The rules of traditional product development are rapidly changing. Companies seeking growth can no longer afford to ignore the millions of customers demanding high quality and performance at ultra-low costs. In order to succeed, companies must quickly adapt their strategies to penetrate these high-growth segments. Leading firms have adopted an ultra-low-cost product development (ULCPD) strategy to be competitive in this new environment.

Ultra-low-cost products are not just a phenomenon for emerging markets but a major trend for developed markets, given the current economic situation. Across many industries, we find examples of ultra-low-cost products creating new growth opportunities:

• Automotive: The recently introduced Tata Nano (at $2,200, an ultra-low-cost car) or the low-cost Dacia Logan (which achieved nearly half a million units in sales within three years) are stellar examples of ultra-low-cost cars that have taken the world by storm. The low-cost car market is the largest growing segment in the automotive industry and is projected to grow 500% by 2020.
• Computers: The $100 XO computer from the One Laptop per Child Foundation created a new high-growth market for ultra-low-cost "netbook" computers.
• Cell Phones: Ultra-low-cost handsets sold for under $35 are expected to grow to 300 million units annually by 2013.
• Medical Devices: Low-cost MRI equipment, such as the Siemens Essenza, provide small clinics and rural hospitals access to quality healthcare services at a fraction of the cost of standard MRI equipment.
• Consumer Goods: Ultra-low-cost products sold in dollar stores are gaining significant market penetration in these challenging economic times. The functionality and reliability of these products are often comparable to products from much more expensive big-box retail outlets. For example, the $1 pregnancy test kits sold in dollar stores offer the same accuracy and often better readability than comparable kits costing five to 10 times as much.

ULCPD is more than just lowering the cost of engineering and product development. It is about delivering high quality, innovative products in aggressively short timeframes with ultra-low development costs. This study explores how firms can employ ULCPD strategies to radically improve their cost structure, time to market and innovation capability, leading to a sustainable competitive advantage.

10 Imperatives for Ultra-Low-Cost Product Development

Based on our extensive research, A.T. Kearney has identified 10 key imperatives for ULCPD (see figure 1). Our research has shown that these ULCPD strategies are not isolated to any specific industrial sector; rather, they are all employed with a high level of consistency across multiple industries. Our findings are based on primary interviews and secondary research conducted with 30 firms across multiple industries (automotive, aerospace and defense, consumer goods, electronics, IT and software, medical devices) and countries. We identified leading practices for ULCPD by profiling companies with a proven track record of innovative, low-cost development.

1. Real-time Voice of Customer Insight

A key hallmark of ultra-low-cost development is to focus intensely on what customers need and integrate it into the development process in real time. Leveraging customer insight is not new. All companies use customer needs assessment and customer insight during conceptual design and early phase development. However, a key hallmark of ULCPD is the intense focus on identifying unmet customer needs and identifying lowest cost and innovative methods to meet those needs. Companies use novel research techniques like anthropological discovery (assessment of unmet needs through observation, rather than traditional focus groups) as well as leverage Web 2.0 techniques like crowdsourcing and open innovation to identify features and capabilities that customers need. In addition to discovering specific customer requirements that need to be fulfilled, these techniques also allow the manufacturer to secure rapid feedback on product ideas. Dell's innovative use of crowdsourcing through its IdeaStorm platform, where customers nominate, rank and vote upon new product ideas, resulted in the development of an entirely new product line (laptops bundled with Linux-based operating systems). BMW is leveraging a public-domain competition to crowdsource a new motorcycle design. Procter & Gamble has innovated a large number of products through its open innovation portals. All these examples leverage the voice of the customer in real time to identify specific unmet needs and develop products to meet those functional requirements in a cost-efficient manner.

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