Hallenges In Newproduct Development

Developing Marketing

To get a feel for how much money can be thrown at a product that is destined to fail, consider the fate of the smokeless cigarette.

.J. By the late 1980s, R. J. Reynolds Tobacco Company (RJR) had already spent more than $300 million on the reduced-smoke Premier cigarette. Five months after its introduction in 1988, Premier disappeared from the test markets because smokers "didn't like the taste." It was also difficult to light. "Premier gave you a hernia trying to get the smoke through," said one tobacco industry analyst. Undeterred by the costly failure of Premier, RJR went on to spend an additional $125 million on another attempt. In 1997 RJR tested its smokeless Eclipse cigarette in Chattanooga, Tennessee. But smokers say they're not switching. Eclipse seemed like a good alternative; the cigarette heats the tobacco instead of burning it, resulting in only 10 percent of the smoke of conventional cigarettes. Only problem is smokers like smoke. Research shows that smokers enjoy the "security blanket" of being wreathed in smoke, regardless of how much nonsmokers dislike it. So far, nonsmokers are the only ones who like Eclipse.3

New products continue to fail at a disturbing rate. In 1997, a record 25,261 new packaged-goods products were launched, and that doesn't even include products you won't find at your local supermarket, like techno-gizmos and software programs. But equally stunning is the number that fail: Tom Vierhile, general manager of Market Intelligence Service Ltd., a new-product reporting and retrieval firm, estimates that 80 percent of recently launched products aren't around today.4 When you consider that it costs $20 million to $50 million to launch a new product, you wonder why people continue to innovate at all. Yet product failures can serve one useful purpose: Inventors, entrepreneurs, and new-product team leaders can learn valuable lessons about what not to do. With this credo in mind, marketing consultant Robert McMath has collected about 80,000 consumer products, most of them abject flops, in his New Product Showcase and Learning Center in the rolling hills of Ithaca, New York. See the Marketing Insight box, "Mr. Failure's Lessons for Sweet Success: Robert McMath's New Product Showcase and Learning Center," for some insights on product failure.

Why do new products fail?

■ A high-level executive pushes a favorite idea through in spite of negative market research findings.

■ The idea is good, but the market size is overestimated.

■ The product is not well designed.

■ The product is incorrectly positioned in the market, not advertised effectively, or overpriced.

■ Development costs are higher than expected.

■ Competitors fight back harder than expected.

Several other factors hinder new-product development:

■ Shortage of important ideas in certain areas: There may be few ways left to improve some basic products (such as steel, detergents).

■ Fragmented markets: Keen competition is leading to market fragmentation. Companies have to aim their new products at smaller market segments, and this can mean lower sales and profits for each product.

■ Social and governmental constraints: New products have to satisfy consumer safety and environmental concerns. Government requirements slow down innovation in drugs, toys, and some other industries.

■ Costliness of the development process: A company typically has to generate many ideas to find just one worthy of development. Furthermore, the company often faces high R&D, manufacturing, and marketing costs.

■ Capital shortages: Some companies with good ideas cannot raise the funds needed to research and launch them.

chapter 11

Developing New Market Offerings was able to develop a new electrical control device in just two years, as opposed to six years under its old system.

■ Shorter product life cycles: When a new product is successful, rivals are quick to copy it. Sony used to enjoy a three-year lead on its new products. Now Matsushita will copy the product within six months, leaving hardly enough time for Sony to recoup its investment.

Given these challenges, what can a company do to develop successful new products? Cooper and Kleinschmidt found that the number-one success factor is a unique, superior product. Products with a high product advantage succeed 98 percent of the time, compared to products with a moderate advantage (58 percent success) or minimal advantage (18 percent success). Another key success factor is a well-defined product concept prior to development. The company carefully defines and assesses the target market, product requirements, and benefits before proceeding. Other success factors are technological and marketing synergy, quality of execution in all stages, and market attractiveness.5

Madique and Zirger, in a study of successful product launches in the electronics industry, found eight factors accounting for new-product success. New-product success is greater the deeper the company's understanding of customer needs, the higher the performance-to-cost ratio, the earlier the product is introduced ahead of competition, the greater the expected contribution margin, the more spent on announcing and launching the product, the greater the top management support, and the greater the cross-functional teamwork.6

New-product development is most effective when there is teamwork among R&D, engineering, manufacturing, purchasing, marketing, and finance. The product idea must be researched from a marketing point of view, and a specific cross-functional team must guide the project throughout its development. Studies of Japanese companies show that their new-product successes are due in large part to cross-functional teamwork.

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