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CHAPTER 2

LITERATURE REVIEW

2.1 Marketing Management

According to Kotler and Keller (2012:28), marketing is an organizational

function and a set of processes for creating, communicating, and delivering value to

customers and for managing customer relationships in ways that benefit the

organization and its stakeholders. Marketing is very important and playing key role

in the company. Financial success of the company often depends on marketing

ability. (Kotler & Keller, 2012:3)

Coping with marketing required a considerable amount of work and skill.

Marketing management takes place when at least one party to a potential exchange

thinkgs about the means of achieving desired responses from other parties. (Kotler &

Keller, 2012:4) According to Kotler and Keller (2012:28), marketing management is

the art and science of choosing target markets and getting, keeping, and growing

customers through creating, delivering, and comunicating superior customer value.

One of the tasks necessary for successful marketing management is creating

long-term growth in which company must initiate new product development, testing

and launching as part of its long-term view (Kotler & Keller, 2012:27).

2.2 New Product Development

New product development is a vital activity that necessary to be done

continuously by company to be excellence in their business field. According to

Majava (2014:28), there are various reasons for company to conduct new product

development such as strategy, opportunity, competition, short product life cycle,

financial, marketing, customer, technology, internal resource, and supply chain.

Before further discuss about the importance of new product development

(NPD), it is better to find out the definition of product, new product, and new

product development. Ulrich and Eppinger (2008) defined product “as something

sold by an enterprise to its customers”. While according to Cooper (2011), “product

is anything referred to as an external marketplace for sale, use, or consumption. This

includes physical products as well as services”. New product as defined by Belliveau,

et al (G.J. & Adiele, 2012:98), is “a product (good or service) new to the firm

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marketing it. It excludes product that are only changed in promotion”. R.G. Cooper

(G.J. & Adiele, 2012) also explains about new product which defined as new if it has

been in the market in a period of five years, including extensions and major

improvements. Definition of New product development according to Vijaya

(2012:2059), is “complete process of bringing a new product to market”. While

Kotler and Armstrong (2012:284), defined new product development as “original

product, product improvements, product modifications, and new brand that firm

develops through its own R&D efforts”.

In the marketplace, one of the most important value creation processes in

every industry is through new product development. (Popa, Tanasescu, Dinca, &

Nicolae, 2010). An article written by Mei Fang Wu and Pao Long Chang (2013:2533)

said that “Amid intense global competition, sustainability and profitable growth of

firms often depends on product diversity, differentiation and innovation”. Companies

have to be astute in continuously find ways and strategies in order to sustain their

business when face the competition (Uska, 2010:35).

Most companies certainly have their pretentious growth goals (Cooper R. G.,

2011) and to achieve such desirable business growth, Rob Wengrzyn (2015) said that

new product development is one of essential part of company's growth strategy

which will increase growth in sales and market share. In spite of it can be very

expensive and very risky, successful product development is important for any

business if it hopes to exist for a long time (Vijaya, 2012). Even new product

development could be said as the lifeblood of firms and represents the best hope for

growth in the future (G.J. & Adiele, 2012). New product development should be

considered as tool to build competitive advantage and long-term success for

company as well as to prevent any possibility of decrease in product quality and

acceptance by consumers. (Grujic & Grujic, 2012).

Finally, according to several statement about product development above,

researcher concludes that in this globalization era companies in any field of business

is highly dependent on their success in innovation and product development activities

if they want to increase their business growth and sustainable.

2.2.1 Types of New Product Development

Dr. M. Thirumagal Vijaya (2012:2059) defined new product development

into two:

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1. Creation of an entirely new product;

2. Modification or updating from an existing product.

Besides product development, there is term product innovation that actually

also refers to development of product. According to Christine Greenhalgh and Mark

Rogers (2010:4), innovation is defined as the implementation of new ideas to the

products, processes, or other aspects of the activities carried out in the firm that lead

to higher value added and also benefits to consumers.

There are many kinds of innovation. Greenhalgh and Rogers divided

innovation into two, product innovation and process innovation. Product innovation

means the introduction of new product, or significant change in existing product; and

process innovation means the introduction of new process in making or delivering

goods or services. While in the article, Norman and Verganti (2012) focus upon two

categories of innovation for products: incremental innovation and radical innovation.

1. Incremental innovation: Improvements in the given frame of solutions

(doing better than what we already do);

2. Radical innovation: A change of frame (doing what we did not do before).

(Norman & Verganti, 2012:5)

According to two types of innovation by Norman and Verganti, researcher

concludes that incremental innovation is basically the same with Dr. M. Thirumagal

Vijaya’s point of view of product development which incremental innovation similar

with modify or updates from existing product and radical innovation similar with

creates an entirely new product.

In more detail, Norman and Verganti (2012:6) argued that incremental

innovations refers to improve the product performance by small changes in the

product, it also lower the product costs, and enhance its desirability or simply to

announce a new model. And Radical innovation according to Nunez, Reilly, and

Lynn (2011:50), refers to highly innovative products that have the potential

transform future prospects of the company, or the launch of a new industry. Radical

innovation brings new domains, new paradigms, and creates a potential for major

changes (Norman & Verganti, 2012:6).

Generally, most successful products undergo incremental innovation

continuously, reducing the costs, and increasing effectiveness. Therefore,

incremental innovation becomes the dominant form of innovation and important

even though it is not as exciting as radical innovation. However, successful radical

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innovation is rare because of its difficulty, requiring considerable time to be

acceptable, expensive, and limited in capability of company. (Norman & Verganti,

2012:6) But nevertheless, both forms of innovation are necessary.

Another classification of product development in terms of the newness of

product is proposed by Booz, Allen & Hamilton (G.J. & Adiele, 2012:98). They have

suggested six main types of product development:

1. New-to-the-world Products (Discontinuous Innovation)

This product is the result of radical thinking. New-to-the-world product

involves a pioneering effort by company that led to the creation of a

completely new market. (Ferrell & Hartline, 2014:157) For example,

new-to-the-world products are Polaroid camera and Sony Walkman.

2. New Product Lines

New product offering by company but introduced to established markets

(Ferrell & Hartline, 2014:157). Even though the product already exists in

the market, but if firm firstly introduces such identical product into the

market, it can be considered as new product (G.J. & Adiele, 2012:98). For

example, Procter & Gamble’s launch of a national chain of car washes is

a new product line for the company.

3. Addition to Existing Product Lines (Product Line Extensions)

This is a new category of products that complement the company's

existing product line, with new styles, models, features, or flavors (Ferrell

& Hartline, 2014:157). Ferrell and Hartline (2014) also argued that

product line extension allows the company to keep products fresh and

appealing in market with minimal development costs and minimal risk of

market failure. For example, Honda launches their Civic Hybrid car.

4. Improvements and Revisions to Existing Products

According to Crawford, et al (G.J. & Adiele, 2012:99), this type of

product development provides performance improvement or greater

perceived value over the existing products. An example is the design that

changes almost every year in the automobile industry, or the “shampoo

plus conditioner” formulas nowadays.

5. Repositioning

In this type of product development, existing products are targeted to new

markets or new segments (Ferrell & Hartline, 2014). For instance is the

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aspirin that is commonly known as the standard headache reliever, since a

new medical benefits was discovered it is now also positioned as the

preventer of blood clots, stroke and heart attack (G.J. & Adiele, 2012).

6. Cost Reductions

It is a type of product development in which involves modifying products

to offer similar benefits and performance at a lower cost (G.J. & Adiele,

2012). With lower costs, companies could sell products at a more

affordable price for consumers. A firm may also be able to lower the

product’s price by improving manufacturing efficiency or decrease the

price of raw materials. For example, book publishers that converts

hardcover books to a paperbacks or e-books so the price is cheaper.

(Ferrell & Hartline, 2014:157)

The easiest types of new product development based on expert arguments are

the types that aim to reduce costs or improve existing products seeing that the

product technologies and markets are well-known. While the hardest way but the

most profitable (Ferrell & Hartline, 2014:157) is new to the world due to the markets

and technologies are new for the company that impact on the needs of more time and

efforts (Darasteanu & Moskalenko, 2010:13) as well as very high risks (Ferrell &

Hartline, 2014:158).

2.2.2 New Product Development Process

This part will present three models of NPD process which widely used by

various companies today in order to get a thorough insight of NPD process. One of

the models will be chosen in order to be used further for the purposes of this thesis

research. However, before the presentation of three models of NPD it is better to

figure out the considerations to start the NPD.

According to Money Instructor (2015), there are some important things that

need to be considered before proceed product development process:

1. Determine whether or not there is really a need for the product to be

developed. This is one of the most important things company need to do

in introducing product in the marketplace. Company has to be sure that

product will meet the perceived needs and before it company has to do

some research to recognize the existence of the needs.

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2. Find out the saturation level of the market for the similar product. It is

related to competition studying. What company will do for the product in

order to be different than the competitors in case of the market is already

saturated with the like products.

3. Calculation of the cost vs. ROI of the product. New product development

can be very costly. Before start the product development process, it is

very crucial to calculate all the cost that the product development will

generate and compare it with the return that the product will generate

from the revenue of selling the product.

4. Choose the right mix of people on the NPD team that will develop

effectively. Right team to develop the product will ensure that creativity

is balanced with tactical ability to achieve the end result, which is to

create the product that meets a perceived need in the marketplace.

5. Determine the “Go to Market” strategy. It refers to how company will

introduce the product to market and what will company do to ensure that

it will successfully achieve the goals set out for it from the beginning.

6. Beta testing of product. It is important to gather constructive feedback of

product from targeted prospective customers. These feedbacks will help

company ensure that the product is ready to go before it is officially

launch to the marketplace.

NPD defined as a multistage process of design, development, and production

that creates physical products to target markets (Macher & Mowery, 2008:26). The

process begins with an idea to build products that meet specific requirements defined

by the customer and/ or manufacturer, and ends when the product is launched on the

market. It involves several phases and the number and descriptions of the phases

vary from model to model. (Murthy, Rausand, & Osteras, 2008) However, because

different company indeed has different characteristics, needs, and resources, so

model of new product development processes should be adapted to specific condition

in each company (Bhuiyan, 2011:748).

Several detailed models of NPD processes have been developed. One of such

models was proposed by Booz, Allen & Hamilton (Bhuiyan, 2011) which also

known as the BAH model, shown in Figure 2.1. This model underlies most other

NPD models that have been put forward. (Bhuiyan, 2011:748)

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(Source: Bhuiyan, 2011:749)

There are seven sequential stages in this model: new product strategy, idea

generation, screening and evaluation, business analysis, design and development,

testing, and commercialization.

1. New Product Strategy

New product development was linked to the company goals and

objectives. (Bhuiyan, 2011) This will explains the strategic requirements

for new products and provides a reference point for the subsequent stages

of new products development. (Fortenberry, 2013:13)

2. Idea Generation

Search for product ideas that in accordance with the goals and objectives

determined in the previous stage (Bhuiyan, 2011). New product ideas can

be obtained from both internal sources and external sources, it can be

company R&D, employees, from the internal; or distributors and

suppliers, competitors, and the most important source are customers, from

external sources. (Kotler & Armstrong, 2012:285) Every idea should be

welcomed with the consideration that every idea is good and potential.

(Fortenberry, 2013:13)

3. Screening and Evaluation

Screen all the product ideas have been gathered for their match with the

firm’s capabilities and meet the customers’ needs and wants (Ferrell &

Hartline, 2014:158). Through screening and evaluation, companies seek

to narrow down the number of ideas generated during the previous stage

New Product Strategy

Idea Generation

Commercialization

Screening and Evaluation

Testing

Business Analysis

Design and Development

Figure 2.1 Booz, Allen, and Hamilton’s New Product Development Process

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by focusing only on those that offer the greatest potential. The most

promising ideas will be used in the next stage which is business analysis

stage (Fortenberry, 2013). For some cases, in order to test the commercial

viability of the product concept the product prototype will be developed

(Ferrell & Hartline, 2014:158).

4. Business Analysis

At this stage, the most promising ideas will be further evaluated from a

thorough aspects and create a business plan that identify product

attributes, target markets, current and potential competitors, barriers to

entry the market, financial projections (the profits, return-on-investment),

sales volume, market growth, and so forth. Only successful product idea

will be continued to the development stage. (Bhuiyan, 2011:749)

(Fortenberry, 2013:15)

5. Design and Development

On-paper idea that has successfully met the scrutiny from the previous

stages is translated into a product which is demonstrable and can be

produced (Fortenberry, 2013:15). Besides, a full marketing plan is also

developed with aim to acquire resources and collaboration needed for a

full-scale launch (Ferrell & Hartline, 2014:158).

6. Testing

During this final test before launch, company conducts commercial

experiments necessary to validate earlier projections and business

judgments (Bhuiyan, 2011). The market testing is conducted in either real

or simulated situations to determine the product performance relative to

customer needs and competing products (Ferrell & Hartline, 2014).

7. Commercialization

It is a product launch stage with a complete marketing program in which

designed to trigger customer awareness and acceptance of the new

products (Ferrell & Hartline, 2014). In this stage, it is necessary to note

customers’ feedback in order to monitor the new product performance on

market. (Fortenberry, 2013:16)

Booz, Allen and Hamilton (Bhuiyan, 2011:749) found that companies that

have successfully launched new products are more likely to have some kind of

formal NPD process and that they generally pass through all of the above stages.

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Another NPD model was proposed by Griffin & Ebert (2007:312) is quite

similar with BAH model. Griffin & Ebert classified NPD process into seven stages:

1. Product Idea

Product development starts with searching ideas for new products.

Product ideas could come from consumers, sales team, research and

development (R&D), or employees. (Wijaya & Mustamu, 2013)

2. Screening

In this stage, ideas of product that do not fit the ability or corporate

objectives were eliminated. Representatives of marketing, technical, and

production should provide input at this stage. (Wijaya & Mustamu, 2013)

3. Concept Testing

After the idea screened, company conducts market research to get input of

the benefits and price from consumers. (Wijaya & Mustamu, 2013)

4. Business Analysis

After gathering consumer opinions, marketers should do a comparison of

production costs and the benefits to see whether the product meets the

minimum profitability objectives. (Wijaya & Mustamu, 2013)

5. Prototype Development

When company has defined the potential profitability of products,

technical or research and development will create a prototype. This

prototype could be very expensive, which often require tools and

extensive component development. (Wijaya & Mustamu, 2013)

6. Product and Market Testing

From the learning based on prototype, company runs a limited

production. After that, company tests the product to see whether the

products meet the performance requirements. If yes, then the product will

be sold in a limited area. Due to promotional campaigns and distribution

channels that must be established for the market testing, this stage

becomes quite expensive. (Wijaya & Mustamu, 2013)

7. Commercialization

If the marketing testing results are positive, company will start a full-scale

production and marketing. Gradual commercialization that aimed to

deploy products to a wider area will prevent tensions in the early

production capabilities. Conversely, delays in commercialization could

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provide an opportunity for other companies to release competing

products. (Wijaya & Mustamu, 2013)

Griffin and Ebert argued, in order to increase the chances of successful

product development, companies applied some variations from the above seven basic

stages considering this sequential process is not entirely the same for producers of

goods or services (Griffin & Ebert, 2007:312).

The next model which slightly different from the previous two models are

Stage-Gate model proposed by Cooper and Edgett (2010), as shown in Figure 2.2.

Cooper and Edgett (2010) argued that this Stage-Gate model “is a conceptual and

operational road map for moving a new-product project from idea to launch. Stage-

Gate divides the effort into distinct stages separated by management decision gates

(gate keeping). Cross-functional teams must successfully complete a prescribed set

of related cross-functional activities in each stage prior to obtaining management

approval to proceed to the next stage of product development”.

Figure 2.2 Cooper And Edgett’s Stage-Gate New Product Development Process

(Source: Cooper & Edgett, 2010)

There are series of activities (five stages) and decision points (five gates) in

Stage-Gate model. Stages are where the action happens. The members of the project

team conducted key activities to gather information needed to advance the project to

the next gate or decision point. Each stage will cost more than the previous one,

resulting in an incremental commitment. (Cooper & Edgett, 2010)

Below is the explanation of five key stages:

� Stage 0 - Discovery Stage

This is a stage to discover opportunities and generate new product ideas.

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� Stage 1 - Scoping

At this stage, a quick and inexpensive assessment of the technical

advantages of the project and its market prospects was conducted.

According to (Mahmutllari, 2014), information gathered from the

assessments above will provide the base to justify the elimination of some

projects and acceptance of some others.

� Stage 2 - Build Business Case

This stage is critical due to the decision of makes or breaks the project

was made. A feasibility assessment in side of technical, marketing, and

business is conducted and resulting a business case that consists of three

components: product and project definition; project justification; and

project plan. (Cooper & Edgett, 2010) A concept testing is also conducted

in this stage before going to development (Mahmutllari, 2014:15)

� Stage 3 - Development

An important part of the development is to build a prototype and start the

testing with the customers as soon as possible (Mahmutllari, 2014:15).

The manufacturing plan is arranged, the marketing launch and operating

plans are developed, and the test plans for the next stage are defined.

� Stage 4 - Testing and Validation

At this stage, validation of the entire project is conducted: the product

itself, the manufacturing process, customer acceptance, and the

economics of the project. Other important aspect is creation of legal

document in this stage (Mahmutllari, 2014:17).

� Stage 5 - Launch

This is a stage of full commercialization of the product which is the

beginning of full production and commercial launch.

The post-launch review is also considered to be crucial part in this NPD:

� Post Launch Review

Post launch review has purpose to measure the success or the failure of

the product launch; discuss what went well during the launch of the

product and what can be improved in the next product launch

(Mahmutllari, 2014:22). According to (Edgett, 2013), the post launch

review is held between three to six months after product launch.

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There is a gate before each stage. In each gate, poor projects will be rejected

and resources will be allocated to the best projects. At each gate there are criteria to

determine the go/kill and other prioritization decisions. These criteria are usually

organized into a scorecard and include both financial and qualitative criteria. (Cooper

& Edgett, 2010)

As it was stated at the beginning of this section, the NPD model presented by

Cooper and Edgett (2010) which is Stage-Gate model will be used for this research.

2.2.3 New Product Development Team

According to Davis, Chelliah, and Minter (2014), NPD team should be

multidisciplinary in which could provide the required skills and appropriate

representation from functions in organization. They also express that cross-functional

team is the ideal structure for NPD teams which involve representatives from R&D,

operations, manufacturing, finance, marketing and sales. However the involvement

of senior management is very crucial in NPD. Senior management should take an

active leadership role and provide adequate resources for project teams.

Darasteanu and Moskalenko (2010) divided NPD team into four main roles:

1. Top management

Top manager has function of keeping the project on the steady road. Top

management is the starting point of NPD process. Their role is to provide

necessary resources for product development, keep the commitment, and

communicate new product strategy for the business.

2. Project managers

Project manager is one who manages the project. Project manager is the

key person for entire project as their tasks are complex and has to take

numerous decisions which are important for project. Moreover, project

manager has a great responsibility to report to the top management.

3. Product developer/ manager

Product manager is a subordinate of the project manager, but in some

cases the product manager might also be the project manager. Sometimes

at the company, it can be seen that usually they have the same tasks when

the company wants to cut the costs. Product manager plan the strategies,

establishing budget for the product and assuring everything is working

properly and the deadline are on time.

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4. Marketing

Marketing are usually involved in the NPD process from beginning.

Moreover, marketing are involved in every step of NPD process. They are

involved in developing new product idea, market research for the product,

and further they bring the requirements of the customers to the project

and working with business plan. Finally, they lead the launch stage.

(Darasteanu & Moskalenko, 2010:20)

2.2.4 Challenges in New Product Development

In conducting NPD, any challenges or problems are unavoidable issues. The

White Paper Data Station (2012) describes these challenges as follows:

1. Rigid Process: Process that is not flexible enough to reflect the changing

reality of market changes that tries to fit all projects under same process.

2. Poor communication: lack of great communication in NPD. A poor

collaboration and coordination of cross-functional team will certainly lead

to missed steps and excessive work.

3. Hard decision: incompetence to engage management on a quality

discussion of project can lead to poor interpretation of unified criteria and

inefficient review. Without same management vision can cause

investments are often made in poor projects that are misaligned with

organization strategy.

Other challenges according to Davis, Chelliah, and Minter (2014) are the

demand forecasting and tensions between functions.

1. Demand forecasting: It is especially more difficult for the products that

cannot be modeled on demand for existing products.

2. Tensions between functions: Different functional groups have their own

thoughts and perspectives to approach problems. The impact of tensions

could lead to biases in debates of the launch volumes.

2.3 The Product Life Cycle

The product life cycle theory was reviewed with consideration that product

development has a strong relation with it. At a certain stage in this cycle, a product

development has to be conducted in order to be sustained.

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Just like human beings, a product has its life cycle, shown in Figure 2.3.

Product life cycle (PLC) refers to the life of the product on the market in respect with

the business/ commercial costs and sales measures. The product life cycle goes

through several phases, involves many professional disciplines, and requires a lot of

skills, tools and processes. (Vijaya, 2012:2061)

According to Kotler and Keller (2012), life cycle of product is to assert four

things:

1. Products have a limited life.

2. Product sales pass through different stages. Each has different challenges,

opportunities, and problems.

3. Profits rise and fall at different stages of the product life cycle.

4. Products require different marketing, financial, manufacturing,

purchasing, and human resource strategies in each life-cycle stage.

(Kotler & Keller, 2012:332)

Figure 2.3 Product Life Cycle (PLC)

(Source: Kotler & Keller, 2012:332)

Not all products follow all four stages of the PLC. Some products are

introduced to market and die quickly, some products stay at maturity stage for a long

time, and there are also some products that enter the decline stage but can cycled

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back to the growth stage through strong promotion or repositioning. As explained

before, new product development has strong relation with PLC. In innovation, the

new product will start its life cycle in introduction stage, while in development of

existing product the new product will start its life cycle in any stage of the rest life

cycle stages depends on the development made. (Kotler & Armstrong, 2012:297)

2.4 New Product Development From A Global Perspective

While some literature in several previous sections discussed more about the

development of products for domestic market/ specific market that is easier to

identify the detail condition of the market which further will be mentioned as

traditional product development, in this section will provide literature of product

development from a global perspective where the products are sold in several

markets and countries. It is necessary in view of today’s globalization era where

many companies have been engaged in global market. However, even though trend

of globalization has developed all over the world the literature in field of global

product development is still not easy to find.

Brentani and Kleinschmidt (2015:12), argued that product innovation and

trend of globalization are two important and highly interrelated dimensions that drive

business today. The increase on interdependence of world market means that

excellent new product development performance not only refers to the ability to

perform on national scale but also on the ability to perform on a global scale

(Brentani & Kleinschmidt, 2015:12).

As a result from trend towards globalization is the rise of global product

(Wach, 2011:71). According to Warren J. Keegan (2007), global product is product

that is offered in the global market. Some global products are designed to meet the

needs of national market, and also to meet the needs of global market. (Keegan, 2007)

Moreover, one important aspect of global product development process is that it

should consider the requirements from several country markets (Izberk-Bilgin &

Page, 2014).

Darasteanu and Moskalenko (2010) argued, new product development from

traditional perspective is development of new products in order to satisfy needs of

certain market, while new product development from global perspective shifts from

specific markets to global market and satisfaction of some specific customers’ needs

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to global customers’ needs with adaptation when it is required (Darasteanu &

Moskalenko, 2010:82).

In addition, Darasteanu and Moskalenko (2010) also suggest several things

that distinguished NPD process from global perspective and NPD process from

traditional perspective.

� At the beginning of NPD process from global perspective, only ideas that

are appropriate for whole global market will be considered for the

development.

� For the development stage, it could be affected by global strategy that

company acquired. If company uses standardization strategy then the

development stage of the process becomes similar with the traditional

NPD process. But if company needs any adaptation of some marketing

mix elements, the development process should be repeated as many times

as many adaptations are required.

� At the launch stage, global NPD has some differences with the traditional

NPD. The launch stage of the NPD process might be divided into several

parts in accordance with number of the regions where simultaneous

launch are planned.

(Darasteanu & Moskalenko, 2010:83)

2.5 New Product Development and Business Strategy

New product development in company could not be separated from its

business strategy. Tajdivi and Karami (2015) defined business strategy as a long-

term plan for a company which helps it achieves its goals. The goal of business is to

achieve their long-term objectives by using strategic management. (Tajdivi &

Karami, 2015:118)

As the competition increased and rapid changed in several aspects such as

technology have alerted companies about the need to develop new product that is

consistent with or fit the business strategy. It is in order to assuree that technological

resources and capabilities are sufficient to achieve the business goals. (Tajdivi &

Karami, 2015:120)

By achieving the business goals will increase the overall business

performance. Of course overall business performance does not include only one

business process as there are many functions and business process in the company.

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Thus, Ebarefimia (2014) argued in conclusion that NPD significantly affect the level

of business performance. According to Cooper and Kleinschmidt (Adis, Wong, &

Chan Kim Lian, 2008:45), the impact of new product development on the business

included: sales and profits of the business unit, the business success rate, and the

technical success.

2.6 Business Strategy

According to Nickols (2010:2), there are three basic forms of strategy in the

business world, i.e. general strategy (or just plain strategy), corporate strategy, and

competitive strategy.

General strategy refers to how a given objectives will be achieved.

Consequently, strategy in general is concerned with the relationships between ends

and means, that is, between the results we seek and the resources at our disposal.

Usually strategy is terms that come to us from military. Their use in business has

required little adaptation as far as strategy in general is concerned. However,

corporate strategy and competitive strategy do represent significant departures from

the military meaning of strategy. (Nickols, 2010:2)

Corporate strategy defines the markets and the businesses in which a

company will operate. Competitive or business strategy defines for a given business

the basis on which it will compete. Corporate strategy is typically decided in the

context of defining the company’s mission and vision. Competitive strategy hinges

on a company’s capabilities, strengths, and weaknesses in relation to market

characteristics and the corresponding capabilities, strengths, and weaknesses of its

competitors. According to Michael Porter, competition within an industry is driven

by five basic factors:

1. Threat of new entrants.

2. Threat of substitute products or services.

3. Bargaining power of suppliers.

4. Bargaining power of buyers.

5. Rivalry among existing firms.

Porter also indicates that, in response to these five factors, competitive

strategy can take one of three generic forms: (1) focus, (2) differentiation, and (3)

cost leadership. (Nickols, 2010:4)

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2.6.1 Porter’s Generic Competitive Strategies

Porter’s generic competitive strategies are commonly used by firms. Generic

strategies can help organizations to perform better than any other organization in the

industry. (Tanwar, 2013:11) Below are the three generic strategies proposed by

Michael Porter (Kotler & Keller, 2012:73):

1. Overall Cost leadership Strategy: In this strategy, firms emphasize more on

the competition and focus to the low price (Wijaya & Mustamu, 2013).

According to Ritika Tanwar (2013:11), companies is said using overall cost

leadership strategy if they seek and utilize sources of cost advantages and

aims to become low cost producer in industry.

2. Differentiation Strategy: A company that seeks to be unique in its industry

and its products are widely (Tanwar, 2013:11) valued by market is said to use

differentiation strategy. In this strategy, company seeking quality leadership,

for instance, products were made from the best components, were put

together expertly, inspected carefully, and the quality was communicated

effectively (Kotler & Keller, 2012:73).

3. Focus Strategy: When company concentrates on narrow market scope to

avoid tight competition (Wijaya & Mustamu, 2013), seeks a narrow

competitive scope, selects a segment in the industry and tailors its strategy for

serving that segment (Tanwar, 2013:11), gets to know them intimately and

pursues either cost leadership or differentiation within the target segment.

The strategy is termed as focus strategy. (Kotler & Keller, 2012:73)

2.6.2 Product Innovation Strategies

In the book of Paul Trott (2012), there are four broad innovation strategies

commonly found in firms:

1. Leader/ Offensive: The strategy focuses on the advantages to be gained

from a monopoly. This strategy is all about getting the product or service

out before anyone else. This strategy requires a significant research and

development activity and costs, also substantial marketing resources.

2. Fast Follower/ Defensive: This strategy also relies on a significant

technology base in which company may develop improved versions of the

original. These improvements are in terms of lower cost, different design,

additional features, etc. The company needs to be agile in manufacturing,

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design and development, and marketing which will lead company to

respond quickly to those companies that are first into the market.

3. Cost Minimisation/ Imitative: This strategy is based on being a low cost

producer and achieves economies of scale in manufacture. It is similar to

defensive strategy in which it involves following another company. This

strategy has been employed very effectively in Asia. They have lower

labor costs and provide companies the opportunity to imitate existing

products at lower prices. For example is HP that has achieved its position

in PC market. Originally its PCs were IBM clones but were sold at a

cheaper price and are of a superior quality to many of the other

competitors.

4. Market segmentation specialist/ Traditional: This strategy focuses on

meeting the detail requirements of a particular market segment or niche.

Large-scale manufacture is not usually required and the products tend to

be characterized by few product changes.

(Trott, 2012:216)

2.6.3 Global New Product Development Strategy

There are two global new product development strategies according to

Brentani and Kleinschmidt (2015:19):

� Global presence strategy

It is an international diversification approach in which companies expand

across borders of regions and countries into different geographic locations

or markets. The objective is to be truly global and operates worldwide. To

achieve it companies create global NPD goals, expand the markets,

planned innovation thrust, and commit to the international effort.

� Global product harmonization strategy

New products are standardized (vs. adapted) for world markets

(globalization vs. localization). In globalization, NPD decisions are

centralized, creating products with one worldwide standard, with only

minor adjustments for local markets; while in localization, NPD decisions

are decentralized and products are localized for different country markets.

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2.7 Key Success Factors in NPD

Key success factors are the necessary in management. It is a unique

characteristic, a tool for managers and a description of the major skills and resources

required to be successful in market (Wu & Chang, 2013:2534). Key success factors

in NPD are defined by Ismail et al. (2012) is a variety of factors contributes to the

success of NPD in any firm.

According to Cooper and Kleinschmidt (Wu & Chang, 2013:2541) there are

9 main success factors of new product development with the 4 main factors are:

1. High-quality new product process.

Sharp and early product definition, though Go/Kill decision points, and

quality of execution and thoroughness but provided flexibility.

2. A defined new product strategy for the business unit.

There were new product goals for the business unit; focus areas were

described, the role of new products was clearly communicated, and there

was a long term thrust.

3. Adequate resources of people and money.

Where senior management provided people who are necessary fo the

project (and freed up their time for projects), resources also effort with

adequate R&D funding.

4. R&D Spending for new product development.

Other success factors are:

5. High quality new product teams

6. Senior management committed to, and involved in, new products

7. An innovative climate and culture

8. The use of cross-functional project teams

9. Senior management accountability for the product results

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2.8 Thinking Framework

(Source: Processed by Researcher)

Figure 2.4 Thinking Framework

Literature Study

Data Collection

Result and Discussion

Conclusion

Review Journals and Text books: • New Product Development • Product Life Cycle • Business Strategy

In-depth Interview, Observation, Documentation Study: • NPD Driving Factors and Considerations,

Recent NPD Project, NPD Process, NPD Team, NPD Problems/ Challenges, KSF of NPD, Uniqueness of NPD

• Impact NPD to Business Process • Business Strategy of Candy at Confectionery

BU PT XYZ • NPD Role to Support Business Strategy

Confectionery Business Unit PT XYZ

Conclusion and Suggestion

Start

End

Validity and Reliability of Data

• Credibility (Triangulation & Member Check)

• Transferability • Dependability • Confirmability

Data Analysis

• Data Reduction Analysis • Synthesize

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