New Product Development Process The Case of Uber and Netflix
New Product Development Process: The Case of Uber and Netflix
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New Product Development Process: The Case of Uber and Netflix
1. Introduction
New Product Development refers to the process of introducing a new product to the existing market. At times it also covers renewal of an existing product and the introduction of old products to new markets (Kim, Park, & Sawng, 2016). This involves the identification of market needs, product conceptualization, building the roadmap of the product, product launch, and feedback collection. New product development happens to be key part of product design and this process does not end unless the life cycle of a product is over. The companies can keep on collecting feedback from the users and iterate on newer versions by adding or enhancing newer features (Awwad & Akroush, 2016). This paper will discuss each stage in the product development process based on case studies of two companies: Netflix and Uber.
2. Opportunity Identification, Idea Generation and Screening
Ideas that are unique and meet consumers’ needs form the spine of the new product development. It is the most important step in developing any new product, and they arise from market opportunities that can be innumerable.
2.1 Opportunities Leading to the Development of Concepts and Products for Netflix and Uber
Netflix launched in the year 1997 when Blockbuster was already in the business of video rental for years. The aim of Netflix was to compete against Blockbuster but there were changes and disruptions to the home/video entertainment industry and that is where Netflix took a different direction (Elkawy et al. 2015). Contrary to Blockbuster, it did not have late fees. When the customers were done with the DVDs, they were required to return them to Netflix and rent another. Netflix did this because there was a marketing and technology and competed with Blockbuster (Elkawy et al. 2015).
The concept for Uber generated when two friends Garrett Camp and Travis Kalanick were not able to get a cab. The idea of Uber came about when they asked themselves, “what if we could request a ride from our phones?” They saw an opportunity in the fact that customers always have a hard time finding a cab (Sharma, 2019). They thought it would be easy for them to get a cab if they were able to request one from their phones. The entrepreneurs however went their separate ways but later on, Camp returned to San Francisco and he was still fixated in that concept. He then purchased the UberCab.com domain name.
2.2 Product Innovation Charter
Netflix came about when VHS video was the standard within the industry so the founder and CEO of Netflix Reed Hastings saw an opportunity and introduced a monthly subscription service of DVD by mail. Netflix, in every step from DVD subscription services to online video streaming, to content creation continues to innovate. Its innovation charter was firmly held on innovation, and a continuous process of becoming better. Its competitors, on the contrary remained rigid to change, forcing consumers to move their preference to Netflix.
In Uber’s new product and service, the evolution of the internet was the main push behind the life-changing taxi app. The founders saw an innovation opportunity and a ready market based on the behavior of people, the frequency of the problem, and the demand that would drive the market. Uber’s technology focused on brokering a platform that would connect existing taxi drivers with a ready market.
3. Idea and Concept Generation
3.1 Product Idea Conception
Among the most vital reasons that Netflix developed into an exponential business model is the fact that its founders were able to view the product as outsiders. According to them, they were not impressed with the business model at that particular time but looked at where the market would be in a decade (Lotz, 2021). The founders combined a number of building blocks for exponential growth by constantly finding newer ways to solve the customers’ problems. They aimed to do that with digitized services by the use of lean approaches. For instance, in the year 2007 Netflix acknowledged that the rental business of DVDs was not as profitable as before.
The idea and concept generation of Uber on the other hand came about with the possible simplicity and ease of ordering a cab from one’s phone. This idea fueled the rising popularity of the app (Dudley, Banister, & Schwanen, 2017). With just a click of a button, customers could be able to order their ride and their location could be identified through the GPS and the cost is charged to the card automatically on the account of the user.
3.2 Building and Nurturing Creativity
At Netflix, the founders understood that consumers would want more than just renting videos. According to them, consumers would want to access a user-friendly and large offering (Lotz, 2021). They also wanted to order videos from the comfort of their home and not bothered with having to return them. The pair foresaw the impending change and used their background in Information Technology and created fitting digital solutions and it was rolled out in lean way. Creativity is built based on emerging problems and consumer needs. Then, creativity is nurtured through intrinsic and extrinsic motivation approaches. Here, a market driven approach is used to solve customer problems identified through gaps in the current market and a a need-technology, form sequence.
For Uber, the start-up based in San Francisco quickly became among the hottest firms and it grew very quickly. The first ride on Uber was requested in the year 2010 and a year later in 2011, it was already launched globally in Paris, the city in which the idea came about. Creativity is built through an agenda of continuous improvement. Developers must view the products and services from the perspective of the user. It uses a market driving approach that first develops interesting technology and later applies it to solve the customer problems using a technology-form-benefit sequence approach.
4. Concept Testing Process (Potential Customer Feedback and Full Screen Process)
4.1 Monadic testing
In concept testing, Netflix used Monadic testing in which they broke down the target audience into many groups in which they are shown the concept. With this type of testing, they wanted to gain more insights into the preferences of the customers and to create a fan base with fitting content for all at any given time (Chang & Taylor, 2016). The researchers asked follow up questions such as the product’s look and feel. Their algorithm was evolved to open source initiatives because they knew that with the consumers’ technological knowledge and more data, the consumers would find their experience with Netflix as much better. The Monadic test method enabled the Netflix researchers to be flexible and to ask many follow-up questions. Therefore, the results provided more context on why the Netflix concept was much better than renting DVDs on mail.
From the insights gathered from the Monadic testing, Netflix started developing their own shows and production based on the customers’ data analysis. This way, the company was able to understand better the future preferences of the customers and acted on it (Chang & Taylor, 2016). The first big Original movie by Netflix was House of Cards. While other production companies wanted to make a pilot, Netflix had more knowledge based on data and consumer insights that the series would be a hit and they signed up for two seasons immediately.
4.2 Proto monadic testing
Uber used a proto monadic test to test their concept. The test includes a sequential monadic test where the target customers are also divided into groups but rather than being shown a single aspect, each group is shown all the concepts and they randomized the concept’s order to avoid bias (Chang & Taylor, 2016). All the respondents were asked similar follow up questions in order to gain more insights. The respondents were asked to evaluate many concepts and then they had to choose their most preferred concept. This type of concept testing was useful to Uber because the results were validated. The researchers verified the selected concept and found out that the insights they had gathered were compatible with the selected concept. The findings were positive because most of the respondents stated that they would like it if they would be able to order a cab on their phones (Chang & Taylor, 2016). So the co-founders, Camp and Kalanick designed the Uber Mobile App for Android Smartphones and iPhone which enabled the users to get the driver’s estimated arrival time on their phone. This App was liked by the customers because of its ease-of-use and convenience. After downloading the App on their phones, users pay for the services via a third party called Transportation Network Company (TNC) that uses the UberX platform which takes a picture or scans the credit card with the camera of the smartphones.
5. Sales Forecasting
For sales forecasting, Uber used the Test-Market Analysis Forecasting which enabled the company to roll their product to their target audience based on their needs. The product was first tested in San Francisco to see how it would perform. After the product was first rolled out, Uber used the results to make more accurate forecasts of the market in the future (Baardman et al. 2017). Uber thought that this method was ideal because the product being rolled out was new and it wanted to test the response of the market. To roll out the Uber product, the market was divided into two regions. This implementation of this method happened without any form of advertising first and then later on, they started to promote the product to have a control market. The difference between the sales in the control market and test market is analyzed (Baardman et al. 2017). The gap analysis helps forecast the future sales of the product. All financial statements begin with sales estimates and they combined margin forecasts estimate income in the future and they combined the sales estimates to turnover forecasts to estimate assets in the future. This whole process was based on the sales forecasts of Uber.
In the case of Netflix, they used qualitative techniques for their sales forecasting because at the time, they did not have enough data. They used this technique also because they were introducing a new product into the market (Lau, Zhang, & Xu, 2018). Therefore, human judgment was employed and rating schemes used and were turned into qualitative estimates. Netflix’s objective was to systematically and logically bring together all the information and judgments regarding the estimated factors. The qualitative technique method was also used because market acceptance and rate of penetration was not certain. One component of this technique used was the expectations of the buyers. The Netflix researchers surveyed the market intents and buying intentions (Lau, Zhang, & Xu, 2018). Netflix wanted to survey the intentions of the buyers and a sample of potential buyers was selected for the company to gain information on their potential purchases of the Netflix in the future. Then, Netflix induced the information from the potential buyers to get a forecast on total demand that the translated into sales forecasts.
With time, Netflix incorporated information from two different sources of sales growth in the future— changes in the number of units that generate sales, for instance new subscribers and changes in the sales per unit rates, for instance the subscription fee charged by Netflix. The product is a subscription service and its sales are considered as a function of the number of subscribers the company can retain multiplied by the subscription fee charged. This was written in terms of growth of sales.
6. Product Design
6.1 Product Design-Netflix
Product design was very important to Netflix because it is a product that evolved from a DVD rental platform to an online streaming platform. A common theme occurring when one takes a look at the history of Netflix, their goal was to eliminate friction for their customers (Verganti, Vendraminelli, & Iansiti, 2020). At a key point in its evolution, a need was identified within the market and the Netflix product was developed to address that need. Whether it was easy to access the DVDs or to live stream videos, the decision to design the Netflix product was based on the insights of the users. In order to continue adding value it was important for Netflix to develop a user friendly product design that addresses the problems that users face. This tied Netflix’s product design strategy to both the needs of the customers and the business goals (Verganti, Vendraminelli, & Iansiti, 2020). The ability to anticipate the changing customer expectations and market trends is the way Netflix has developed a good product design causing it to become the most popular online streaming platform in the world. With time, the company has profoundly changed the way consumers interact with the media.
As the first internet television network, Netflix faces a variety of unfriendly and stringent distribution traditions established by years of schedule-specific and live broadcast and cable television realities (Verganti, Vendraminelli, & Iansiti, 2020). The future of video streaming industry is based on the ability to evolve such traditions to suit better the digital era’s consumer and technological realities.
6.2 Product Design-Uber
The product design of Uber on the other hand was meant to be simple because the founders wanted the users to have an easy time finding a cab on their phone. As a technology application in transportation, Uber was meant to be close to the users as far as they have the app installed and internet connectivity (Armitage, Cordova, & Siegel, 2017). The design of Uber App is important because it was built to offer safe transportation of users across distances. One of the issues encountered in Uber’s product design is the fact that not all areas have enough access to network to support maps. While America is used to having fast phone networks that can easily support the maps, many developing countries are using 2G, which is not fast enough. In order to ensure that users have a visual experience on the App, the design team developed a simple version of the “arrival time” screen. This features a simple line segment representing the average time limit it would take for the driver to reach the rider’s destination.
7. Product Use Testing
In practice, Netflix uses a wide range of testing techniques to tailor the products to client needs. Alpha, Beta, and Gamma testing, and other product testing protocols are therefore deployed in various stages of product development (Lobato & Lotz, 2020). For Netflix in particular, A/B Testing – a user experience research methodology that compares two versions of a single variable by typically testing a subject’s response to variant A against variant B and finding out which of the two variants is more effective, is utilized to predict and evaluate the performance of various shows on the platform (Lobato & Lotz, 2020). The objective is to design an experiment with a control group and one or more experimental groups referred to as cells in Netflix which receive a different treatment. All participants belong exclusively to one cell within a given experiment (Lobato & Lotz, 2020). One of the cells/groups is always labelled the “default cell”. This cell represents the control group, which receives the same experience as all Netflix members not in the test.
Once the test has been set and deployed, the test administrators track metrics of importance. This for instance could include data on streaming hour and use preference (Lobato & Lotz, 2020). Once participant provide sufficient meaningful conclusions and enough data has been collected, the test admins move the next stage and analysis the efficacy of each test before selecting a winner out of the various variation.
Initially, Netflix also used a different model of testing, when they sent their first DVD to one of the co-founders’ houses in California. They mailed the disc to Santa Cruz, to test the viability of their model, which aimed at selling and renting DVDs to customers across the United States (Lobato & Lotz, 2020).
Similarly, Uber conducted a beta launch in May 2010 before launching the ride-hailing application to users. In the test, the service conducted services with three cars in New York City to know the viability of the idea (Christofer & Sandström, 2016). Once the stakeholders were satisfied with Uber’s operations in New York, it officially launched in San Francisco and immediately began offering its services to customers (Christofer & Sandström, 2016). Thus, the service focused on beta tests once the application was fully integrated with city service provision mechanisms, allowing stakeholders to determine the viability of their service.
8. Product Launch and Marketing Strategy
Netflix launched its streaming services to customers in 2007. They introduced the availability of videos on demand on the internet, allowing Netflix subscribers with the necessary bandwidth to watch content online, without having to download it first. The product launch occurred gradually over the course of 2007 (Lobato & Lotz, 2020). Further, the platform availed the product to subscribers under different plans, offering buyers the opportunity to buy within their preferred price range. They availed 1000 films on Netflix at first, allowing customers to stream them according to the available number of films or hours they had subscribed to. Subsequent purchases were enabled by improvements to the Netflix and streaming technology (Lobato & Lotz, 2020). Noting the technological hurdles hindering subsequent customers and expansion, the service increased its film selection, and increased its connection capability to access personal computers, televisions and even smart phones.
The first sale on the platform sold as soon as the service released the TV show. Previous Netflix subscribers who used the DVD rental service had access to the streaming service product, as well as new subscribers. The company applied various strategies to increase sales after the launch, mainly performing modifications on their service. First, Netflix introduced partnerships with other film industry service providers to increase its content selection online. For instance, the service partnered with Relativity Media Company in 2010, to stream movies made by the production company. Further partnerships with Starz Inc., Paramount, Metro-Goldwyn-Mayer and Lionsgate increased the variety of films that consumers could access on Netflix (Lobato & Lotz, 2020). Secondly, availing the service internationally is the greatest modification made by Netflix. It enabled the service to expand worldwide, to all nations but a few like China and Syria (Lobato & Lotz, 2020). As such, these initial and subsequent modifications by Netflix increased sales by increasing subscribers to their online streaming platform.
Netflix utilizes various entrepreneurial marketing strategies to publicize its product worldwide. For instance, its use of a wide variety of social media and other online campaigns is a crucial strategy for multinational corporations (Yang, 2017). Moreover, Netflix offers consumers personalized content to keep their customers interested. The service offers location-specific content to allow users to access content based on their location (Yang, 2017). Further, Netflix monitors a customer’s watching habits and recommends content based on past history. These strategies allow consumers to keep interested in what the streaming service has to offer.
Uber’s product launch and marketing strategy began when Uber formally launched its ride-hailing service in 2011 in San Francisco. Its first service to customers allowed them to hail a luxury car for almost twice what local taxis charged per ride (Christofer & Sandström, 2016). Therefore, after initial complaints from customers over the high prices, the company modified its services to include UberX, which allowed drivers to use cheaper, less luxurious vehicles to offer rides. The company also modified its services by increasing its availability to many other cities throughout the world, despite legal challenges in most locations.
The company has applied entrepreneurial marketing strategies corresponding with the modern model. First, the marketplace is driven by technology, which is the single most determinant of business success in the current economy (Omunyala & Bett, 2019). Uber drivers and users must have a smartphone App of the service to access ride-sharing capabilities. Further, Uber emphasizes on customer satisfaction, even allowing customers to rate their drivers’ services on the Application (Omunyala & Bett, 2019). TThis strategy ensures customer retention, since most who feel well-served do not defect to Uber’s competitors like Lyft. Finally, the dynamic pricing offered by Uber allows the pricing strategies to change depending on location, distance and market forces. Therefore, this strategy allows both drivers and customers to receive fair pay and services respectively.
9. Public Liability and Environmental/Ethical/Societal Issues
When Netflix launched its online streaming service in 2007, many previous customers raised issues, stating that prices increased when the company decided to separate its DVD rental and streaming services online (Donato-Weinstein, 2015). Further, since its launch Netflix has faced criticism over its failure to adequately minimize risks to vulnerable viewers. For instance, support groups of people with disabilities note that the streaming service lacked captioning mechanisms, discriminating against most deaf and blind people (Donato-Weinstein, 2015). The company has had to blend its DVD hiring and streaming services to serve public interest, and minimize discrimination. Further, the service allows close captioning on its streaming service to allow the deaf to consume their content.
Uber has also faced various criticisms concerning the service’s effect on the environment. This egregious harm led to what was dubbed the “True Cost of Uber Campaign”. A report released by Euromonitor revealed that through its ride-hailing service was casing a hike in the carbon dioxide released in the atmosphere, contributing to global warming and climate change. Specifically, Uber was responsible for release of 515 kilotons of carbon dioxide within the span of a few years, which equates the addition of 250 thousand cars in the cities affected (Christofer & Sandström, 2016). Further, the most Uber drivers in European cities use diesel-fueled cars, hence the air pollution in those cities is always increasing tremendously. The pollution exacerbated by Uber also arises from increased vehicles on the streets. In the years since the company launched its product, the registration of private hire vehicles increased significantly. The registration of traditional taxis was capped, hence they could not increase past a specified number. However, that of private hire vehicles is not capped, hence the numbers doubled in most cities after the launch of Uber (Christofer & Sandström, 2016). This increase in vehicles corresponds to the increase in carbon dioxide emissions in major cities in the world.
The company launched a new campaign in its product launch to alleviate consumer worries about the environment. In this regard, Uber introduced the Clean Air Plan in cities like London (Christofer & Sandström, 2016). The aim of the Clean Air Plan is to make sure every car used on the Uber Application is fully electric, by the year 2025. They buttressed this goal by adding a Clean Air Fee of $0.19 per mile on trips in London (Christofer & Sandström, 2016), to support drivers who intend to shift from diesel-fueled to electric cars.
10. Conclusion
The current dicussion intended to describe each of the stages in the product development process based on case studies of Netflix and Uber. New product development involves the identification of market needs, product conceptualization, building the roadmap of the product, product launch, and feedback collection. As shown in the discussion, it is a key part of product design and this process does not end unless the life cycle of a product is over. The companies can keep on collecting feedback from the users and iterate on newer versions by adding or enhancing newer features.
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