New product development strategies and processes

New Product Development

Nanda Home, in 2011, is starting to struggle. The company basically has a single product, Clocky, that has been on the market for several years. The company has in this time introduced some variants on the alarm clock theme, but has yet to be successful in any other business. The founder, Gauri Nanda, is unsure of what the next step should be, given that she is unsure of what the issues are with the company.

The current situation is that the flagship product, Clocky, is nearing the end of the normal product life cycle in this category, something that is evidenced by the fact that prices are falling to spur demand, and that the company is frequently selling to existing clients. The two newer products also seem to appeal the most to existing clients. Nanda Home had introduced a line of bags, but this venture failed for lack of distribution, even though the product was apparently popular with those who bought it. No financials were provided in the case.

This report will provide some insight into the issues at Nanda Home. There are many potential reasons why the company is starting to struggling, including some not mentioned in the case. This analysis will lead us to some conclusions about the best course of action for Nanda going forward.

Basic Analysis about Company & Product

Nanda Home is run by Gauri Nanda, who is handling basically the entire business herself. This means that she must split the roles within the business, and she is concerned that there are some roles she is not performing as well as she could. As with many entrepreneurs, she is more comfortable tinkering and coming up with new ideas than she is with the day-to-day running of the business, in particular with respect to sales. Nanda Home is a one-product company, more or less. Sales breakdowns were not provided, but over the past five years, the Clocky has been the revenue and profit driver for this company. There is little in the case material to suggest that the Ticky or Tocky will replace the Clocky, and they have not been able to generate the same degree of media exposure for Nanda Home, either.

At this point, the company has very limited resources. It is not known what its balance sheet looks like, but Nanda Home has one person running everything, one hit product at the end of its life cycle, and no new hit products on the horizon. The person in charge is basically flailing about looking for a new product that can drive the company forward, but at this point everything she has is just a concept. While she had a success with her first concept, it is highly unusual for an inventor to have multiple consecutive hit products. It seems fairly evident that the strategy five years ago should have been to hire a marketing specialist, and perhaps a finance/operations person, so that Nanda could focus on new product development, in order to get something in the pipeline. This lack of foresight is unfortunate, and now Nanda is in a tough position with respect to strategy going forward. She must choose to either squeeze a little bit more out of Clocky, or risk being forced to abandon the business.

The product life cycle is estimated between 3-5 years, which would put Clocky in the decline phase of the life cycle. The current status of the product -- discounts are needed to drive sales, and sales mostly go to existing customers -- supports the idea that Clocky is in the decline phase of the product life cycle. While Nanda is worried about whether Clocky is a "fad" or not, she is ignoring the big picture reality that Clocky always had a shelf life, and now that shelf life is almost up. She abandoned the bags at the launch phase, which is unfortunate, but it does mean that there is potential to pick up that business idea again. The Ticky and Tocky are not much more than extensions of Clocky, but without the Clocky branding, which is a little bit silly. But even with Clocky's brand, those products are unlikely to warrant the same publicity as Clocky, and therefore do not have the same kind of upside.

This leaves the company without a viable product in the pipeline, and three potential products that it might be able to buy time with (so to speak) and one product at the end of the life cycle. Nanda should have the numbers on this, but the case doesn't provide them -- exactly how much time does the company have with its current product mix and cash flow?

Given that one of the main options for Nanda is to try and revitalize Clocky, it is worth considering some of the product attributes. First, the product meets an interesting market need, in that many people in our culture are sleep-deprived and have trouble getting out of bed in the morning. The product is a "want" for its consumers. The biggest potential market is with the 25-34 demographic. The biggest question for Nanda is to determine what the potential market for Clocky is -- what sort of penetration can it expect? It may have reached that level. She suspects there is untapped market, but it could very well be that the opportunity to capture the full potential market has passed.

Thus, Clocky offers a fairly unique product feature. There are substitutes, in other alarm clocks, but to replicate the exact function and feature of Clocky would require a kludge like placing one's phone on the other side of the room. Clocky is therefore superior in what it does than any of the reasonable substitutes. This has an important implication -- as long as this benefit has value, and the benefit is difficult to imitate, Clocky still has value. With more effective marketing and distribution, Clocky might well still be in the maturity stage of the product life cycle. If so, this would buy the company more time to develop another product.

There are two key issues, then, with trying to squeeze more sales out of Clocky. The first is that its features are imitable -- there are counterfeits and knockoffs. Nanda's odds of launching a successful lawsuit, or even serving a C&D to the offenders, is minimal. So Nanda needs to ensure that the counterfeiters do not gain a foothold in the market, something that can be achieved through better distribution, i.e. clogging up the channels so that no knockoffs can be easily obtained. Right now, mail order through Canada and sold out of a box in the back alley are the main distribution channels for the knockoffs, and those are poor distribution channels. Clocky should be able to maintain its monopoly.

The second issue with the Clocky, then, is that there is an exposure problem. Because this product is unique in the features it offers, and is priced higher than its close substitutes (regular alarm clocks), and people have alarms on their phones, customers will have to specifically look for Clocky to find it. This is the crux of the current situation -- the only people who buy Clocky are those who know it exists, and that number is not growing. If Nanda can increase the number of people who are aware of Clocky, then Nanda can increase the sales of Clocky.

The other two products do have potential, and there is a case both for keeping them, and for cutting them from the lineup. These products offer the opportunity to extend the brand, thereby rejuvenating the product life cycle both for them and for the original Clocky. While self-evident to Nanda, the market might not recognize the connection between Tocky and Clocky and Ticky and Tocky. Clocky is the brand that has value, and she is not using that brand to help sell the other products. Moreover, the other products are basically going to cannibalize sales from Clocky. There are opportunities to incorporate new technology to update the Clocky, and that is probably where the brand extensions should be. But further, the brand extensions pertaining to Clocky need to have the Clocky name.

Lastly, there is the distribution challenge. When a product is selling well, and especially early in its life cycle, it will have access to serious distribution channels, like major retailers. At the end of it life cycle, with very little marketing support and what we can assume are sluggish sales, there is no real chance of getting distribution for Clocky. The good news for Nanda is that the company can sell online, and that includes as a third-party retailer at Amazon. If Nanda can sell via Amazon and its own website, and offer free shipping, it will have an attractive proposition for consumers, and it will gain reach with the 4th-largest retailer in the world (behind Wal-Mart, Costco and Home Depot). The opportunity cost in carrying Clocky is lower for Amazon, which makes it a more likely partner, especially with its third-party vendor program.

Define Challenges

There are several challenges facing Nanda. First, the company's sales have been in decline for several years. This has created a potential solvency crisis for the company, it has cost it retail channel partners, and it has exposed the lack of a viable product pipeline at Nanda Home. The company does not have much in the way of resources to work with, and that includes a lack of relationships in the business. While Nanda is worried about counterfeiters, she should just start seeing them as "competition," unless she is actually going to seek legal redress. The way to respond to competition is to outcompete.

Nanda therefore needs to achieve the following. First and foremost, she needs to buy time to get a new, killer product in the pipeline. Only she knows much time she has, but we will assume it is not much. Second, Nanda needs to squeeze every last penny out of Clocky. The product still has a unique offering to the consumer, so there should still be some untapped potential. Nanda Home lacks resources -- Nanda cannot assume that she will be able to market the existing products, manage the financial situation, and develop new products simultaneously. She needs help, and most urgently on the marketing side, since she is not all that comfortable with that aspect of the business. Someone who can get a little bit of PR for Nanda Home would be ideal, since it was PR, and not marketing, that drove the initial success of the Clocky product.

Recommendations

There are several recommendations that can be made with respect to Clocky. The first recommendation is to start selling as a third-party vendor on Amazon. The incremental cost is not that much, and Amazon is a massive retailer. It is a lot easier to sell via this method than to get shelf space at a bricks-and-mortar retailer, and it complements the existing Nanda Home online sales, which will provide the infrastructure for the Amazon side of the business.

The second recommendation is that Nanda needs to get marketing help. It is assumed that the company can still afford this. There is an untapped market for Clocky, but nobody knows the product exists. When they do hear about it, they realize that it meets an untapped need, and that there is no reasonable substitute other than a knockoff version. That is how the Clocky business was built and that is the approach that can be used to reverse the declines. These past few years, Nanda has really not done enough to reach new customers. The new marketing person will need to be aggressive, and focus on building brand awareness, as a means of attracting customers. An update to the Clocky product may help here, especially if Ticky and Tocky are cut from the lineup to focus on the Clocky brand.

If Nanda feels that Ticky and Tocky are viable, they should at least receive a rebrand to get the Clocky name on them. However, there is significant risk that they are simply cannibalizing Clocky. They are slightly different, but they perform the same basic benefit to the consumer. As such, they are probably not offering much benefit to the company going forward.