Chapter 1

1.1.Introduction

Skopje Brewery, as a main player on domestic beer market with market share of over 75%, for many years was trying to create back up for its “cash cow” product, SKOPSKO beer. Following all researches done on the domestic market, the marketing team create long term strategy for entering in the upper, premium segments, introducing the beer “STAR LISEC”, high quality domestic beer with premium price, and several years after, Amstel and Heineken, worldwide well known beer brands. The strategy was successfully completed, the premium segment was completely covered, and the customer’s perception for Skopje Brewery’s products was build on high level as a high quality products, but with premium price.

But the market forces were not moving in the same way with Skopje Brewery’s strategy. Bad economical situation, increasing unemployment, instability, are all factors that influence in decreasing the purchasing power of the customers, that radically change the structure of the market segments. The economy segment becomes dominant on the market, and the quality and premium image that offer Skopje Brewery become irrelevant.

Although total domestic market was increasing, Skopje Brewery’s market share starts to decrease. The main reason is the decrease of Skopsko Beer in packaging of 0,5 litters, due to the launching of competitors economy beers with lower price than Skopje Brewery’s beers.

For that reasons, Skopje Brewery was planning to launch a new beer brand positioned at the economy segment in FYROM.

A whole new product and branding strategy should ensure the long-term profitable growth of the company. Whole branding implementation must deliver better financial performance, along with an increased Return on investment (ROI). Also by exploring brand equity, the assets of the brand should be identified as perceptual, attitudinal and behavioural. As these assets grow, so does the financial value of the brand.

The project will evaluate the new product and branding strategy, recently conducted by marketing team of Skopje Brewery in order to launch new beer brand , discuss the results and propose correction actions.

The literature part will be based on proposed strategies (Merle Crawford, New Product Management, Robert G Cooper, Wining at New Product Management,) and corporate strategies and procedures used by The Coca Cola Company and Heineken.

1.2. Aims and objectives

The aim and objective of the dissertation is to analyse the approaches and methodology of New Product Development. In order to accomplish this purpose, relevant literature is analysed and compared with actually conducted process. NPD process is difficult to manage, but at the same time so vital for the company’s growth and prosperity. Cooper defines the product development process as a disciplined and a set of tasks and steps which a company convert ideas in to products or services. Many essential elements for a company’s long-term survival are related to success in new product development. New product is the most important factor for the companies, because customer needs change rapidly. Competition increases faster between the companies at home and abroad. Competitive pressures forces us to bring new products to market faster, offer them at reduced costs and deliver the products with levels of quality.

The development of new products in a company not only opens new markets and attracts new customers, but also helps the company to enlarge its organization capabilities and to provide higher quality on the final products. This is difficult work to manage and many companies are seeing products development as a core capability of the business. New product development shows necessary stages and activities from idea to launch of new products and if there is no systematic approach to these phases in the company, the failure will be inevitable. The failure in the new product development for a company means additional costs, lost time and customers or markets which are the most essential competence tools for the company in a competitive world.

1.3. Methodology

This dissertation will mainly include qualitative research methods, from secondary sources of information such as academic journals, books, papers, which will help identify areas of best practices. The primary source of information will be collected through interviewing the members of the project team, marketing and sales managers, manufacturing and production managers and other employers who were involved in the process of NPD.

1.4. Expected Outcomes

The outcomes from the primary research will be used to compare with the literature presented and to find out how does the New Product Development process contribute in successful product.

Chapter 2

2. Literature review

The field of new product development is widely researched in a variety of organizations such as universities, consulting firms and manufacturing companies and is located in a wide range of disciplines, including technology management, business policy, marketing and engineering. Much of that research has specifically focused on discovering what organizational, strategic and process-related factors characterize successful new product developments. There is therefore, a wealth of knowledge regarding “successful” NPD, which has been the subject of several literature reviews. A parallel focus of research has been to develop conceptual models of new product development, which might be used by managers to conduct and organize their new product endeavors.

2.1. Types of NPD processes

Saren`s (1984) taxonomy, where he categorized new product development models into five types, is a useful basis upon which to examine the multifactor representation of the new product development process:

1. Departmental-stage models,
2. Activity-stage models,
3. Decision-stage models,
4. Conversion process models,
5. Response models,

The “Departmental stage” models view the new product development process in terms of the departments or functions that hold responsibility for various tasks carried out. For example, in an industrial context, R&D department generate the ideas, the detailed design is then carried out by the design department, and engineering will then “make” the prototype after which production will become involved to work on the manufacturing problems. Finally, marketing department will become involved to plan and carry out the launch. It is now widely accepted that the departmental-stage model is deficient in several aspects: First, there is the likelihood that the prototype differs from the accepted design, the accepted design differs from ideas from R&D, and the prototype requires modification for manufacturing. Second, it is unnecessarily time consuming. Third, it does nothing to foster ownership of, or strategic responsibility for new products, and, finally, there is nothing in the way of market feedback, since marketing is presented with the product to market (Cooper, 1984)

Activity-stage models improve on departmental-stage models in that they focus on actual activities carried out, including various iteration of market testing.

Decision-stage models represent NPD process as a series of evaluation points, where the decision to carry on or abandon the projects is made. This approach underline feedback loops, which, although not impossible within the framework of activity-stage models, are not highlighted either. And yet, such feedback loops are critical, since the NPD process is one of continual refinement, until an ideal technical solution is produced.

Conversion process view NPD as a “black box” in an attempt to eschew the imposed rationality of departmental, activity and decision-based models.The alternative conversion process is a collection of unspecified tasks which may or may not be carried out, depending on the nature of the innovation (Cooper, 1882).Essentially, a series of inputs is envisaged, which, which may be composed of information on customer needs, design drawing or an alternative manufacturing procedure. Over the time, depending on a multiplicity of factors, including human, organization and resource-related, this input is converted into an output. Such a holistic view underlines the importance of information in the process, but has little else to commend it, given its lack of detail.

Response models take change at the beginning of the NPD as their focus, based on the work of Becker and Whistler (1967) who use the framework derived from behavioural psychologists, typified by the perception-search-evaluation-response iteration. These models focus on the individual’s or organization’s response to change such as a new product idea, or R&D project proposals in terms of acceptance or rejection of the idea or project. A number of factors influencing the decision to accept or reject the proposal are helpful to the extent that they provide a new angle on what might otherwise be called the screening stage of the NPD process.

2.2. The Stage gate process:

In the early ‘90’s the stage-gate process became the standard framework or model for product development. The process defined the information flow, and the work flow for the identified elements of product development. Stage-gate implementation included, at a minimum, cross-functional teaming, concurrent engineering, and periodic business reviews. The Product Development and Management Association (PDMA)” research on best practices in NPD shows that nearly 60% of firms in US were using a stage-gate type of process.

While the number of stages may range from four to seven, Cooper’s five stage process provides a good example (Cooper 1991).

Idea

Gate 1: Initial screen

Stage 1: Preliminary assessment

Gate 2: Second screen

Stage 2: Detailed definition

Gate 3: Business plan review

Stage 3: Development

Gate 4: Post development review

Stage 4: Testing and validation

Gate 5: Pre-commercialization business analysis

Stage 5: Full production and market launch

The process begins with an idea for new product. Sometimes the new product idea is technology driven, derived from a new invention or process, sometimes it is customer driven, based on trends in the market place. It may be pure invention, may have been inspired by a competitive product, or may have been suggested by a lead user. Generally, there is a product champion who develops answers to questions such as these in preparation for Gate 1:

What will attract customers to the new product?

How will it improve upon competitive products?

How does the idea fit with company strategy?

Is the market a growing one? How large is the business opportunity?

How feasible is the product development?

Gate 1: Initial screen

When ready, the product champion makes his presentation to the “gate keepers”, who should include seasoned senior management with experience in the area of product development, business analysis, manufacturing and marketing. The possible outcomes of this gate-and the other gates as well-are Go, Kill, Hold, or Recycle. The gate keepers may also make suggestions for the refinement of the idea and will point out key issues that will be examined closely at the next gate.

Stage 1: Preliminary assessment

During this stage, the product champion, now supported by a small team, develops the product idea and its business possibilities in more detail:

Who are the customers?

What are their needs and problems?

What competitive products presently address these needs?

How will the new product improve upon the present ones?

What are the product’s features, specifications, and appearance?

How might the product be implemented?

In the preparing for the second gate, the team should make a concerted effort to get to know its customers. It is a good time to carry out on site customer interviews. These interviews will give the team much more information, both tangible and intangible, about the form the product should take. After the interviews have been completed, the team will distill the material and identify key product requirements. With the completion of the list of key product requirements, the team can finally begin to formulate and compare various implementations of the product. This should give enough understanding of the required design work to complete the remaining deliverables at Gate 2.

Gate 2: Second screen

The gate keepers will now be presented with more detailed information, some of it provided by representatives from marketing, manufacturing and sales. If the company finds itself with many new ideas competing for consideration, the gate keepers will not only judge this particular product idea on its own merits, but will compare it to other proposals. They may use weighted scoring of the deliverables to facilitate comparisons. Receiving a Go at the second gate will move the product into a higher level of company commitment, where greater investments will be made. Because the gate keepers are senior management, they can immediately dedicate the necessary funds and resources as work begins on the next stage.

Stage 2: Detailed definition

The major activity of this stage is to define the product more thoroughly. The team will create a product specification covering all the key features and stating the required performance level. Deliverables of this stage include: Market research to improve the estimate of market size, Analysis of the competition and their products, Business plan covering development costs, projected costs of sales, and return on investment and manufacturing feasibility review.

Gate 3: Decision on the Business Case

At gate 3 the project is entering in the development stage. This gate involves a review of each of the activities in Stage 2 and checking that the activities were undertaken, the quality of execution was sound, and the results were positive. At this gate the full project team is appointed, headed by a leader with authority.

Stage 3: Development

This is the stage where development plan is executed and implemented, and as a final result there is a lab-tested prototype of the product. On the other side, detailed test plans, market launch plans, and production or operations plans are developed. An update financial analysis is prepared, while regulatory, legal and patent issues are resolved.

Gate 4: Postdevelopment Review

Post development review is following up the progress of the product and project. In this gate we receive confirmation that all development steps are undertaken, completed, and that the product has the original definitions stated in previous stages.

Stage 4: Testing and Validation

At this stage several tests are under taken in order to check the product itself, the production process, customer acceptance, and the economics of the project.

Gate 5: Precommercialization Business Analysis

This is the final gate prior to fully commercialization of the product. It is the final point at which the project can be killed. Criteria for passing the gate focus largely on expected return and appropriateness of the launch and operations start up plans.

Stage 5: Full Production and Market Launch

The final stage that involve market launch plan and production (Cooper, 1986).

The process divided development in to phases. There are review points at the end of each phase. If the certain prerequisites had been met then the next phase could be began. The method is more than a measurement and control methodology designed to ensure that the proceedings as it should and every activity of the phase was completed on time. The system brought discipline, reduces the technical risks and ensured the completion tasks. The stage gate process involves activities from many different departments in the cooperation. Any department does not own stages. Instead of it all departments are on the field of the process together and are active players on the project team.

2.3. General NPD model

2.3.1. Product Innovation charter

The Product innovation charter is the recent spin-off of the strategic planning process. From the strategic planing process have come approved directions for the established functions – marketing plans, production schedules, financing requirements and budget for specific R&D projects. The PIC is designed to guide the organizations cross functional subset of activities charged with developing new products, and to give clear direction to the diverse personnel involved in new products. The Product Innovation Charter, which larger and better managed medium and small firms use, contains the following sections:

• The target business arenas that Product innovation is to take the firm into or keep it in.
• The goals or objectives of product innovation activities,
• The program of activities chosen to achieve the goals.

2.3.2. Concept generation

Finding the right people, training them and creating an environment where these people will work are some of the tasks that management has to undertake In order to prepare the organization for concept generation. In order to generate concepts for new products, two methods exist:

• Acquiring ready made concept,
• Tailor made concept.

The sources in both the ways of concept generation are technology, end users, team, other insiders and other outsiders (Crawford and Di Benedetoo, 2000). The most common approach in concept development is the Problem based one. The techniques which are commonly use in order a problem to be identifies are: Inputs from technical and marketing department, search of internal records from sales calls, product complaints, customers satisfaction, problem analysis and scenario analysis. In this method group creativity, brainstorming and disciplines panel techniques are also used.

Except from the problem-based method, other methods called analytical attribute approaches are used which capitalize on the concept that any future change in a product must involve one or more of its current attributes (Crawford and Di Benedeto, 2000). These market research techniques are used to analyze customer perceptions and tradeoffs and to generate promising product concepts.

Perceptual gap analysis is a quantitative technique with great power under certain circumstances. Its maps of the market are used to determine how various products are perceived by how they are positioned on the market map. On any map the items plotted tend to cluster here and there, with open space between them. These open spaces are gaps indicated an empty space for new product. Another quantitative technique is the trade-off (conjoint) analysis. It refers to the analysis of the process by which customers compare and evaluate brands based on their attributes or features. It is based on the idea that if somehow customer’s preferences could get for each attribute separately, it could combine the best level of each attribute into an overall favorite product.

Except of quantitative techniques, exist qualitative techniques, which are: Dimensional analysis, which uses any and all features, not just measurements of dimensions. The task involves listing of all features of a product type. The mere listing of every such feature triggers product concept creativity because we instinctively think about how that feature could be changes. Relation ship analysis is carried out via the use of two-dimensional matrix and the morphological matrix. Both of them require respondent to find relationships among dimensions to generate new product concept.

2.3.3. Concept/Project evaluation

The next step is concept evaluation. It consists of concept testing which mean that new product development team has to identify if the concept is in conjunction with customer needs. Perceptual mapping and conjoint analysis are two pre-screening methods that are used in order to analyze the market needs and preferences, to segment the market according to benefits sought and to test how well the concept is accepted by the market (Crawford and Di Benedeto, 2000).

The second step, after concept testing, is full screening, which is the last low-risk evaluation. Its task is to help in deciding weather technical resources should be devoted to the project, to enforce cross-functional communication and to help manage the process. Usually used models are Profile sheet and Analytical Hierarchy Process (Crawford and Di Benedeto, 2000). If the concept scores well by whatever criteria each firm uses, it is sent into technical development.

Analyzing the financial outcomes is an issue too. Applying the net present value calculations using discounted cash flow could make financial analysis. A-T-A-R model could be used for constructing a sales or profit forecast.

2.3.4. Product protocol

The Product protocol is a tool that sets the standards about the required output or deliverables of a specific new product program among the functions. It communicates all the essentials to all players and gives to all players’ targets to shoot for. It helps to shortening the process or cycle time and requirements in words the results of which can usually be measured. It makes the development process manageable. A protocol includes information about the target market, product positioning, product attributes, competitive comparisons and augmentation dimensions, marketing requirements and features such as timing, financials, regulatory requirements, and corporate strategy requirements.

2.3.5. Development

The next phase is development. In order this phases to meet its goals it is very important NPD project teams to operate well and to be well trained. There are two types of such teams. One is a higher level, multifunctional group, whose task is to manage the project teams. The other emerging team is a group of experienced new product people whose task is to assist project teams in developing appropriate process to follow.

The first process of this phase is the design process. Design blends form and function, quality and style art and engineering. A good design can play a big role in determining the degree of acceptance for a new product by the customers. Also the critical factor in the phase of development is the time that the product needs in order to reach the market. There are several tools that shortened the time needed the product to enter the market, for example readiness of the resources, avoiding over-engineering, exploring marketing efforts and computers usage.

When prototype comes out from technical development, in most of cases, it is sent to marketplace for a confirmatory concept test. This test is conducting until it is clear that the product fulfill all customers’ needs. In this stage there are three methods:

• Monadic test, where the respondents test single product for a period of time,
• Paired comparison, where use of the test product is interspersed with that of a competitive product,
• Triangular approach, in which the new product and two others are tested (Crawford and Di Benedetoo, 2000).

2.3.6. Launch

Within already prepared marketing plan, this is the stage where the team define the strategic action decisions defining to whom the new product will be sold and how, and tactical decisions defining how the strategic action decisions will be implemented. But in front of full commercialization of the new product, the company should conduct market testing. There are three types of market testing:

• Pseudo sales, which asks potential buyers to do something such as say they would buy if the product were actually available,
• Controlled sale, where the buyer must make a purchase,
• Full scale where the firm decided to fully market the product in a limited basis first (Crawford and Di Benedetoo, 2000)

2.4. NPD procedures at Heineken NV

In order to guide new products towards a successful introduction, Heineken uses certain procedures, which describes the project approach of NPIs. NPI stands for New Product Introduction. NPI comprises the whole process surrounding a change in the product portfolio of a Marketing Sales Unit. The NPI coordination meeting determines whether a change in the product portfolio is an NPI and whether a dedicated project manager will be appointed. NPIs include different types of changes:

§ Promotional or permanent.

§ Product and/or packaging change.

The project team is responsible for execution of an NPI. The project team can give shape to the project activities, provided it takes into account the guidelines laid down in the NPI Procedure. There is an NPI Database in order to help and guide the project team in their activities. The Database consists of:

§ NPI General Database: Database in which all the relevant information relating to NPIs is available, e.g. the electronic version of the NPI procedure and related procedures, all standard NPI documents (templates), minutes of NPI meetings, etc. The NPI coordinator manages the NPI database.

§ NPI Project Database: A Database that is created for each project, which is used by the project team for communication and storing data related to a specific NPI project. The NPI project manager manages the NPI Project Database.

§ Product Portfolio Database: Consist of a list of all the packaging produced by Heineken. The NPI coordinator manages this database. The NPI project managers add new products.

The NPI coordinator and the NPI Management group manage the portfolio of outstanding NPI projects of a Marketing Sales Unit. The project manager keeps the NPI coordinator and the NPI Management group informed about the status of outstanding projects.

2.5. NPI Process

The NPI process comprises the phases described below.

2.5.1. Initiation phase

The Champion has an idea for a new product. If desired, the idea is discussed/reviewed in the NPI Knowledge Committee (general evaluation of technical possibilities/consequences for production). Next, the idea is submitted to the Market Supply Manager. A general feasibility study is carried out and submitted to the NPI Coordination meeting. Sometimes the meeting appoints a project manager already in this phase. The project manager records the result of the feasibility study in a Feasibility form, which is sent to the production location for approval. After receiving the approval, the Marketing Sales Unit can complete the business case. As a result out of this phase we have a Marketing introduction plan, which includes the business case of the new product, approved by the Management team of the Marketing Sales Unit. If approval is not given, the project either stops or need to be worked out in more detail.

2.5.2. Definition phase

After the approval of the Marketing Introduction Plan drawn up by the Champion, the Champion has an intake interview with his Market Supply Manager, the NPI coordinator and Project manager. Next, an intake form is drawn up that will be discussed in the NPI coordination meeting, where the definite appointment of a project manager will take place. The project manager informs the relevant brewery and the relevant Market Supply Manager and organizes kick off meeting with the project team. Next, the project manager draws up a Project Proposal in consultation with the project team, which has to be approved by Marketing Sales Unit. The Project proposal should make the intended result of the project and the manner in which this will be achieved clear to all parties involved. As a result in this phase, the project team has been established, the parties involved, including the relevant brewery, have been informed by the project manager, and a Project proposal, which includes the Activity plan, approved by Marketing Sales Unit has been completed.

2.5.3. Implementation phase

The project manager records all the information on the implementation of an NPI in a Detailed Design that has to be approved by Marketing Sales Unit. If desired, the project manager organizes a kick-off meeting at the production location. The implementation phase ends after the first production. Financial commitments towards external parties can only be entered into after Detailed Design has been approved. If required/desired these commitments can be entered into at an earlier stage after the written consent of the Champion. In all cases, financial commitments should be authorized by means of the investment approval procedure. As a result in this phase, all the agreements (e.g. on price, quality and timing) are laid down in the Detailed Design approved by Marketing Sales Unit. The first production could take place.

2.5.4. Evaluation phase

The project manager draws up the Evaluation report on the basis of the evaluation forms completed by the Marketing Sales Unit and the project team. Points that can be improved are registered and the necessary actions are taken leading to the transfer to regular production. The project manager adds the NPI to the Product Portfolio Database. The final result is transferring the NPI to the regular production.

2.5.5. Roles

Principal – the owner of the NPI who takes the decisions on the contents and result of the project. For many NPIs this is the Management Team of the Marketing Sales Unit that gave the assignment.

Champion – delegated principal of the NPI who can participate in the NPI project team for parts of the project. Together with the project manager the champion is the link with the principal.

Project manager – the project manager is appointed during the NPI coordination meeting and is responsible for the project result. The project manager is the contact for all questions related to the project and reports its status and issues to the NPI coordinator.

Project team – multifunctional group that has been assigned to realize the NPI

Market supply manager – contact within the company for the champion to initiate an NPI. In the event of small NPI projects, the Market supply manager can act as project manager.

NPI coordinator – Manager of the NPI portfolio and responsible for managing the resources within the company that are destined for NPI projects.

2.6. New Product development process at The Coca Cola Company

The Coca-Cola system is looking to accelerate profitable volume growth through the development and introduction of new products. New products represents an opportunity for the company to stimulate profitable growth in the Non Alcoholic ready to Drink category through the extension of the current beverage offerings of Coca Cola System products. For this to happen a culture of co-operation and innovation must pervade the entire system. Pivotal to this is the need for the company to adopt a process that encourages and harnesses the creative and innovative talent within each organization.

The following is a set of guidelines for the development and evaluation of new products. The objective of this process is to outline a consistent approach for the development and evaluation of new product initiatives. The process should:

§ Lead to clear assignment of responsibility for new product development, including delegation of specific tasks to project leaders and focused NPD teams,

§ Facilitate communication at all levels within the system for each NPD project, including learning and best practices,

§ Aid with the definition of, and agreement on, the criteria for the investment in a NPD and its post-launch evaluation,

§ Recognize the risk involved in NPD (including accountability and ownership for a