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BST101 Unit 01 - Lecture Notes

Reseach Methodology (JECRC University)

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BST101 Product & Process Development

UNIT 1
Introduction to New Product Development

Contents

Section 1.1 Unit Introduction 21

Section 1.2 Unit Learning Objectives 21

Section 1.3 New Product Development Overview 21

Section 1.4 Reasons for New Product Development 22

Section 1.5 Speed to Market 22

Section 1.6 Reasons for NPD Failure 23

Section 1.7 Types of New Products 24

Section 1.8 The Product Lifecycle 24

1.8.1 Development Stage 25
1.8.2 Introduction Stage 25
1.8.3 Growth Stage 25
1.8.4 Maturity Stage 26
1.8.5 Decline Stage 26
1.8.6 Limitations of the Product Lifecycle Concept 26

Section 1.9 Unit Review 27

Section 1.10 Self-Assessment Questions 28

Section 1.11 Answers to Self-Assessment Questions 29

Section 1.12 Recommended Reading 31

Section 1.13 References 32

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BST101 Product & Process Development

UNIT 1
Introduction to New Product Development

Section 1.1
Unit Introduction

Product development plays an essential role in every company’s ability to

compete and grow. Companies operate in market environments where the only
constant is change. In such environments, it is critical that companies, large
and small, develop new products and services. Otherwise, they will become
isolated from their customers and the markets in which they operate.

While developing new products, companies must also remain competitive.

Consequently, the ability to develop new products effectively and efficiently is
important. Resources are limited in every company so it vital that they are used
in the most effective manner.

The aim of this unit is to provide a basic understanding of New Product

Development (NPD), including the reasons for undertaking NPD, the risks
involved, sources of failure, new product types, and the generic product
lifecycle.

Section 1.2
Unit Learning Objectives

When you have successfully completed this unit, you will be able to:

• List the reasons for NPD.

• Discuss the importance of speed-to-market.
• Outline the reasons for NPD failure.
• Identify the different types of new products.
• Describe the generic lifecycle of a product.

Section 1.3
New Product Development Overview

New product development is important to the success of any company.

Companies organise and structure new product development in various ways,
depending on factors such as the company size, culture, and industry.

When a company decides to undertake the development of a new product,

there are several approaches it can take.

The company can form a consortium with other companies to share the cost of
the research and development, the profits, and the possible increase in market
share should the product become successful.

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UNIT 1 Introduction to New Product Development

The company can also decide to take on the entire cost of developing the new
product in anticipation that the profits and market share will far outweigh the
initial costs and risks associated with the development.

Section 1.4
Reasons for New Product Development

There are various reasons for NPD. Some of the reasons that potentially impact
the undertaking of NPD in a company include:

• Nature of the market environment: If the company is operating in a

dynamic environment—for example, Information and Communication
Technology (ICT)—it may be forced to innovate to keep up with the
rate of development of the industry.

• Level of market competition: The level of competition in the market

will impact NPD. If a company operates in a highly competitive
market place, it is forced to innovate and develop new products. If it
does not develop new products, it will be left behind competitively
and lose its market share.

• Obsolete technology: Technology can become obsolete overnight,

forcing companies to either cease operating or develop new products.
For example, in recent years, portable digital music (MP3) players
replaced portable CD players which, only a few years earlier, had
replaced portable cassette players.

• Product lifecycle: Companies whose products have short lifecycles

need to have a constant stream of new products to continue
operating. For example, computer software has a relatively short
lifecycle before it must be updated to keep pace with consumer
requirements. Product lifecycle is discussed in Section 1.8.

• Company size: The size of a company impacts its NPD capability. For
example, small companies do not have the resources to develop as
many new products as large companies. Furthermore, small companies
may not be able to survive product failure if they have invested a
large amount of resources in developing the failed product.

Section 1.5
Speed to Market

To be successful at NPD, companies need to have a steady stream of profitable

and successful new products. Markets and technologies change rapidly; thus,
the ability to accelerate product development and get products to the market
ahead of the competition (i.e. first to the market) and within the window of
opportunity is central to new product success.

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BST101 Product & Process Development

Speed to market is vital to increase market share, increase profits,

and reduce risk.

The following are some of the major benefits associated with speed to market.

• Speed results in competitive advantage. The ability to respond

quickly to customer needs can result in securing a large share of the
market. If a company is first to the market with a new product, they
may become associated with that type of product.

• Speed yields higher profitability. If a company is first to the market

with a new product, the revenue from the sale of the product is
realised earlier and the revenues over its lifetime are higher given
there is only a fixed window of opportunity and a limited product life.

• Speed means fewer surprises. Reducing new product development

cycle times means there is less chance of changes in market
conditions, market requirements, or the competitive situation during
development.

A recent example of where speed to the market was important was the
development of the iPod nano by Apple. The iPod nano was released with
several minor faults to ensure it got to the market before competitor products
to increase competitive advantage and maximise profits.

Section 1.6
Reasons for NPD Failure

New product development is very risky and the chances of failure

are high.

For every four projects that enter development, only one becomes a
commercial success. Even at launch, after all research and testing has been
completed, one project in three fails commercially (Griffin 1997).

Reasons for failure include:

• Poor market research: Insufficient or faulty market research can

result in the development of a product that does not satisfy customer
needs correctly, thus leading to product failure.

• Technical problems: Companies can experience difficulties in turning

identified customer needs into pilot-scale products and full-scale
production. The product may satisfy customer needs, but the company
may not have the technical know-how to manufacture it in high
volumes and at a price the customer is willing to pay without
compromising product quality.

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UNIT 1 Introduction to New Product Development

• Insufficient marketing effort: Poor advertising can mean that the

target market does not know about the new product release. If a
company fails to market and launch the product correctly, this can
result in poor sales and ultimately product failure.

• Bad timing: A company can move too slowly when bringing a new
product to the market, thus missing the window of opportunity to
maximise sales and make the product a success. Alternatively, a
company can move too quickly, cutting corners and releasing an
inferior product that fails.

Section 1.7
Types of New Products

In a broad sense, newness can be defined in two ways (Cooper 2001, p.13).
A product can be new to a company, thus taking the company into a new
competitive market where other companies operate by selling the same or
similar products. For example, Mitsubishi has been involved in shipbuilding,
banking, insurance, chemicals, and motor manufacturing over the last 140
years. Alternatively, a product can be new to the world and the first of its kind
on the market; for example, the iPhone by Apple.

These two categories are generic so further categories of newness include:

• Additions to existing product lines; for example, Toyota creating a

new model of car
• Improvements and revisions to existing products; for example,
Toyota adding new features such as airbags to an old model
• Product repositioning; for example, Lucozade being repositioned as a
drink for sports people as opposed to a drink for people who are ill
• Reduced cost products; for example, the dropping price of laptop
computers opening up new markets

Learning Activity 1.1

Choose a company and identify a product they have released under
each of the new product types.
Critical
Thinking

Section 1.8
The Product Lifecycle

A product’s lifecycle (PLC) can be divided into several stages characterised by

the revenue from the product’s sales. If a curve is drawn showing product
revenue over time, it can take one of many different shapes. The generic shape
of the product lifecycle is shown in Figure 1.1.

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BST101 Product & Process Development

Development

Introduction

Maturity
Growth

Decline
Sales Volume

Time

Figure 1.1: Typical Product Lifecycle

1.8.1
Development Stage

The Development stage obviously has zero sales because the product has yet to
be released. During this stage, the company invests huge amounts in
developing the product because it is expected that sales will greatly outweigh
the initial investment.

1.8.2
Introduction Stage

When the product is introduced to the marketplace, sales will be relatively low
until customers become aware the product is available. Companies may
announce the release of their product before it is launched, but such
announcements can alert their competitors and remove the element of
surprise. Advertising costs are high during this stage to rapidly increase
customer awareness of the product. Initial distribution costs are also quite
high. These high costs coupled with a low sales volume usually make the
Introduction stage a period of loss where company costs are higher than
profits. During this stage, the primary goal is to establish a market and build a
demand for the product.

1.8.3
Growth Stage

The Growth stage is a period of rapid revenue growth. Sales increase quickly as
more customers become aware of the product and its benefits, and additional
market segments are targeted. To get to this stage, the product will have to
satisfy customer needs. Once customers begin asking for it, sales will increase
further as more retailers become interested in selling the product. Competitors
may enter the market during the Growth stage and there may be price

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UNIT 1 Introduction to New Product Development

competition and/or increased marketing costs to convince consumers that the

company’s product is better than the competitor’s product. During the Growth
stage, the goal is to gain consumer preference and increase sales.

1.8.4
Maturity Stage

The Maturity stage is the most profitable stage of the lifecycle. While sales
continue to increase, they do so at a slower pace than in the previous stages.
Competition can result in decreased market share and/or prices. Competing
products may be very similar at this point, increasing the difficulty in
differentiating the product from its competitors. Companies put effort into
encouraging competitors’ customers to switch, increasing usage per customer,
and converting non-users into customers. During the Maturity stage, the
primary goal is to maintain market share and extend the product lifecycle.

1.8.5
Decline Stage

Eventually sales begin to decline as the market becomes saturated with the
product, the product becomes technologically obsolete, or customer tastes
change. If the product has developed brand loyalty, the company may maintain
profitability for longer. Unit costs can increase with the declining production
volumes and eventually no more profit can be made.

During the Decline phase, a company generally has four options:

• Maintain the product in the hope that competitors will exit the
market. Dropping sales may force competitors out of the market.
• Reduce costs.
• Find new uses for the product.
• Discontinue the product when no more profit can be made.

Learning Activity 1.2

Choose a company and identify products they have released that are at
the different stages of the product lifecycle.
Critical
Thinking

1.8.6
Limitations of the Product Lifecycle Concept

The term “product lifecycle” implies that a product moves through well-defined
stages; however, products do not have such a predictable life and the specific
lifecycle curves of different products vary substantially. The length of each
stage can vary enormously from product to product. In addition, products may
not follow these stages. For example, a “fad” product can enter the market and

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BST101 Product & Process Development

leave very quickly. Products can come in and out of fashion. They can go into
decline and then suddenly enter back into growth again as shown in Figure 1.2.

Development

Introduction

Maturity

Maturity
Growth

Growth
Decline

Decline
Sales Volume

Time

Figure 1.2: Lifecycle of a Fashion Product

Consequently, the lifecycle concept is not well-suited for the forecasting of

product sales. Also, the lifecycle concept may have a negative effect on sales.
For example, if the sales of a new product peak and then start declining,
managers may conclude that the product is in the Decline phase. They may
then cut the advertising budget, thus precipitating a further decline.

Section 1.9
Unit Review

This unit provided an overview of NPD. There are a number of factors that
affect a company’s ability to develop new products. These include:

• Nature of their market environment

• Level of competition in the market
• Company size
• Length of the product lifecycle

There is a high risk of failure associated with NPD. Some of the factors that can
contribute to failure are:

• Insufficient market research

• Poor marketing effort
• Technical issues
• Bad timing of the development

Timing is identified as an important factor in NPD. Speed to market can lead to

a better competitive position and result in higher profits and less risk.

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UNIT 1 Introduction to New Product Development

The types of new products a company may develop are:

• New to the company (new product lines)

• New to the world
• Additions to existing product lines
• Improvements and revisions to existing products
• Product repositioning
• Reduced cost products

Each of these different types of new products can require a different approach
to development. The shape of the generic product lifecycle shows how sales of
a product change over time. The five stages of the generic lifecycle are:

1 Development
2 Introduction
3 Growth
4 Maturity
5 Decline

The next unit will explore the use of a formal process to guide companies in
their NPD efforts. The goals of an NPD process are discussed as well as several
popular NPD process models including the much-used decision stage model—
Stage-Gate®.

Section 1.10
Self-Assessment Questions

Question 1
Discuss some of the reasons for undertaking NPD.

Question 2
Why can speed to market be crucial for product success? Use
examples to explain your answer. The examples can be real or
fictitious.

Question 3
Discuss some reasons for NPD failure. Use examples to develop your
answer. Again, the examples can be real or fictitious.

Question 4
What are the different types of products a company can develop?

Question 5
Briefly describe the product lifecycle in terms of revenue.

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Section 1.11
Answers to Self-Assessment Questions

Answer 1
There are various reasons for undertaking NPD.

The nature of the market in which a company operates affects the

development of products in the company. If the company operates in a
changing environment where the needs of its customers change rapidly,
then it has to develop new products to respond to these needs.
Furthermore, if a company’s competitors are constantly developing new
products, then the company has to innovate and develop new products
to keep up with the rate of development of the industry. Otherwise, they
will fall behind competitively and ultimately be forced out of the market.

Technologies can become obsolete overnight, forcing companies to

develop new products or cease operating. For example, in recent years,
MP3 players replaced portable CD players which, only a few years
earlier, had replaced portable cassette players.

Products often have lifecycles of varying durations. If a company

develops many products with short lifecycles, unless they continue to
develop new products, they will go out of business in a short period of
time.

The size of a company impacts its NPD capabilities. Small companies

may not have the resources to develop as many new products as large
companies. Furthermore, small companies may not be able to survive
product failure if they have invested a large amount of resources in
developing the product.

Answer 2
The ability to accelerate product development and get products to the
market ahead of the competition and within the window of
opportunity is central to product success.

There are major benefits for a company that gets its product to the
market ahead of its competition. Being first to the market can result
in competitive advantage. In addition, it can result in the securing of
a large share of the market or your company becoming associated
with the new product. For example, if the same product is being
developed by two companies, the company that releases the product
first will have a greater market share.

Releasing a product earlier can also mean fewer surprises. For

example, by reducing development time frames, you reduce the risk of
changes in market conditions, market requirements, or the
competitive situation during development.

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Answer 3
Insufficient or faulty market research can result in a company
developing a product that does not satisfy customer needs correctly,
thus leading to product failure. For example, suppose a company
conducts a small amount of research using 10 customers and
identifies a particular need for which they develop a new product.
When they release the product, they find it does not sell as well as
they hoped because the group of customers they used for the market
research was too small and not representative of the general
population.

Companies can experience difficulties in turning customer needs into

pilot-scale products and full-scale production. The product satisfies
customer needs but the company does not have the technical know-
how to manufacture the product in high volumes and at a price the
customer is willing to pay without compromising product quality.

Finally, a product can fail if a company fails to market and launch the
product correctly. Too little advertising or using the wrong advertising
channels can mean that the target market does not know about the
product’s release. For example, the iPhone was a very well marketed
product. Consumers knew of its release in advance and this resulted in
waiting lists to purchase it. Had the marketing not been as effective,
sales may well have been lower, demand for smartphones may have
remained high, and there would have been room for more competitors
to enter the market.

Answer 4
There are a number of types of new products that a company can
develop. These include:

• New to the world products

• New to a company products (new product lines)
• Additions to existing product lines
• Improvements and revisions to existing products
• Product repositioning
• Reduced cost products

Answer 5
A product’s lifecycle can be divided into several stages. These stages
are described by the revenue generated by product sales. If a curve is
drawn showing product revenue over time, it can take one of many
shapes. The generic shape is shown in Figure 1.3.

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BST101 Product & Process Development

Development

Introduction

Maturity
Growth

Decline
Sales Volume

Time

Figure 1.3: Typical Product Lifecycle

The first stage is the Development stage. At this stage, revenue is zero because
the product has yet to be released.

The second stage is the Introduction stage. When the product is introduced to
the market, sales will be relatively low until customers become aware the
product is available.

The third stage is the Growth stage. Revenue grows rapidly in this stage as
more customers become aware of the product and additional market segments
are targeted.

The fourth stage is the Maturity stage. The maturity stage is the most
profitable stage of the lifecycle. While sales continue to increase into this
stage, they do so at a slower pace than the previous stages.

The fifth and final stage is the Decline stage. Sales and revenue begin to
decline as the market becomes saturated with the product, the product
becomes technologically obsolete, or customer tastes change.

Section 1.12
Recommended Reading

Ulrich and Eppinger (2008) Product Design and Development, Chapter 1,

pp.1–10.

Cooper (2001) Winning at New Products: Accelerating the Process from Idea to
Launch, Chapter 1, pp.1–21.

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UNIT 1 Introduction to New Product Development

Section 1.13
References

Cooper R.G. (2001) Winning at New Products, 3rd ed., Cambridge,

Massachusetts: Perseus Publishing.

Griffin, A. (1997) ‘PDMA Research on New Product Development Practices:

Updating Trends and Benchmarking Best Practices’, Journal of Product
Innovation Management, 14, 429–458.

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