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CHAPTER 2
LITERATURE REVIEW
2.1 Marketing Management
According to Kotler and Keller (2012:28), marketing is an organizational
function and a set of processes for creating, communicating, and delivering value to
customers and for managing customer relationships in ways that benefit the
organization and its stakeholders. Marketing is very important and playing key role
in the company. Financial success of the company often depends on marketing
ability. (Kotler & Keller, 2012:3)
Coping with marketing required a considerable amount of work and skill.
Marketing management takes place when at least one party to a potential exchange
thinkgs about the means of achieving desired responses from other parties. (Kotler &
Keller, 2012:4) According to Kotler and Keller (2012:28), marketing management is
the art and science of choosing target markets and getting, keeping, and growing
customers through creating, delivering, and comunicating superior customer value.
One of the tasks necessary for successful marketing management is creating
long-term growth in which company must initiate new product development, testing
and launching as part of its long-term view (Kotler & Keller, 2012:27).
2.2 New Product Development
New product development is a vital activity that necessary to be done
continuously by company to be excellence in their business field. According to
Majava (2014:28), there are various reasons for company to conduct new product
development such as strategy, opportunity, competition, short product life cycle,
financial, marketing, customer, technology, internal resource, and supply chain.
Before further discuss about the importance of new product development
(NPD), it is better to find out the definition of product, new product, and new
product development. Ulrich and Eppinger (2008) defined product “as something
sold by an enterprise to its customers”. While according to Cooper (2011), “product
is anything referred to as an external marketplace for sale, use, or consumption. This
includes physical products as well as services”. New product as defined by Belliveau,
et al (G.J. & Adiele, 2012:98), is “a product (good or service) new to the firm
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marketing it. It excludes product that are only changed in promotion”. R.G. Cooper
(G.J. & Adiele, 2012) also explains about new product which defined as new if it has
been in the market in a period of five years, including extensions and major
improvements. Definition of New product development according to Vijaya
(2012:2059), is “complete process of bringing a new product to market”. While
Kotler and Armstrong (2012:284), defined new product development as “original
product, product improvements, product modifications, and new brand that firm
develops through its own R&D efforts”.
In the marketplace, one of the most important value creation processes in
every industry is through new product development. (Popa, Tanasescu, Dinca, &
Nicolae, 2010). An article written by Mei Fang Wu and Pao Long Chang (2013:2533)
said that “Amid intense global competition, sustainability and profitable growth of
firms often depends on product diversity, differentiation and innovation”. Companies
have to be astute in continuously find ways and strategies in order to sustain their
business when face the competition (Uska, 2010:35).
Most companies certainly have their pretentious growth goals (Cooper R. G.,
2011) and to achieve such desirable business growth, Rob Wengrzyn (2015) said that
new product development is one of essential part of company's growth strategy
which will increase growth in sales and market share. In spite of it can be very
expensive and very risky, successful product development is important for any
business if it hopes to exist for a long time (Vijaya, 2012). Even new product
development could be said as the lifeblood of firms and represents the best hope for
growth in the future (G.J. & Adiele, 2012). New product development should be
considered as tool to build competitive advantage and long-term success for
company as well as to prevent any possibility of decrease in product quality and
acceptance by consumers. (Grujic & Grujic, 2012).
Finally, according to several statement about product development above,
researcher concludes that in this globalization era companies in any field of business
is highly dependent on their success in innovation and product development activities
if they want to increase their business growth and sustainable.
2.2.1 Types of New Product Development
Dr. M. Thirumagal Vijaya (2012:2059) defined new product development
into two:
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1. Creation of an entirely new product;
2. Modification or updating from an existing product.
Besides product development, there is term product innovation that actually
also refers to development of product. According to Christine Greenhalgh and Mark
Rogers (2010:4), innovation is defined as the implementation of new ideas to the
products, processes, or other aspects of the activities carried out in the firm that lead
to higher value added and also benefits to consumers.
There are many kinds of innovation. Greenhalgh and Rogers divided
innovation into two, product innovation and process innovation. Product innovation
means the introduction of new product, or significant change in existing product; and
process innovation means the introduction of new process in making or delivering
goods or services. While in the article, Norman and Verganti (2012) focus upon two
categories of innovation for products: incremental innovation and radical innovation.
1. Incremental innovation: Improvements in the given frame of solutions
(doing better than what we already do);
2. Radical innovation: A change of frame (doing what we did not do before).
(Norman & Verganti, 2012:5)
According to two types of innovation by Norman and Verganti, researcher
concludes that incremental innovation is basically the same with Dr. M. Thirumagal
Vijaya’s point of view of product development which incremental innovation similar
with modify or updates from existing product and radical innovation similar with
creates an entirely new product.
In more detail, Norman and Verganti (2012:6) argued that incremental
innovations refers to improve the product performance by small changes in the
product, it also lower the product costs, and enhance its desirability or simply to
announce a new model. And Radical innovation according to Nunez, Reilly, and
Lynn (2011:50), refers to highly innovative products that have the potential
transform future prospects of the company, or the launch of a new industry. Radical
innovation brings new domains, new paradigms, and creates a potential for major
changes (Norman & Verganti, 2012:6).
Generally, most successful products undergo incremental innovation
continuously, reducing the costs, and increasing effectiveness. Therefore,
incremental innovation becomes the dominant form of innovation and important
even though it is not as exciting as radical innovation. However, successful radical
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innovation is rare because of its difficulty, requiring considerable time to be
acceptable, expensive, and limited in capability of company. (Norman & Verganti,
2012:6) But nevertheless, both forms of innovation are necessary.
Another classification of product development in terms of the newness of
product is proposed by Booz, Allen & Hamilton (G.J. & Adiele, 2012:98). They have
suggested six main types of product development:
1. New-to-the-world Products (Discontinuous Innovation)
This product is the result of radical thinking. New-to-the-world product
involves a pioneering effort by company that led to the creation of a
completely new market. (Ferrell & Hartline, 2014:157) For example,
new-to-the-world products are Polaroid camera and Sony Walkman.
2. New Product Lines
New product offering by company but introduced to established markets
(Ferrell & Hartline, 2014:157). Even though the product already exists in
the market, but if firm firstly introduces such identical product into the
market, it can be considered as new product (G.J. & Adiele, 2012:98). For
example, Procter & Gamble’s launch of a national chain of car washes is
a new product line for the company.
3. Addition to Existing Product Lines (Product Line Extensions)
This is a new category of products that complement the company's
existing product line, with new styles, models, features, or flavors (Ferrell
& Hartline, 2014:157). Ferrell and Hartline (2014) also argued that
product line extension allows the company to keep products fresh and
appealing in market with minimal development costs and minimal risk of
market failure. For example, Honda launches their Civic Hybrid car.
4. Improvements and Revisions to Existing Products
According to Crawford, et al (G.J. & Adiele, 2012:99), this type of
product development provides performance improvement or greater
perceived value over the existing products. An example is the design that
changes almost every year in the automobile industry, or the “shampoo
plus conditioner” formulas nowadays.
5. Repositioning
In this type of product development, existing products are targeted to new
markets or new segments (Ferrell & Hartline, 2014). For instance is the
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aspirin that is commonly known as the standard headache reliever, since a
new medical benefits was discovered it is now also positioned as the
preventer of blood clots, stroke and heart attack (G.J. & Adiele, 2012).
6. Cost Reductions
It is a type of product development in which involves modifying products
to offer similar benefits and performance at a lower cost (G.J. & Adiele,
2012). With lower costs, companies could sell products at a more
affordable price for consumers. A firm may also be able to lower the
product’s price by improving manufacturing efficiency or decrease the
price of raw materials. For example, book publishers that converts
hardcover books to a paperbacks or e-books so the price is cheaper.
(Ferrell & Hartline, 2014:157)
The easiest types of new product development based on expert arguments are
the types that aim to reduce costs or improve existing products seeing that the
product technologies and markets are well-known. While the hardest way but the
most profitable (Ferrell & Hartline, 2014:157) is new to the world due to the markets
and technologies are new for the company that impact on the needs of more time and
efforts (Darasteanu & Moskalenko, 2010:13) as well as very high risks (Ferrell &
Hartline, 2014:158).
2.2.2 New Product Development Process
This part will present three models of NPD process which widely used by
various companies today in order to get a thorough insight of NPD process. One of
the models will be chosen in order to be used further for the purposes of this thesis
research. However, before the presentation of three models of NPD it is better to
figure out the considerations to start the NPD.
According to Money Instructor (2015), there are some important things that
need to be considered before proceed product development process:
1. Determine whether or not there is really a need for the product to be
developed. This is one of the most important things company need to do
in introducing product in the marketplace. Company has to be sure that
product will meet the perceived needs and before it company has to do
some research to recognize the existence of the needs.
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2. Find out the saturation level of the market for the similar product. It is
related to competition studying. What company will do for the product in
order to be different than the competitors in case of the market is already
saturated with the like products.
3. Calculation of the cost vs. ROI of the product. New product development
can be very costly. Before start the product development process, it is
very crucial to calculate all the cost that the product development will
generate and compare it with the return that the product will generate
from the revenue of selling the product.
4. Choose the right mix of people on the NPD team that will develop
effectively. Right team to develop the product will ensure that creativity
is balanced with tactical ability to achieve the end result, which is to
create the product that meets a perceived need in the marketplace.
5. Determine the “Go to Market” strategy. It refers to how company will
introduce the product to market and what will company do to ensure that
it will successfully achieve the goals set out for it from the beginning.
6. Beta testing of product. It is important to gather constructive feedback of
product from targeted prospective customers. These feedbacks will help
company ensure that the product is ready to go before it is officially
launch to the marketplace.
NPD defined as a multistage process of design, development, and production
that creates physical products to target markets (Macher & Mowery, 2008:26). The
process begins with an idea to build products that meet specific requirements defined
by the customer and/ or manufacturer, and ends when the product is launched on the
market. It involves several phases and the number and descriptions of the phases
vary from model to model. (Murthy, Rausand, & Osteras, 2008) However, because
different company indeed has different characteristics, needs, and resources, so
model of new product development processes should be adapted to specific condition
in each company (Bhuiyan, 2011:748).
Several detailed models of NPD processes have been developed. One of such
models was proposed by Booz, Allen & Hamilton (Bhuiyan, 2011) which also
known as the BAH model, shown in Figure 2.1. This model underlies most other
NPD models that have been put forward. (Bhuiyan, 2011:748)
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(Source: Bhuiyan, 2011:749)
There are seven sequential stages in this model: new product strategy, idea
generation, screening and evaluation, business analysis, design and development,
testing, and commercialization.
1. New Product Strategy
New product development was linked to the company goals and
objectives. (Bhuiyan, 2011) This will explains the strategic requirements
for new products and provides a reference point for the subsequent stages
of new products development. (Fortenberry, 2013:13)
2. Idea Generation
Search for product ideas that in accordance with the goals and objectives
determined in the previous stage (Bhuiyan, 2011). New product ideas can
be obtained from both internal sources and external sources, it can be
company R&D, employees, from the internal; or distributors and
suppliers, competitors, and the most important source are customers, from
external sources. (Kotler & Armstrong, 2012:285) Every idea should be
welcomed with the consideration that every idea is good and potential.
(Fortenberry, 2013:13)
3. Screening and Evaluation
Screen all the product ideas have been gathered for their match with the
firm’s capabilities and meet the customers’ needs and wants (Ferrell &
Hartline, 2014:158). Through screening and evaluation, companies seek
to narrow down the number of ideas generated during the previous stage
New Product Strategy
Idea Generation
Commercialization
Screening and Evaluation
Testing
Business Analysis
Design and Development
Figure 2.1 Booz, Allen, and Hamilton’s New Product Development Process
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by focusing only on those that offer the greatest potential. The most
promising ideas will be used in the next stage which is business analysis
stage (Fortenberry, 2013). For some cases, in order to test the commercial
viability of the product concept the product prototype will be developed
(Ferrell & Hartline, 2014:158).
4. Business Analysis
At this stage, the most promising ideas will be further evaluated from a
thorough aspects and create a business plan that identify product
attributes, target markets, current and potential competitors, barriers to
entry the market, financial projections (the profits, return-on-investment),
sales volume, market growth, and so forth. Only successful product idea
will be continued to the development stage. (Bhuiyan, 2011:749)
(Fortenberry, 2013:15)
5. Design and Development
On-paper idea that has successfully met the scrutiny from the previous
stages is translated into a product which is demonstrable and can be
produced (Fortenberry, 2013:15). Besides, a full marketing plan is also
developed with aim to acquire resources and collaboration needed for a
full-scale launch (Ferrell & Hartline, 2014:158).
6. Testing
During this final test before launch, company conducts commercial
experiments necessary to validate earlier projections and business
judgments (Bhuiyan, 2011). The market testing is conducted in either real
or simulated situations to determine the product performance relative to
customer needs and competing products (Ferrell & Hartline, 2014).
7. Commercialization
It is a product launch stage with a complete marketing program in which
designed to trigger customer awareness and acceptance of the new
products (Ferrell & Hartline, 2014). In this stage, it is necessary to note
customers’ feedback in order to monitor the new product performance on
market. (Fortenberry, 2013:16)
Booz, Allen and Hamilton (Bhuiyan, 2011:749) found that companies that
have successfully launched new products are more likely to have some kind of
formal NPD process and that they generally pass through all of the above stages.
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Another NPD model was proposed by Griffin & Ebert (2007:312) is quite
similar with BAH model. Griffin & Ebert classified NPD process into seven stages:
1. Product Idea
Product development starts with searching ideas for new products.
Product ideas could come from consumers, sales team, research and
development (R&D), or employees. (Wijaya & Mustamu, 2013)
2. Screening
In this stage, ideas of product that do not fit the ability or corporate
objectives were eliminated. Representatives of marketing, technical, and
production should provide input at this stage. (Wijaya & Mustamu, 2013)
3. Concept Testing
After the idea screened, company conducts market research to get input of
the benefits and price from consumers. (Wijaya & Mustamu, 2013)
4. Business Analysis
After gathering consumer opinions, marketers should do a comparison of
production costs and the benefits to see whether the product meets the
minimum profitability objectives. (Wijaya & Mustamu, 2013)
5. Prototype Development
When company has defined the potential profitability of products,
technical or research and development will create a prototype. This
prototype could be very expensive, which often require tools and
extensive component development. (Wijaya & Mustamu, 2013)
6. Product and Market Testing
From the learning based on prototype, company runs a limited
production. After that, company tests the product to see whether the
products meet the performance requirements. If yes, then the product will
be sold in a limited area. Due to promotional campaigns and distribution
channels that must be established for the market testing, this stage
becomes quite expensive. (Wijaya & Mustamu, 2013)
7. Commercialization
If the marketing testing results are positive, company will start a full-scale
production and marketing. Gradual commercialization that aimed to
deploy products to a wider area will prevent tensions in the early
production capabilities. Conversely, delays in commercialization could
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provide an opportunity for other companies to release competing
products. (Wijaya & Mustamu, 2013)
Griffin and Ebert argued, in order to increase the chances of successful
product development, companies applied some variations from the above seven basic
stages considering this sequential process is not entirely the same for producers of
goods or services (Griffin & Ebert, 2007:312).
The next model which slightly different from the previous two models are
Stage-Gate model proposed by Cooper and Edgett (2010), as shown in Figure 2.2.
Cooper and Edgett (2010) argued that this Stage-Gate model “is a conceptual and
operational road map for moving a new-product project from idea to launch. Stage-
Gate divides the effort into distinct stages separated by management decision gates
(gate keeping). Cross-functional teams must successfully complete a prescribed set
of related cross-functional activities in each stage prior to obtaining management
approval to proceed to the next stage of product development”.
Figure 2.2 Cooper And Edgett’s Stage-Gate New Product Development Process
(Source: Cooper & Edgett, 2010)
There are series of activities (five stages) and decision points (five gates) in
Stage-Gate model. Stages are where the action happens. The members of the project
team conducted key activities to gather information needed to advance the project to
the next gate or decision point. Each stage will cost more than the previous one,
resulting in an incremental commitment. (Cooper & Edgett, 2010)
Below is the explanation of five key stages:
� Stage 0 - Discovery Stage
This is a stage to discover opportunities and generate new product ideas.
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� Stage 1 - Scoping
At this stage, a quick and inexpensive assessment of the technical
advantages of the project and its market prospects was conducted.
According to (Mahmutllari, 2014), information gathered from the
assessments above will provide the base to justify the elimination of some
projects and acceptance of some others.
� Stage 2 - Build Business Case
This stage is critical due to the decision of makes or breaks the project
was made. A feasibility assessment in side of technical, marketing, and
business is conducted and resulting a business case that consists of three
components: product and project definition; project justification; and
project plan. (Cooper & Edgett, 2010) A concept testing is also conducted
in this stage before going to development (Mahmutllari, 2014:15)
� Stage 3 - Development
An important part of the development is to build a prototype and start the
testing with the customers as soon as possible (Mahmutllari, 2014:15).
The manufacturing plan is arranged, the marketing launch and operating
plans are developed, and the test plans for the next stage are defined.
� Stage 4 - Testing and Validation
At this stage, validation of the entire project is conducted: the product
itself, the manufacturing process, customer acceptance, and the
economics of the project. Other important aspect is creation of legal
document in this stage (Mahmutllari, 2014:17).
� Stage 5 - Launch
This is a stage of full commercialization of the product which is the
beginning of full production and commercial launch.
The post-launch review is also considered to be crucial part in this NPD:
� Post Launch Review
Post launch review has purpose to measure the success or the failure of
the product launch; discuss what went well during the launch of the
product and what can be improved in the next product launch
(Mahmutllari, 2014:22). According to (Edgett, 2013), the post launch
review is held between three to six months after product launch.
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There is a gate before each stage. In each gate, poor projects will be rejected
and resources will be allocated to the best projects. At each gate there are criteria to
determine the go/kill and other prioritization decisions. These criteria are usually
organized into a scorecard and include both financial and qualitative criteria. (Cooper
& Edgett, 2010)
As it was stated at the beginning of this section, the NPD model presented by
Cooper and Edgett (2010) which is Stage-Gate model will be used for this research.
2.2.3 New Product Development Team
According to Davis, Chelliah, and Minter (2014), NPD team should be
multidisciplinary in which could provide the required skills and appropriate
representation from functions in organization. They also express that cross-functional
team is the ideal structure for NPD teams which involve representatives from R&D,
operations, manufacturing, finance, marketing and sales. However the involvement
of senior management is very crucial in NPD. Senior management should take an
active leadership role and provide adequate resources for project teams.
Darasteanu and Moskalenko (2010) divided NPD team into four main roles:
1. Top management
Top manager has function of keeping the project on the steady road. Top
management is the starting point of NPD process. Their role is to provide
necessary resources for product development, keep the commitment, and
communicate new product strategy for the business.
2. Project managers
Project manager is one who manages the project. Project manager is the
key person for entire project as their tasks are complex and has to take
numerous decisions which are important for project. Moreover, project
manager has a great responsibility to report to the top management.
3. Product developer/ manager
Product manager is a subordinate of the project manager, but in some
cases the product manager might also be the project manager. Sometimes
at the company, it can be seen that usually they have the same tasks when
the company wants to cut the costs. Product manager plan the strategies,
establishing budget for the product and assuring everything is working
properly and the deadline are on time.
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4. Marketing
Marketing are usually involved in the NPD process from beginning.
Moreover, marketing are involved in every step of NPD process. They are
involved in developing new product idea, market research for the product,
and further they bring the requirements of the customers to the project
and working with business plan. Finally, they lead the launch stage.
(Darasteanu & Moskalenko, 2010:20)
2.2.4 Challenges in New Product Development
In conducting NPD, any challenges or problems are unavoidable issues. The
White Paper Data Station (2012) describes these challenges as follows:
1. Rigid Process: Process that is not flexible enough to reflect the changing
reality of market changes that tries to fit all projects under same process.
2. Poor communication: lack of great communication in NPD. A poor
collaboration and coordination of cross-functional team will certainly lead
to missed steps and excessive work.
3. Hard decision: incompetence to engage management on a quality
discussion of project can lead to poor interpretation of unified criteria and
inefficient review. Without same management vision can cause
investments are often made in poor projects that are misaligned with
organization strategy.
Other challenges according to Davis, Chelliah, and Minter (2014) are the
demand forecasting and tensions between functions.
1. Demand forecasting: It is especially more difficult for the products that
cannot be modeled on demand for existing products.
2. Tensions between functions: Different functional groups have their own
thoughts and perspectives to approach problems. The impact of tensions
could lead to biases in debates of the launch volumes.
2.3 The Product Life Cycle
The product life cycle theory was reviewed with consideration that product
development has a strong relation with it. At a certain stage in this cycle, a product
development has to be conducted in order to be sustained.
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Just like human beings, a product has its life cycle, shown in Figure 2.3.
Product life cycle (PLC) refers to the life of the product on the market in respect with
the business/ commercial costs and sales measures. The product life cycle goes
through several phases, involves many professional disciplines, and requires a lot of
skills, tools and processes. (Vijaya, 2012:2061)
According to Kotler and Keller (2012), life cycle of product is to assert four
things:
1. Products have a limited life.
2. Product sales pass through different stages. Each has different challenges,
opportunities, and problems.
3. Profits rise and fall at different stages of the product life cycle.
4. Products require different marketing, financial, manufacturing,
purchasing, and human resource strategies in each life-cycle stage.
(Kotler & Keller, 2012:332)
Figure 2.3 Product Life Cycle (PLC)
(Source: Kotler & Keller, 2012:332)
Not all products follow all four stages of the PLC. Some products are
introduced to market and die quickly, some products stay at maturity stage for a long
time, and there are also some products that enter the decline stage but can cycled
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back to the growth stage through strong promotion or repositioning. As explained
before, new product development has strong relation with PLC. In innovation, the
new product will start its life cycle in introduction stage, while in development of
existing product the new product will start its life cycle in any stage of the rest life
cycle stages depends on the development made. (Kotler & Armstrong, 2012:297)
2.4 New Product Development From A Global Perspective
While some literature in several previous sections discussed more about the
development of products for domestic market/ specific market that is easier to
identify the detail condition of the market which further will be mentioned as
traditional product development, in this section will provide literature of product
development from a global perspective where the products are sold in several
markets and countries. It is necessary in view of today’s globalization era where
many companies have been engaged in global market. However, even though trend
of globalization has developed all over the world the literature in field of global
product development is still not easy to find.
Brentani and Kleinschmidt (2015:12), argued that product innovation and
trend of globalization are two important and highly interrelated dimensions that drive
business today. The increase on interdependence of world market means that
excellent new product development performance not only refers to the ability to
perform on national scale but also on the ability to perform on a global scale
(Brentani & Kleinschmidt, 2015:12).
As a result from trend towards globalization is the rise of global product
(Wach, 2011:71). According to Warren J. Keegan (2007), global product is product
that is offered in the global market. Some global products are designed to meet the
needs of national market, and also to meet the needs of global market. (Keegan, 2007)
Moreover, one important aspect of global product development process is that it
should consider the requirements from several country markets (Izberk-Bilgin &
Page, 2014).
Darasteanu and Moskalenko (2010) argued, new product development from
traditional perspective is development of new products in order to satisfy needs of
certain market, while new product development from global perspective shifts from
specific markets to global market and satisfaction of some specific customers’ needs
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to global customers’ needs with adaptation when it is required (Darasteanu &
Moskalenko, 2010:82).
In addition, Darasteanu and Moskalenko (2010) also suggest several things
that distinguished NPD process from global perspective and NPD process from
traditional perspective.
� At the beginning of NPD process from global perspective, only ideas that
are appropriate for whole global market will be considered for the
development.
� For the development stage, it could be affected by global strategy that
company acquired. If company uses standardization strategy then the
development stage of the process becomes similar with the traditional
NPD process. But if company needs any adaptation of some marketing
mix elements, the development process should be repeated as many times
as many adaptations are required.
� At the launch stage, global NPD has some differences with the traditional
NPD. The launch stage of the NPD process might be divided into several
parts in accordance with number of the regions where simultaneous
launch are planned.
(Darasteanu & Moskalenko, 2010:83)
2.5 New Product Development and Business Strategy
New product development in company could not be separated from its
business strategy. Tajdivi and Karami (2015) defined business strategy as a long-
term plan for a company which helps it achieves its goals. The goal of business is to
achieve their long-term objectives by using strategic management. (Tajdivi &
Karami, 2015:118)
As the competition increased and rapid changed in several aspects such as
technology have alerted companies about the need to develop new product that is
consistent with or fit the business strategy. It is in order to assuree that technological
resources and capabilities are sufficient to achieve the business goals. (Tajdivi &
Karami, 2015:120)
By achieving the business goals will increase the overall business
performance. Of course overall business performance does not include only one
business process as there are many functions and business process in the company.
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Thus, Ebarefimia (2014) argued in conclusion that NPD significantly affect the level
of business performance. According to Cooper and Kleinschmidt (Adis, Wong, &
Chan Kim Lian, 2008:45), the impact of new product development on the business
included: sales and profits of the business unit, the business success rate, and the
technical success.
2.6 Business Strategy
According to Nickols (2010:2), there are three basic forms of strategy in the
business world, i.e. general strategy (or just plain strategy), corporate strategy, and
competitive strategy.
General strategy refers to how a given objectives will be achieved.
Consequently, strategy in general is concerned with the relationships between ends
and means, that is, between the results we seek and the resources at our disposal.
Usually strategy is terms that come to us from military. Their use in business has
required little adaptation as far as strategy in general is concerned. However,
corporate strategy and competitive strategy do represent significant departures from
the military meaning of strategy. (Nickols, 2010:2)
Corporate strategy defines the markets and the businesses in which a
company will operate. Competitive or business strategy defines for a given business
the basis on which it will compete. Corporate strategy is typically decided in the
context of defining the company’s mission and vision. Competitive strategy hinges
on a company’s capabilities, strengths, and weaknesses in relation to market
characteristics and the corresponding capabilities, strengths, and weaknesses of its
competitors. According to Michael Porter, competition within an industry is driven
by five basic factors:
1. Threat of new entrants.
2. Threat of substitute products or services.
3. Bargaining power of suppliers.
4. Bargaining power of buyers.
5. Rivalry among existing firms.
Porter also indicates that, in response to these five factors, competitive
strategy can take one of three generic forms: (1) focus, (2) differentiation, and (3)
cost leadership. (Nickols, 2010:4)
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2.6.1 Porter’s Generic Competitive Strategies
Porter’s generic competitive strategies are commonly used by firms. Generic
strategies can help organizations to perform better than any other organization in the
industry. (Tanwar, 2013:11) Below are the three generic strategies proposed by
Michael Porter (Kotler & Keller, 2012:73):
1. Overall Cost leadership Strategy: In this strategy, firms emphasize more on
the competition and focus to the low price (Wijaya & Mustamu, 2013).
According to Ritika Tanwar (2013:11), companies is said using overall cost
leadership strategy if they seek and utilize sources of cost advantages and
aims to become low cost producer in industry.
2. Differentiation Strategy: A company that seeks to be unique in its industry
and its products are widely (Tanwar, 2013:11) valued by market is said to use
differentiation strategy. In this strategy, company seeking quality leadership,
for instance, products were made from the best components, were put
together expertly, inspected carefully, and the quality was communicated
effectively (Kotler & Keller, 2012:73).
3. Focus Strategy: When company concentrates on narrow market scope to
avoid tight competition (Wijaya & Mustamu, 2013), seeks a narrow
competitive scope, selects a segment in the industry and tailors its strategy for
serving that segment (Tanwar, 2013:11), gets to know them intimately and
pursues either cost leadership or differentiation within the target segment.
The strategy is termed as focus strategy. (Kotler & Keller, 2012:73)
2.6.2 Product Innovation Strategies
In the book of Paul Trott (2012), there are four broad innovation strategies
commonly found in firms:
1. Leader/ Offensive: The strategy focuses on the advantages to be gained
from a monopoly. This strategy is all about getting the product or service
out before anyone else. This strategy requires a significant research and
development activity and costs, also substantial marketing resources.
2. Fast Follower/ Defensive: This strategy also relies on a significant
technology base in which company may develop improved versions of the
original. These improvements are in terms of lower cost, different design,
additional features, etc. The company needs to be agile in manufacturing,
29
design and development, and marketing which will lead company to
respond quickly to those companies that are first into the market.
3. Cost Minimisation/ Imitative: This strategy is based on being a low cost
producer and achieves economies of scale in manufacture. It is similar to
defensive strategy in which it involves following another company. This
strategy has been employed very effectively in Asia. They have lower
labor costs and provide companies the opportunity to imitate existing
products at lower prices. For example is HP that has achieved its position
in PC market. Originally its PCs were IBM clones but were sold at a
cheaper price and are of a superior quality to many of the other
competitors.
4. Market segmentation specialist/ Traditional: This strategy focuses on
meeting the detail requirements of a particular market segment or niche.
Large-scale manufacture is not usually required and the products tend to
be characterized by few product changes.
(Trott, 2012:216)
2.6.3 Global New Product Development Strategy
There are two global new product development strategies according to
Brentani and Kleinschmidt (2015:19):
� Global presence strategy
It is an international diversification approach in which companies expand
across borders of regions and countries into different geographic locations
or markets. The objective is to be truly global and operates worldwide. To
achieve it companies create global NPD goals, expand the markets,
planned innovation thrust, and commit to the international effort.
� Global product harmonization strategy
New products are standardized (vs. adapted) for world markets
(globalization vs. localization). In globalization, NPD decisions are
centralized, creating products with one worldwide standard, with only
minor adjustments for local markets; while in localization, NPD decisions
are decentralized and products are localized for different country markets.
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2.7 Key Success Factors in NPD
Key success factors are the necessary in management. It is a unique
characteristic, a tool for managers and a description of the major skills and resources
required to be successful in market (Wu & Chang, 2013:2534). Key success factors
in NPD are defined by Ismail et al. (2012) is a variety of factors contributes to the
success of NPD in any firm.
According to Cooper and Kleinschmidt (Wu & Chang, 2013:2541) there are
9 main success factors of new product development with the 4 main factors are:
1. High-quality new product process.
Sharp and early product definition, though Go/Kill decision points, and
quality of execution and thoroughness but provided flexibility.
2. A defined new product strategy for the business unit.
There were new product goals for the business unit; focus areas were
described, the role of new products was clearly communicated, and there
was a long term thrust.
3. Adequate resources of people and money.
Where senior management provided people who are necessary fo the
project (and freed up their time for projects), resources also effort with
adequate R&D funding.
4. R&D Spending for new product development.
Other success factors are:
5. High quality new product teams
6. Senior management committed to, and involved in, new products
7. An innovative climate and culture
8. The use of cross-functional project teams
9. Senior management accountability for the product results
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2.8 Thinking Framework
(Source: Processed by Researcher)
Figure 2.4 Thinking Framework
Literature Study
Data Collection
Result and Discussion
Conclusion
Review Journals and Text books: • New Product Development • Product Life Cycle • Business Strategy
In-depth Interview, Observation, Documentation Study: • NPD Driving Factors and Considerations,
Recent NPD Project, NPD Process, NPD Team, NPD Problems/ Challenges, KSF of NPD, Uniqueness of NPD
• Impact NPD to Business Process • Business Strategy of Candy at Confectionery
BU PT XYZ • NPD Role to Support Business Strategy
Confectionery Business Unit PT XYZ
Conclusion and Suggestion
Start
End
Validity and Reliability of Data
• Credibility (Triangulation & Member Check)
• Transferability • Dependability • Confirmability
Data Analysis
• Data Reduction Analysis • Synthesize