New-Product Development Strategy

Idea Generation

Internal Idea Sources

External Idea Sources

Many companies have abandoned their efforts to figure out exactly what products their customers want. Instead, they have equip customers with tools that let them design their own products. The user-friendly tools employ new technologies like computer simulation and rapid prototyping to make product development faster and less expensive. For example, Bush Boake Allen (BBA), a global supplier of specialty flavors to companies like Nestle, provides a tool kit that enables its customers to develop their own flavors, which BBA then manufactures. Similarly, GE Plastics gives customers access to company data sheets, engineering expertise, simulation software, and other Web-based tools for designing better plastics products. Companies like LSI Logic and VLSI Technology provide customers with do-it-yourself tools that let them design their own specialized chips and customized integrated circuits. Using customers as innovators has become a hot new way to create value.⁸

1. Appoint a respected senior person to be the company's idea manager.
   
   
2. Create a cross-functional idea management committee consisting of people from R&D, engineering, purchasing, operations, finance, and sales and marketing to meet regularly and evaluate proposed new product and service ideas.
   
   
3. Set up a toll-free number or Web site for anyone who wants to send a new idea to the idea manager.
   
   
4. Encourage all company stakeholders—employees, suppliers, distributors, dealers—to send their ideas to the idea manager.
   
   
5. Set up formal recognition programs to reward those who contribute the best new ideas.

Idea Screening

Concept Development and Testing

Concept Development

Concept Testing

An efficient, fun-to-drive, fuel-cell-powered electric subcompact car that seats four. This methanol-powered high-tech wonder provides practical and reliable transportation with virtually no pollution. It goes up to 90 miles per hour and, unlike battery-powered electric cars, it never needs recharging. It's priced, fully equipped, at $20,000.

Marketing Strategy Development

The target market is younger, well-educated, moderate-to-high-income individuals, couples, or small families seeking practical, environmentally responsible transportation. The car will be positioned as more economical to operate, more fun to drive, and less polluting than today's internal combustion engine or hybrid cars, and as less restricting than battery-powered electric cars, which must be recharged regularly. The company will aim to sell 100,000 cars in the first year, at a loss of not more than $15 million. In the second year, the company will aim for sales of 120,000 cars and a profit of $25 million.

The fuel-cell-powered electric car will be offered in three colors—red, white, and blue—and will have optional air-conditioning and power-drive features. It will sell at a retail price of $20,000—with 15 percent off the list price to dealers. Dealers who sell more than 10 cars per month will get an additional discount of 5 percent on each car sold that month. An advertising budget of $30 million will be split 50-50 between national and local advertising. Advertising will emphasize the car's fun spirit and low emissions. During the first year, $100,000 will be spent on marketing research to find out who is buying the car and their satisfaction levels.

DaimlerChrysler intends to capture a 3 percent long-run share of the total auto market and realize an after-tax return on investment of 15 percent. To achieve this, product quality will start high and be improved over time. Price will be raised in the second and third years if competition permits. The total advertising budget will be raised each year by about 10 percent. Marketing research will be reduced to $60,000 per year after the first year.

Business Analysis

Product Development

A scuba-diving Barbie doll must swim and kick for 15 straight hours to satisfy Mattel that she will last at least one year. But because Barbie may find her feet in small owners' mouths rather than in the bathtub, Mattel has devised another, more torturous test: Barbie's feet are clamped by two steel jaws to make sure that her skin doesn't crack—and choke potential owners.

At Shaw Industries, temps are paid five dollars an hour to pace up and down five long rows of sample carpets for up to eight hours a day, logging an average of 14 miles each. One regular reads three mysteries a week while pacing and shed 40 pounds in two years. Shaw Industries counts walkers' steps and figures that 20,000 steps equal several years of average carpet wear.

P&G spends $150 million on 4,000 to 5,000 studies a year, testing everything from the ergonomics of picking up a shampoo bottle to how long women can keep their hands in sudsy water. On any given day, subjects meet in focus groups, sell their dirty laundry to researchers, put prototype diapers on their babies' bottoms, and rub mysterious creams on their faces. Last year, one elementary school raised $17,000 by having students and parents take part in P&G product tests. Students tested toothpaste and shampoo and ate brownies, while their mothers watched advertising for Tempo tissue, P&G's paper wipes packaged to fit in a car. This year, P&G is paying the school to have 48 students and parents wear new sneakers that they hand in every month for six months. Half the shoes return cleaned. No one knows what P&G is testing, and the company won't say.

At Gillette, almost everyone gets involved in new-product testing. Every working day at Gillette, 200 volunteers from various departments come to work unshaven, troop to the second floor of the company's gritty South Boston plant, and enter small booths with a sink and mirror. There they take instructions from technicians on the other side of a small window as to which razor, shaving cream, or aftershave to use. The volunteers evaluate razors for sharpness of blade, smoothness of glide, and ease of handling. In a nearby shower room, women perform the same ritual on their legs, underarms, and what the company delicately refers to as the "bikini area." "We bleed so you'll get a good shave at home," says one Gillette employee.

Test Marketing

Nabisco hit a marketing home run with its Teddy Grahams, teddy-bear-shaped graham crackers in several different flavors. So, the company decided to extend Teddy Grahams into a new area. In 1989, it introduced chocolate, cinnamon, and honey versions of Breakfast Bears Graham Cereal. When the product came out, however, consumers didn't like the taste enough, so the product developers went back to the kitchen and modified the formula. But they didn't test it. The result was a disaster. Although the cereal may have tasted better, it no longer stayed crunchy in milk, as the advertising on the box promised. Instead, it left a gooey mess of graham mush on the bottom of cereal bowls. Supermarket managers soon refused to restock the cereal, and Nabisco executives decided it was too late to reformulate the product again. So a promising new product was killed through haste to get it to market.¹⁷

Standard Test Markets

Controlled Test Markets

Simulated Test Markets

Commercialization

Organizing for New-Product Development