STRATEGIES FOR NEW PRODUCT DEVELOPMENT
[Pages:10]C. MERLE CRAWFORD
A leading toiletries manufacturer has an equally tenacious, though unpublicized,
commitment to only those new, nonfood,
STRATEGIES FOR NEW PRODUCT
packaged goods that do not compete itemto-item with Procter and Gamble.
Richard Rifenburgh, president of Mohawk Data Sciences, manufacturers of peripheral
DEVELOPMENT
computer equipment, was cited recently in Fortune as a man who, at the present time,
would rather be an agile follower than a
creative leader. 1 On the assumption that it
Guidelines for a critical
would be too expensive to develop frontiers, Rifenburgh prefers to wait to see on which
company problem
newly opened trails the volume of activity will fall.
All of these companies have a powerful
managerial tool-what I call a New Product
49
C. Merle Crawford is a faculty m e m b e r at the University o f Michigan.
Development Strategy Statement. They have formed convictions concerning new products
In spite of much evidence of its success, many managers hesitate to establish a policy for new product development. Their indecision
that seem most appropriate for their respective firms. Under vigorous leadership, their policies are being implemented.
often arises from two reasons: they fear that a
Contrast the clarity of these approaches
defined strategy may discourage innovation
with the following charge given to a product
and they are uncertain how to formulate a new product strategy. The author of this article discredits the former notion and, in reply to the latter, proposes the guidelines for developing such a statement. As new products are essential to the continued success of most firms, the strategy must exist and must be
development group :
... to take the lead in meeting the needs of the company's customers for improved and new products, to develop new uses for existing products, and to develop high-profit products for introduction to existing and potential customers.
operant if the firm is to avoid wasted time, effort, and money as well as employee confusion and discouragement.
Research directors who labor under guidance like this are the ones who lament the lack of vision of marketing and top manage-
ment personnel: the top brass can't recognize
For longer than most of us care to remember,
a good product idea when it is shown to
Dan Gerber has been proclaiming that babies them. Research operations which "benefit"
are his business, his only business. With some from the most liberal guidelines also endure
nostalgic regret I read recently that he has
altered his strategy: he now permits limited diversification beyond products for babies.
1. Dan Cordtz, "Bringing the Laboratory Down to Earth," Fortune (January 1971 ), p. 106.
DECEMBER, 1972
C. MERLE CRAWFORD
the most idea rejection, development diffi- WHAT SHOULD THE STATEMENT
culties, and product failure.
INCLUDE?
Specifically, does the statement of that
company limit the search to improving or The basic purpose of new product strategy is
extending the present product line? What to provide unifying direction. It specifically
degree of relationship to the present scope of notes any tempting development areas that
activity is necessary for the idea to be are off limits; it clearly specifies those areas
acceptable? May the search proceed into unrelated areas? Is search limited to the firm's present technological capabilities, distribution system, raw materials, and plant and human resources? Is the door to acquisition open or dosed? Will functional capability be added to
where effort is to proceed; and it adds any other direction appropriate and relevant to the firm, as in the Mohawk strategy.
? A review of representative strategy statements reveals how the following dimensions are in actual use.
match each new idea, or should the ideas
match present functional capabilities?
The idea of putting definitive restrictions Technology/Market Mix
on the new product activity is not novel, but
use of it, especially sophisticated use, is still As long ago as 1957, the Harvard Business
not widespread. Most large firms have some- Review ran an article by Samuel C. Johnson
thing they call new product strategy but it is of S. C. J o h n s o n & Son, Inc. and Conrad
more for directors and stockholders than for Jones of Booz, Allen & Hamilton which
serious internal direction; other firms have became a classic because it spelled out what
sketches of such strategy but they are rarely was rapidly gaining fame as the BA/H method
50
available for personnel down the line from the of organizing the new product function.2 The
president's office. As the president of a article contained a table which should be on
medium-sized firm recently said to me, not page one of every firm's planning document.
entirely in jest: "Sure, we have a new product It diagramed the alternatives available for new
strategy; just ask me!"
product activity as a 3x3 matrix (see
Early in this century General Motors accompanying table).
committed itself to a full line of automobiles,
This table structurally depicts the possible
a strategy that proved superior to Ford's. nine combinations of market and technology.
Only recently did Coca-Cola abandon its Some, all, or none of these may be encour-
strategy of no line additions. General aged, as the applicability of each of the
Electric's approach, a broad attack upon options will vary from firm to firm. Unless it
markets susceptible to electrical technology, values new and improved products for their
is decades old. Indeed, new product strategies are so old,
own sake, any management will want to study thoroughly the various cost/return relation-
and in so many cases credited with such ships and stipulate those which it wants to
successful outcomes, that one is prompted to stress and those it wishes to avoid.
ask why all firms don't have them. There are
essentially two reasons:
1. Management is not certain what such statements should cover.
2. Management fears that limitations may discourage some useful or successful inno-
Market Width
The bottom row of the matrix, New Market, provides the third dimension into the consid-
vation.
These are the points to which we will now turn our attention.
2. Samuel (2. Johnson, "How to Organize for New Products," Harvard Business Review (May-June 1957), pp. 49-62.
BUSINESS HORIZONS
Strategies for New Product Development
Options in the Market-Technology Mix
No Market Change
Strengthened Market
New Market
No Technological Change
No Activity
Remerchandising
New Use
Improved Technology
Reformulation
Improved Product
Market Extension
New Technology
Replacement Line
Extension
Diversification
SOURCE: Samuel C. Johnson and Conrad Jones, "How to Organize for New Products," Harvard Business Review (May-June, 1957), p. 52.
erations the table does not include. There are the categories of industrial, institutional, and consumer, of domestic and foreign, and of specific product use categories, such as deter-
that a team was developed for each sphere emphasizes the positiveness as well as the restrictiveness of the strategy.
gents, shoes, boats.
If a company has any new product strategy, it usually covers this dimension
Degree of Innovation/I rnitation
fairly well. Most industrial firms feel at home
in institutional markets but avoid consumer
This is the third and last dimension on which
51
products (if not at first, then several expen-
most managements have made commitments,
sive exercises later). Involvement in foreign
not because strategic direction is consciously
markets is usually deliberate and, in most
desired so much as because innovative
situations, so is choosing broad product
research requires different scientific staffs.
categories. When the United Shoe Machinery
Thus the product development staff at
Corporation decided to move into other lines,
Mohawk Data Sciences is clearly directed to
all concerned personnel knew it.
taking someone else's new technology and
But this shouldn't imply for a second that
improving, or at least individualizing, it in
strate~es score well on this dimension. In
some way. In contrast, the Cabot Corporation
fact, you can usually start an argument by
is thoroughly committed to innovation and
asking two executives of the same firm if their
takes in fifty times as much money from
firm is attempting to move into closely allied
licensing processes as it pays out. 4
markets or product types which it is not now
Examples of both approaches can be
in. Is the manufacturer of drugs for human
found in Theodore Levitt's "Innovative
use willing to enter the veterinary market?
Imitation," an article in which the world's
Should the soup company market snacks?
leading opponent of myopic marketing
Two years ago Lyle H. Polsfuss, then vice
vigorously pleads for the option of imitation,
president of marketing for Green Giant
though it too requires thoughtful develop-
Company, stated that his top management
ment as well as faithful executions, s
(including the chairman) had delineated the
If a management wants to assume the
specific spheres of interest within which new
high-risk/pay-off character of innovative
product activity would proceed. 3 The fact
3. In a speech, as reported in Advertising Age, (September 1, 1969), p. 51.
4. Cordtz, "Bringing the Laboratory," p. 108. 5. Theodore Levitt, "Innovative Imitation," Harvard Business Review (September-October, 1966), pp. 63-70.
DECEMBER, 1972
C. MERLE CRAWFORD
development, all persons in positions to
The strategy statement of a large pharma-
influence company activities should know it.
ceutical firm contains the expression: "New
This applies to imitation as well, or to any
products must enhance the company's
blend of the two.
stature." It goes on to clarify this by pointing
Actually it may be more complicated than
out, among other things, the need to restrict
a simple innovation/imitation choice. Igor
the number of products that are modified
Ansoff and John Steward recently spelled out
copies of ones already on the market for
a four-point scale of orientation:
which low price would be a primary or
1. First to market.., based o n strong R & D, technical leadership, and risk taking.
2. Follow the leader.., based on strong development r e s o u r c e s a n d the ability to act quickly as the market starts its growth phase.
3. Applications engineering.., based on product modification to fit the needs of particular c u s t o m e r s in m a t u r e markets.
4. Me-Too... based on superior manufacturing efficiency and cost control. 6
tempting strategy.
Particular Promotional Requirements
The range of options here is limited only b y the diversity of marketing tools, but it is customary for marketing people to orient to
those new products which match current
promotional strategy or marketing resource
Price/Quality Ranges
structure. Just as commonly, R & D people
do not-unless they are told.
From this point forward in the consider-
Several years ago, researchers in Wallace
ations, the various dimensions are optional in Laboratories were seeking new drug products
52
the sense that any one firm may or may not
which could be sold by advertising, since, in
find them desirable. Position on the list
contrast to every other firm of significance in
(whether here or near the end) carries no
the industry, Wallace had no sales force.
implications.
Procter & Gamble wants products where
The Campbell Soup Company has an
brand manager skills-advertising, packaging,
outstanding reputation, and cares not to lose it. No surprise then that Campbell's product development people are told: "Prepare and
promotions-can be the deciding factor. Until Metrecal forced a change, Mead
Johnson sought only products which could be
market products that represent superior
promoted ethically through the professional
values to consumers and constantly improve those values. Our products are sound values
health team rather than as proprietaries on television.
because they are made from superior quality
A certain mini-conglomerate which holds
ingredients .... " Value can come from either
a major interest in radio stations wants only
quality or price but Campbell people know
those products which can be effectively adver-
which route they are to take. 7
tised on radio. Still other firms want products
In contrast, many firms take the opposite which (1) can be sold through mass merchan-
tack. Small appliances purchased in the chain
disers where the company is strong, (2) can be
drugstores, for instance, seem to come from
sold by mail, (3) can be carried by route
manufacturers whose position is far to the
salesmen in small trucks, or (4) need be (or
right on the quality/price spectrum.
need not be) sold through state-owned retail
outlets.
The list is literally endless, yet within any
6. Igor Ansoff and John Steward, "Strategies for a Technology-Based Business," Harvard Business Review (November-December,1967),pp. 71-83.
7. Speech by John W. Dodd, Jr., Sixth Annual New Products MarketingConference,Detroit,Mich.,March, 1966.
one firm the necessary or desirable promotional restrictions are apparent to one who observes the marketing operation. One manufacturer of small electrical appliances decided
BUSINESS HORIZONS
Strategies for New Product Development
to redefine his business as any product with included in the policy. The omission was
an electric cord at the end of it. But the promptly corrected; although some firm
resulting flow of product ideas and proto- members probably winced, the statement was
types revealed the folly of not stipulating the necessary in order to save a great deal of time
promotional requirements, including trade in fruitless work. Most frequently, this type
channels, that any new electric product would of provision is directed against any market
have to meet.
which has one dominant leader. In contrast,
at least one company deliberately seeks out
such situations, figuring to catch a fat,
Inside vs. Outside Facilities
complacent competitor getting careless. Some markets are said to have deterior-
Preparing a strategy statement provides the
ated and, therefore, are to be avoided.
opportunity to decide whether the firm will
Perhaps technology is simple and entry is
limit R & D facilities and personnel. Few
e a s y - c u t - t h r o a t pricing is likely to have
operating functions are better than research in
ruined the market. Or perhaps competitive
creeping expenses. Each new piece of equip-
enthusiasm got out of hand and tactics exceed
ment requires operators and materials, and
the bounds of propriety.
new operators inevitably require additional
In contrast to these and other exclusion
equipment. Active in-house research and
guides, competitive conditions can also be
development programs legitimately require all used to define outstanding areas of oppor-
of these things, and it is temptingly easy to be
tunity. One drug company made a tally of
penny-wise and pound-foolish.
innovations in each of the industry's product
Management is obligated to define the
extent of the continuing activity; if the need
categories, seeking as deliberate strategy any in which there had been no significant new
53
for major R & D output is to be sustained, the
product activity for five years. A relatively
expansion of in-house facilities is not only
modest innovation in one such market was
justified but mandated. If R & D expansion is
highly profitable.
not possible or desirable, the strategy must
For any company there are good competi-
allow for this condition.
tive situations and there are bad ones.
Depending upon their strategic value, situ-
ations should be so designated.
Competitive Situations To Be Sought or Avoided
Production Requirements
One classification of caveats that is inevitably present in a new product situation, yet just as often goes unstated, consists of competitive circumstances in markets being evaluated. Unless clarified they can be tragically disappointing.
One company dealing in several toiletries lines rejected numerous reasonably good ideas over a two year period before someone realized what the ideas had in common: all would have pushed the firm into direct confrontation with P & G's important areas. This undisclosed criterion was so basic as to be of strategic meaningfulness, yet it was not
In those rare cases when production requirements are omitted from strategy, they soon get incorporated. The company, for example, which expands to new facilities commonly builds beyond its present needs and then promptly undertakes a search for new products to manufacture. Or equipment may be unique in some way--such as continuous liquid processing, or package filling, or delicate hand assemblies--giving greater value to new items which capitalize on them. One firm simply states that it wants products that
DECEMBER, 1972
C. MERLE CRAWFORD
can be mass produced. But, however stated, failure!s Feelings differ widely on this point,
applicable restrictions should be known.
ranging from the Campbell position (which
may be temporary or standing) to the
completely opposite strategy in which the
Patent Requirements
firm accepts the inevitability of failure on
new products. The latter approaches the
market frequently and fails frequently, but, if
The small New England firm which developed development and market launch expenses are
and marketed Lestoil would no doubt have modest, one success out of every three
welcomed patent protection for it, but the attempts can be highly profitable. This
absence of a patent didn't stop them. As strategy works best, however, when the chief
desirable as a patent is, small firms can take marketing effort is advertising, since frequent
the nonpatent gamble; their investments are new product failures play havoc with sales
small, and they hope they have a product so force morale and customer confidence.
good that the big boys muscle in. Large firms feel quite differently; some go
Occasionally the failure factor is functional, not total. A firm may want to avoid
so far as to deny development funds for any idea which has poor patent probability. Others look beyond patents and stipulate whatever level of protection is desirable.
production hazards or may feel ill-equipped to undertake technically complex quality control procedures. As Bon Vivant found, an outbreak of botulism can threaten a firm's
existence. At least one management has gone
Speed
54
on record as wanting no part in transporting explosive materials.
Product development is a long-term proposition, and most companies recognize the futility and costliness of hurrying things up. There are instances, however, when managements place a priority on immediacy and are willing to take the enormous risks associated with such situations. They can be said to have a short-term time dimension on their newproduct value system. Professional baseball managers do exactly the same thing when they pick up a twelve-year veteran relief pitcher during a pennant drive rather than draft a seventeen-year-old from the farm system. Some firms are in "pennant drives," some are "rebuilding," and some are doing neither. The strategy implications are obvious.
Risk/Failure Factors
Campbell Soup Company may have changed subsequently, but in 1966 its Product Advertising Manager said, "... uppermost in our new products marketing philosophy--avoid
Pay-Back Conditions
Most firms' financial conditions change from time to time, from periods of cash prosperity to periods of cash constringency, yet, the many people involved down the line in new product development are rarely informed of these conditions. Only when some particular idea or completed product is rejected because of the excessive cash drain it would impose (for outside technical development, patent purchase, or introductory advertising) or its slow pay-back are R & D people aware of the overall financial situation.
No one suggests that the new product program should shift gears with every turn of the company's financial condition. But the product development strategy does have the flexibility to absorb some of the setbacks. Ironically, the development departments of high-prestige firms often harbor a few product
8. Speech by J o h n W. Dodd, Jr.
BUSINESS HORIZONS
Strategies for New Product Development
ideas that are idle for lack of glamour but
basic efforts. This may seem arbitrary, as may
which can generate cash for a short-term. Of most of the stipulations in a strategy state-
course the converse set of circumstances also ment; it is in the sense of out-of-hand
exists.
rejection. The limitations should be based,
however, on a careful appraisal of research
opportunities; thus, they are not arbitrary in
Minimum Sales
the sense of casual or flippant. Research design is a gamble, as is all strategy; any
Although it applies only to those situations
resource commitment decision necessarily
where a sizeable fixed expense commitment
rejects certain alternatives. (The criticisms of
attaches to the new product, it nevertheless is this aspect of new product strategy are
not too uncommon to hear management talk of a minimum dollar sales criterion. One
considered later.) Thousands of small manufacturing firms
industry in which this reality must be recog- exist outside the range of inventiveness by
nized is ethical drugs; there each new item is simply making something that others have
usually detailed to doctors and hospitals at created and selling it at a lower price. This is
least once. Every drug firm, then, can not the strategy of innovative imitation.
estimate the share of fixed costs entailed in There is nothing innovative about it. These
the initial sales approach and pretty quickly
firms opt for Me-Too as a total strategy. It is
come up with the minimum level of sales common, however, to find other manage-
necessary to support it. One large midwestern
ments rejecting the identical product
pharmaceutical company uses two million approach. As one president said, "Unless it's
dollars as their minimum. This is profitable an important part of a line which we must
strategy because, if volume is expected to be have, we hold up on duplicates until we can
55
significantly less than this, the detailing effort significantly improve upon them."
should not be pulled off established products.
Other restrictions on competitive position-
ing run the full range: no product price can
increase more than 20 percent, no product
Need for Basic Research
can require significantly more service, no product can be larger, longer, hotter, deeper.
Basic research is enormously expensive while
If these things matter, tell people about it.
making no promises. Most firms avoid it by
including in their strategy statement a pro-
vision stipulating the immediate rejection of any idea which necessitates it. Even those
Product/Service Relatedness
firms with research programs addressed to significant knowledge breakthroughs are wise to ask the basic research question--Are such ideas desirable?-as a matter of course, now and then.
Using a procedure which I suspect is rather common, one electronics firm announced to all concerned personnel that basic programs had been carefully selected and adequately funded; these were to
Increasingly these days, firms are relating their products to systems of use or service. One small midwestern instruments manufacturer decided that his analog and digital computers could best be sold as parts of total measuring and control systems, so he immediately ordered a halt to every development project whose output would not fit this concept. Other firms have decided that service is their best chance of differentiation and so
comprise the company's total research in the speculative unknown. All other new product
seek products with a high service commitment. Still others push in precisely the
ideas were to be rejected if they called for
opposite direction.
DECEMBER, 1972
C. MERLE CRAWFORD
Miscellaneous
statement of new product development
strategy is inhibiting and restrictive.
There is actually no end to the possibilities, as
Supposedly, creative people cannot function
the following might attest:
under such restraints; ideas with great poten-
1. Products which offset a sales or production seasonality problem.
tial are rejected because people who execute strategy lack the broad vision and flexibility
2. Products which utilize some particular raw
of those who set it.
material, one common to that now used,
Critics who take this position do not lack
common to that of a sister division, or incorporating a by-product or even waste material.
for examples. They point out that no strategy could or should have contained Thomas
3. Products to fill gaps in sales calls, such as E d i s o n . Or, h o w m a n y s t r a t e g y s t a t e m e n t s
when a high volume product leads to calls upon a given customer group for which the firm has no other products. New items could
would have rejected the xerographic process or Dr. Land's camera. How many times every
capitalize on the wasted (free) selling time.
day do researchers in various laboratories
4. Products which capitalize on a given technical
around the country glimpse the rough outline
skill, such as the Corning Glass strategy that new items should exploit the firm's excellent glass technology.
of a truly great idea only to reject it immediately as falling outside the firm's scope of
5. Products which avoid certain types of
interest?
markets, such as the drug firm whose executives recoiled from marketing rectal medications.
No one knows, of course, but it's a lot less often than the question implies, for several
6. Coca-Cola wants new products which exploit
reasons:
its outstanding distribution system.
7. Hertz wants products to rent.
1. Most people have adequate range within the
8. Warner-Lambert wants products which can be
56
mass-marketed.
strategy--they don't want for stretching room and are so busy within their range that they
are not tempted by "glimpses" outside of it.
2. Most ideas inhibited by strategy should be
The Knock of Opportunity
inhibited. One role for new product strategy is to stipulate those areas where the firm's
researchers are most likely to find good ideas,
based on the fertility of different fields,
Several objections have been raised against the practice of new product strategy statements.
researchers' capabilities, and the firm's ability to capitalize on different types of ideas. By definition then, other fields are most apt to
Some critics point out the difficulty of
yield only fool's gold.
coordinating an assessment of market opportunities with the company resources and the time involved as obstacles. Others cite the
3. Finally, strategy serves the policy function of a guideline, not a prison wall. Most researchers who are capable of having really great ideas know this and are not adverse to requesting an
bookshelf fate of many strategy statements.
exception. By this means, the issues of
But these concems are more than offset by the reduction in wasted programs and false
strategy interpretation and strategy change are regularly reviewed; an ongoing evaluation process by those who set the strategy is forced
starts, the enhanced morale which comes to
by the appearance of an idea or market change
an organization that is working together, and
which has survived the first-line challenge of
the degree of managerial control that good strategy permits. By clarifying assignments,
established guidelines before it became an issue for mandating change.
management maintains control. Strategy
organizes the thoughts of the corporation,
Like any other policy, new product
provides rationale for decision models, and
strategy operates with two assumptions. The
affords the specific and detailed criteria by
first one is that there will be mistakes, such as
which all new ideas are ultimately evaluated.
the rejection of good ideas, but these errors
The one other major criticism, and the
are more than compensated by the savings of
only really serious one, is that a thorough
the time and effort not spent on inappro-
BUSINESS HORIZONS
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