New Perspectives in New Product Development and International Market Entry

Aharon HibshooshDepartment of

Marketing/Decision SciencesSan Jose State University

Department of Inter Disciplinary Studies in the Social Sciences

Bar Ilan University

Some Issues in NPD What are the reasons for success and

failure of new products? What type of NPD Processes should the

firm follow? What form of channel should be

employed in an International Market entry?

What are some barriers hindering the entry of Israeli firms into international markets and penetration there?

Success and Failure of New Products

David H Henard and David M Szymanski “Why some new products are more successful than others”, Journal of Marketing Research, August 2001

A Meta Analysis Based on 60 previous studies on reasons for

success and failure of new products. 24 antecedents have been reported quite

frequently. A taxonomy of the 24 antecedents into 4

factors: Product Strategy Process Market Place.

Factor Characteristics Product: Elements of the offering: Price,

Innovativeness, Perception of Fit. Strategy:Planned actions that have the

potential for competitive advantage. Not including elements of the NPD process, but include general commitment of resources for the NPD, synergies, and timing of entry.

Process: Elements of NPD process and execution. More of a tactical nature. Including: market place adaptation, firm proficiencies and NPD organization.

Market: potential, extent, competitive intens.

The Taxonomy

LecSFNPD.htm

Which drivers are significant? Which are not?

The following do not significantly generalized: Product Innovativeness (r=.24) Technology Synergy(r=.31) Market Orientation (r=.31) Customer Input (r=.43) Cross Funtional Integration (r=.23) Competitive Response Intensity(r=-.08) Cross Functional Communication (r=.09)

Significant and Dominant Drivers The rest of the drivers are significant. Ten drivers are significant and dominant

(r>.40). Within the Taxonomy, these are:

Market Characteristics:(r=.46) Market Potential(r=.54)

Product Characteristics:(r=.43) Product Advantage (r=.48) Product Meeting Customer Needs(r=.50) Technology sophistication of the Product

(r=.41)

Dominant Drivers Cont’dStrategy:(r=.43)

Dedicated Human Resources(r=.52) Dedicated R&D Resources (r=.45) Order of Entry

Process:(r=.37) Marketing Launch Proficiency (r=.43) Task Proficiency(r=.50) Predevelopment Task Proficiency (r=.43)

Conclusions from Meta Analysis All four factors contribute to Performance,

though Process less than others. The control of the factors through a few

specific of the variables is required and sufficient.

Thus for example Market Potential is Generalizable important but Marketing Orientation is not important. Meeting Customer needs is generalizable but Customer Input is not.

Content is more important than format.

Functional Diversity There is a marketing fad that calls for an

increased cross functional integration and cross functional communication as a way to increase performance of NPD. The findings rejects this fad.

Instead, it is suggested that greater functional diversity may be effective for increasing creativity and in the idea generation stage, but not past it.

Perhaps, the lack of technical knowledge and interference in the R&D development is more harmful than contributing.

High Tech conclusions Less important:

Structure less important Being first to market not important

Important Personnel Commitment Fit with the nature of the market:

High tech in High tech market Distinctive Technological Advantage

Strategic Alignment Matching the Product strategies and process

to the environmental context is important in the high tech market.

Strategic Fit and Performance are related. Delaying entry, having less structure, having

more personnel commitment, selling more sophisticated product with advantage over others are important in the high tech context. I.e. aligning Product and strategy and Process elements with the product service context and the technology level of the market place.

Strategic Alignment Cont’d

However, full adaptation in international marketing is not what contribute to the success of NPD. It is rather the adaptation along some selected Product and Organizational lines:Technological sophistication of the product, Marketing synergies, market orientation, and senior level support.

Managerial Perception

Differences between Objective and Subjective evaluation of Performance: product meeting customer needs, dedicated human resources, technological proficiency, reduced cycle times, cross-functional integration.

Managerial Perception Contd.

Differences in performance differ based on whether the data collected by the project manager or the senior manager level. These contribute to discrepancies in the evaluation of correlation with performance of: Order of entry, structured approach, Marketing Task proficiency, senior management support, Likelihood of competitive response.

Qualification

Study of effect of quality on performance has been scanty. So far the evidence is for clear positive effect on Performance.

Separate Modeling of the effect of the idea generation stage and other phases on NPD performance is absent and is desired.

Need for more structurally completed model.

New Product Development Processes

Robert G. Cooper, Scott J Edgett and Elko J. Kleinschmidt “Optimizing the stage gate process: What best-practice companies do-I.” Research Technology Management Sep/Oct 2002

Background

Focus on newest development of the Stage Gate NPD model

A PDMA study found that nearly 60% of firms surveyed use some form of the Stage-Gate process.

Based on a work with more than 500 companies

Third Generation NPD processes.

The different activities are processed in parallel. With the proportion of earlier activity declining gradually.

Flexibility Focus Fluid Stages Fuzzy Gates Facilitation

The Stages Scooping: A quick investigation and sculpting of

the project Building the business case: The detailed

homework and up front investigation leading to a business case: a defined product, a business justification and plan of action for the next stages.

Development: the actual design and development of the new product. The manufact./ operation process is mapped out. Marketing launch and operating plans are developed and next stage tests plans defined.

The Stages Contd’

Testing & validation: Verification and validation of the proposed new product,its marketing & production.

Launch: Commercialization of the product, the beginning of full production and commercial launch and selling.

Fourth Generation

Adding a Discovery Stage at the front end of the process to to generate breakthrough product ideas.

Harnessing Fundamental Research Effectively

Improving Project Selection through effective Go/Kill decision points and project synergy.

Idea Capture and Handling Gate 1: middle level management. Cross

Functional. Frequency of meeting monthly or bimonthly. Formal Scoring. Visible Criteria

Idea to and through Focal Person only (except for free time)

Written feedback to assure continuation of idea stream.

If Go is decided sub committee moves the project to the next Scoping Stage. The committee has the authority to authorize funds.

Idea Capture and Handling Contd’

If Kill or Hold the idea is stored in Idea bank.

The rejected idea is visible to employees who can offer suggestions for improvement.

The (Rejected) Ideas Bank content is reviewed periodically for reconsideration.

Voice of Customer Research

Focus on Problems not on solutions or requests. Do not ask what new features or new products they want.

Reverse Brain storming Camping out with Customers

Working with Lead Customers Products reflecting market trend are often

identified and even prototyped by lead users in the targeted industry. Lead users are rare and need to be tracked down ( a four steps and process)

1. Identifying target market and company goals for innovations in this market.

2. Determining the trends by talking to people who have a broad view of emerging markets and leading edge applications.

3. Identifying lead users- a networking and referral process

Working with Lead Customers

4. Developing breakthrough applications by hosting a workshop with lead users and key in house tech and marketing people. (in this step first meet in small groups and then as a whole to define innovative product concepts.)

The Value of Scenarios

A range of Scenarios Relevant Dimensions of Scenarios Follow with key Decisions

Harnessing the Entire Organization Creativity

More Productive Fundamental Research Stage- Gate TD. Output new knowledge

or capability Focus on strategic rather than financial

criteria: Degree of strategic fit and Strategic

importance Strategic Leverage Potential for reward (return and risk) Likelihood of Commercial Success

Cooper’s Critical Success Factors Seek Differentiated Superior Products Up-front homework pays off Build in the Voice of the Customer Demand sharp, stable,early product definition Plan and resource the market launch early in

the game Build tough Go/Kill decision points into your

process_ Organize around true cross-functional project

teams Attack from a position of strength

Cooper’s Critical Success Factors Contd.

Build an international orientation into your new-product process

The role of top management is central to success

International Market entry Choice of Strat Ups in the High-Tech industries

Oliver Burgel and Gordon C. Murray “The International Market Entry Choices of Start UP Companies in High Technology Industries” Journal of International Marketing Vol. 8. No. 2, 2000, pp 33-62

A Study of Market Entries A sample of 362 UK firms, independently

owned and less than 10 years old. Retained for the study 246 firms with

international sales (67.9%). 92% operate in the technology intensive or

knowledge intensive areas 15% of sales spent on R&D. Typical firm:

Began with 5 employees Six years old. Have after 6 years 22 employees

International Operations % of international revenue

Median 30% Mean 38.4%

Number of countries entered mean=10, median=6

Years before first international sales mean= 2.2 median=2

Theoretical Bases for Explanation

Process (Stage) Theory TCA (Transaction Costs Theory) OC (Organizational Capability Theory)

Hypotheses H1: Firms that sell into foreign markets

through intermediaries are larger than firms that export directly to end customers.

H2: Firms that sell into foreign markets through intermediaries are more experienced in international operations than firms that export directly to end customers

Hypotheses cont’d

H3: Managers of firms that sell into foreign markets through intermediaries will be more likely to have international experience than managers of firms that export directly.

H4: Firms will sell into foreign markets through intermediaries rather than export directly if they already use distributors for their domestic sales.

Hypotheses Cont’d

H5: The production of firms that sell into foreign markets through intermediaries are technologically more mature than those firms that export directly.

H6: The products of firms that sell into foreign markets through intermediaries require less client-specific customization than those firms that export directly.

Hypotheses Cont’d

H7: The pre- and after sales transaction costs of products sold into foreign markets through intermediaries are higher than the the costs of products that export directly.

Probit Analysis

Dependent Variable: distributor/ exporting

Independent Variables: Size Tech intensity measured by maturity of

technology and transaction costs Market characteristics – size of country,

GDP and country risk Innovativeness of the technology Experience of firm-- in years

Variables

Experience of managers –a dummy Industry specific effect-a dummy Degree of Customization Domestic distributors channel

Models

Probit Models Model 1. Current Entry Model 2. Unchanged Entry Model 3. Entries accounting to at least

10% of the firm revenue Results are significant at Pvalue

exceeding .0001, with a classification rate of 70% versus 55% maximum chance criterion.

Hypotheses Testing H1: Firms that sell into foreign markets

through intermediaries are larger than firms that export directly to end customers.

Accepted, though the impact is small

H2: Firms that sell into foreign markets through intermediaries are more experienced than in international operations than firms that export directly to end customers.

Rejected. No significant association with any mode

Hypotheses Testing Contd’

H3: Managers of firms that sell into foreign markets through intermediaries will be more likely to have international experience than managers of firms that export directly.

Rejected. Just the opposite. Negatively related to the use of intermediaries

H4: Firms will sell into foreign markets through intermediaries rather than export directly if they already use distributors for their domestic sales.

Accepted. Strongly Supported. Greatest effect on mode choice than any other variable.

Hypotheses Testing Contd’ H5: The production of firms that sell into

foreign markets through intermediaries are technologically more mature than those firms that export directly.

Rejected. Curve Linear Relationship.

H6: The products of firms that sell into foreign markets through intermediaries require less client-specific customization than those firms that export directly.

Accepted

Hypotheses Testing Contd.

H3: Managers of firms that sell into foreign markets through intermediaries will be more likely to have international experience than managers of firms that export directly.

Rejected. Just the opposite. Negatively related to the use of intermediaries

Hypotheses Testing Contd.

H4: Firms will sell into foreign markets through intermediaries rather than export directly if they already use distributors for their domestic sales.

Accepted. Strongly Supported. Greatest effect on mode choice than any other variable.

Hypotheses Testing Contd’ H5: The production of firms that sell into

foreign markets through intermediaries are technologically more mature than those firms that export directly.

Rejected. Curve Linear Relationship indicated.

H6: The products of firms that sell into foreign markets through intermediaries require less client-specific customization than those firms that export directly.

Accepted

Hypotheses Testing Contd’

H7: The pre- and after sales transaction costs of products sold into foreign markets through intermediaries are higher than the the costs of products that export directly.

Rejected. Insignificant effect

Managerial Implications

Advantage of domestic channel Degree of Customization rather

than resource level is affecting entry decision

Value of close cooperation with a distributor as a risk reduction strategy