t be around more than six months; people will soon get tired of staring at a plywood box.” Daryl F. Zanuck president of 20th Century Fox, 1946

7. New Product Development Process IdeaGenerationConceptDevelopment and Testing MarketingStrategyDevelopment IdeaScreening BusinessAnalysis ProductDevelopment MarketTesting Commercialization

8. Estimated Typical Costs of Developing Major New Products Opportunity identification200100 –50010050 –200 Design400200 –1,5001,200500 –5,000 Testing2,0001,000 –6,000600300 –3,000 TOTAL DEVELOPMENT2,6001,300 –8,0001,900850 –8,200 Introduction10,0005,000 –20,0002,5001,000 –10,000 TOTAL INVESTMENT12,6006,300 –28,0004,4001,850 –18,200 TypicalRangeTypicalRange Costs for ConsumerCosts for IndustrialProducts ($000’s)

9. Estimated Time Required for Development Of New consumer Products Opportunity identification54 –8 Design62 –15 Testing Pretest market32 –5 Test market96 –12 Introduction setup42 –6 TOTAL TIME2716 –46 Average Time SpanRange for Majority (Months)of Products

10. Cross-Functional Integration R&D engineering Marketing Finance Production Inventory Sales Forecast Budgets Fund requests Budgets Fund requests Budgets Fund requests Customer needs Product design Design for manufacturing Process needs

11. Idea Generation - Sources Employees/Managers Customers/Lead Users Competitors Distribution / Suppliers Other sources – technology, legal environment

12. Idea Generation - Methods Formal ideal generation – e.g., forms, survey Brainstorming Focus groups Lead user analysis Other creative ways