New Product Development

1
New Product Development

• Min Ding
• Pennsylvania State University

2
Topics

• What tradeoffs/factors determine the optimal NPD
  strategy
• Contrast development strategies between digital
  and non-digital products
• Impact of internet on NPD for non-digital products

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Key Strategies in NPD

• Try many different approaches at the same time
• Launch a product fast with imperfect profile
• Do things in parallel
•  
• Use customer feedbacks (understand customer
  needs) before and during the NPD process (instead
  of waiting until test market)

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1. Try many different approaches at the same time

• Tradeoff between
•  

5
NPD Pipelines Structures
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Three Critical Drivers

• cost
• probability of survival
• magnitude of the business opportunity (dependency
  on time to market and quality of the product)

7
An example Decision Tree for Three Stage
NPDSource Ding and Eliashberg, 2000
Stage 3
Stage 2
Stage 1 Stage 0
Expected (Phase I)
(Phase II)
(Phase III)
Launch Profit
s1
s1?1
E?0(s1?1)
n1n1
s2?n1
s2
0
s10
n2n2
s3?n2
s1?1
E?0(s1?1)
s1
s2ltn1
n1s2
s3
n3n3
0
s10
s1
s1?1
E?0(s1?1)
s2?n1
n1n1
s3ltn2
L?n3
s2
0
s10
n2s3
s1?1
E?0(s1?1)
s1
s2ltn1
n1s2
0
s10
L
s1?1
E?0(s1?1)
s1
s2?n1
n1n1
s2
consider all available leads (L)
0
s10
n2n2
Lltn3
s1
s1?1
E?0(s1?1)
s3?n2
s2ltn1
n1s2
s3
0
s10
n3L
s1?1
E?0(s1?1)
s1
n1n1
s2?n1
s3ltn2
s2
0
s10
n2s3
s1
s1?1
E?0(s1?1)
s2ltn1
n1s2
0
s10
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2. Launch a product fast with imperfect profile

• Tradeoff between
•  

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3. Do things in parallel

• Tradeoff between

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4. Use customer feedbacks before and during the
NPD process

• Tradeoff between
•  

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Whats the big deal about internet NPD?

• There should be no such notion of old vs. new
  ways of NPD. The NPD decision rules (tradeoffs)
  are still the same.
• The NPD strategies are different simply because
  the parameter values of the three prior discussed
  tradeoffs are significantly different.

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Contrast development strategies between digital
and non-digital products

• Try different approaches at the same time

cost Benefit of faster to market Common strategy
Digital products Low (marginal cost of one additional approach) Highly depended on time to market (short PLC, standard setting)
Non digital products High development cost medium
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Contrast development strategies between digital
and non-digital products

• Launch a product with imperfect profile

Benefit of faster time to market Benefit of better product Common strategy
Digital products huge medium (products could be easily improved after launch)
Non digital products medium huge
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Contrast development strategies between digital
and non-digital products

• Do Things in Parallel

Reconciliation needed Time saved Common strategy
Digital products Almost 0 A lot
Non digital products Maybe high Limited
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Contrast development strategies between digital
and non-digital products

• Use Customer Feedbacks

Added cost Higher probability of market success Common strategy
Digital products Low test market cost Low cost of customer feedback during development Yes
Non digital products High test market cost High cost of customer feedback during development yes
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Impact of internet on non-digital product
development

• Lets go back and revisit the four decision rules

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Information Acceleration SystemsSourceUrban,
Weinberg, and Hauser, 1996.

• Place consumers in a virtual buying environment
• IA systems simulate the information thats
  available to consumers when they make a purchase
  decision
• Virtual showroom visits
• Advertising (TV, magazines, newspapers)
• Review articles and consumer-oriented reports
• Word of mouth
• Are these virtual environments realistic enough
  to accurately measure behavior?
• Early evidence is positive, but mixed
• Can we use similar approach to simulate new
  product for customers?

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Summary

• Key NPD strategies and the tradeoffs involved in
  each
• Be able to differentiate NPD strategies between
  digital and non-digital NPD
• Sample final question
• Propose the best product development strategies
  for each of the following two cases
• an e-commerce site for our class project
• A best selling book for undergraduates