**3. New product development in portfolio management**

New product development is usually done by the businesses in the kind of significant improvement or modified products which are explained in the previous section. For example, Sony's over 80% of new products are improvements of existing products. Similar to Sony, Nike started with running shoes in the beginning and then enlarged its product range to a whole range of sports apparel with constant improvements [7]. Therefore, the place of new product developments among existing products, product line or portfolio has to be carefully assessed during the initial stages of new product development.

Product line can be defined as a product group which consists of several products related to each other because of being sold by same type of marketing tools to the same customers, functioning in a similar way or priced similarly. For example, Apple produces different kinds of computers, and Nike produces several types of sports shoes. Both businesses aim to address the needs of different kinds of customers.

Assessment of how many related products will be produced or in other words what the length of product line will be and how each product in line will contribute to the profit periodically is an important subject for businesses to observe profit variations. If product line is too short, there is a potential to increase profit by adding new product into the line, or if the line is too long, a poor performing product can be excluded from the line to increase profit.

Business objectives and resources are what determine the length of product line. For example, business may have an objective to attract high-income customers; therefore, new products are developed by adding luxury features to the existing product to attract high-income customers such as automobile series starting from average model and going up to a luxury model. Or, business may object to do cross-selling such as selling HP printers and cartridges. In addition, business may object to avoid profit losses in case of economic problems by creating different brands with different prices such as Gap which has several brands (Gap, Old Navy and Banana Republic) addressing customers with different income levels. If a business has several product lines, it has a product portfolio. A product portfolio has four major dimensions which are width, length, depth and consistency [2]. For example, the portfolio of Nine West business includes hundreds of products. It has four major product lines which are shoes, bags, wallet and accessory and several sublines such as shoes line consisting of heeled shoes, flat shoes, stilettos, etc. They are shown in **Figure 4**.

Product mix width refers to the number of different product lines the company carries. Nine West's product mix width is four as shoes, bags, wallet and accessory.

Product mix length refers to the total number of items a company carries within its product lines. Nine West's product mix length is eight as heeled shoes, flat shoes, spore shoes, buskin, stiletto, boot, sandals and slippers within its shoe product lines.

Product mix depth refers to the number of versions offered for each product in the line. Nine West's product mix depth is eight within its heeled shoes as open-toed heeled shoes, padded high heels, rear high heels, pointed nose, abiye shoes, platform shoes, short-heeled shoes and filler heel slippers.

The consistency of the product mix refers to how closely related the various product lines are in end use, production requirements, distribution channels or some other way. Nine West as a company has many product lines which are completely dependent on each other. Thus, the product mix consistency is high.

**Figure 4.** Product mix (portfolio) of a shoe business.

marketing elements such as new product concept's target market, position in the market,

Marketing test provides businesses a suitable marketing strategy for new product concept to be commercialized at the next stage. Passing marketing test and going to commercialization directly may make business face with more than expected costs till the level of exceeding profit. Therefore, it is crucial for the businesses to conduct marketing test before going for

The first thing to be done at this stage is determining the time when new product concept will be commercialized or introduced to the market. Then, at in which scale new product concept will be introduced to the market, at a small scale such as a city, medium scale such as a region, or at a big scale such as the national market, or the international market. Usually, most businesses prefer to introduce new products into the market at small or medium scales and expand the market in the process as introduction of new product at a big scale requires

New product development is usually done by the businesses in the kind of significant improvement or modified products which are explained in the previous section. For example, Sony's over 80% of new products are improvements of existing products. Similar to Sony, Nike started with running shoes in the beginning and then enlarged its product range to a whole range of sports apparel with constant improvements [7]. Therefore, the place of new product developments among existing products, product line or portfolio has to be carefully assessed during

Product line can be defined as a product group which consists of several products related to each other because of being sold by same type of marketing tools to the same customers, functioning in a similar way or priced similarly. For example, Apple produces different kinds of computers, and Nike produces several types of sports shoes. Both businesses aim to address

Assessment of how many related products will be produced or in other words what the length of product line will be and how each product in line will contribute to the profit periodically is an important subject for businesses to observe profit variations. If product line is too short, there is a potential to increase profit by adding new product into the line, or if the line is too

Business objectives and resources are what determine the length of product line. For example, business may have an objective to attract high-income customers; therefore, new products are developed by adding luxury features to the existing product to attract high-income customers such as automobile series starting from average model and going up to a luxury model. Or,

long, a poor performing product can be excluded from the line to increase profit.

more capital, confidence and capacity which only few businesses have.

**3. New product development in portfolio management**

the initial stages of new product development.

the needs of different kinds of customers.

advertisement, distribution, packaging, costs, etc.

commercialization at the next stage.

**Stage 8: Commercialization**

64 Marketing

This means that a business can expand its product portfolio in four ways: expand the width of portfolio by adding new lines to the portfolio; increase the length by adding new products/ product types (existing product improvements) into the product lines; increase the depth by adding more products to product types, therefore enhancing or deepening the portfolio; and change the consistency by increasing or decreasing product types according to whether business aims to be strong in a single field or operates in several fields [2].

Portfolio management is an ongoing process that new products and existing products are assessed continuously, high-profit expected new products are selected and poorly performing existing products are stopped to share business resources to products in the portfolio effectively. If portfolio management is not done accurately, businesses face with several issues. For example, resources may not be adequate if there are quite a number of new product ideas, new product ideas may not be compatible with business's strategies, poorly performing products may not be caught at the right time or the quality of portfolio can deteriorate with wrong new product decisions [8, 9].

Portfolio matrix is useful for deciding which products will be added to portfolio or which ones will be removed from portfolio. It assesses products with two criteria which are relative market share and market growth. Relative market share which is especially important for businesses in the commercial sector as holding larger market shares than its competitors is an advantage for these businesses. High-growth markets provide more benefits to businesses than low-growth ones such as more customers, increasing market shares. **Figure 5** shows that the matrix has four groups merging into one. These groups have very different names to highlight their importance [10].

products to earn profit. Major advantages of portfolio matrix are that it helps to find a product which will provide high profit and is useful for developing production strategies and longterm growth plans of portfolio. Also, showing portfolio in a graphic image like in portfolio matrix makes understanding how portfolio shapes and what it would bring to the business easier. Despite of advantages, portfolio matrix has been criticized from few points. One point is that portfolio matrix is very broad and developing successful strategies requires more than market analysis. Another point is that it has too many objective indicators, while subjective indicators take more places in real environment. Also, using pejorative terms like 'cash cow'

Theory of New Product Development and Its Applications

http://dx.doi.org/10.5772/intechopen.74527

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Competition in global market is quite high which makes businesses to give more concern to meeting customer needs. It is really difficult for businesses to be successful in global market by depending only on high-volume production and low cost. Having a desirable position in highly competitive markets requires making effort to produce products (NPD) which will meet the customer needs and satisfy them. There are several models created to be useful for businesses to understand customer requirements (CRs) [11]. Some models categorized below promote innovation during NPD's first stage (generating idea) and therefore are useful at

**1. Product-service system (PSS):** This model is first presented by Goedkoop et al. to make more benefits from integration of new product development with related services. It is defined as an integrated system of products, services, networks of players and supporting

**4. New product development and meeting customer needs or** 

and 'dog' can lead to self-fulfilling prophesies [10].

**Figure 5.** Portfolio matrix. Source: Walton [10].

**requirements (CRs)**

making cost-effective decisions:


It is often advised to use profit from 'cash cows' for the investment of stars group of products in portfolio management. It is known that there has to be some stars group of products in a portfolio to maintain a well-balanced portfolio. There is a need for cash cows group of

**Figure 5.** Portfolio matrix. Source: Walton [10].

This means that a business can expand its product portfolio in four ways: expand the width of portfolio by adding new lines to the portfolio; increase the length by adding new products/ product types (existing product improvements) into the product lines; increase the depth by adding more products to product types, therefore enhancing or deepening the portfolio; and change the consistency by increasing or decreasing product types according to whether busi-

Portfolio management is an ongoing process that new products and existing products are assessed continuously, high-profit expected new products are selected and poorly performing existing products are stopped to share business resources to products in the portfolio effectively. If portfolio management is not done accurately, businesses face with several issues. For example, resources may not be adequate if there are quite a number of new product ideas, new product ideas may not be compatible with business's strategies, poorly performing products may not be caught at the right time or the quality of portfolio can deteriorate with wrong

Portfolio matrix is useful for deciding which products will be added to portfolio or which ones will be removed from portfolio. It assesses products with two criteria which are relative market share and market growth. Relative market share which is especially important for businesses in the commercial sector as holding larger market shares than its competitors is an advantage for these businesses. High-growth markets provide more benefits to businesses than low-growth ones such as more customers, increasing market shares. **Figure 5** shows that the matrix has four groups merging into one. These groups have very different names to

**1. Stars.** Products in stars group have high relative market shares and operate in a highgrowth market. While these products require high amount of investment, they also provide high profit. If market growth rate decreases, investment needed will be less; therefore,

**2. Cash cows.** Cash cows are defined as products that have high shares and low market growth rate. Because of saturated market, these products will not need high investments. **3. Problem children.** Problem children products have low market shares but operate in a high-growth market. It means that these products will require high amount of investment because of high market share, but they will not earn significant profit as much as stars and cash cows. It is not very clear which direction (cash cows or dogs) problem children prod-

**4. Dogs.** Products in dogs group have low market shares and operate in a low-growth market. It is a challenging task to move dogs group products to other groups because of their

It is often advised to use profit from 'cash cows' for the investment of stars group of products in portfolio management. It is known that there has to be some stars group of products in a portfolio to maintain a well-balanced portfolio. There is a need for cash cows group of

ness aims to be strong in a single field or operates in several fields [2].

new product decisions [8, 9].

66 Marketing

highlight their importance [10].

ucts will go on in later time.

low market share positions.

these products will be classed as cash cows.

products to earn profit. Major advantages of portfolio matrix are that it helps to find a product which will provide high profit and is useful for developing production strategies and longterm growth plans of portfolio. Also, showing portfolio in a graphic image like in portfolio matrix makes understanding how portfolio shapes and what it would bring to the business easier. Despite of advantages, portfolio matrix has been criticized from few points. One point is that portfolio matrix is very broad and developing successful strategies requires more than market analysis. Another point is that it has too many objective indicators, while subjective indicators take more places in real environment. Also, using pejorative terms like 'cash cow' and 'dog' can lead to self-fulfilling prophesies [10].
