New product development (NPD)
Category: Marketing
Of new product ideas, you might confidently say «There’s one born every minute». It could even be an underestimate! But the question that begs to be asked is: «How many will survive, and why»
NPD is a modem science with a nineteenth century tone. Its aim, in Herbert Spencer’s expression, is «the survival of the fittest». So what makes a «fit ‘ new product? What in built advantages does it have over its siblings which enables it to succeed, and they not?
Davidson (1987) provides a useful insight into the reasons why some new products succeed, and the majority fail. Davidson provides an analysis of fifty successful and fifty unsuccessful new products in the UK market since 1960. Davidson’s analysis shows significant price or performance advantage as crucial (see Table below).
Price and Performance Advantage: New Product Launches
| 50 New Product Successes | 50 New
Product Failures |
|
| Significantly better performance, higher price | 44 | 8 |
| Marginally better performance, higher price | 6 | 12 |
| Better performance, same price | 24 | 0 |
| Same performance, lower price | 8 | 0 |
| Same performance, same price | 16 | 30 |
| Same performance higher price | 2 | 30 |
| Worse performance, same or higher price | 0 | 20 |
Note: In Davidson’s study, performance was, as far as possible, evaluated by blind product tests among target consumer groups
An analysis of the above table shows that 80% of the failures had nothing to distinguish them from the brands already on the market, and 74% of the successes were exactly opposite. The 20% of failures with good product performance are interesting. Davidson explains their demise by their high prices, their promotional failings, or the «insubstantial» nature of the segment at which they were targeted. (Remember the three criteria for good segmentation!)
The theme of differential advantage in NPD success is echoed by the work of Cooper. He emphasises three composite factors as dominating new product success:
Product — having a product with a differential advantage in the eyes of the consumer.
Market — obtaining a sound knowledge of the marketplace and customer, together with proficiently carrying out the market research and launch studies.
Technical production — having synergy between project and firm in terms of production and technical resources, and well executed technical and production activities.
Balance both in strategies and in resources is therefore a requisite. Take any one of the three elements out and the resultant imbalance results in a reduction of chance of success. Cooper’s empirical studies on 200 new products demonstrate a systematic relationship for those low on all three factors (7% successes) to those high on all three (90% successes).
A similar composite picture of success factors in NPD for export markets is provided by Lamont (1992). Here, the major success determinants for new products were as follows:
Having a distinct product differential advantage.
Having a strong marketing orientation in the structure of the NPD process.
Selecting attractive, growing, substantial segments.
Superior performance in market related NPD activities.
Having a distinct international focus in the NPD process.
These studies, and many others, show that successful NPD is a very difficult component of marketing and a very high-risk one. Which begs the question «If it is so risky, why engage in it at all?»
Oliver, G (1990) provides a useful summary of the three major pressures which impel companies to embark upon NPD:
Changes in the firm’s external environment.
Changes in the firm’s internal environment.
Changes in the firm’s goals or corporate objectives.
These are detailed in the table below.
| Changes in External | Changes in Internal | Changes in Company |
| Environment | Environment | Goals |
| Societal values/ | Ownership/ | Reviews of past |
| expectations | management | performance in |
| meeting goals | ||
| Consumers: | Resources and | |
| atincome effects | competences: | |
| atFashion/Taste | tt cost effects | |
| ttDemographic effects | tt manufacturing ability | |
| Competitors: | tt marketing ability | New goals |
| atAttacks with new | atR & D ability | |
| products | ||
| atRepositioning | ||
| Technology: | ||
| atProduct obsolescence | ||
| atNew opportunities |
Given that NPD is risky, and expensive, firms must therefore engage in some form of structured approach to NPD, in order to improve the chances of new product success.