LESSON NO, 3 NEW PRODUCT DEVELOPMENT- IDEA GENERATION, SCREENING, CONCEPT DEVELOPMENT AND TESTING —— STRUCTURE 3.0 Objectives 3.1 Introduction 2. Idea generation 3.3. Screening ideas 3.4 Concept development and testing 3.5 Marketing Strategy Development 3.6 Summary 3.7 Keywords 3.8 Self Assessment Questions 3.9 References/Suggested Readings 3.0 OBJECTIVES New product development is the process of finding ideas for new goods and services and converting them into commercially successful products. It is an eight step process which starts with generation of new idea and pass through screening, concept development and testing, marketing strategy development, business. analysis, __ product development, test marketing and reach at commercialisation. This lesson focuses on the first four stages of new product development process After reading this lesson you will understand the following: + How the idea for new product generated? + How the ideas developed are screened and selected? * What is concept development and testing?. How and what marketing strategies are conceived for new product? 3.1 INTRODUCTION Every company must develop new products. New product development shapes the company’s future. Replacement products must be created to maintain or build sales. Customers want new products, and competitors will do their best to supply them. According to F.R. Bichowsky, “No war, no panic, no bank failure, no strike or fire can so completely and irrevocably destroy a business as a new and better product in the hands of a competitor”. In order to succeed in the market place, every company must continuously explore good ideas and should leave no stone unturned in converting good ideas into products. A company can add new products through acquisition or development. The acquisition route can take three forms. The company can buy other companies, it can acquire patents from other companies, or it can buy a license or franchise from another company. The development route can take two forms. The company can develop new products in its own laboratories or it can contract with independent researchers or new product development firms to develop specific new products. The new product development process is usually described as a sequential process that converts ideas into commercially viable products. The process is essentially a series of go, no-go decisions in which the best ideas emerge as finished products. The process has eight stages. The process begins with the search for new product ideas and then moves on to screening, concept development and testing, marketing strategy formulation, business analysis, product development, test marketing and concludes with commercialisation. oe’o 20, ep %y ~% a and months % one end, ane ; iy rket Ideas that fail to meet deve 3 Te oa B , more testing Bg either aropped OF gent back for IS $b. % is 9, ilies 3.2 IDEA GENERATI : me to start as the ger™ of an idea. Companle”’ 8a y re as to Ss 's ~ see ee me id from which it can select the tg therefore, require continuous flow of 1 leas ae : : ii ror uc! ™ best possible idea for converting it into @ new P! ithin the . ‘The most common source of ideas for new products lies W1 oe i 46% ° company itself. A survey revealed that 60% of industrial and came from the research staff, engineers, ves of the firm. J, and executi nd 30% of co a number 0} product idea consumer new nsumer new rch personne sroduct ideas a! however, arketing rese? ndustrial new P) from users. The: sales people, m: Another 26% of ii duct ideas came f sources product ideas: re are, prot of new Aand development fy Researe: all, that is uct ideas. After In some organisations, p something R&D is the obvious source of new prod anisation’s R&D s what an Org the R&D department can be given a ve! specifications”, that conforms to these s long as you deliver s' “Do what you want, a ally viable”. The first approach has the advantage of and expenditure are controlled, si s and objectives. The taff is paid to do. I ry tight brief, “Develo, thers, they can be given omething we and in 0 freedom, consider commerci making sure that R&D activity ect driven and has defined aim: s R&D scientists full creative scope to do ince it is problem or proj second approach, however, allow: 7 what they are good at, and it does throw up products that otherwise erwis would never have been conceivedR&D work can also vary from being completely self-sufficient, to collaborative research working only within the company environment, ies. This latter with other organisations, external institutes or universit! approach allows the organisation to draw on a much wider pool of expertise on a particular project than they could ever reasonably hope to employ for themselves, but has the drawback of placing the work in a mote public arena where the competitors might detect it. Generating and developing ideas through R&D can involve fairly long time-scales, with far from certain reward. Maintaining an R&D department is thus expensive, yet essential for a proactive organisation. Sometimes, external inventors approach an organisation with their own ideas. They might wish to sell the idea to the organisation or to enter into a collaborative development deal, splitting the profits. (ii) Competitors Looking at the competitor’s products and their marketing strategies may also give a company an idea for new product. Rather than create an innovation, a firm may find it expedient to imitate competitive offerings. In a survey, 27% of industrial new product ideas and 38% of consumer jdeas came from the analysis of competitors. Actually, adapting an existing product created elsewhere is less expensive and time consuming than creating an innovation. Another common source of new idea is the visits of managers to other countries where they come across at various kinds of products. The exposure to new kind of products may give entrepreneurs an idea for developing new products. (iii) Employees Employees can be encouraged to suggest new product ideas through suggestion boxes and competitions. Organisations such as 4mer’s needs and feelings about changing consumer attit i ground for Monitoring and their usag' products and markets, gh analysis new ideas. pinion is throu sation’s portant source of customer °. s in the organi Another im) al inadequacie is too can reve; of complaints. Th provide a basis fo’ r ideas. current provision and (y) Licensing products and new etting access to new in which a in be a useful way of g product jdeas. Licensing is a contractual relationship -mark or patent rights of a It cai who owns trade ther organisation (licensee) to ieu of a fee or royalty. Licensee manufacturer (licensor) product or technology allows ano manufacture and market that product in |gets exposure to new product, processes, and technologies and may get idea for new products. (vi) Top Management Top management can be another major source of ideas. Some company leaders take personal responsibility for technological innovation in their companies. Others try to create an environment that encourages business managers to take risks and create new growth opportunities. (vii) Agencies and Consultants Many agencies and consultancies specialise in providing information to organisations to assist in the generation of new product ideas. In the fashion industry, for example, agencies exist to predict colour and fabric trends so that designers and manufacturers can develop appropriate ranges for future seasons. (viii) General intelligence ‘There is also a range of external sources, most of which are not specific to organisation. These sources provide very general information which can be interpreted by the organisation to reveal possible new ideas. Such sources include trade magazines, exhibitions, distributor comments, government agencies, libraries, and general publications. research (ix) Organised creativity A number of techniques for encouraging staff to develop new ideas exist. Simon Majaro Suggested brainstorming, synectics, attribute listing, forced relationships and morphological analysis. +. Brainstorming: It involves a group of 6 to 10 people discussing in an intensive session focusing on a specific 6 eeproblem. ‘The purpose is to generate 2% many ideas as possible, however wild they are ‘The benefit of the group session is that one person’s ideas may spark off other ideas from the rest of the group. In brainstorming, there should be no negative comments about any idea so that more ideas may be generated. Later on many ideas can be combined to create better ones. ° Synectics- Synectics is a group technique similar to brainstorming, but less problem specific. This frees the group from any mental strait-jacket and allows it to enter into more specific exploratory thinking. » Attribute listing- Attribute listing means listing all the attributes of a product and then changing each one in Search of a new combination. Thinking may be in terms of other uses, adaptation, rearrangement, reversal, magnifying or minimising attributes, combination or substitution. «Forced relationships- Forced relationship as @ technique considers products in relation to each other. Manufacturers of telephones, computers, and stereos, for example, may generate new product ideas by thinking of their products in relation to a car, for example, and considering the technology involved, the design and styling and how the product would fit into the car’s dashboard. «Morphological analysis- It means looking at a problem and its components, and then finding connections and solutions. ‘Thus thinking about a golf-car/buggy might lead to options relating to fuel source, power transmission, and body shape etc. Despite the range of sources of new ideas, only a few ideas are likely to amount to anything. A large and regular supply of ideas is| prainstorm pote’ Allow time off fo ‘ects. 3M allows 15% time off. rainstorming session 4 standard feature a customer bi islike proj Make of plant tours. ur customers: ducts. d competitors’ pro' earch with customers. Hewlett- survey yO Find out what they like and d in your an' Packard does Undertake res s in one room, group of customer and a group of your so. Use iterative rounds: a focusing on identifying problems, the next room, listening and tions are then technical people in tions. The proposed solu brainstorming solu tested immediately on the group of customers. ly scans trade keyword search that routine new product Set up a countries for publications in multiple announcements. Treai i i i t trade shows as intelligence mission, where you view all that is new in your industry under one roof.. Have your technical and marketing people visit your suppliers’ labs and spend time with their technical people. ° Allow employees to review the ideas and add constructively to them. 3.3 SCREENING IDEAS d, in order to eliminate those that are unlikely to prove appropriate or successful. This idea’s potential, using In this stage, a preliminary scan of ideas is conducte means undertaking an assessment of an information that is already available within the seems prepared to make out a case for the idea, there is little point in organisation. If nobody investing in more serious and costly external research and testing. It is better to drop bad ideas, after a fair hearing, as soon as possible, to allow concentration on better ideas. Any company can attract good ideas by organising itself properly. ‘The company should motivate its employees to submit their ideas to an idea manager whose name and phone number are widely circulated. Ideas should be written down and reviewed each week by an idea committee, which sorts them into three groups: promising ideas, marginal ideas, and rejects. Promising ideas are moved to full scale screening process. The company should reward employees submitting the best ideas. Screening can be viewed as a filtering process. The objective of this stage then is to assess whether the idea fits with the broad strategic plans and development directions of the organisation. It is also important to establish whether the idea’s implementation is technically feasible. Usually, the idea and its preliminary screening analysis are presented to manageinent as a proposal. This will describe the product arising from the idea, outline how it compliments existing products, analyse its target markets and market segments, define and analyse the competition,development time and costs, and forecast its likely margin and its sales Profile over time so that recommendations can be made whether or not to proceed. Many organisations use weighted score and ranking methods to Screen ideas. In weighted score method, criterion on which the idea is Judged are listed and assigned weights according to their importance. Each idea is then advertised. Does the company have the necessary know-how and capital? Will the new product deliver the expected sales volume, sales growth, and profit? In ranking method, experts rank all the listed ideas. As the new product idea moves through development, the company will constantly need to revise its estimate of the product’s overall probability of success, using the following formula: Overall probability of success = (Probability of Technical completion) x (Probability of commeércialisation given _ technical completion) (Probability of economic success given Commercialisation) For example, if the three probabilities are estimated as .50, .65, and .74 respectively, the company would conclude that the overall probability of success is .24. The company then has to judge whether this probability is high enough to warrant continued development. In screening ideas, the company must avoid two types of errors. A DROP-error occurs when the company dismisses an otherwise good idea. It is extremely easy to find fault with other people’s ideas. Some companies shudder when they look back at ideas they dismissed. Xerox saw the novel promise of Chester Carlson’s copying machine, but. IBM and Eastman Kodak did not and now. the Xerox is household name and the other two are repenting. IBM thought that the market for personal computers is miniscule but Apple did not. Apple became the first 10company to produce a PC, RCA saw the opportunity of radio; the Victor Talking Machine Company did not and RCA became the leader in radio industry. Sears dismissed the importance of discounting; Wal-Mart and Kmart did not. If a company makes too many DROP errors, its standards are too conservative, A GO-error occurs when the company permits a poor idea to move into development and commercialisation. Poor ideas may result in product failures, We can distinguish three types of product failures. An absolute product failure loses money; its sales do not cover variable costs. A partial product failure loses money, but its sales cover all its variable costs and some of its fixed costs. A relative product failure yields a profit that is less than the company’s target rate of return. A better method would take into account the information available in the success or failure of a large number of past new product launches. A software, called NewProd, is now-a-days available for new product screening, evaluation, and diagnosis. NewProd was developed from a statistical analysis of 200 projects from 100 companies. Managers are asked to rate their own project on 50 screening criteria. A regression is run relating these dimensions to degree of commercial success. Bight factors linked to product outcomes, in the software, included product superiority, compatibility, market need, economic advantage, newness to the firm, technical compatibility, market competitiveness, and size of market. NewProd studies in North America, the Netherlands, and Scandinavia have shown correct predictions for 75% to 85% of the new product studied. NewProd predicts success and failure before development even begins.3.4 CONCEPT DEVELOPMENT AND TESTING A . ' ‘tractive ideas must be refined into testable product concepts. A product idea is a possible product the company might offer to the market, Aon 5 \ product concept is an elaborated version of the idea expressed in meaningful consumer terms. Once an idea has been accepted in principle at the internal screening stage, it needs to have some external endorsement. This is the third stage of new product development process, called concept development and testing, Schwartz define concept testing as, “A printed or filmed representation of a product or service. It is simply a device to communicate the subject’s benefits, strengths, and reasons for being.” Concept testing starts to describe profile and visualise the product sna way that potential customers would understand, What is presented to potential a way that potential customers would understand. What is presented to potential buyers at this stage may still only be sketch concepts, in the form of working statements, drawings, or storyboards, or it may go as far as models and mock-up packaging, There are two main types of concept statements: core jdeas and positioning statements. Core ideas consist of short, general statements of what the product can do. The basic purpose is to find out whether the basic idea is acceptable or attractive. Positioning statements may comprise several paragraphs, focusing on main or secondary benefits, as well as outlining aspects of the product's marketing mix. Here, the researcher is trying to get as close as possible to assessing a realistic package that the potential customer might encounter in the market place. ‘The overall objective of this. stage is to assess the relative attractiveness of ideas to the people who the organisation hopes will eventually buy the product. Such an assessment provides management 12with i i further information about the strengths and weaknesses of each id i ea and a rating on a scale from ‘definitely would buy’ to ‘definitely would not buy’, This stage sometimes produces surprises, Management's favourite ideas can be rejected by the consumer, while apparently weak or borderline ideas emerge with hidden appeal. Whatever the outcomes, management now have a fuller picture of each idea and may, therefore, reject a few more, and carry a smaller number to the next stage. As is clear from the above discussion that concept testing involves Presenting the product concept to appropriate target consumers and getting their reactions. The concepts can be presented symbolically or physically. However, the more the tested concepts resemble the final product or experience, the more dependable the concept testing is. In the past creating physical prototypes was costly and time-consuming, but computer aided design and manufacturing programmes have changed that. Today firms can design alternative physical products, for example small appliances or toys, on computer, and then produce plastic models for each. Potential consumers can view the plastic models and give their reactions. Companies are also using virtual reality to test product concepts. Virtual reality programmes use computers and sensory devices to simulate reality. Gadd international has developed a research tool called Simul-Shop, a CDROM virtual reality approach that re-creates shopping situations in which researchers can test consumer reactions to factors such as product positioning, store layouts, and package designs. Suppose a cereal marketer wants to test reactions to a new package design and store shelf positioning. Using Simul-Shop on a standard desktop PC, test shoppers begin their shopping spree with a screen showing the outside of a grocery store, They click to enter the 13virtual store and are guided to the appropriate store section. Once there, they can scan the shelf, pick up various cereal packages, rotate them, study the labels, even look around to see what is on the shelf behind them. A Gadd’s research director explains, “Once users move toward the item we want to test, they can look at different packaging, shelf layouts, and package colours. Depending on the activity, we can ask users why they did what they did”. 3.5 MARKETING STRATEGY DEVELOPMENT After testing, the managers must develop a preliminary marketing strategy for introducing the new product into the market. The plan consists of three parts: * The first part describes the target market's size, structure, and behaviour; the planned product positioning; and the sales, market share, and profit goals sought in the first few years. + The second part outlines the planned price, distribution strategy, and marketing budget for the first year. * The third part of the marketing strategy plan describes the long run sales and profit goals and marketing mix strategy over time. Companies in this stage try [Link] the marketing strategy even before the product is ready. The main. idea is that if the marketing strategy does not seem attractive then the idea will be dropped. It also gives a fair bit of idea about the price, type of promotion needed, distribution-required etc.3.6 SUMMARY Once th : ‘ company has segmented the market, chosen its target customer identi ‘ groups, identified their needs, and determine its desired market ositioning, it i positioning, it is ready to develop and launch appropriate new products. Fight stages are involved in the new product development process: idea generation, screening, concept development and testing marketing strategy development, business analysis, product development, market testing and commercialisation. This chapter elaborated the first four stages, namely: idea generation, idea screening, concept development and testing, and marketing strategy development. 3.7 KEYWORDS New product development process: It describes a sequential process that converts idea into commercially viable products. Licensing: It is a contractual relationship in which @ manufacturer (licensor) who owns trade-mark or patent rights of a product or technology allows another organisation (licensee) to manufacture and market that product in lieu of a fee or royalty. Drop-error: It occurs when the company dismisses an otherwise goods idea. Go-error: It occurs when the company permits a poor idea to move into development and commercialisation. Core ideas: It consists of short, general statements of what the product can do. (a ee3.8 SELF ASSESSMENT QUESTIONS K 2h List the sources of new product ideas. What kind of criterion is likely to be taken into account during the idea screening stage? What is concept testing and why is it a crucial stage in new product development? What is marketing strategy development? Do you think it is appropriate to develop marketing strategy even before the product is ready? 3.9 REFERENCES/SUGGESTED READINGS William J. Stanton, Michael J. Etzel, and Bruce J. Walker, “Puindamentals of Marketing’, 10! Edition, McGraw Hill International edition, 1994. Douglas J. Dalrymple, and Leonard J. Parsons, “ Marketing Management-Text & Cases’, Ist Edition, Wiley/Hamilton Publication. ‘Ang, SH, Leong, SM, Tan, CT, and Kotler, P., “Marketing ManagementAn Asian Perspective”, Prentice Hall & Simon & Schuster (Asia) Pvt. Ltd., Singapore, 1996. Brassington, F., and Pettitt, S., “Principles of Marketing”, Pitman Publishing, London, 1997. Dibb, S., Simkin, L., Pride, WM, and Ferrell, OC, “Marketing- Concepts & Strategies’, 2nd European edition, Houghton Mifflin Company, London, 1994.