Reasons For Choosing New Product Development Marketing Essay
NIKE, Inc. is American Multinational Corporation, the worlds leading innovator in athletic footwear, apparel, equipment and accessories. The company is headquartered near Beaverton, Oregon; The Company was founded 1964 as Blue Ribbon Sports by Bill Bowerman and Phil Knight, and officially became Nike, Inc. on May 30, 1978. The company markets its products under its own brand, as well as Nike Golf, Nike Pro, Nike+, Air Jordan, Nike Skateboarding, and subsidiaries including Cole Haan, Hurley International, Umbro and Converse .
In addition to manufacturing sportswear and equipment, the company operates retail stores under the Nike town name. Nike sponsors many high-profile athletes and sports teams around the world, with the highly recognized trademarks of "Just Do It" and the Swoosh logo.
The company mission aim to bring inspiration and innovation to every athlete in the world. (www.nikeinc.com)
1.2 Objective of the study
To evaluate the strategic decision new product development has had an impact on the significant financial performance and how an organization can improve its decision making process.
1.3 Research questions
What are the impact of financial performance in facilitating decision making
Evaluate the potential for and use of best-in-class benchmarking to support the decision making process.
Evaluate alternative source of finance that available to organization.
How does an organization use financial data, techniques and tools to evaluate long term decision making
Evaluate the sources, consequence of risk associated with decision and how can be minimized
1.4 Reasons for choosing new product development
I chose new product development; because of the changes in technology and innovation of product increase in the market, company’s need to diversify their product range seek to increase profitability of the company through greater sales volume that the company obtained from new product development in the markets, and continue be competitive.
Availability of primary data and in ability to carry out interviews or circulate questionnaire.
Reliability of information in various website and insufficient materials from books and other sources.
2.0 LITERATURE REVIEW
Concerned with materials related to the problem, consist of introduction, stages of new product development, theoretical literature review and empirical literature review.
Companies need to grow their revenue by developing new products and services and expanding into markets. New product development help the company focus on future, improved performance, due to that Firms trying to come up with creative ways to develop new product and more efficiently aim to satisfy the customer needs. Marketers also playing a key role in the development of new products by identifying and evaluating new product ideas and working with research and development and other areas in every stage of development, help the company reduce risks.
Although new product development becomes a challenge for many firms especially small firms due to lack of finance, funds, resources availability and failure to do research and development.
2.1 THEORETICAL LITERATURE REVIEW
According to Booz, Allen & Hamilton, 1982, Journal of Industrial Engineering and Management, New product development process consists of the activities carried out by firms when developing and launching new products. A new product that is introduced on the market evolves over a sequence of stages, beginning with an initial product concept or idea that is evaluated, developed, tested and launched on the market. This sequence of activities can also be viewed as a series of information gathering and evaluation stages. In effect, as the new product evolves, management becomes increasingly more knowledgeable (or less uncertain) about the product and can assess and reassess its initial decision to undertake development or launch. Following this process of information gathering and evaluation can lead to improved new product decisions on the part of firms by limiting the level of risk and minimizing the resources committed to products that eventually fail. Its process differs from industry to industry. Indeed it should be adapted to each firm in order to meet specific company resources and needs.
Stages of New Product Development.
Booz, Allen and Hamilton (1982) 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.
2.2 EMPIRICAL LITERATURE REVIEW
The researcher tried to relate the study with the same or similar studies done by other researchers.
According to brown and Eisenhardt, Academy management review, 1995, argued that literature on product development continues to grow. Product development is critical because new products are becoming the nexus of competitive for many firms (e.g., Clark and fujimoto, 1991). In industry ranging from software to cars, firms whose employees quickly develop exciting products that customers are anxious to buy are likely to win; also product development is thus a potential source of competitive advantage for many firms.
It’s important because probably more than acquisition and merger, its critical means by which members of firms diversify, adapt and even reinvest their firm to match evolving market and technical conditions (e.g., schoonhoven, Eisenhardt & lymam, 1990), thus product development among the essential process for success, survival and renewal of organizations, particular for firms in either fast- paced a competitive markets.
Overall their article attempts to contribute an understanding of past literature, a model of current thinking and a vision for future.
They begin by organizing the empirical literature on product development into three streams: product development as rational plan which emphasizes that successful product development is the result of careful planning, good management, second communication web emphasize communication among projects teams and with outsiders stimulates the performance and third disciplined problem solving in this case, successful product development is seen as balancing act between relatively autonomous problem solving by the project team and discipline of a heavyweight leader, strong top management and an over aching product vision.
their article has three conlusion where by one is that the product developmemnt literature can be organized into three streams of research these are product development as rational plan, communication web and disciplined problem solving, and highlighted these streams of research as well their key findings strenghs and weakness. Second they conlude that these streams can be synthesized into a model of factors that affecting product development success and third there are research implication for the future based on the mixture of support for various findings in the model.
3.0 RESEARCH METHODS
Consist of the methods and approaches that the study is going to apply in conducting the research. It involves research methodology, data collection methods and technique, primary data, secondary data and method of collecting data.
3.1 RESEARCH METHODOLOGY
The Advanced Learner’s Dictionary of Current English Oxford, p. 1069, lays down the meaning of research as “a careful investigation or inquiry especially through search for new facts in any branch of knowledge.” Redman and Mory, 1923 p. 10 define research as a “systematized effort to gain new knowledge.” (C. R Kothari, 2004: p.1)
3.2 Data COLLECTION METHODS and technique
Different methods will be employed depending on the data sources. The relevant data will be collected effectively using the different main techniques such as interview, questionnaire, documentation review and observation.
The methods of collecting primary and secondary data differ since primary data are to be originally collected, while in case of secondary data the nature of data collection work is merely that of compilation. (C.R Kothari, 2004: p.95)
3.2.1 Primary Data
These are the original observations collected by the researcher or his agents for the first time for any investigation and used by them in statistical analysis. Once the primary data has been used it loses its original character and becomes secondary data (Singh 2003). It is a method of data collection in which the researcher will be involved physically in the exercise of data collection. Primary data will be collected through interview, observation and questionnaire.
3.2.2 Secondary Data
Any data which have been gathered earlier for some other purpose is secondary data. Thus, primary data collected by one person may become the secondary data for another person e.g. demographic statistics. The major advantage of using this type of data it is that, it is for more economical as the cost of collecting original data is saved and also at times is used as basis comparisons with the primary data the research has previously collected. (Rajendra 2008)
3.3 METHOD of collecting Data
Due to the limited and short time I decided to use secondary data because it’s easy to access information of the company in various source such as magazines, Reports prepared by research scholars, universities, speech, company website.
4.0 RESEARCH FINDINGS
4.1 The impact of financial performance in facilitating decision making
Financial performance can influence the company strategic decision making process whereby company need to interpret and identify the key financial performance ratio analysis to evaluate organization financial statement, Due to that company need to evaluate its financial performance first before making its strategic decision whether to develop new product and expanding into markets.
The important of financial performance helps organization planning and focuses on the future, also help organizations do research and development.
Ratios can be used to examine various aspect of financial position performance and are widely used for planning and control purposes and also help managers in variety decision making areas.
Accounting ratios is used to describe significant relationship between figures shown on a balance sheet in a profit and loss account, in a budgetary control system or in any other part of accounting organization. Accounting ratios thus show the relationship between accounting data.
Ratios analysis Helps in planning which can assist management in its basics functions, Guide towards better decision making and Facilitates inter-firm comparison and assist in setting best possible benchmarking.
4.2 NIKE, INC OPERATING financial performance
Nike financial performance keeps on increasing this is due to manufacturing of quality products, technology and design. over the past five years the company revenue performance keeps on growing from 2007 up to 2011 fiscal year show the company increased and see the company obtain profitability due to strong demands of Nike product which lead to growth of Nike revenue and this help the company focus on flexible portfolio that allows targets the biggest growth opportunities at all levels.
Below, the graph shows the company revenue performance has increased for five years.
4.3 FINANCIAL RATIO CLASSIFICATION.
Ratios can be grouped into categories, each of which relates to a particular aspect of financial performance or position. There are five of them
Profitability ratio- generally business exist with the primary purpose of creating wealth. This ratio provides an insight to the degree of success in achieving this purpose.
Profitability ratio may be used to evaluate profitability of the business.
Efficiency – used to measure the efficiency with which particular resources have been used within the business, also referred as activity ratios.
Liquidity- vital to the survival of a business that there are sufficient liquid resources available to meet maturing obligations. Some of these ratios examine the relationship between liquid resources held and amount due for payment in near future.
Financial gearing- is the relationship between the contribution to financing the business made by the owners of the business and the amount contributed by others in the form of loan. The level of gearing has an important effect on the degree of risk associated with a business.
Investment - certain ratios are concerned with assessing the returns and performance of shares in a particular business from the perspective of shareholders who are not involved with the management of the business(Mc laney, Atrill, 2008)
Accounting ratio - all numbers in THOUSANDS
Gross profit margin relates the gross profit of the business to the sales revenue generated for the same period. It represents the difference between sales revenue and the cost of sale. (Accounting: an introduction, 2008)
Gross profit margin = gross profit X 100%
= 2530 X 100%
= 42.5% (in 2012)
Gross profit margin = gross profit X 100%
= 2376 X 100%
= 42.8% (in 2011)
This shows that the company operating gross margin has decreased from 2012 compared to 2011
Current or working capital ratio; measure the adequacy of current asset to meet the current liability as they fall due.
= current assets = current assets
Current liabilities current liabilities
= 11435 = 11049
= 3.0 (2012) = 3.1 (2011)
The company working capital ratios decrease from 2012 compared to 2011 where by company obtain high margin.
Quick ratio; also known as the liquidity ratio because by eliminating inventory fro current assets it provides the acid test of whether the company has sufficient resource to settle its liabilities.
Quick ratio = current assets – inventory
= 11435-3318 = 11049- 3035
= 2.1:3 (2012) = 2.2: 2 (2011)
It varies from 2012 compared to 2011, where by liquidity decreased from 2012 compared to 2011
Return on capital employed (ROCE) - fundamental measures of business performance. It expresses the relation between the operating profit generated during a period and average long- term capital invested in business during that period.
It considered by many to be primary measures of profitability. It compares input (capital invested) with output (operating profit). (Mc laney, Atrill, 2008)
ROCE= profit x 100%
= 384 x 100% = 469 x 100%
= 2: 5% (2012) = 3: 2% (2011)
This show that ROCE in 2012 was decreased compared to 2011.
Operating profit margin- relates the operating profit for the period to the sales revenue during that period. (Accounting: an introduction, 2008)
= PBIT X 100% = PBIT x 100%
= 384 x 100% = 469 X 100%
= 6:4% (2012) = 8:4% (2011)
The company pricing strategy and operating differ from 2012 to 2011, profit margin decreased from 2012 compared to 2011.
4.4 Nike new product development – energy drink
Company needs to be innovative in order to continue being competitive in the market, also need to develop exciting product development that will satisfy the customers need and buy it. New product development becomes a source of competitive advantages for many firms and it’s also important because it’s essential process for success, survival and improves performance.
As being one of the world’s leading innovator in athletic footwear, apparel, equipment and accessories will help the company introduce its product development to the market, the company can engage in soft drink (energy drink) as their new product development and this will help the company capture the market because Nike will be able to use their athletic in different sports to support their product during in sports and outsides sports as their favorite energy which help maximize their performance and energy.
4.5 USE OF BENCHMARKING TO SUPPORT THE DECISION MAKING PROCESS.
Recently years, benchmarking concept has made an impact in business, organization learn from the best who perform better which help identify areas and means of improving performance.
Benchmarking an activity usually a continuing on where business, or one of its divisions, seeks to emulate a successful business or division and also achieve a similar level of success. (Mc laney, Atrill, 2008)
Barriers to Successful Benchmarking include unexamined core business processes, inadequate people or technology resources and inadequate follow-up training.
Nike can use lucozade as their benchmark to learn the best practices and identify areas and means of improving performance on their new product development. Lucozade already dominate the sport industry represent name of series of energy drink produced product which help athletics and other customers maximize their performance.
Flavor and variants depends on the company choice, the use of research and development help the company in its decision making, the use of athletics help determine the customer needs and also help the company advertise their product, through athletics and professional teams it attract other customer to consume their product as well.
4.6 ALTERNATIVE source of finance available to organization
Different ways to raise finance for their business, large organization use different variety source of finance available compared to those small organization.
Company need ensure proper source of finance are available in order evaluate different strategic decision making by the company both internal and external sources aim to avoid risks
Companies issue debt or equity in the capital to raise money, but that capital can come in different forms. Issuing equity or stocks expands the ownership of the company to public shareholders. Borrowing money from the public is a form of debt issuance, and this is accomplished through issuing bonds. Companies decide on equity or debt depending on the purpose for raising the money, while investors decide which one to invest in based on goals. (Kofi Bofah, eHow Contributor)
Although the company pays a lot of money to athletics to sponsor their product but also obtains higher margin returns on their products. Nike inc, obtain their revenue from different source of finance, source of finance available the revenue came from direct sales to customers, sales of Nike brand and equipment, revenue from stock(investors) and sales from other business which represent activities of converse, Hurley and Nike Golf.
4.7 The use of financial data, techniques and tools to evaluate long term capital decision
Different tools and technique can be used by the company to evaluate its long term strategic decision making. The use of proper tools and technique help increases the performance and higher returns.
Suitability can be used to evaluate its long term capital decision whereby it deals with the overall rationale of the strategy; Different tool can be used to evaluate suitability such as Decision trees.
Organization should concern strategic fit in evaluating strategic investment opportunities by concerning the matching of the strategies and mission of an organization to the environment both internal and external, PESTEL analysis. Strategic investment can be used to exploit core competence which shows strength and strategies that organization combined together that allows business to be competitive.
Companies also should consider feasibility and acceptability of strategic investment against performance criteria, where by company ensure availability of resources required to implement the strategy that are available, can either be developed or obtained, break – even analysis, cash flow analysis and forecasting can be used to evaluate feasibility, while Acceptability concern with the expectations of the identified stakeholders (mainly shareholders, employees and customers) with the expected performance outcomes, which can be return, risk and stakeholder reactions, Different tools can be used to evaluate such as what-if analysis, stakeholder mapping. (www.wikibooks.org/wiki/Business_Strategy)
Quantitative and qualitative issues of strategic proposal can be used by the company to evaluate its financial performance such as the use of graphs, charts to measure performance increased or decreased it help in decision making.
Developing new product, company’s should consider different techniques can be used to measure performance of their product in the market whether it increase or decrease profitability, use of Ansoff’s matrix helps business decides their product and market growth strategy.
4.8 Source, consequence of risk associated with DECISION AND HOW CAN be minimized
Any investment involves a degree of risk. Company should carefully consider all the information in investment before decision making including the risk and uncertainties that may occur which could make the operation suffer and decline of the market share resulted to the loss of investment and company operation.
Management need to manage and monitor risk on an ongoing basis for a number of reasons aim to ensure that the best use is made for opportunity and identify new risk that may affect the company so an appropriate risk management strategy can be determined. (Professional Accountants, P1, ACCA, 2010)
Different types of risk that can affect investments. While some of these risks can be reduced through a number of avenues some of them simply have to be accepted and planned for in any investment decision.
Additional risk that can be associated with the company operation may be Political, technological change, economic conditions, laws and regulations, Competition.
Risks facing organization performance result from both Internal such as Compliance, legal risk and External include Competition, Management Information System and Technology Reliance risk, Exchange rate fluctuation.
Different method and techniques can be used to minimize risk, A range of techniques can be used to analyze risk, such as PESTEL analysis where by company should consider political, economical, social, technology, ecology and legal factor to solve the problem associated with risk, SWOT analysis where by company consider its strength and opportunity available to exploit the market while reduce the threats and weakness that available to the organization need to minimize those threats in order to continue be competitive in the markets. Also use of portfolio analysis which helps provides solution for decision making in terms of allocation of assets, calculation of risk and the attainment of investment objectives.
Based on the findings above, I have been able to answer my research question about new product development as a strategic choice, due to customer demand and perception increased company must come up with innovative product development ideas in order to continue exploit the market, gain competitive advantages.
Organisation use its strengh to evaluate its strategic decision to acquire market with their product development due to customer loyalt on their brand, also the use of financialperformance help the comapany achieve their strategic decision which will help in research and deveolpment and investment in technology in oreder to comply with changes, while minimizing weakness and threats that might be available which will affect organisatioanl decision making process, organisation should concerns the success of their product development by ensuring that it meets the customer needs and satisfactions.
With the dual demand of increasing the number of product to the market and changes in technology, companies need to be innovative with new product design and development in order to cope with changes and customer demand aim to increase competitive advantage and also met the customer needs at large. New product development is inevitable by the company with the aim of increase profitability and market share.
Failure to acknowledge changes in technology results to risks , also Reserch and Development help the company gain competitive and the market share because the company knows the type of product customers want, extensive research and developmeny will lead to the success of product developmet and it will help the company in its strategic decision making.
5.2 Learning statement
i have been able to learn that due to technological change and customer demands keeps on increasing, new product development is inevitable. New product development as a strategic decision helps the company improve performance also help build sales volume increased and obtains profitability. Also the use of research and development by marketers plays a major role in successful of new product development because the company becomes aware of what type of product or services customer want and failure to conduct proper research resulted to the company loss and risk that the company might face.
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