PD Strategies

Prof. V N Achutha Naikan

IIT Kharagpur
 PD Strategy: More Crucial in Future
1. The cost of capital will be high
2. Competition will be tough and global in scope
3. Organizations will be searching into areas outside
current operations
4. Industrial nations will be increasingly aggressive in
supporting high-technology, growth-oriented businesses
5. Markets will become increasingly mature and saturated
6. Consumer lifestyles will continue to change
7. Buyers will become more sophisticated
8. Technological change will be rapid
9. Product life cycles will shorten
10. Environmental pressures from government, consumers,
and labor will increase, and
11. Shortages of resources and fluctuating prices of critical
raw- materials will make cost control very difficult
 Product Strategy and Innovation Process
 Products are added to the product portfolios of firms in a variety
of ways
 Strategies to add new products/adjust existing products
- Innovative and imitative
- offensive and defensive
- entrepreneurial and bureaucratic
- internal development and external acquisition
 Turbulent and risky environment for decision
 Offsetting the risk and uncertainty are the rewards of good
strategy
 Rewards : profits, market dominance, customer loyalty,
invulnerability to external forces
 A good strategy is double rewarding: not only increases revenues
and returns, it preempts sources of risks such as competitive
actions and regulatory constraints.
 Corporate, Market and Product Strategies
Corporate Strategy :
- Overall direction-giving framework for an organization
- In a competitive world, C. S. should confer on the firm a
unique differential advantage
- Clear strategy is essential for successful and timely PD
- Requires careful analysis of products and markets, find the
right gap
- Diversification
- Appropriate market
 Range of Strategic Responses
• In the competitive market, a number of
strategic responses are required
– Create successful new product
– Protect existing products
• To make intelligent strategic responses, we
must know our capabilities and the
environment in which we operate
 Setting Strategic Goals:
Start with an audit of company’s capabilities and its environment.
- What are our strengths/weaknesses?
- What are our competitors’ strengths/weaknesses?
- What are our present products and Life cycles?
- Reliability, Maintainability, Availability, cost?
- What technological changes are expected?
- What Government regulations affecting us?
- What consumption change can we exploit?
- Fix our business goals after analyzing these
- Quantify the goals to monitor progress
- Gap analysis to put additional effort to achieve goals
 Setting Strategic Goals….
• A large private firm:
10% growth in earning/share, 20% increase in sales, at least 5%
market share and Rs. 100 crore revenue/year for launching a NP
• A small, high tech entrepreneur:
50% sales growth achieved through products with less than Rs
50 crore sales per year and less than 1% of the market
• A public mass transfer service:
Reverse the decline in ridership over 5 years and reduce the
deficit by 5% per year
• Set goals, quantify them to provide measure of achievement,
current level and gap.
 Alternative Product Strategies
Once the goals and measures are set, decide:
Reactive or Proactive ?
Reactive : Wait until the competitors introduce a product, copy it if it is successful
Proactive : First to introduce a NP and exploit the opportunities
Each Strategy is appropriate under certain conditions
Reactive Proactive (Taking initiative)
Defensive- guards against a NP after their success. Offensive or Initiator, need strong and active
May not be successful over long time. R&D: IBM, Xerox, Soni, Phillips, GM
Preemptive /counteroffensive defense: offensive
against NP by competitors

Imitative : Ex: “me-too”, NY copying fashion Marketing – Strong marketing capability, find
design cloths in 24 hrs. and promote consumer needs. Ex: Proctor &
Gambles, General Foods, McDonalds…
Second but better: Minimum R&D Entrepreneurial- a person-entrepreneur has an
idea- make this happen
Responsive- reacting to customers’ requests Acquisition- purchase other firms with products
new to the acquiring firm & market
 Reactive vs Proactive Strategies

To select any strategy we must understand the situations:

1. Growth opportunities
2. Probable protection for innovation
3. The scale of the market
4. The strength of the competition
5. The organization’s position
 1. Growth Opportunities
There are 4 possibilities
Existing Products New Products
1. Market 3. Product
Existing Markets
Penetration Development
2. Market 4. Diversification
New Markets
Development

1 Increase market share, sales & production, better distribution NW. Reactive
strategy in best. PD only when competition is expected. Ex: KFC focus on
“We do chicken right”. Defensive strategy
2 McDonald, Coca Cola, and recently KFC, & others.
3 McDonald introduced Mc Nuggets to widen its product line
4 McDonald entered the B/F Market with early hours of operation
2,3,4 Proactive strategy- innovation, R&D, marketing are more suitable
 2. Protection for Innovation

- Patenting to get ROI on PD

- A good product enduring market share to the pioneering brand.
McDonalds’ is still the leader even after Burger King, Wendy’s,
Burger Chef, and others have copied its products.
-Mc Donald’s, HLL, Philips, about 60% M. Share in their areas
-If a firm can achieve good protection then
Be Proactive

- If the innovative/first product can be easily copied and if the firm

has no strong legal cell, protection is difficult
Better be Reactive
 3. Scale of Market
Market size & Margin are important

Large Markets: Mass production, distribution,

marketing dominance, good returns, early
ROI
- Be Proactive

Small Markets: Produce what the customers want

Example: Process machinery, boilers, engines
tailor the design/custom made
- Better be reactive
 4. The strength of the competition
• Competitive environment→ reactive strategy is
sometimes feasible
• Time To Copy: if shorter, no patent protection,
better imitate
• A small firm: Vulnerable to competitive reaction
so better be reactive, no innovation
• A big firm: Proactive to protect its level and image
- no imitation
- innovation is essential to keep leadership

Example: GE in home appliances brings innovative products

 5. The Organization’s position
Position in Vertical system
- In a distribution chain (S.C.) one firm may be proactive while
others reactive to support it
- Producer is innovator of most consumer products, some times a
supplier may be an innovator
- Whether a firm is proactive also depends on relative
positioning/power
- Some firms actually gain power as well as profit by innovation
- Haines Corporation was simply another apparel producer until it introduced
L’eggs, a distinctive packaged panty hose, through innovative distribution in
super markets and drug stores.
 Synthesis and Recommendations

• All organization do not have to innovate

new products
• Reactive strategy may be best for some
organizations
• Sometimes reactive strategy is unavoidable
 Reactive Strategies:
Organizational Characteristics
If the organization
1. Require concentration on existing products or
markets
2. Can achieve little protection for innovation
3. Are in markets too small to recover developmental
costs
4. Are in danger of being overwhelmed by competitive
imitation
5. Are in distribution chains dominated by another
innovator
Then Reactive Strategy is better (No innovation)
 Proactive Strategies:
Organizational Characteristics
If the organization has
1. Overall policy of growth
2. Willingness to enter new products and markets
3. Capability of achieving patent, legal support and market
penetration
4. Ability to enter high-volume or high-margin markets
5. Resources and time necessary to develop new products
6. Competition unable to rapidly enter with a second-but-
better strategy
7. Reasonable power in the distribution channel

Then better to be proactive (Do Innovation)

Question 33: Why is Product Development (PD) strategy expected to be more crucial in the future?
Answer: PD strategy is expected to be more crucial in the future due to several factors. These include the high cost
of capital, intense global competition, shifts in consumer lifestyles, rapid technological changes, shortening product
life cycles, increasing environmental pressures, and challenges in resource availability and cost control.

Question 34: How is global competition expected to impact PD strategy?

Answer: Global competition is expected to be tough and expansive in scope. This means that companies will not only
face competitors from their local markets but from international markets as well. As a result, PD strategies must be
tailored to cater to diverse markets, cultures, and consumer preferences, ensuring products remain competitive on a
global scale.

Question 35: Why might organizations look into areas outside their current operations?
Answer: Organizations might venture outside their current operations to explore new growth opportunities, diversify
risks, and adapt to changing market dynamics. This exploration can lead to the development of innovative products
that cater to new or unmet market needs.

Question 36: How are technological changes expected to influence product life cycles?
Answer: Rapid technological changes can lead to quicker product obsolescence, resulting in shortened product life
cycles. As technology evolves, products based on older technologies might become outdated faster, necessitating
companies to innovate and update their product offerings regularly.

End
Question 37: Why are environmental pressures expected to increase, and how can they impact PD?

Answer: Environmental pressures from governments, consumers, and labor are expected to increase due to growing
concerns about sustainability, climate change, and ecological balance. These pressures can drive companies to
develop eco-friendly products, adopt sustainable manufacturing processes, and ensure that their products align with
environmental regulations and consumer expectations.

Question 38: How can fluctuations in the prices of raw materials impact PD strategy?

Answer: Fluctuations in the prices of critical raw materials can lead to unpredictable production costs. This
uncertainty can impact pricing strategies, profitability, and the overall feasibility of certain products. Companies
might need to explore alternative materials, optimize production processes, or adjust product designs to mitigate
these challenges.