Importance of Developing New Products - Report Example

New Product Development Answers to the short questions Calculate the cost of each of the five stages of product development incurred by the company? Stage Number of ideas Cost/product idea Cost of each stage Pass rate Idea screening 32 1 32 1 in 4 Concept testing 8 10 80 1 in 2 Product development 4 100 400 1 in 2 Test marketing 2 250 500 1 in 2 National launch 1 2500 2500 1 in 1 2. How many products pass the concept testing stage? 4 3. What was the total cost to the company of the first two stages of the product development? 32 + 80 = 112 4. What was the total cost of developing one successful product through the five stages? 32 +80+400+ 500+2500 = 3612 Importance of companies to develop new products “The key to corporate prosperity, New Product Development is one of the riskiest, yet most important, endeavors of the modern corporation” (Cooper, 2001, p.4) It is difficult for the current organizations to compete effectively in the market with conventional products. For example, ordinary mobile phones with basic calling facilities may not move properly in the current market whereas modern mobile phones with advanced facilities like, internet surfing touch screen facilities, video recording etc are moving rapidly in the market. In short, new product development is an essential strategy for organizations for sustaining growth. New products which take the form of new applications, new innovations, or entirely new goods, are an essential component of business success. Innovate or die" is the slogan for small and large businesses as increasingly savvy consumers demand the newest and the best products (PRODUCT DEVELOPMENT, 2009). Even the business giant Microsoft who monopolized the operating system market in the world, developed their new product Windows 7 recently even though competition is negligible for them. Microsoft controls more than 90% of the operating system market in the world; still develops new products time to time in order to cater the needs of the changing life styles of people. An industry where substantial research and development of new products going on Cell phone industry is one of the major industries where substantial research and development of new products are going on. Earlier mobile phones were big in size used for the talking purpose alone. But the current mobile phones are small in size with many features such as internet surfing, video recording, etc apart from the usual features. Each mobile manufacturing company is introducing new products periodically in order to compete effectively in the market. When Apple introduced iphone, Nokia countered it with the help of their N 90 series. Moreover mobile phone companies are trying to innovate new products which may come close to a lap top or palm top as far as utility is concerned. Same way in most of the business segments, competitions based on new product development is going on. Identification of the need of a new product by a firm The need for a new product usually arises when old product selling becomes decreased and other innovative and competitive products of similar type enter the market. For example, the entry of tape recorders forced the radio manufacturers to innovate new products which can be utilized both as a radio and a tape recorder. Same way when CD players entered the market, most of the tape record manufacturers stopped that business and entered the CD player manufacturing business. Currently ipods are slowly getting popularity and even the CD players may vanish from the business world in near future itself. From the above examples, it is clear that as technology advances, the need or demand for the new products also increases. Changing life styles is another reason for the development of new products. Earlier people walked lot of distances in order to reach a destination. Then when bicycles entered the scenes, people started to use it for long distance journey. The arrival of motor vehicle again changed the life styles of the people. The invention of petrol and diesel engine resulted in the making of passenger vehicles. Technological developments helped people to become richer through industrial and agricultural revolutions. The richness made lot of changes in the life styles of people and they started to search for new products which may provide them more luxury and convenience. When opportunities decreases, organizations need new products to increase it. For example, it is impossible for even the market leaders to sell a conventional mobile phone at present. In other words the demand for a conventional mobile phone has weakened which forced the mobile phone manufacturers to innovate new products to get the attention of the public. New products decide the future of a company. Pauwels et al, (2004) have mentioned that new product introductions increase long-term financial performance and firm value. Moreover, investor reaction to new product introduction grows over time and the product entry in a new market yields the highest top-line, bottom-line and stock market benefits (Pauwels et al, 2004, p.2) Stages of product life cycle All the products which enters the market goes though four different periods; introduction, growth, maturity and decline. The introduction of the product should be carefully formulated. It should be with the help of adequate advertisings and promotional strategies. If the introduction was not good, the product may not move well in the market. During the growth stage, product developers concentrate more on the development of branding and adjustments in prices in order to make it more attractive to the customers. During the maturity period, the sales of the product stabilize and almost constant sales figures will be recorded. Decline is the stage during which the sales started to decrease. The life of a product in the market begins with the introduction and decline period warns the product developers that the end of the product is near. A product can be compared to the life of a human. Human have a birth and rapid growth during the initial period of childhood and adolescent period. After the adolescent period, children become matured and when their health condition started to weak, it represent that the end is near. Same way new products also goes through all these stages Purpose of product life cycle analysis Product life cycle analysis helps the product developers in formulating their business strategies. When the product approaches the maturity stage, the developers will realize that the scope for further improvement in sales may be less and the end of the product is near. During that stage, the developers think of developing new products or modifying come characteristics of the existing product to make it new. Thus product life cycle analysis help the product developers in determining how much more time left for the product in the market and to formulate strategies. Ways of extending product life and the maturity Upgrading of the product is one of the most common strategies adopted by organizations in extending the life of a product. Upgrading is done with the addition of certain characteristics to the existing product. For example, when the conventional mobile phone sales decreased in the market, manufacturers started to incorporate additional facilities like, camera, video recording etc to the existing product in order to make it new. Discounted prices, increased advertisements, accessing of other markets etc are some of the other strategies adopted by the product manufacturers when the sales decreases. For example, Toyota has introduced their Qualis vehicle in Indian market when all the other markets closed doors for Qualis. Thus the company succeeded in extending the life of Qualis for another decade more. Reasons for the failures of new products “One study reveals that for every seven new product ideas, about 4 enter development, 1.5 are launched, and only one succeeds”(Cooper, 2001, p.11). The major reasons for the failures of new products in the market are lack of planning, lack of the competences of the team of people working on the development of the new product, errors in judgement about the possibilities of the new products in the market, less supervisions, less promotional activities, inferior quality of the product, lack of communications and discussions between the teams involved in the new product development, heavy pricing etc are the major reasons for the failures of new products which enters the market. If the new product development team fail to read the market trends properly, it is difficult for the new product to succeed in the market. For example, Indian business tycoon TATA motors recently developed world’s cheapest car priced around $ 2000 only. Even though this car initially attracted many, the product failed to sustain its demand. Heavy pricing is another major reason for the failures for the new products developed. Customers will always compare and the features and prices of the new products developed with other similar products and then only they will take the purchasing decisions. For example, Apple has recently introduced touch screen phone in the market. Many people stay away from it because of the heavy price. At the same time Nokia and Samsung introduced similar products with cheaper prices and people rush towards them leaving apple far behind. Beta testing is conducted by many new product developers in order to test the product in the real market conditions. The feedbacks obtained though beta testing is utilized for fine tuning the features of the final product. If beta testing is not conducted properly, the final product would fail in the market. For example, Windows Vista when introduced in the market, many complaints were reported. Microsoft has corrected all such mistakes in their new product Windows 7 It is not necessary that all the products which enter the market are new ones. Some may be new to the market and the company, while the others are completely new and will create totally new markets. When we analyze deeply we can see that some new product concepts are merely minor modifications of existing products even though they claimed to be new products. Such products will fail in the market as the customers are intelligent enough to recognize it. Patents and advantages of holding a patent “Patent, is a legal document granted by the government giving an inventor the exclusive right to make, use, and sell an invention for a specified number of years. Patents are also available for significant improvements on previously invented items” (Bhatt, n. d). Patents encourage inventors in protecting their rights. Patents help them to keep their control over their invention for a substantial period of time. They will get benefits when others seek permission from them for using their patented products. Patent helps an organization or an individual in conserving their core technology from theft. Patents can improve the image of an organization. According to a 2005 Businessweek article, Use Patents to Your Advantage patent would provide more value to business strategy than a trade secret or even public disclosure. For example, the process for making a unique alloy for cymbals has remained a Zildjian family secret since the early 1600s (BusinessWeek, 2005) References 1. Bhatt Jayant (n. d), What is patent?, Retrieved on 05 may 2010 from http://www.legalserviceindia.com/articles/ptwy.htm 2. BusinessWeek, (2005), Use Patents to Your Advantage, Retrieved on 05 may 2010 from http://www.businessweek.com/smallbiz/tips/archives/2005/10/use_patents_to.html 3. Cooper Robert G.(2001), Winning at New Products: Accelerating the Process from Idea to Launch, Third Edition, Publisher: Basic Books; 3rd edition June 5, 2001. 4. PRODUCT DEVELOPMENT (2009), Retrieved on 05 may 2010 from http://www.referenceforbusiness.com/small/Op-Qu/Product-Development.html 5. Pauwels Koen, Silva-Risso Jorge, Srinivasan Shuba & Hanssens Dominique M. (2004) New Products, Sales Promotions and Firm Value, With Application to the Automobile Industry, Retrieved on 05 may 2010 from http://www.anderson.ucla.edu/faculty/dominique.hanssens/content/npi030922.pdf Read More