product development.
3 . 2 T H E N E W P R O D U C T D E V E L O P M E N T D I L E M M A
Firms are often free to select any one or a combination of these strategies for their development. General y, new products account for a high proportion of growth in many firms and are usual y major contributors to overal profits for
these businesses. Under modern conditions of competition, firms that do not develop new products are merely exposing themselves to risks of business closure. Such firms wil find their products fal ing victim to changing consumer
needs and tastes, new technologies, shortened product life cycles, and increaseddomestic and foreign competition.
On the other hand, new product development can be very risky. A variety of researchers have investigated the rate of failure associated with new products. It has been reported
that between 33% to 98% of the new products introduced fail to achieve commercial success.
3.2.1 REASONS FOR NEW — PRODUCT FAILURES Several factors have been found to be responsible for new product failures:
(i)
Dictatorial tendencies of top management: some high-level executive might push afavourite idea through in spite of negative marketing research findings.
(i )
Over-estimating of market size:The project idea might be good, but the market size may be over-estimated.
(i i) Product deficiencies: The actual product might not be properly designed to fit
the needs and wants of prospective consumers. This often results in poor quality andperformance. The product may turn out to be too complicated and might not offer any significant advantage over competitive products already on the market.
(iv)
Lack of effective marketing effort: There could be failure to provide sufficientfol ow- through effort after introductory programme, and failure to train
marketing personnel for new products and new markets. In addition, the product might be incorrectly positioned in the market, or even overpriced.
(v)
Higher costs than anticipated: This often results to higher prices, with theat endant lower sales volume than projected.
(vi)
Competitors' strength/reaction:The competitors might fight back harder than
expected. In addition, the speed and ease of the copying an innovation mayovercrowd the market sooner than expected.
(vii)
Poor timing of introduction: The new-product might make a premature entry into themarket. In some other instances, the product might be introduced too late
(vi i) Technical or production problems:
The firm might not be able to producesufficient quantities to meet demand. In the process, competition might gain an unanticipated share of the market.
To compound the problems faced by firms, it has been speculated that successful new products may even be more difficult to achieve in the future for the reasons given below:
(a) Shortage of important new-product ideas in certain areas. For instance, some scientists claim that there are too few new technologies of the investment magnitude of the automobile,
television, computers, xerography, and wonder drugs.
(b) Fragmented markets. The intense competition being witnesses is leading to rapid fragmentation of markets. Hence, companies have to aim new products
at smal er market segments rather than the mass market with the resultant
lower sales and profits for each product.(c) Social and governmental constraints. New products have to satisfy public criteria such as consumer safety and ecological compatibility.
(d) Costliness of the new-product-development process. A company
typical y has to generate many new-product ideas in order to finish with a few good ones. It should be noted that each product costs more to develop and launch due to the effect of the recent inflation on manufacturing, media, and distribution costs.(e) Capital shortage. Many companies cannot afford or raise the funds needed
to research true innovations. Thus, they emphasize new product modifications and imitations instead of true innovation.
(f) Shorter growth periods for successful product. When a new product is
successful, rivals quickly jump into the arena to imitate the product, so much that itsgrowth stage is shortened.
3.3 ORGANISING NEW PRODUCT DEVELOPMENT
Faced with the above problems how then can we have successful new-product
introductions?. There are two sides to this. In the first place, the organisation must improve its organisational arrangements for handling the new-product development process. Secondly, the organisation needs to handle each step of the process
with all seriousness, including using the best available techniques.
3.3.1 EFFECTIVE ORGANISATIONAL ARRANGEMENT Since
top management bears the ultimate responsibility for the quality of the new-product- development work, it must start with a clear definition of company growth strategy that specifies the business domains and product categories in which the company wants to do business.
Apart from this, top management should also set specific criteria for new product- idea acceptance. The criteria can vary with the specific strategic role the product is expected to play. Such roles may include:
Maintaining position as a product innovator
Defending a market-share position
Establishing a foothold in a future new market Pre-
emptying a market segment
Exploring technology in a new way Capitalising on distribution strengths.
The consideration of the acceptance criteria may be based on the fol owing:
A specified period within which the product can be introduced e.g five years A stated minimum market potential and growth rate e.g at least 30 million and a 10
percent growth rate
Expected returns e.g. at least 25 percent return on sales and 35 percent on investment
Technical/market leadership.
Furthermore, top management must determine the budget outlay for new product- development; since R&D outcomes are so uncertain, it becomes a little bit difficult to use normal investment criteria for budgeting. A number of alternative ways exist towards finding a useful solution to this problem. These include:
(i) encouraging and financing as many project proposals as possible, hoping to hit a few winners;
(ii) set ing R&D budgets by applying a conventional percentage-to-sales figure;
(iii) spending what competition spends
(iv) working backwards to estimate the required R&D investment after keeping the