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New Products

McGraw-Hill/Irwin

Copyright 2005 by The McGraw-Hill Companies, Inc. All rights reserved.

Considerations in Adding
or Dropping a Variant
Adding

Dropping

Customer based
New customer attracted
Old customer
cannibalization
Confusion and dilution of
brand equity

Old customers lost

Customer switching
Signal of weakness

Operations based
Loss of economies of scale
Problems in gaining
additional distribution
Additional servicing needs

Impaired efficiency
Maintaining distribution
Servicing old versions

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Product Stages
1.
2.
3.
4.
5.
6.
7.
8.

Idea generation
Concept development
Feasibility screening
Concept testing
Product development
Product testing
Market testing
Go-no-go decision

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Assessing the Impact of Product

Redesign on Customers
Current Customers
1. Loyal

Response Impact on
Reaction after Trial Sales/Profits
A. Try

1) Prefer
2) Like
3) Not like

B. Not try
2. Occasional

A. Try

Loss
1) Prefer
2) Like
3) Not like

B. Not try
3. Noncustomers

A. Try

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Gain
Trail sales gain
Loss
Loss

1) Prefer
2) Like
3) Not Like

B. Not try

Gain
Neutral
Loss

Gain
Trail sales gain
Trail sales gain
Neutral

Proactive Idea Generation

1.
2.
3.
4.
5.

Customer analysis
Competitor analysis
Active search
Category analysis
Brainstorming

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Reactive Idea Sources

1.
2.
3.
4.
5.
6.
7.
8.

Customers
Employees
Suppliers
Distribution channels
Operations people
Internal and External R&D
Design
Entrepreneurs
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Common Formal Tests

Concept testing
Surveys
Focus groups
Demonstrations

Product testing
Product tests
Discrimination and preference testing

Market tests

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Decisions for a Market Test

Action standards
Where to test markets
What to do
How long
Cost
Information gathering

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Keys to Eventual Sales

1. Awareness
2. The eventual proportion of consumers
who try the product (trial).
3. The proportion of triers who remain with
the brand (repeat).
4. The usage rate of the product category
among eventual users.

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30 40

Ultimate penetration level (45%)

10 20

Penetration (percent)

Typical Penetration for New Brand Over Time

Period
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Typical Repeat Rate for New Brand Over Time

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Repeat Rates and Product Performance

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Really New Products

1. Create or expand a new category, thereby
making cross-category competition the key
2. Are new to customers for whom substantial
learning is often required
3. Raise broad issues such as the appropriate
channels of distribution and organizational
responsibility
4. Create (sometimes) a need for infrastructure,
software, and add-ons

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Examples of Really New Products

Packaged Goods

Bottled tea
Light beer
Frozen vegetables
Sports drinks (Gatorade)

Services

Overnight air delivery

ATMs
Credit cards
IRAs, annuities
Internet
Priceline.com
Ariba
LivePerson.com

Durables

Microwave ovens
Room air conditioners
Dishwashers
Black-and-white TVs

Industrial
products

Nylon
Semiconductors
Nuclear power reactors
Printing presses
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Getting Ideas for Really New Products

1. Asking (or listening to) dissatisfied customers
2. Asking nonrepresentative customers
3. Using open-ended, qualitative (vs. structured
survey) procedures
4. Involving customers as co-developers
5. Listening to scientists and newcomers rather
than engineers and experts
6. Scanning the literature for interesting
possibilities

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Evaluating Really New Products

1.
2.
3.
4.
5.
6.

Relative advantage
Compatibility
Risk
Complexity
Observability/communicability
Trialability/divisibility

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Evaluating New Products

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Evaluation Criteria for New Products

Customer Level
1.
2.
3.
4.

Do customers like it?

Is it unique?
Will they buy it?
How soon/fast will they buy it?

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Evaluation Criteria for New Products (cont.)

Firm Level
1. Does it add to our customer base through

Acquisition?
Expansion?
Loyalty/retention?
Enhanced brand equity?

2. Does it detract from our customer base through

Cannibalization?
Customer defections?
Lowered brand equity?

3. Do we have the capabilities to

Develop it?
Produce it?
Distribute and sell it?
Buy or partner to do a-c?
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Evaluation Criteria for New Products (cont.)

Firm Level
4. Will it be profitable

On a stand-alone basis?
Long-run impact on produce line?

5. Are there other benefits associated with it

Learning/capacity enhancement?
PR?

6. Are there other costs associated with it

Legal liability?
PR?

7. Can we control the market in the long run?

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