CHAPTER ONE

NEW PRODUCT DEVELOPMENT

Chapter Objectives:
At the end of this chapter learners will be able to:
Define product and product development
Identify new product development process
Distinguish Organizing new-product development
Identify key factors in the success of innovation
Introduction
In market the product is the most tangible and important single component of the marketing
program. The development of new product means to find out whether the new concept can be
implemented in practical or not; from technical and commercial point of view. New product
development can be achieved in 2 ways: Acquisition and Innovation. Acquisition is when the
company can buy other companies, patents from other companies, or a license or franchise from
another company, and Innovation is when the company can create new products in its own
laboratories, or it can contract with independent researchers or new-product development firms
to develop specific new products or provide new technology. New product development is
required in companies when;
A Company may find itself in a situation where it may be advisable to develop a new
product.
When sales of its current range of products have been declining over the past few years or
when it receives complaints about its products from customers, distributors, retailers, it may have
to find the possible reasons for the same.
The concept of product lifecycle suggests that a product passes through different stages.
When a company finds that some of its products have entered the declining stage, it may have to
take
concrete measures to replace them.
1.1 DEFINITION OF NEW PRODUCT
A new product is a product that opens up an entirely new market, replaces an existing product,
or
significantly broadens the market for an existing product. A new product can be defined as: “A
good, service or idea that is “perceived” by some potential customers as new.
“New Product Development is a business and engineering term which describes the complete
process of bringing a new product to market. It is the development of original products, product
improvements, product modifications, and new brands through the firm‘s own product
development efforts. New products are important—to both customers and the marketers who
serve them. For customers, they bring new solutions and variety to their lives. For companies,
new products are a key source of growth.
1.2 TYPES OF NEW PRODUCT CATEGORIZATION
Even though thousands of products are offered for the first time each year, less than 10 percent
are entirely new and innovative. The term new product is somewhat confusing because its
meaning varies widely. Actually, the term has several ―correct‖ definitions. A product can be
new to the world, to the market, to the producer or seller, or to some combination of these. There
are six categories of new products:
1. New -to-the –world products: -New, innovative products that create an entirely new market.
New-to-the world products represent the smallest category of new products.2. New product
lines: -These products, which the firm has not previously offered, allow it to enter new or
established markets.
3. Additions to existing product lines: - new products that supplement a company's established
product lines (package sizes, flavors and etc.).
4. Improvements and revisions of existing products: - new products that provide improved
performance or greater perceived value and replace existing products.
5. Repositioning: - existing products that are targeted to new markets or market segments.
6. Cost reductions: - new products that provide similar performance at lower cost.
The new-to-the-world category involves the greatest cost and risk because these products are
new to both the company and the marketplace, so positive customer response is far from certain.
That‘s why most new product activities are improvements on existing products. At Sony, for
example, over 80 percent of new product activity is undertaken to modify and improve existing
Sony products. Even new-product improvements are not guaranteed to succeed.
1.3 ORGANIZING NEW-PRODUCT DEVELOPMENT
Companies handle the organizational aspect of new-product development in several ways. The
most common are:
Product managers: Many companies assign responsibility for new-product ideas to product
managers. In practice, this system has several faults. Product managers are so busy managing
existing lines that they give little thought to new products other than line extensions. They also
lack the specific skills and knowledge needed to develop and critique new products.
New-product managers: Kraft and Johnson & Johnson have new-product managers who
report to category managers. This position professionalizes the new-product function. However,
like product managers, new product managers tend to think in terms of modifications and line
extensions limited to their product market.
New-product committees: Many companies have a high-level management committee
charged with reviewing and approving proposals.
New-product departments: Large companies often establish a department headed by a
manager who has substantial authority and access to top management. The department‘s major
responsibilities include generating and screening new ideas, working with the R&D department,
and carrying out field testing and commercialization.
New-product venture teams: 3M, Dow, Westinghouse, and General Mills often assign new-
product development work to venture teams. A venture team is a group brought together from
various operating departments and charged with developing a specific product or business. They
are ―entrepreneurs relieved of their other duties and given a budget, a time frame, and a
―skunk works‖ setting. Skunk works are informal workplaces, sometimes garages, where
entrepreneurial teams attempt to develop new products. Cross-functional teams can collaborate
and use concurrent new-product development to push new products to market. Concurrent
product development resembles a rugby match, with team members passing the new product
back and forth as they head toward the goal.
STAGE-GATE SYSTEMS Many top companies use the stage-gate system to divide the
innovation process into stages, with a gate or checkpoint at the end of each. The project leader,
working with a cross-functional team, must bring a set of known deliverables to each gate before
the project can pass to the next stage. To move from the business plan stage into product
development requires a convincing market research study of consumer needs and interest, a
competitive analysis, and a technical appraisal. Senior managers review the criteria at each gate
to make one of four decisions: go, kill, hold, or recycle. Stage-gate systems make the innovation
process visible to all and clarify the project leaders and team‘s responsibilities at each stage. The
gates or controls should not be so rigid, however, that they inhibit learning and the development
of novel products.
1.4 NEW PRODUCT DEVELOPMENT PROCESS
The management consulting firm Booz, Allen Hamilton has studied the new-product
development process for over 30 years. After analyzing five major studies undertaken during this
period, the firm concluded that the companies most likely to succeed in developing and
introducing new products are those that take the following actions:
☛Make the long-term commitment needed to support innovation and new-product development.
☛ Use a company-specific approach, driven by corporate objectives and strategies, with a well-
defined new product strategy at its core.
☛ Capitalize on experience to achieve and maintain competitive advantage.
☛ Establish an environment—a management style, organizational structure, and degree of top
management support conducive to achieving company-specific new-product and corporate
objectives. Most companies follow a formal new-product development process.
1. Idea Generation
Development process starts with the search for ideas. New product ideas can come from
interacting with others and using creativity generating techniques. Idea generation is the
systematic search for new product ideas.
The objective of this stage is to obtain
1. New ideas for products
2. New attributes for the existing products and
3. New uses of the existing products
Major sources of new-product ideas include internal sources and external sources such as
customers, company salesman, dealers, scientists, competitors, top management, industrial
consultants, advertising agencies, marketing research firms, industrial publications, universities
and commercial laboratories, R&D department, focus groups, employees, or trade shows.
2. Idea Screening
Any company can attract good ideas by organizing 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. Each promising
idea is researched by a committee member, who reports back to the committee. The surviving
promising ideas then move into a full-scale screening process. The company should reward
employees submitting the best ideas. The purpose of screening is to drop the poor idea which is
incompatible with the company objectives. Eliminate unsound concepts or must ask different
questions:
will the target market benefit from the product
Is it technically feasible to manufacture the product
In screening ideas, the company must avoid two types of errors:-
i. DROP ERROR:-when the company dismisses an otherwise good idea.
ii. ii. GO-ERROR:-When the company permits a poor idea to move into development&
commercialization.
3. Concept Developing and Testing
An attractive idea must be developed into a product concept. It is important to distinguish
between a product idea, a product concept, and a product image. A product idea is an idea
for a possible product that the company can see itself offering to the market. A product concept
is a detailed version of the idea stated in meaningful consumer terms. A product image is the
way consumers perceive an actual or potential product.
Concept development: - In this concept to measure the need, targets, purchase frequency of the
consumers, the gap level between new product & existing product in market. A product idea can
be turned into several concepts. The first question is: Who will use this product? It can be aimed
at infants, children, teenagers, young or middle-aged adults, or older adults. Second, what
primary benefit should this product provide: Taste, nutrition, refreshment, or energy? Third,
when will people consume this drink: Breakfast, midmorning, lunch, mid afternoon, dinner, late
evening? By answering these questions, a company can form several concepts
Concept testing: - 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 concept testing is. In the past, creating physical prototypes was costly and time-
consuming, but computer-aided design and manufacturing programs have changed that. Today
firms can design alternative physical products (for example, small appliances or toys) on a
computer, and then produce plastic models of each. Potential consumers can view the plastic
models and give their reactions. Companies are also using virtual reality to test product concepts.
Virtual reality programs use computers and sensory devices (such as gloves or goggles) to
simulate reality. Many companies today use customer-driven engineering to design new
products. Customer-driven engineering attaches high importance to incorporating customer
preferences in the final design.
The new product ideas which survive in screening are then pursued further through concept
testing.
The major objectives of concept testing are:
1. To get the reaction of consumers ‘views of the new product idea.
2. To give direction regarding the development of the project.
3. To choose the most promising concepts for development.
To ascertain whether the product in question has adequate potential for its commercialization
The concept test can take three different forms:
1. It can be entirely verbal – A statement about what it does.
2. It can be visual – in form of a photograph or drawing.
3. A mockup of the product may be used – this is merely a dummy product to get across the
idea.
4. Marketing strategy development:-After testing, the new-product manager must develop a
preliminary marketing-strategy plan 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 behavior;
the planned product positioning; and the sales, market share, and profit goals sought in the first
few years
5. Business Analysis
Once management has decided on its product concept and marketing strategy, it can evaluate the
business attractiveness of the proposal. Business analysis involves a review of the sales, costs,
and profit projections for a new product to find out whether they satisfy the company's
objectives. If they do, the product can move to the product development stage. As new
information comes in, the business analysis will undergo revision and expansion. To estimate
sales, the company might look at the sales history of similar products and conduct surveys of
market opinion. It can then estimate minimum and maximum sales to assess the range of risk.
After preparing the sales forecast, management can estimate the expected costs and profits for
the product, including marketing, R&D, operations, accounting, and finance costs. The company
then uses the sales and costs figures to analyze the new product's financial attractiveness.
6. Product Development
So far, for many new-product concepts, the product may have existed only as a word description,
a drawing, or perhaps a crude mock-up. If the product concept passes the business test, it moves
into product development. Here, R&D or engineering develops the product concept into a
physical product. The product development step, however, now calls for a large jump in
investment. It will show whether the product idea can be turned into a workable product.
The R&D department will develop and test one or more physical versions of the product concept.
R&D hopes to design a prototype that will satisfy and excite consumers and that can be produced
quickly and at budgeted costs. Developing a successful prototype can take days, weeks, months,
or even years. Often, products undergo rigorous functional tests to make sure that they perform
safely and effectively. The prototype must have the required functional features and also convey
the intended psychological characteristics. In this stage, the company to develop product
prototype so as to ascertain whether the company has the necessary technology available or
procure the technology to manufacture product which satisfy the consumes ,business needs.
When the prototypes are ready, they must be put through rigorous functional tests and customer
tests. Alpha testing is the name given to testing the product within the firm to see how it
performs in different applications.
After refining the prototype further, the company moves to beta testing. It enlists a set of
customers to use the prototype and give feedback on their experiences. Beta testing is most
useful when the potential customers are heterogeneous, the potential applications are not fully
known, several decision makers are involved in purchasing the product, and opinion leadership
from early adopters is sought.
There are two types testing:-
i. Alpha testing: - test within the firm.
ii. Beta testing:-test with customer.
7. Test market
After management is satisfied with functional and psychological performance, the product is
ready to be dressed up with a brand name and packaging, and put to a market test. The new
product is introduced into an authentic setting to learn how large the market is and how
consumers and dealers react to handling, using, and repurchasing the product. Test marketing
provides important clues, weakness about the product. In this stage where, the entire product and
marketing program is tried out for the first time in a small number of well-chosen and sales
environments. After the concept testing and development of a new product, it is necessary to find
out whether it is going to be accepted or not in the market. This is achieved through test
marketing. The main objective of test marketing a new product is to reduce the commercial risk
when it is brought in the
market
Test marketing is a controlled experiment, done in a limited but carefully selected part of the
market place, whose aim is to predict the sales or profit consequences, either in absolute or in
relative terms, of one or more proposed marketing actions.
It is essentially the use of the market place as a laboratory and of a direct sales measurement
which differentiates this test from other types of market research.
Uses: If the product passes functional and consumer tests, the next step is test marketing, the
stages at which the product and marketing program are introduced into more realistic market
settings. Test marketing gives the marketer experience with marketing the product before going
to the great expense of full introduction. It lets the company test the product and its entire
marketing program positioning strategy, advertising, distribution, pricing, branding and
packaging, and ] budget levels. The amount of test marketing needed varies with each new
product. Test marketing costs can be enormous, and it takes time that may allow competitors to
gain advantages. When the costs of developing and introducing the product are low, or when
management is already confident about the new product, the company may do little or no test
marketing. Companies often do not test market simple line extensions or copies of successful
competitor products.
8. Commercialization
Companies often do not test market, Test marketing gives management the information needed
to make a final decision about whether to launch the new product or not. If the company goes
ahead with commercialization—introducing the new product into the market—it will face high
costs. The company will have to build or rent a manufacturing facility. The company launching a
new product must first decide on introduction timing Next, the company must decide where to
launch the new product—in a single location, a region, the national market, or the international
market. Few companies have the confidence, capital, and capacity to launch new products into
full national or international distribution. They will develop a planned market rollout over time.
In particular, small companies may enter attractive cities or regions one at a time. Larger
companies, however, may quickly introduce new models into several regions or into the full
national
market. If the product is found to be suitable as a result of analysis &study of the result of test
marketing, it is ready to be launched in the market. In commercializing a new product, certain
decisions are very crucial.
A) When (timing of market entry)
In commercializing a new product, market-entry timing is critical. Suppose a company has
almost completed the development work on its new product and learns that a competitor is
nearing the end of its development work. The company faces three choices:
1. First entry: The first firm entering a market usually enjoys the ―first mover advantages ―of
locking up key distributors and customers and gaining reputation a leadership. But, if the product
is rushed to market before it is thoroughly debugged, the product can acquire a flawed image.
2. Parallel entry: The firm might time its entry to coincide with the competitor‘s entry. The
market may pay more attention when two companies are advertising the new product.
3. Late entry: The firm might delay its launch until after the competitor has entered. The
competitor will have borne the cost of educating the market. The competitor‘s product may
reveal faults the late entrant can avoid. Company can also learn the size of the market. The
timing decision involves additional considerations. If a new product replaces an older product,
the company might delay the introduction until the old product‘s stock is drawn down. If the
product is highly seasonal, it might be delayed until the right season arrives.
B) Where (geographic strategy)
The company must decide whether to launch the new product in a single locality, a region,
several regions, the national market, or the international market. Most will develop a planned
market rollout over time. Company size is an important factor here. Small companies will select
an attractive city and put on a blitz campaign. They will enter other cities one at a time. Large
companies will introduce their product into a whole region and then move to the next region.
C) To Whom (Target-Market Prospects)
Within the rollout markets, the company must target its initial distribution and promotion to the
best prospect groups. Presumably, the company has already profiled the prime prospects, who
would ideally have the following characteristics: They would be early adopters, heavy users, and
opinion leaders, and they could be reached at a low cost. Few groups have all these
characteristics. The company should rate the various prospect groups on these characteristics and
target the best prospect group. The aim is to generate strong sales as soon as possible to motivate
the sales force and attract further prospects. Many companies are surprised to learn who really
buys their product and why.
D) How (Introductory Market Strategy)
The company must develop an action plan for introducing the new product into the rollout
markets. Because new-product launches often take longer and cost more than expected, many
potentially successful offerings suffer from underfunding. It‘s important to allocate sufficient
time and resources—yet not overspend—as the new product gains traction in the marketplace.
To coordinate the many tasks in launching a new product, management can use network-
planning techniques such as critical path scheduling (CPS), which develops a master chart
showing the simultaneous and sequential activities that must take place. By estimating how much
time each activity takes, planners estimate completion time for the entire project. Any delay in
any activity on the critical path—the shortest route to completion—will delay the project. If the
launch must be completed sooner, the planner searches for ways to reduce time along the critical
path.
1.5 FACTOR FOR SUCCESSFUL INNOVATION
The most important factor in successful new product introduction is
A good match between the product and market needs—as the marketing concept would
predict.
Successful new products deliver a meaningful and perceivable benefit to a sizable number of
people or organizations and are different in some meaningful way from their intended
substitutes.
Firms that routinely experience success in new-product introductions tend to share the following
characteristics.
☛A history of carefully listening to customers
☛An obsession with producing the best product possible
☛A vision of what the market will be like in the future Strong leadership
☛A commitment to new-product development
☛A project-based team approach to new-product development
☛Getting every aspect of the product development process

Several factors which hinder new product development

New products continue to fail at estimated rates as high as 50 percent or even 95 percent in the
United States and 90 percent in Europe. They fail for many reasons: ignored or misinterpreted
market research; overestimates of market size; high development costs; poor design or
ineffectual performance; incorrect positioning, advertising, or price; insufficient distribution
support; competitors who fight back hard; and inadequate ROI or payback. Some additional
drawbacks are:
• Shortage of important ideas in certain areas. There may be few ways left to improve some
basic products (such as steel or detergent).
• Fragmented markets. Companies must aim their new products at smaller market segments,
which can mean lower sales and profits for each product.
• Social, economic, and governmental constraints. New products must satisfy consumer safety
and environmental concerns. They must also be resilient if economic times are tough.
• Cost of development. A company typically must generate many ideas to find just one worthy of
development and thus often faces high R&D, manufacturing, and marketing costs.
• Capital shortages. Some companies with good ideas cannot raise the funds to research and
launch them.
• Shorter required development time. Companies must learn to compress development time with
new techniques, strategic partners, early concept tests, and advanced marketing planning.
• Poor launch timing. New products are sometimes launched after the category has already
taken off or when there is still insufficient interest.
• Shorter product life cycles. Rivals are quick to copy success. Sony used to enjoy a three-year
lead on its new products. Now Matsushita can copy them within six months, barely leaving Sony
time to recoup its investment.
• Organizational support. The new product may not mesh with the corporate culture or receive
the financial or other support it needs.