New Product Development Process
By Leslie Pratch
When I was getting my M.B.A., I outlined what I considered most useful to digest the curriculum and to help classmates who were preparing to interview for consulting firms. Nearly a decade later, I realize these notes may be helpful to first- and second-year M.B.A. students at Chicago Booth or elsewhere who are boning up for interviews with consulting firms. I offer them freely and if they are helpful, encourage your use of them, especially if you are pursuing a leadership position in a consulting firm.
New Product Development Process
(1) Deductive process:
(a) Opportunity identification—identify growing / profitable / vulnerable markets that we have capabilities to serve
(b) Design
(c) Engineering / Advertising / Marketing
(d) Testing
(e) Introduction
(f) Production / Marketing / Distribution
(g) Life-cycle management
(2) Production
(a) Remember the 4 P’s (see post of May 31, 2010)
(b) Inductive culture / environment / incentives / organizational vehicles (e.g., ParcPlace spin-offs, multiple “idea” buyers at 3M) feeds deductive process.
(3) Forecasting Market Penetration
(a) Sales in each period = (some probability) * (number of people who haven’t bought yet) = (Pt)* (Total market size – people who have already bought) = (Pt) * (m-Yt-1)
(b) Penetration gets greater as more and more people adopt the product, that is = (initial probability of adoption) + some dispersion factor) * (% of people already buyers) = (Po) + [q[(Yt – 1)/m]
(c) Initial probability of adoption depends on the number of innovator-customers in the product category (HIGH: COMPUTERS; LOW: EXPERIMENTAL prescription drugs)
(d) Dispersion factor is going to be high for some products (e.g., internet in mid-90’s and other products that demand a “network” of users), and low for other products (e.g., Glide dental floss and other products that are individual, private, and non-image oriented).
The magnitude of these two factors will effect your initial and ongoing pricing decisions.
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Leslie Pratch, Ph.D. is a clinical psychologist with an M.B.A. in Strategy and Finance and a B.A. in Religion from Williams College. She works with boards of directors and private equity investors to select and develop executives. She can be reached at (312) 464-7919 or email her at leslie@pratchco.com or visit www.pratchco.com.
