Executive summary
The report entails an analysis of the process of new product development. Nike Incorporation, which is well established within the sports industry, is used in analyzing the new product development process in organizations. A number of issues are taken into account in the analysis. The introduction outlines a background study in relation to the factors that have motivated organizations to consider undertaking new products.
The aim of the report is also outlined in the introduction part. The second part entails a detailed analysis of the new product development process. The various stages of new product development undertaken by Nike Incorporation are illustrated. The stages evaluated include idea generation, idea screening, concept development and testing, marketing strategy development, commercialization, product development, marketing testing, and business analysis.
The critical success factors for developing a new product are illustrated in the second part. These factors relate to ensuring effective product differentiation, conducting market research and building on the customers’ voices, early product definition, and planning the launch. A reflection on the product development process and the critical success factors is outlined in the conclusion.
Introduction
Global competition is one of the major challenges facing businesses in different economic sectors. To survive in such environment, businesses have to ensure that they become more reliable, responsive, customer focused, and cost-effective. One of the ways through which they can attain this is by integrating the concept of value creation which entails undertaking new product development. This involves a substantial amount of financial investment, making it risky (Eekhout, 2008, p.67).
Literature on marketing has documented that one of the major challenges facing new product development entails the risk of failure (Eekhout, 2008, p. 67). Only a small proportion of all new product developments have succeeded (Verzuh,2003, p.34).
Most new product developments fail between the idea generation and the launching phases. Findings of a study conducted by an American Marketing Advisory firm revealed that the probability of failure of a new product occurring upon being introduced in the market is as high as 80% (Eekhout & Papastathopoulou, 2006, p. 67).
Different factors can increase the probability of failure in launching new products. Some of these factors relate to insufficient marketing analysis, technical problems in the new product, unexpected high cost of production, reaction by the competitors, poorly chosen point of introducing the new product, and non-effective marketing efforts (Eekhout & Papastathopoulou, 2006, p. 70).
This paper entails an evaluation of new product development practices in organizations and how companies can improve their success in new product development.
Analysis of the process of new product development
New Product Development (NPD)practice in Nike Incorporation
Nike Incorporation is one of the most recognized companies within the sports industry (Stonehouse & Minocha, 2008, p.2). Over the years, Nike Incorporation has managed to maintain global market leadership. The Company’s success is associated with its exceptional knowledge of its customers of needs and its effectiveness in new product development. In its operation, the firm has adopted best practices in NPD.
This has significantly contributed to its success. According to Kahn, Barczak, Ann, Ledwith and Perks (2012, p.180), integrating best practices can enable an organization to succeed in NPD. In its effort to improve its competitive advantage through NPD, Nike Incorporation has integrated a number of stages that enables it to develop and launch new products more successfully. The various stages that Nike Incorporation has adopted in its NPD are discussed below.
Idea generation
This is the first stage of NPD. In this stage, organizations conduct a comprehensive screening and evaluation of the various product options presented to them. Firms can source new product ideas either internally or externally. New product and service ideas can result from changes in technology or market forces (Avlonitis & Papastathopoulou, 2006, p. 3).
Internal sources of new product ideas may emanate from the firms’ sales force or the production, research, and development specialists. Alternatively, new product ideas may also be sourced from the top management team (Avlonitis & Papastathopoulou, 2006, p. 3).
In its operation, Nike Incorporation appreciates the fact that customers are a major contributor to the co-creation of value (Ramaswamy, 2008, p.9). As a result, the firm has incorporated the concept of co-creation in its NPD efforts. To create value, Nike Incorporation engages with informed, well-networked, and connected customers worldwide (Prahalad & Ramaswamy, 2008, p.9).
The firm conducts dialogue with its customers individually or by involving thematic communities. Some of the ideas that the firm generates from its customers relate to ideas related to product improvement and options for product customization. For example, Nike organizes competitions in which a select group of customers competes in designing a new Nike shoe (Roser, Samson, Humphreys & Cruz-Valdivieso, 2009, p.6).
Nike also requests its customers to make suggestions regarding improving its products through the website and by creating social networking sites such as Joga.com (Roser et al, 2009, p.6).
Idea screening
This stage entails sifting through the various ideas generated in order to select the most feasible product idea (Schimmoeller, 2010, p.25). To ensure effective screening of the various ideas generated, comprehensive criteria and a set of procedures should be developed.
There are two main stages that are integrated into the process of screening new ideas. The first stage entails checking the product ideas by considering several elements, for example, whether the new product is congruent with the firm’s strategies and long-term objectives (Havaldar, 2010, p. 189). An evaluation of whether the company has sufficient financial and human resources to make the idea successful is also conducted.
Evaluation of whether the new product will benefit the customers or successfully resolve any problem is also analyzed. In its operation, Nike Incorporation has adopted a unique idea screening strategy by developing a creative center called the ‘Innovation Kitchen.’ In the Innovation Kitchen, 75 experienced product designers within Nike analyzed the idea to determine whether the product would improve the athletes’ performance (Collins, 2010, para. 4).
Concept development and testing
If the idea generated survives the idea screening stage, the next stage entails developing the idea into a product concept. According to Havaldar (2010, p.189), product concept refers to the detailed description of the intended product idea in accordance with the customers’ terms. During this stage, alternative product concepts are developed and tested. This is achieved by seeking the customers’ reactions regarding the concept.
Nike Incorporation has also integrated state-of-the-art technologies in conducting market research. Market research enhances the firm’s ability to understand the customers’ needs. Additionally, Nike Incorporation has developed a category product team that is composed of different individuals. These include; sports research experts, engineers, consumers, product developers, designers, marketing specialists, coaches, and accountants.
The category product teams evaluate whether the new idea will be accepted in the market. They also perform other activities, such as preparing a product definition report which outlines the target customers, the desired product features, and the proposed price (Collins, 2010, para. 6).
To ensure effective product development, Nike Incorporation has a Sport Research Laboratory. The role of the Sports Research Laboratory is to ensure that the product developed will be acceptable in the market and that will prevent the target customers/athletes from any sports-related injuries (Collins, 2010, para. 5). In designing its shoes, Nike has incorporated the concept of virtual reality. This is achieved by using 3D digital technology to develop a digital image of the feet.
Marketing strategy development
This stage entails formulating a marketing strategy that will be used in the process of introducing the product to the market. The marketing strategy should take into account three aspects. The first aspect entails an outline of the firm’s target market, the intended product positioning, and an estimation of the expected sales, market share, and profit for the next few years.
The second part outlines the intended product price, distribution, and promotion strategy. It also incorporates the marketing budget for the 1st year. The 3rd part states the expected long-term sales, profit, and marketing mix (Prahalad & Ramaswamy, 2005, p.54).
Business analysis
This stage entails several activities, such as developing a projection of cost, sales, and profit for a relatively longer duration, for example, more than 5-7 years. Other aspects taken into account include the evaluation of the required investment, equipment, working capital, and market development. An evaluation of the market potential and a competitive analysis are also conducted.
The business analysis phase also integrates the costs involved in marketing, conducting product development, and manufacturing (Havaldar, 2010, p.190). To ensure successful product development of its new products, Nike Incorporation conducts a comprehensive business analysis.
A team of employees conducts the analysis with sufficient strategic planning, production, engineering, finance, and marketing knowledge. During the business analysis, the team evaluates whether the product concept aligns with the organization’s long-term objectives. If so, the new product development process moves to the next stage (Havaldar, 2010, p.191).
Product development
This stage entails the actual development of the desired products (Gooderl & Gale, 2006, p.43). Nike Incorporation undertakes its new product development through its research and development department. Nike Incorporation’s R&D department develops prototypes of the desired product, for example, the shoes, which enables it to determine whether the product will be within the expected cost estimates.
The prototype also enables the firm to determine whether the product will align with the predetermined performance parameters. To be effective in its product development, Nike Incorporation conducts market research so as to incorporate the customers’ needs.
Marketing testing
This stage entails introducing the new product to realistic market settings. The product is introduced to a small market segment through the firm’s sales force.
Market testing enables a firm to gather market information which is utilized during the actual launching process. In market testing, Nike Incorporation produces a small quantity of the new product, for example, the sneakers, to avoid possible loss. The information gathered from market testing forms the basis of the decision on whether to continue with its commercialization or not.
Despite Nike’s success in new product development, there are instances where the company failed. For example, the firm did not succeed in introducing an all-leather soccer shoe it had developed. This is because it did not test the products’ performance in cold weather. The shoe sole cracked when the players used it in cold weather (Collins, 2010, para. 7).
Commercialization
This stage entails the actual introduction of the new product to the target market. It is important to ensure effective timing and to ensure that the product is well launched. During the commercialization process, the various activities which were formulated in the action plan are implemented. Some of these activities include conducting introductory promotions and ensuring that the dealers and distributors have sufficient stock.
Success factors in new product development
Developing new products is paramount in firms’ efforts to attain success. To attain this, there are several critical factors that organizations should take into account (Cooper & Edgett, 2006, p.1). These factors influence the outcome of the NPD process. These factors are outlined below.
- Product differentiation– The new product should provide the customers with unique benefits. The new product should also be well differentiated from competing products (Cooper & Edgett, 2006, p.1).
- Conducting market research– Most of the new product development projects do not follow the required process. They move from the idea generation stage to the development stage. This increases the rate of new product development failures. However, it is paramount to ensure that sufficient pre-development homework, such as conducting comprehensive market research, competitive analysis, evaluating the customers’ needs, and the feasibility of the idea is taken into account (Schimmoeller, 2010, p.1).
- Building in on the customers’ voice– New product development projects should be characterized by strong market orientation. The target customer should also be considered a fundamental part of the development process. One of the ways through which an organization can attain this is by integrating customer panels and focus groups. The findings of the market research should form the basis of designing the product. Involving customers is a very strong risk mitigation aspect in new product development (Kumar & Phrommathed, 2005, p.62).
- Early product definition– Before commencing product development, a comprehensive definition of the product should be undertaken. Some of the issues to be taken into account in this stage include defining the product features, target market, performance requirements, the benefits associated with the new product, and the product’s positioning strategy. It should be ensured that the definition of the product is fact-based, which should be confirmed by the project team and the top management team (Cooper & Edgett, 2006, p.2).
- Planning the launching– The success of a new product in the market is affected by how well the market launch was planned. Therefore, a quality launch should be conducted. This can be attained by ensuring sufficient resources for the launching process should be allocated. Additionally, the launch process should be well executed (Cooper & Edgett, 2006, p.3).
- Cross-functional project teams– It is paramount to ensure that the launching process is undertaken by a project team formed from various departments. A strong project leader who will be accountable for the entire project should also be selected.
Conclusion
This analysis has contributed significantly to my understanding of new product development. For example, considering the high rate of dynamism within the business environment, undertaking NPD is vital if a particular organization is to survive in the long term. This is due to the fact that NPD enables an organization to align its products and services with the changing customer needs. The resultant effect is that an organization can enhance its competitive advantage.
The analysis has also contributed to a higher understanding that the success of new products in the market depends on a number of activities. These activities include idea generation, screening the idea, developing and testing the concept, formulating a marketing strategy, conducting business analysis, undertaking product development, market testing, and commercialization. All these stages should be taken into account in the new product development process.
Failure to undertake these activities significantly increases the probability of the new product failing upon its introduction in the market. Similarly, omitting some of the steps also increases the probability of failure.
By integrating the case of Nike Incorporation in conducting the analysis, I have developed a better understanding of the importance of new product development. Over the years, Nike Incorporation has been very successful within the sports industry as a result of effective and efficient new product development.
The analysis has clearly illustrated that the new product development process should be inclusive. This means that it should consider both internal and external stakeholders. Internal stakeholders, such as the employees and the top management teams, and the external stakeholders, such as the target customers, should be taken into account in the NPD.
The analysis has also contributed to a better understanding that the success of new product development depends on several factors. Some of these factors include ensuring early product definition, effective product differentiation, conducting market research, building on the customers’ voices, incorporating cross-functional project teams, and effectively planning the launching process.
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