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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 all associated capital expenditure decisions) and aim at an equitable sharing of risk and rewards within the system.

As most important, the outcome of this procedure should result in faster, more efficient and effective product launches.

2.7. Definition of a New Product

For the purpose of this procedure, “New Products” are:

§ New brand introductions and flavor extensions (own or toll-packed),

§ Extensions of existing brands,

§ Product initiatives launched previously under these guidelines requiring significant additional capital investment or new package extensions having significant economic changes, therefore necessitating revisions to the agreed sharing of risks and rewards with in the system.

2.8. Guide to Stages

The five-stage process is a simplified model that establishes certain criteria recommended for new product initiatives to proceed to the next stage. This process is not designed to specify an exhaustive list of criteria, only core requirements. The five stages or steps covered below are:

  1. Idea Generation,
  2. Initial Investment,
  3. Business Case,
  4. Launch,
  5. Review

2.8.1. Idea Generation

Idea generation is the first stage of the process, where ideas for potential new product initiatives are identified based on a variety of potential inputs/insights. Potential sources of inspiration are:

§ Analysis of Beverage Categories/Segments: growth rates, trends, size, profitability, competitive landscape,

§ Scanning of consumers trends and unmeet consumers needs,

§ Success stories with in System: Best practices, learning from market place, available brand options,

§ Success stories of competition: new categories, fast market share gains, successful launches and strategies etc.

§ Reports from consultants and other agencies,

§ Presentations from advertising agencies,

§ Internal “Idea Box” with suggestions from workforce,

§ Consumer research,

§ Technology review,

§ Supplier input,

§ New Product Database.

Idea generation should involve all members of the team, and become a structured, on going process, with measurable KBIs, Insights, ideas and learning's should come from top-down and bottom-up to cover both strategic and tactical needs. Rejected ideas should be captured and recorded into New Product database with brief description and reason why).

2.8.2. Initial Investigation

Potential ideas proceeding from stage 1 should be summarized and evaluated in a brief proposal by the local team. This includes:

§ Develop executive summary of idea generation stage,

§ Opportunity assessment: Category size, trends, potential, margins, competitive situation, existing capabilities, SWOT & PEST analysis, consumer's insights, restrictions and legal issues.

§ New product strategy and objectives,

§ Product concept, type of product,

§ Scan for what is available within System (propositions, brands, formulations, packaging options etc.)

§ SKU description: flavors, pack types and sizes,

§ Rough estimation on volume and share,

§ Investigation of sourcing and production options,

§ Rough investment figures: research, manufacturing, marketing and sales,

§ Rough estimate on product P&L, COGS, cost structure – System value chain,

§ KBIs and targets for new product,

§ Timing

The project team should agree to a common proposal/collect and validate data. Priority should be given to understanding and testing formulations (that meet the new product objectives) that already exist in the system in order to create efficiencies and cost savings in procurement and production. The management of each country should evaluate each project to decide if additional detailed research and planning is required. Rejected ideas should be captured and recorded in the New Product database.

2.8.3. Financial model and Business case

New product proposals/initiatives reaching this stage are to be examined in-depth and should include: a detailed financial model and assumptions with regard to financial principles, detailed manufacturing & capital plan, logistics, marketing plan (formulations, packs, design, positioning, communication and DME requirements), legal issues, etc. The integrated consumer proposition should be tested and validated. To ensure that all initiatives are cost competitive, consideration should be given to locating the lowest cost producer in each instance. Where the new initiative requires manufacturing technology that not exist in the specific country the project leaders should consult the Coca Cola Supply Point Committee to determine the most feasible supply point within its network for consideration in the analysis. From this point on, there is no going back (with rare exceptions).

2.8.4. Launch

The new product is readied and prepared for launch: investment in infrastructure completed, production and quality tests passed, final marketing plan ready, final operational plan fully developed and communicated including:

Route to Market

  1. Channel Identification & prioritization,
  2. Trading provisions: listing fees / pre-requisites per country,
  3. Wholesalers policy,
  4. Selected listings: Important customers “special treatment”
  5. Direct vs. indirect distribution evaluation (per region / channel / or outlet),
  6. Verification of agreed volume projections,
  7. Development of Merchandising standards per channel
  8. Verification of distribution targets through Merchandising standards “reality check”'
  9. Give specific merchandising instructions.

Portfolio management

  1. Market developer training,
  2. Sales kick-off meeting,
  3. Incentives for sales force,
  4. Market impact teams,
  5. Full, self standing Activity calendars,

Assets

1. Implementation of Assets Management.

Two major launch seasons, fall and spring should be targeted, although launch principles should not be compromised in order to meet this timing.

2.8.5. Review

New Product launches should be evaluated against agreed upon KBIs for the 1st four quarters of the first year of launch, then on a half yearly basis for the next two years. Remedial action should be taken if required.

It is vital that concepts be evaluated at each stage on a timely basis given that the timeline for new product launches may need to be accelerated. Any concept that has not been rejected outright must progress to the next level in the process no later than two months after it has achieved its current level.

2.9. Major Failure reasons in New Product Development

Cooper (1983) explains the causes of new product development failure as the marketing dominated:

  1. The companies underestimate competitive strength or competitive position in market,
  2. The companies overestimate number of potential users about product,
  3. The companies set the price of the new product too high and loose their competitive power in the markets,
  4. Companies have technical difficulties or deficiencies with the product in new product development processes.

Another research about the failure reasons give the new product failures because of the weak new development product process as follows (Hood, Lundy, Johnson, 1995):

  1. The product did not fit the corporate strategic needs for the company,
  2. The product couldn't be delivered to end-users on promises because of the launch problems in the process.
  3. Lack of competitive point of difference in the company,
  4. Products didn't manage minimum sales volume forecast at the beginning of the process,
  5. Product did not fill the consumer need in market,
  6. Insufficient planning in the process.
  7. The company made wrong timing about the market introduction,
  8. The new product development process doesn't have enough management support about the project.

2.10. Major Success factors in New Product development process

To bring a new product successfully to the market will be an important achievement for the companies. It is related to balance risk, time, money, resources and other factors in this process (Plunkett 1994). Mainly there are two fundamental methods of winning at new product development process (Cooper, 2000):

  1. Doing projects right: Employing true cross-functional teams, doing the up-front homework prior to the development stage, building in the voice of the customer, and getting early, sharp product definition have all been found to impact positively on new product incomes,
  2. Doing the right projects: The project selection is as important as project execution and a key to success.

The success factors described by Cooper (1983) are as follows:

  1. Company has to satisfy the market needs,
  2. Company must have internal and external effective communication channels during the process,
  3. Company has to be oriented to market,
  4. The top managers have to give importance about the key individuals in the process.

There are also activities that have been done as precondition in NPD process and these activities are identified as pre-conditional strategic variables for successful innovations (Poolton and Barclay, 1998):

  1. Strategic factor 1: It is very important to have top management support for new product development from beginning to the end of the process,
  2. Strategic factor 2: NPD process must be designed as a long-term strategy,
  3. Strategic factor 3: There must be long-term commitment to major projects in the company,
  4. Strategic factor 4: The NPD process must have flexibility and responsiveness to change. This will provide competitive advantages for the company in this environment.

2.11. NPD process in the beverage industry

An efficient new product development system is crucial in the beverage industry. New products need to be brought to the market quickly in order to capitalize on changing consumer preferences and competitive threats. New products must be developed tactically, and the products potential must be understood and analyzed before it rollout to the market.

The companies that are most capable to execute the whole NPD process will clearly have an advantage. This requires reducing time to market as well as making effective use of scarce internal recourses and improving collaboration with partners. Also, significant emphasizes must be paid to aligning the related marketing activities (advertising, sales promotions…) with the new product introduction.

NPD is one of the primary growth drivers for beverage companies, and it can involve changes to the products itself or to the products packaging:

  • Product innovation – focuses on providing new tastes and flavors to demanding consumers,
  • Packaging innovation – focuses on developing differentiated packaging according to the consumption situation. Very often, companies use packaging innovations to increase product shelf life.

To ensure new product success, beverage companies must oversee the integration, consolidation and reuse of knowledge from all involved parties, manufacturers, distributors, R&D, sales, marketing and financials.

By enforcing greater collaboration, beverage companies can reduce lead-time from concept to shelf by 25 – 40% and in the same time, better integrate safety controls into the development process.

Beverage companies can achieve an obvious competitive advantage by bringing products to market faster. However, improved process efficiency must not be accomplished at the expense of beverage quality and safety. Compromising safety within the product development cycle would not only cause customers to lose confidence in the new products, but it would also inflict serious and potentially permanent damage to the company's long term reputation.

The beer industry is the biggest sector of the Alcoholic Beverage industry, with global annual sales exceeding $300 billion USD. However, market saturation has been reached in much of the developed world, which is limiting the industry's growth potential. Companies that are operating in the industry face considerable competitive pressures. Consequently, they must streamline their processes in order to drive real, profitable growth – all while ensuring that they effectively meet the demands of booth customers and consumers.

In recent years, the beverage industry has been faced with new opportunities and challenges. Changing consumer demands and preferences require new ways of maintaining current customers and attracting new ones. While ever increasing competition, beverage companies must intensively chase customers, offer high quality products, efficiently distribute them, and keep price low, and in the same time to be quick enough to exploit new markets by launching new products.

In order to drive profitable growth and create value, there are several areas on which companies in the beer business need to focus:

  • New product development, packaging innovation, differentiated quality,
  • Cost reduction/margin improvement,
  • Improved asset utilization

Some of the market trends characteristically in today's environment that companies must consider and follow are:

  • Demographics and life style changes,
  • Fierce competition,

Increased awareness of caloric intake has hit the beer industry. This has caused an across the board decline in the consumption of beer, which is generally high in caloric content, versus consumption of spirits and wine, as well as non alcoholic beverages.

In the beer industry, competition is growing due to the following factors:

  • Falling consumption in mature markets,
  • Constant demand for new products and packaging,
  • Industry consolidation,
  • Growth of private label products.

These competitive pressures have led to:

  • SKU proliferation – Between 1991 and 2001, the number of SKUs in a typical beverage company doubled.
  • A large number of new products failures:
  • Only 20% are effective,
  • Only 10% generate significant revenue,
  • Most fail within the first two years.
  • Further consolidation and rationalization, driven by opportunities for cost-cutting through operational improvements,
  • The acquisition of small, high growth companies in emerging markets by industry leaders

To meet the industry challenges, Anheuser-Busch, leading Beer Company in USA, has embarked on a course to generate growth by enhancing the image of beer through new products, packaging, and new marketing initiatives. The company plans to give adult consumers new and exciting product choices that challenge the established perceptions of beer. Consumers have changing tastes, and Anheuser-Busch aims to satisfy their preferences by introducing a variety of new products designed to target a wide range of traditional and non-traditional adult consumers.

Anheuser-Busch is a company, which have committed itself to the continuous generation and internal dissemination of market intelligence relevant to the current and future needs of their customers, as well as to the continuous improvement of their responsiveness to such needs.

The key stages in the formulation of the NPD concept used by Anheuser-Busch are: need identification, idea development to fulfil the need, product development to substantiate the idea and the product's market introduction, communicating the fulfillment a need. In the center is the ability to “translate” the subjective consumers' needs (e.g. healthy, convenient) into objective product specifications, in order to, through the creation of the core product, substantiate the fulfillment of these needs. It is a widely spread opinion at Anheuser-Busch that such approach can greatly increase the likelihood of success of product development process.

The collection of appropriate information concerning consumers' needs and perceptions, from the beginning of development up to the product's market introduction, is an essential requirement of the NPD process. To understand the target consumers, and include their needs, views and problems at an early stage of the development process, is central in the concept.

The opportunity identification stage aims to define the target markets in which management expected the NPD efforts to be profitable and generate product ideas that can successfully compete on the market – idea generation. At these stage, company's management, based on a good understanding of its (and competitors') core competencies and unique strength's, make a strategic assessment of which technological platforms can provide a solid basis for NPD. If, based on such an assessment, potentially attractive markets and ideas are found, the decision to initiate the design process can be made.

The design stage aims to identify the key consumer's benefits the new product is to provide and the position of these benefits vs. competition. At the first design phase – opportunity definition, the potential rewarding ideas selected earlier are submitted to the target consumers' evaluation. This evaluation process is central because it allows an assessment of the market potential of the selected ideas before any considerable funds are committed to the NPD project.

At the refinement stage, the product, followed by a list of benefits and their relative importance, start to take shape. This is achieved through the careful analysis and measurement of the relationships between consumer preferences, perceptions or choices, on one hand, and the core and augmented product's features, on the other hand.

Finally, if the refinement phase has been successfully completed, (if it was possible to design a new product that fulfils the consumers needs in a superior and unique manner, an evaluation of the output takes place – opportunity evaluation. This consists in forecasting the sales of the new product, based on the aggregation of the probabilities of individual consumers' preferences and choices.

However, the European FMCG companies show lower R&D investments than many other industries. Innovations are rare (only 2.2% of the total product innovations), while a large number of products (an estimation of 77% of total product introductions), representing none or only minor incremental innovations relatively to existing products, is introduced to the market every year. In spite of this rather risk-averse attitude, many product introductions fail. Figures vary widely, but even the more conservative estimates show that 40 to 50% of new products introductions are out of the retailers' shelves within one year (Ernst & Young, 1999

CHAPTER 3

3.1. Abstract

In the Chapter 3, after the short introduction of the company and the market, I will describe in details the New Product Development process that was conducted in our company in order to launch new product. The process that is a combination of corporate procedures then will be evaluated and analyzed by the participants in the project team in order to outline the factors that contribute in success or not success of the new product.

3.2. Introduction

Skopje Brewery was founded in 1924 as a joint stock company specialized for beer production, with production capacity of 36.000 hectoliters per year. Using the Czech beer production tradition, Skopje Brewery developed a quality beer. In 1977, Skopje Brewery expanded its product portfolio with its own program of carbonated soft drinks.

After numerous transformations of the brewery, before and after the World War Two, in 1988 the privatization process started in Macedonia. In this critical period of transition for the economy, Skopje Brewery manages to sustain at the level of the most stable and most successful companies in the country. The positive trend of the company had its peek in 1991, the last year of its privatization process, by becoming a licensed bottler of The Coca-Cola Company.

In 1998, Balkan brew Holding LTD, where strategic investors were Athenian Breweries and Hellenic Bottling Company, authorized bottlers of Heineken and Coca-Cola, became the dominant shareholder of Skopje Brewery with the total of 51% of the shares. This brought even greater credibility to the company, by becoming part of the two great corporations in the beverage industry, The Coca-Cola Company and Heineken NV.

According to the current technical specification, the capacity of Skopje Brewery is:

- Beer 1.100.000 hectolitres,

- Malt 5.000 tones,

- Coca Cola products 1.000.000 hectolitres,

- Vinegar 60.000 hectolitres.

Skopje Brewery is a company with 400 employees, and a highly developed net of small subsidiary companies, in the field of distribution, market development, maintenance, and etc, working as contractors with lots of benefits and responsibilities. By this the company contributes to the development of entrepreneurship of small firms, which overall stimulates the economy in the country. People development is one of the high priorities of the company in order to maintain the growth and implementing Total Quality Management.

The level of development of the Macedonian beverage market is extremely low. There are several factors contributing to this situation, but most significant are the extremely low purchasing power of the consumers and no firm state legislative for regulating economic conditions in the country. At this extremely low level of development of the market, Skopje Brewery can say that it is the dominant player on the beer and soft drinks market, working according to the high standards set by both corporations that the brewery is part of.

3.2.1. Market size

The consumer base for the Macedonian beer market encompasses 78% of the adult population above age 18. Per definition, it is the population segment, which consumes beer at least once a month. Primarily males consume Beer in Macedonia. Of all males, 88% are monthly drinkers. Among women, this segment is as large as 67%. Drinking beer is more customary in the younger and middle aged population. The consumer base among 18-29 year olds is extremely high with 83% and, therefore, a bit larger than the consumer base within the segment of the 30-49 years olds with 78%. Apparently, consumption of beer in Macedonia is tied to a certain social status as the consumer base increases significantly up from the level of primary education. When taking a look at the regions, the area around the capital city Skopje and the west of the country trail slightly behind in terms of beer consumption, because in the other regions the consumer base for beer exceeds 80%.

3.2.2. Consumption of beer within the context of other beverages

Mineral water (35%) and soft drinks (33%) are the number one beverages for daily consumption. Fruit juice (29%) is very big also being consumed by 29% on a daily basis. Beer has a daily consumption base of roughly one tenth (9%) of the population. Wine, spirits and mixed drinks are much smaller than beer with regard to daily consumption (2%, 4%, 1%).

The figures for monthly consumption show that the consumer base for beer (78%) is much larger than the consumer base for the other alcoholic beverages like wine, spirits or mixed drinks.

3.2.3. Drinking occasions

Beer is a very social beverage in Macedonia and therefore, it is mainly consumed in social settings together with friends or acquaintances. The main occasions, at which beer is consumed very frequently, are at home with guests or out of home in a café / bar / restaurants with friends. The “lonely beer drinker” is a “rare species” in Macedonia.

3.2.4. Purchase and packaging types

The beer market shows a balance between the purchase of beer in glass bottles and the purchase of beer in plastic bottles. One out of five beer drinkers goes for single glass bottles (75%). In contrast, 25% of the consumers buy beer in single can, or draft beer if occasion is a bar or restaurant.

3.2.5. Awareness of brands

In the Macedonian market, the portfolio brand Skopsko is the uncontested “synonym” for beer. Inquiry into awareness positions reveals an outstanding position of the brand: The TOM (top-of-mind) spontaneous brand awareness exhibits 54% and total spontaneous awareness adds up to an astounding 97%. Amstel, the number two brand in the TOM ranking trails with an awareness score of 19%. All other brands fail to reach a TOM score higher than 10%. In the total awareness hierarchy Zlaten Dab (81%) is in second position right behind Skopsko, but in front of Amstel (75%.). Bitolsko (61%) is trailing by a wide margin just as Krali Marko (58%), Heineken (51%) and Kenbach (37%).

3.2.6. Brand Image

Based on a multi-dimensional scaling (MDS), which narrows down the entire image criteria of brands to their differentiating essence, the key positioning of the brands in the Macedonian market can be summarized, from the viewpoint of those who know the brands at least by name, as follows:

The international Premium segment

This segment is characterized by a higher price level, high quality and the status of international brands as being reputable and (top) class. Amstel is the international brand with the most distinctive profile in the consumer's minds. It exhibits the highest brand strength (average value for all image items 32%) within the international segment. Heineken displays the same image as Amstel; however, the profile of the Dutch brand is weeker.

The other international brands are image-wise quite weak and lack a clear profile. No matter which brand, they are all judged as expensive, however, without displaying differentiating properties. Therefore, brands like Beck's, Carlsberg, Stella Artois, and others are me too of Amstel and Heineken.

Mainstream segment

The market leader Skopsko is image wise the strongest brand in Macedonia. Skopsko outscores the other mainstream brand Zlaten Dab by a clear margin. Skopsko is simply the best beer in Macedonia, backed by tradition and the highly appealing taste.

The image level of Zlaten Dab is clearly lower than that of Skopsko. It is a beer for ordinary people, available at a reasonable price and strongly advertised but certainly not as good as Skopsko.

Economy segment

This segment as a whole is lacking a strong image position. All the brands of this segment are clearly targeted and connected to common / ordinary people. The biggest advantage of these brands is their reasonable price. Krali Marko differs a bit from the other economy brands on account of its impactful advertising. Considering price image of the brands, Bitolsko is perceived as the most reasonably priced brand in Macedonia.

3.3. Introduction into the NPD process of Skopje Brewery

Developing a new product on the market is highly complex process that requests a lot of analysis and huge effort from the people involved in the project. The particular project in Skopje Brewery was in the hands of the commercial department, more specifically the marketing department. The beer brand manager, Todor Dimitrov, as project manager, in constant consultancy with the commercial manager, drew most of the essential moves for the product.

During the last 10 years the Balkans has been a turbulent place, with lots of changes happening in every segment of living. Inevitable, the beer market has changed during this past years, developing different consumer's preferences, and having a diversified offer on the market. Diversified consumer preferences do not necessary means more developed market. Very often in countries in the process of development the market has been devaluated due to the economic environment and the inability of the consumers to satisfy their essential needs.

This was the case of the Macedonian beer market. Due to the low purchasing power of the consumers, their preferences were focused towards economy brands. This caused a problem for Skopje Brewery because its anchor on the market, the standard brand Skopsko is a quality beer, which can not be devaluated by lowering its price to the low quality economy brands that started penetrating the market. This caused for Skopje Brewery's contingency plan, to gain the economy segment consumers.

After an in-depth analysis of the market, new product was developed and was ready for launching. Marketing strategy was set, in order to penetrate a market segment where competitive brands had the dominant role. But there were always Skopje Brewery's credentials that gave value to every brand in the portfolio coming out of the production line of the market leader.

But the problem was not solved only with the launch of the new product. There was a great market turnover that occurred, which totally changed the economy segment of the beer market. PET beer packaging was introduced on the market and significantly influenced the market position of the major market players.

In the following text, I describe in details the NPD process that was conducted in the Skopje Brewery, phase by phase, from the idea to the launch. The procedure for NPD is a mixture of the Coca-Cola and Heineken procedures, described in Literature review.

3.3.1. Phase I: Opportunity Identification

Skopje Brewery has made brand extension and expansion a priority in order to increase profits in a premium market. With our brand “Skopsko”, we dominate the market, and with recently launched brands, Heineken and Amstel, we conquer the premium market. The entire line of Skopje Brewery products is managed very efficiently in terms of life cycle management. For the most of the population Skopje Brewery's products are so well ingrained in the domestic cultural vocabulary and have been part of the “Macedonian” experience for over 80 years.

But in the same time, our competitors, Bitolska Pivara and Prilepska Pivara, were gaining considerable market share through theirs attack on the economy segment with launching cheep beers with low quality.

In order to maintain a steady overall growth rate, an internal mandate was establish to develop new product, and to enter the economy market.

Project Leader and Marketing Manager formulated the Product Innovation Charter as follows.

Focus Upper management mandates the R&D to identify segments of the beer market in which Skopje Brewery does not have a dominant position and exploit our manufacturing, marketing and distribution capabilities to rapidly develop and deploy new product to the marketplace. One such segment is the economy market.

Goals/objectives The primary objective of the project team is to enter the growing economy market in order to drive future growth of Skopje Brewery products at a moderate 8% per year. This project will gain value for Skopje Brewery by being bottled within the company-owned bottling system.

GuidelinesThis objective will be achieved through the introduction of a new beer product using the Skopsko formula and Skopje Brewery brand name. In terms of degree of innovativeness, the strategy will be to develop an adaptive product. Due to our expertise in product position, manufacturing and distribution, the development process will be accelerated allowing for quick penetration into the market, despite our lack of specific experience in economy market. Hopefully, this can be accomplished before more competitors enter the market.

3.3.2. Phase II: Concept Generation

Our first tas


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