New Product Development is the process of designing, building, operating, and maintaining a good or device.
Software and internet companies use a product development process to ensure that they are not just manufacturing a technology, but creating a product that people will want to buy and continue to use.
New product development is development of altogether new product so far as the company is concerned. There is a misconception that new product development is the sole responsibility of the production related departments of an industry. This must be actually done jointly by the production related departments and the marketing department.
New product development is absolutely necessary for any company. Any company which does not plan this will not only be able to succeed but also will find it difficult to survive.
New product development however is not an easy affair. It is an expensive, painstaking, time consuming and risky affair. In spite of all these discouraging facts every company has to take it as a challenge and go about developing new products.
1. Introduction to New Product Development 2. Meaning and Concept of New Product Development 3. Objectives 4. New Product Development – What, Why and How? 5. Need 6. Sources
7. Process 8. Development 9. Scientific Method 10. Stages 11. Organisation 12. Hindrances
13. Failure 14. Role in Organisations 15. Factors that Minimise the Risk of Product Failure 16. Challenges 17. Future.
New Product Development: Meaning, Concept, Objectives, Need, Steps, Stages, Process, Strategy, Challenges and Future Scenario
New Product Development – Introduction
New Product Development ingenuity of the human mind which from the beginning of the time has invented innumerable products for the benefit of mankind. Imagine life without the wheel, led to horse carriages, trains, trams and cars? What about the phone, which led to cell phones, videophones, and satellite phones? However for every successful product there are dozens which could not see the light of day.
But the creative genius is not afraid of failures; he pushes ahead with new ideas, products and services. Each firm sells products needed by customers. Each product has a life of its own. It takes birth in the inventor’s crucible; it is then engineered for manufacture, made and sold. As newer products enter the market the old ones give way to them. This can be seen from the product life cycle given in Exhibit 8.1.
In the exhibit 8.1, A denotes the introductory stage of the product, B the growth stage, C the maturity stage and D the decline stage. When a firm finds that its product is about to reach the maturity stage, it starts looking at new products, that can be introduced in the market.
The following are ways in which new products are introduced:
i. Upgrade of old product
ii. Similar product or lateral diversification
iii. New product for the firm
iv. New product in the market
v. New invention
vi. Old products in new markets.
i. Upgrade the Old Product:
Once the product has reached the maturity or decline stage of its life, the firm’s R&D can innovate on the product, either technically or aesthetically to enable the product to appear as and get into the introductory stage of the life cycle. Selecting the right market segment for the new product can tell the firm about its saleability.
This is usually done for products which have had a good run in the market in their introductory, growth and maturity stages. Innovations should not render the product so expensive as to make it out of reach of customers. However, the new products should appear different, should give extra benefits and still be value for money.
ii. Similar Product or Lateral Diversification:
Firms selling shoes can take up the sale of sandals, boots and leather garments. This will help the firm to establish itself in the market as it already has the raw material sources and marketing channels in place.
The following will give an idea of what firms can introduce in the market:
a. Bakeries can sell butter, yogurt, baked vegetables in cans and other canned food.
b. Car dealers can sell tyres, batteries and accessories for the car.
c. Ready-made garment sellers can sell upholstery material.
d. Banks can sell credit cards.
e. Business schools can sell business books.
iii. New Product for the Firm:
If a firm making radios starts manufacturing television sets then it would be considered horizontal diversification. Such product extensions are cost effective as they use the same distribution channels, have several common components and similar technology. Sometimes the new product may overtake the old one in terms of sales.
In the 1960s and 1970s, technological developments took time to reach India. Today, many technological advances are available to India in almost real time, i.e. as soon as they are in the market in the country of their origin. Computer software is a classic example. In fact, software exports form a major chunk of India’s total exports.
v. New Invention or New Product in the World:
Cell phones or mobile phones were introduced in the Indian market several years after being invented and introduced elsewhere in the world. But India has caught up with the rest of the world quite fast.
vi. Old Product in New Markets:
Geographic diversification helps a firm in increasing sales and market share. Exporting can be one of the methods as well. Firms can also plan to diversify into different market segments, with minor changes in product offerings, if required.
Reasons for Failure:
Let us discuss why out of the several products launched each year only a few survive and the rest just fade out.
i. Product Quality is Substandard:
Unless a product can provide some tangible or intangible benefit to the customer it will not succeed. A poor quality product cannot satisfy any need of the customer. Quality of a product can be defined as, conformance to the firm’s static and dynamic standard specifications meant for the product, which have been devised by taking into account the customers’ viewpoint or better still after doing a customer/consumer research about the product.
ii. Lack of Knowledge of the Market:
Several car manufacturers set up large manufacturing bases in India with huge investments. For instance, Daewoo Motors came out with Ceilo, which, contrary to the company’s plans was not accepted in the market. It was only the smaller model Matiz which brought some business to Daewoo. Therefore marketing research becomes extremely important in a fast changing business environment.
iii. Incorrect Selection of Market Segment:
Innovative products and products introduced, for the first time, which are in the introductory stage of PLC, are bought by the early birds or innovative buyers. Later, only the people of a particular market segment are the main buyers. Therefore, choosing the correct market segment helps in planning the right appropriate distribution channels and customer communications through advertising or personal contacts. Expensive watches are sold through jewellers’ shops and designer dresses through upmarket boutiques. This is because proper positioning is a must for a product to succeed in the market.
iv. Competitors Resort to Penetrating Pricing:
When it comes to losing market share competitors plan price reductions, promotions, and intense advertising campaigns to ensure that the new entrant does not get a foothold in the market. Only a good brand image can ensure the success of a product despite competitive actions.
v. High Overheads:
The product price becomes high if the overheads are higher than those of competitors. This results in high pricing and loss of customers.
vi. Government Controls:
Some countries have entry barriers which indirectly hinder the progress of the sale. It could be by way of high import levies, or government insistence on local firms having majority shareholding.
New Product Development – Meaning and Concept
New Product Development is the process of designing, building, operating, and maintaining a good or device. Software and internet companies use a product development process to ensure that they are not just manufacturing a technology, but creating a product that people will want to buy and continue to use.
By its nature marketing requires new ideas. Unlike some organizational functions, where basic processes follow a fairly consistent routine (e.g., accounting), successful marketers are constantly making adjustments to their marketing efforts. New ideas are essential for responding to changing demand by the target market and by pressure exerted by competitors. These changes are manifested in decisions in all marketing areas including the development of new products.
In addition to being responsive to changing customer tastes and competitive forces, there are many other reasons why new product development is vital.
i. Many new products earn higher profits than older products. This is often the case for products considered innovative or unique which, for a period of time, may enjoy success and initially face little or no competition.
ii. New products can help reposition the company in customer’s minds. For instance, a company that traditionally sold low priced products with few features may shift customers’ perceptions about the company by introducing products with more features and slightly higher pricing.
iii. Fierce global competition and technological developments make it much easier for competitors to learn about products and replicate them. To stay ahead of competitors marketers must innovate and often create and introduce new products on a consistent schedule.
iv. Companies with limited depth in a product line may miss out on more sales unless they can add new products to fill out the line.
Some firms market seasonal products that garner their highest sales during a certain time of the year or sell cyclical products whose sales fluctuate depending on economic or market factors. Expanding the firm’s product mix into new areas may help offset these fluctuations. For manufacturing firms an additional benefit is realized as new products utilize existing production capacity that is under-used when seasonal or cyclical products are not being produced.
In business and engineering, New Product Development (NPD) is the term used to describe the complete process of bringing a new product or service to market. There are two parallel paths involved in the NPD process – one involves the idea generation, product design, and detail engineering; the other involves market research and marketing analysis.
Companies typically see new product development as the first stage in generating and commercializing new products within the overall strategic process of product life cycle management used to maintain or grow their market share.
To be sure, a base technology is at the heart of the product, but product development ensures that the customer’s voice is not lost in the rush to an exciting technology. Product development adds things like pricing, marketing, and customer support to the technology to create a complete product.
Product Development is performed by a multi-disciplinary team whose goal is building, operating, and maintaining the product. Team members may include product managers, software developers, project managers, product operations engineers, customer support managers, software quality assurance engineers, user interface design engineers, marketers, financial personnel, and graphic artists.
New product development is a sequential process of finding ideas for new goods or services and then transforming them into commercially. Product development includes a number of decisions, namely what to manufacture or buy, how to have its packaging, how to fix its price and how to sell it.
New product development consists of the creation of new ideas, their evaluation in terms of sales potentials and profitability, production facilities, resource available, designing and production, testing and marketing of the product. The main task of the product planners is to identify specific customer needs and expectations and align company’s capabilities with the changing market elements. In each of stages of the new product development, the management must decide (a) whether to move on to the next stage, (b) to abandon on the product, or (c) to seek additional information
One important aspect of designing products for rural markets is the product fit with the rural lifestyle and environment.
The U.S. based Product Development & Management Association defines new product development as:
“A disciplined and defined set of tasks and steps that describe the normal means by which a company repetitively converts embryonic ideas into saleable products or services.”
In short we can say that new product development is the process of designing, creating and marketing new products or services to benefit customers. It is the disciplines which focus in developing systematic methods for guiding all the processes involved in getting a new product to market.
New Product Development 7 Important Objectives for Launching the New Product
As per the changes in the marketing environment, companies have to launch the new products in the market from time to time.
There are various motives or objectives for launching the new product which are:
1. To satisfy the change in consumer demand.
2. To increase sales and profit of the company.
3. After entering a product at decided stage of their product life cycle, it is important to have new product development.
4. To match up with the changes in technological environment, which are enabling launch of new products.
5. To expand the product range or product line of the organization in accordance with the strategic decision of the organization.
6. To counter the moves of competitions who have launched a new product.
7. To diversify the risk to the entire entity by having multi-product business.
New Product Development – What, Why and How
New Product Development – What?
New product development is development of altogether new product so far as the company is concerned. There is a misconception that new product development is the sole responsibility of the production related departments of an industry. This must be actually done jointly by the production related departments and the marketing department.
It is the marketing department which can find out what exactly is needed by the consumer and such information should be conveyed to the production related departments. Later the product must be developed exactly to suit the needs of the market.
A well established, existing company with a large number of successful products, all of them selling well, also must develop new products for the following reasons:
i. Changing Consumer Preferences and Tastes:
Consumer preferences and tastes are never the same. They keep changing very fast and companies have to modify or improvise their products frequently to suit the changing consumer preferences.
Example – Indian two wheeler market was dominated by motor cycles but when people started preferring scooters, two wheeler manufacturers have started offering gearless scooters which are very convenient to ride in traffic congested road.
Competition is absolutely unavoidable in any market. Therefore a company has to keep introducing new products from time to time to survive and succeed in the competition.
Example – Competition may compel a company manufacturing customized jewellery to start manufacturing diamond studded jewellery.
iii. Changing Market Trends:
Market is a very dynamic force. The trends in the market such as prices, innovations, fresh launches etc. compel a company to keep offering new products.
Example – A car manufacturer offering only petrol powered cars is compelled to offer diesel powered cars also as the present market prefers diesel to petrol on account of the high prices of latter.
iv. Changes in Society:
A consumer lives in a society and is very greatly affected by the society. Society itself keeps evolving constantly. With every change in the society, the consumers also change. A company has to offer new products to such consumers.
Example – There is a gradual break down of the Indian joint family system into nuclear families characterized by one child, working women etc. This creates several opportunities to develop new products such as single bed room apartments, sophisticated kitchen equipments, washing machines etc.
Technological advancements keep emerging constantly in any society. Every time there is a new technology, an entire set of products will become obsolete and will be mercilessly rejected by the market. Therefore with every technological break-through a company has to offer new products.
Example – People were generally used to cell phones with push button keypads but with the perfecting of the technology of touch screen key pads, most of the existing cell phone manufacturers started offering touch screen technology.
vi. Recycling of Waste Products:
There are certain raw materials which in the process of production give out byproducts. These byproducts also have some economic value. A company can offer new products by utilizing such waste products.
Example – A granite stone quarry starting a unit to manufacture pre-fabricated concrete blocks for the construction industry out of the stone dust which is generated.
vii. Government Policy:
Favourable governmental policies can create various opportunities to offer new products/services to the society.
Example – The decision of the government to throw open the insurance sector to private players has created huge opportunities in the insurance sector and several banks, financial institutions and business houses have ventured out into insurance business.
viii. Excess Capacity:
Every company will have some amount of extra production capacity. Therefore, a company can manufacture/generate new products/services and sell them to utilize such excess capacity.
Example – A state owned road transport corporation having excess buses may run a few buses to ferry school children.
ix. Higher Profit Margins:
On account of competition, most of the companies cut prices and operate on very thin margins; however a company can offer more profitable products to the market in addition to its existing products.
Example – A textile mill may find its profit margins very low and may venture out into the manufacture of branded ready-to-wear garments.
x. Company Growth:
Every company has to grow to survive. This growth has to be in terms of both-value and volume. A company may however find the market for its present products saturated. In such a situation a company has to offer new products in order to grow.
Example – A company manufacturing medicines may find the market for medicines saturated and in order to grow may start manufacturing cosmetics.
New product development means – A company has several alternate ways of adding new products to its existing product mix.
According to Philip Kotler, the following are the different alternatives available:
A company can acquire another company which is manufacturing the required product. For this purpose a company has three alternatives-buy or takeover or acquires another company; buy a patent from another company to manufacture the latter’s products and acquire a license or franchise to manufacture such a product, from the other company.
A company can also develop the new product which it wants to add to its product mix. For this purpose a company again has two alternatives-get the new product developed by the independent researchers or new product development companies; a company can develop a new product in its own R&D department.
New Product Development – Need
Based on fast changing Consumer habits and attitudes and the demand for new improved Products and other relevant Market factors such as – increasing competition, the need to periodically phase out; withdraw, modify, improve, introduce new Products cannot be overemphasized.
The success of a Marketing operation depends on a number of Key Factors – particularly the judicious application of the Elements of the Marketing Mix consisting of 12 specific areas of activity. The single Manager in the Marketing Division who is responsible almost exclusively, for planning, coordinating all Marketing activities and developing a cohesive Marketing Plan, is the Brand Manager.
Thus, the periodical introduction of new Products or effecting changes to existing Products is the responsibility of the Brand Manager. In a well-managed Marketing organization the function of new Product Development is vested in a Team of senior Managers from different professional disciplines. However, this Team has to be led by a Brand or Marketing Manager. The Brand Manager is finally responsible for the profitability of his Brands after all Direct Expenditure, which comes within his control, such as – Sales, Distribution, Advertising, Sales Promotion etc.
A Product, which satisfies current needs, may fail to satisfy future, needs of Consumers. Thus, certain changes to the Product to a greater or lesser extent are inevitable, if the Product is to enjoy continued Consumer franchise. On the other hand, completely new Products may have to be developed to satisfy new Consumer needs.
In this context, a business organization must give priority attention to the process of new Product Development and ensure that this discipline is given high priority attention on an on-going basis. This Innovation Process has become almost a philosophy in the effective management of a business. In his book titled The Practice of Management’, Peter Drucker highlights this when he says –
“Because it is its purpose to create a Customer, any business enterprise has to conduct only two basic functions – Marketing and Innovation”.
New Product Development – Sources of New Product Ideas
The new product-development process starts with the search for ideas. The search should not be casual. Top management should define the products and markets to emphasize. It should state the new-product objective, whether it is high cash flow, market-share domination, or some other objective. It should state how much effort should be devoted to development breakthrough products, modifying existing products, and copying competitors’ products.
New product ideas can come from many sources customers, competitors, employees, channel members, and top management.
1. The Marketing Concept holds that customers’ needs and wants are the logical place to start in the search for new-product ideas. Hippel has shown that the highest percentage of ideas for new industrial products originate with customers. Technical companies can earn a great deal by studying a special set of their customers, the lead users, namely, those customers who make the most advanced use of the company’s product and who recognize needed improvements ahead of other customers.
Companies can identify customers’ needs and wants through customer surveys, projective tests, focused group discussion, and suggestion and complaint letters from customers. Many of the best ideas come from asking customers to describe their problems with current products.
2. Companies also rely on their scientists, engineers, designers, and other employees for new-product ideas. Successful companies have established a company culture that encourages every employee to seek new ideas for improving the company’s production, products, and services. Toyota claims that its employees submit two million ideas annually, about 35 suggestions per employee, and over 85% of them are implemented. Kodak and some American firms give monetary and recognition awards to their employees who submit the best ideas during the year.
3. Companies can find good Ideas by examining their competitors’ products and services. They can learn from distributors, suppliers, and sales representatives what competitors are doing. They can find out what customers like and dislike in their competitors’ new products.
They can buy their competitors’ products, take them apart, and build better ones. Their competitive strategy is one of product imitation and improvement rather than product innovation. The Japanese are masters of this strategy, in that they have licensed or copied many Western products and found ways to improve them.
4. Company Sales Representatives and Middlemen are a particularly good sources of new-product ideas. They have first-hand exposure to customers’ needs and complaints. They often learn first of competitive developments. An increasing number of companies train and reward their sales representatives, distributors, and dealers for finding new ideas.
For example – Bill Keefer, chairman of Warner Electric Brake and Clutch requires his sales force to list on each monthly call report the three best product ideas they heard on customer visits. He reads these ideas each month and pens notes to his engineers, manufacturing executives, and so on, to follow up the better ideas.
5. Top Management can be another major source of new product ideas. Some company leaders, like Edwin H. Lard former CEO of Polaroid, take personal responsibility for technical innovation in their companies. This is not always constructive, as when a top executive pushes through a pet idea without thoroughly researching market size or interest. When Land pushed forward his Polavision project (instantly developed movies), it ended as a major product failure, because the market became more interested in video-tapes as a way to film action.
Really good ideas come out of inspiration, perspiration, and techniques. A number of “creativity” techniques can help individuals and groups generate better ideas.
1. Attribute Listing:
This technique calls for listing the major attributes of an existing product and then modifying each attribute in the search for an improved product. Consider a screwdriver. Its attributes – a round, steel shank, a wooden handle, manually operated and torque provided by twisting action.
Now a group considers ways to improve product performance or appeal. The round shank could be made hexagonal so that a wrench could be applied to increase the torque; electric power could replace manual power; the torque could be produced by pushing.
2. Morphological Analysis:
This method calls for identifying the structural dimensions of a problem and examining the relationships among them. Suppose the problem is that of “getting something from one place to another via a powered vehicle.”
3. Forced Relationship:
Here several objects are considered in relation to each other. An office- equipment manufacturer wanted to design a new desk for executives. Several objects were listed a desk, television set, clock, computer, copying machine, bookcase, and so on. The result was a fully electronic desk with a console resembling that found in an airplane cockpit.
William J.J. Gordon felt that Osborn’s brainstorming session produced solutions too quickly, before a sufficient number of perspectives had been developed. Gordon decided to define the problem so broadly that the group would have no inkling of the specific problem.
5. Need/Problem Identification:
The creatively techniques do not require consumer input to generate ideas. Nee/problem identification, on the other hand, starts with consumers. Consumers are asked about needs, problems, and ideas. For example, they can be asked about their problems in using a particular product of product category.
Group creativity can be stimulated through brainstorming techniques developed by Alex Osborn. The usual brainstorming group consists of six to ten people. The problem should be specific. The sessions should last about an hour. The chairman starts with, “Remember, we want as many ideas as possible — the wilder the better — and remember, no evaluation.” The ideas start flowing; one idea sparks another, and within an hour over a hundred or more new ideas may find their way into the type recorder. For the conference to be maximally effective.
New Product Development – Process
If a product is functionally different from existing products, it can be defined as new product.
The process of new product development has been given below:
Process # 1. Product Development Strategy:
In the development strategy the company defines the role for a new product in terms of the corporate objectives. This gives focus to the ideas and concepts of the company.
Process # 2. Objectives of Product Development:
In this stage the company identifies the markets of the new product. The company also goes through an environmental scanning analysing its opportunities and threats along with internal analysis which includes analysing strengths and weaknesses of the company before launching a new product.
Process # 3. Idea Generation:
The second step would be the idea generation which is developing a pool of concepts for the new products. This would include the customer and supplier suggestions and analyzing consumer complaints, employee and co-worker suggestions, research and development breakthroughs and a study of the competitive products.
Process # 4. Screening and Evaluation:
This step would engulf the Internal and external evaluations of the new-product ideas. This also eliminates the ideas that have no future. For the same there is a technical feasibility analysis and a judgment on whether the idea meets the objectives of the company. Also the concept tests and preliminary testing of ideas with potential consumers is done in this stage.
Process # 5. Business Analysis:
In this stage the specification of the product features is made, marketing strategy for commercializing the product is made, financial projections and patentability or copy-right-ability is planned
Process # 6. Development Product:
In this stage the idea on paper is formed into a prototype. This gives a demonstrable, producible product to the company.
Process # 7. Market Testing:
In this stage the actual products get exposed to the prospective consumers for the first time. Thus the Realistic purchase conditions are seen in this stage.
Also Test marketing is done, that is the product is offered for sale on a limited basis in a defined area. Also the marketing mix elements are checked. This is but a time consuming and costly plan which also reveals the plans to competitors.
Simulated Test Markets (STMs) which are a Technique that simulates full-scale test markets in a limited fashion is also done in shopping malls. This is an early process in the screening of the new-product ideas. This process is also used in making sales projections.
When it comes to services the test markets are impractical. Thus the consumer reactions for these product can only be seen by mockup designs or prototypes which are more feasible.
Process # 8. Commercialization:
Commercialization engulfs the positioning and launching of the new product in full-scale production. Although it does not guarantee success, using the new product process helps avoid some failures and increase a firm’s success rate.
New Product Development – Development of New Products
In international market the product is the most tangible and important single component of the marketing programme. Without a product, there is nothing to distribute, nothing to promote, nothing to price. Product development is very important for the enterprise. The new products are neither always perfect nor these are fully innovative. These fall in the category of new products by bringing in slight modifications.
Any product may be old from the angle of buyer while it is new in the eye of the manufacturer, similarly, any product may be new from the outlook of the buyer while it may be old in the eye of producer. According to Arch Paton, “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.”
In this context Chester R. Wasson says, “It is difficult to determine any product as new because high power of imagination for the prospective buyers and a successful demonstration in the sellers are most necessary for such determination.”
According to Chester R. Wasson, there are thirteen kinds of distinctions on the basis of which a product can be said to be a new product:
1. Being different than other products in terms of physical and chemical properties
2. New price of the product
3. New uses of product
4. Its new design
5. New style and variety
6. New availability
7. Status symbols of consumption possibilities
8. Innovative services
9. New market
10. Reliability of product advantages
11. New size
12. New quality, and
13. Costly than the old one.
It is clear from the above discussion that a new product is a product that is new to the manufacturer producing it even though it may have been made in same form by others. In short it can be said that 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 – The Scientific Method of New Product Development
Product development plans can be best realised by taking the scientific method or at least the scientific temper of analysis, experimentation, and product finalisation.
Most of the time, however, new products are decided upon by (a) availability of technology, (b) resources, and (c) management’s gut feeling. These were good indicators for new product idea in the first half of the twentieth century, when competition was minimal and market growing. While market is still growing for most products, so is competition.
Cost of manufacturing plays an important role in product decisions. If a firm can make a product of equal or better quality than competition, its chances of success are better than those of competition. In the area of backward integration when a firm decides to make a component needed for a main product, it should have the most accurate product specifications.
Testing of the product prior to its launch is essential. The best way is to offer alternative products giving the same or similar benefits to customers and then asking customers’ opinion on the benefits. The customer sample should be from a well-defined market segment for the study to be of relevance to the firm. It is worthwhile to look at the Maslow’s hierarchy of needs, which would help in making the questionnaire for the sample customers.
If a product has to sell in the market it needs to have a slot in the need hierarchy of customers. Which is the best positioning strategy? Where does the brand fit in the market or in the customer’s mindset? Brand image is built over a period of time on the strength of product quality as it manifests in customer usage and benefit and advertising messages, which go to the customers, present and future.
Product positioning is planned when new products are launched. The extent of market penetration provides inputs regarding the correctness of product positioning and at times it may be appropriate to reposition the product.
In Japan, a sports car was positioned to sell among the youths just would not sell. It was discovered that they were looking for a proper sedan and not a sports car. Repositioning the car for the middle-aged rich gave the desired results.
Benefit of Market Segmentation:
Customers seek to solve some of their problems or derive some benefits out of the products they buy.
So sellers should know the answers to the following questions:
i. Do you consider the benefits offered by the product as well defined, clear and measurable?
ii. Does the product solve a problem or satisfy a need?
iii. Which other products offer the same type of benefits or solutions in the market?
iv. Does the product provide value for money?
v. Answer to the six Ws and one H, who will buy, why will they buy, what will they buy, when will they buy, where will they buy, what price will they be prepared to pay for the product and how will they buy it?
Product preference can be understood through the comparison method given below:
Which of the following set of product attributes are preferred in the mid-segment car:
1. Economy and comfort
2. Low price and economy
3. Comfort and aesthetics
4. Aesthetics and reliability
5. Reliability and service
6. Service and aesthetics.
If the answers come from the right market segment they can provide an insight into the actual needs of the customers.
The market strategy revolves round:
(a) Total market size
(b) Consumer behaviour
(c) Product positioning
(d) Sales plan for the first three years
(e) Profit targets for first three years
(f) Product price
(g) Marketing channels
(h) Marketing expenses
(i) Long-range market and profit plans
(j) Launch of the next product.
Gillette usually launches two or three new products each year. Its positioning strategy is always to have its customers use upgraded products, which gives the company higher profit margins.
Products are the first and also the foremost marketing mix factor.
Companies have to take the following decisions in this regard:
1. Product specifications in line with market needs and technical feasibility
2. Product mixes and product lines – to cover a range of products having synergy in customer usage, manufacturing, distribution patterns or geographic demands
3. Branding decisions – to have a single umbrella brand (like Godrej) or individual product brands (like Hindustan Lever)
4. Packaging and label design, size, and possible advertising value on display.
Companies have to draw up a benefit story around the product, listing down the various advantages a customer would gain by using the product. These benefits should then be arranged in order of their preference from the customers’ viewpoint. Market research would give the most appropriate list of hierarchy of benefits as assessed by the customers.
Companies should develop products to sell through the entire PLC, and then plan marketing strategies for each stage of the PLC.
New Product Development – 8 Stages of New Product Development Process
The eight stages of new product development (NPD) process are described below:
Stage # 1. Idea Generation:
The first step towards NPD is generating fresh product ideas. A continuous stream of new product ideas must keep flowing in. We should have a systematic method of searching for new product ideas. The company must keep tracking various sources from where new product or service ideas can come.
Some possible sources for such ideas are:
i. Feedback from customers
iii. Dealers, distributors or other channel partners
iv. Industry publications and web sites
v. Our employees
vii. Industry trade shows and exhibitions
viii. Organized market research
ix. Brainstorming for imagination of future possible trends
The company must choose some of the above or add some other sources from where ideas may come. The purpose of idea generation is to generate a large number of ideas. We should have an organized method of capturing all the ideas which could be considered for NPD.
Stage # 2. Idea Screening:
Not all ideas can result into full-fledged products. Each idea must be qualified, tested and examined. The more promising ideas are selected for further evaluation and investigation and the poor ones are dropped. Finally, the ideas which appear to be feasible and practical are shortlisted. The company must get rid of impractical ideas and should not waste resources on them. The purpose of idea screening is to reduce the number of ideas.
Stage # 3. Concept Development and Testing:
This is applicable if the product is completely new, catering to a new customer segment. The screened idea may sound good, but it should be developed and refined little more and tested with the target customer segment. At this stage, the idea is developed into a product concept to be presented.
A product concept is a detailed version of the idea stated in the meaningful consumer terms. The concept step sets basic direction and boundaries for the entire development process by clarifying the type of product, the problem the product solves and the financial and technical goals to be achieved by the product. Its demand is estimated.
Stage # 4. Marketing Strategy and Development:
If it is an addition to an old product list, the same marketing strategy may continue to apply with little or no modifications, only the price of the new product needs to be finalized. For newer products, all the 4Ps (Product, Price, Place and Promotion), the target segment, the positioning etc. are finalized. Expected sales and profitability are also calculated at this stage.
Stage # 5. Business Analysis:
This, too, applies only to newer products. The company has a great idea, the marketing strategy seems feasible, but will adding the product be financially worthwhile? The business attractiveness of the proposal is evaluated at this stage. It takes into consideration the production and marketing cost and cash flow impact of the product. It will also try to determine the projected market share and expected lifespan of the product.
The effort is to ensure that whichever product is added, it should sell well and add significantly to the company’s top line as well as bottom line. Sometimes, some dead products enter the company’s product portfolio and eat away the profit generated by the other products. They are a drain on the company’s finances. The number of such draining products must be minimized. Only those products which appear to be viable from business point of view must be given green signal from here onwards.
Stage # 6. Product Development:
At this stage, the product development now enters in physical action mode. Here, a prototype or sample is produced. The prototype or sample is tested seriously and shown to some members of the target customer segment to confirm whether it is acceptable or it needs some change. If changes are required, the process of prototype making and testing continues till a final prototype is approved by the target user group.
Stage # 7. Test Marketing:
This stage applies to newer products. The new product is marketed within a specific geographic area to test its performance in the realistic marketing conditions. The marketing strategy is tested here and the results are monitored. If any changes are required, they are incorporated before the final, full-fledged launch across all geographies is executed.
This phase must be as short as possible, because if it takes longer, competition may smell some of the progress and start or speed up its own development. It saves money of full blown marketing, if the product needs some modifications before the final launch. This reduces the risk of making bigger, expensive marketing mistakes.
Stage # 8. Commercialization:
If test marketing is successful, the product is taken up for the full- fledged launch. The time table of the rollout, the method and phases of the launch are determined. This phase must be carefully planned to maximize the product success and returns from it. The launch of the newer product must be in line with the reputation of the company and the brand. The company must ensure that the extensions of the existing products reach the entire channel partner network as soon as possible.
These NPD stages are not theoretical, but must be followed practically to avoid wasting time and resources. A lot of money is wasted in failed products. Some of it can be saved if the above NPD process is properly followed. In any company, at any moment of time, there can be many products under development, at various stages of NPD mentioned above. The business leaders must regularly review the status of various NPD projects.
New Product Development – Organisation for Development of New Product
An organisation is a group of people that come together for the achievement of a common objective. When this group comes together, the work has to be divided amongst these people in such a way that the person most suited to a particular job, gets that particular piece of work to perform. When the work is divided each individual is entrusted with the authority required to carry out the work and is also responsible for the execution of his piece of work.
When the work is divided a relationship emerges amongst the various people working in the organisation. This relationship decides who is at what level in the organisation. Basically there are three levels in an organisation. The top level, the middle level and the lower level. At the top level of management the objectives are laid down, at the middle level they are executed and the lower level of management is basically supervisory work.
No organisation can spend its entire life time manufacturing and selling the same products. Products like human beings have a life span at the end of which they are deleted and disappear from the market. New products take their place. Hence, no organisation can remain a competitive one if it does not plan for new products.
While planning for new products the role of the top management and the organisation cannot be overlooked. It is the top management that lays down the objectives of the organisation, and hence the channels of communication between the top management and the Product or Development Manager should be clear, open and two ways.
If the Development manager undertakes the development of a product, in which the top management is not interested, it will just lead to a waste of time, effort and money. Hence it is very important that the objectives of the top management are clearly communicated to the Product or Development Manager.
The Product manager does not operate alone. He has a team of workers working with him. It is the duty of the management to see that both the Product Manager and his team are recruited using the right and scientific process so that the right kind, and qualified people are appointed for the job. Work well begun is half done and if the right people are selected the work of product planning and development will proceed smoothly.
The top management has to also decide the budget to be allotted for Product Planning and development. There is no hard and fast method for deciding upon the budget. However the common practices are of setting a figure comparable with what the competition is setting, or by setting objectives for new product development work and then assessing each element of the objectives and planning and making the estimate.
The success of new product development lies in observing the following principles:
1. Clarity of thought on the part of the management.
2. Clear objectives and policies of the management.
3. The right attitude and patience of the top management.
4. Selection of the right kind of personnel to carry out the work of Product Planning and Development.
5. The allocation of the right budgetary amount for the work of Product Planning and Development.
6. A workable organisation structure.
When the work of development of a new product is undertaken an organisation can either assign the work to an existing manager or create a new department of product planning or set up a committee to take on the extra work. The way in which the extra work is handled will decide the type of organisation structure.
Basically the product development activity can be handled by the following organisation structures:
1. Assignment Handled by Product or Development Manager:
Most companies do not wish to recruit new persons or transfer persons to new posts. They prefer to give the new assignments to the existing staff. However the existing present workload may not give the existing staff sufficient time for thinking and planning for new product development or they may not have sufficient knowledge, information and know how about the new work entrusted to them. They may also be ignorant about the procedures to be followed.
2. Establishment of New Product Development Department with a Product Manager at its Helm:
The management can create a separate post of a Product Manager and recruit a new person to take charge of the post. This new post should be given the necessary authority so that the work can be effectively carried out. This new product manager can either head an existing group of people or a totally new department can be created to carry out this work. This new department should have the necessary infrastructure and facilities and would be responsible for the work of development right from the concept stage to the commercial or mass production stage for national launching.
3. New Product Teams or Committees:
Many companies have the policy of giving this responsibility to a committee or a group of people instead of an individual or a separate department. In such a case, a committee consisting of senior management persons from all areas such as production, purchase, marketing, design, finance, maintenance etc., is formed. This committee or team is responsible for developing a new product within a specified time and budget.
A chairman of the team is appointed who is responsible for coordinating the effort of all the members of the group. The work is divided and each member of the group is responsible for the work allotted to him. The channels of communication should be kept open and communication gaps should be avoided. It would be desirable to have the minutes of every meeting properly recorded and reports circulated to all concerned members.
New Product Development – 10 Hindrances Faced by the New Products (With Measures)
New product development is absolutely necessary for any company. Any company which does not plan this will not only be able to succeed but also will find it difficult to survive. New product development however is not an easy affair. It is an expensive, painstaking, time consuming and risky affair. In spite of all these discouraging facts every company has to take it as a challenge and go about developing new products.
New product development however faces the following hindrances:
i. Shortage of new product ideas in certain areas – Certain basic products such as paper, steel etc. may not have new product ideas at all.
ii. Small market segments – Since the size of an average market segment is getting smaller, new product development becomes even more challenging as the marketing strategy will have to be designed to suit the market segments.
iii. Government constraints – Governments and societies are becoming very aware, alert and articulate regarding certain matter such as safety issues of products, environmental ecology etc. Therefore it becomes very difficult for a new product to emerge unscathed after passing these tests. Products like medicines, ready-to-consume foods will find the going even more daunting.
iv. Expensive nature of new product development process – New, product development process itself is an expensive matter. Factors such as managerial time spent on this, materials required, processes required, possibility of success etc. of the new product development are very expensive.
v. Funds shortage – Some companies may have creative people who do propose new product ideas but such companies may not have the funds to launch new product development schemes.
vi. Faster competitors – The same new product development idea may occur in the minds of the competitors who might work faster on the same. Such competitors may develop the new products much ahead, out beat, outsmart the company and hit the market much earlier. In such a case the entire amount spent on new product development goes a waste.
vii. Shorter product life cycle – Even when a new product is developed and launched, the life of such a product may not be long. Alert competitors replicate successful new products and shorten the life of such new products.
viii. Reluctant consumers – In spite of the best new products being released consumers may not be willing to experiment the new products. They may not buy the new products at all. In such a case the entire new product development exercise will be defeated.
ix. Gluttony – New product development process is very exciting, attracting and interesting. Therefore everybody in the company would like to jump into the process and make it over crowded. This creates two problems-first this will draw investments and managerial time and efforts towards new product development process away from more important business aspects and second-new product development itself is an art but when it becomes over crowded it might lose its purpose.
x. Understanding consumers – Any new product has to be suitable to the consumer preferences and tastes but understanding the consumers itself is a difficult task. This makes new product development even more challenging.
The above hindrances of new product development can be overcome through the following:
i. Effective Organizational Arrangements:
All the departments in an organization should actively and whole heartedly participate in the process of new product development. This will ensure sufficient inputs such as budgeting, market analysis, prototype development etc. to the new product development process. This will ensure the success of the new product.
ii. Effective Planning:
All the minute aspects of new product development process must be well planned and nothing should be left to chance. This planning should be done pragmatically and this will ensure success of the new product at the market.
New Product Development – Failure
New Product Development is a process of providing new and profitable products for the customers. It includes technical activities of product research, engineering and design.
The very first stage of New Product Development is Idea Generation, where search of ideas takes place with the help of R&D, distributors, customers, employees and vendors.
It is at this stage when the innovative and ‘new’ concepts are generated in the minds of people and they are further processed. In Idea Generation stage, ‘New Ideas’ are encouraged by surveying customers, having informal meetings with the customers. Also by allowing technical time off for technical people, for example – 3M has allowed 15% of time off., etc.
New product development refers to the process of developing a new product or service for the market. This type of development is considered as the preliminary step in the product or service development and involves a number of steps that must be completed before the product can be introduced in the market. New product development may involve introducing an absolutely new product to compete in the market or improving an already established product.
New product development is essential for the marketers to keep up with market trends and changes. It usually involves a complete process of introducing a new product or service in the market. In simple words, new product development involves a series of steps that include the conceptualisation, design, development and marketing by newly created or newly re-branched goods or services. The main idea behind new product development is to cultivate, maintain and increase a company’s market share by satisfying consumer demand.
New Product Development – Role in the Organisation
The introduction of new Products or the creation of improved Products based on Consumer needs plays 2 vital roles in an Organization:
1. Survival of the Organization
2. Growth/Development of the Organization.
If an Organization rests on its laurels and continues to market its range of Products without due consideration to the Process of New Product Development, it could be suicidal. A time would come when either the Product becomes obsolete or competitors would come out with new improved Products, thus displacing your Product completely, over a period of time. On the other hand, continued reliance on the existing range of Products would stunt growth and development, once the level of Sales reaches a peak in the Product Life Cycle.
Like in the case of Man, a Product too, has a Life Cycle with distinct, identifiable stages. For the successful marketing of Products on a continued basis and retention of the Organization’s Customer base, it is very important that Marketers have an intimate understanding of the Product Life Cycle. That is not all. Based on a clear understanding of the Product Life Cycle appropriate action has to be initiated through Product Development, such as – modifying the Product or improving the Product or give it a new look. This is of paramount importance to keep the Product alive in the Market through captive Consumer franchise.
The Life Cycle of a Product can be divided into 5 distinct stages.
The 5 stages are:
i. Introduction/Market Development
ii. Market Growth
iii. Market Maturity
iv. Market Saturation
v. Market Decline
At the first stage of Introduction, as in the case of a newborn child, the Product is virtually struggling to find its place in the Market. Sales growth at this stage is very slow. In the second stage of Growth, with the impact of marketing inputs such as – Advertising, Sales Promotion etc. Sales of the Product begin to grow at a higher rate.
Once again, in the third stage of Maturity, in comparative terms, growth in Sales takes a dip. In the fourth stage of Saturation after Sales have reached a peak, it tends to level off as the Product has achieved its maximum potential in the Market. After 5-7 years, in the fifth stage of Decline, Sales of the Product tend to decrease steadily until the Product dies a natural death.
However, the Product can be given a new lease of life through the disciplines of New Product Development by incorporating relevant changes to sustain Brand loyalty. It is through such Product Development efforts supported by Advertising and Sales Promotion, that international Brands such as Coca Cola, Pepsi, Marmite, Horlicks, Singer, Caterpillar, Parker, Nespray and many Brands of cars have successfully retained their positions to a greater or lesser extent, in the different international Markets of their choice.
The different stages in the Life Cycle cannot be firmly fixed in terms of a number of years. The life span of an average Product is 5-7 years. This is only a rule of thumb. With increased competition, the Life Cycle of Products is getting progressively shorter. A form Chief Executive of General Electric commented –
“The Honeymoon period of a new Product is becoming shorter and shorter”.
The Life Cycle and its different stages detailed above are determined by:
a. Strength of Own Product
b. Strength of Competitor Products
c. Strength of Marketing Effort
d. Consumer Habits and Attitudes Changes
e. Government Policies.
If the Product is strong and has effective attributes, its Life Cycle can be longer. By the same token if Competitor Products are weak, it can increase the Life Cycle of the Product. If the Marketing team is experienced in the organization and the Marketing effort is strong it has a similar effect on the Life Cycle. Further, if Consumer Habits and attitudes do not change significantly in short periods and if Government Policies do not pose restrictions to the organization’s Marketing effort, the Product quite naturally would enjoy a longer Life Cycle.
New Product Development – Factors that Minimise the Risk of Product Failure
As the risk of failure is quite high in terms of ensuring the success of a Product, an intelligent and professional approach should be adopted in the process of New Product Development.
Four important factors, which can minimize the risk of failure, are:
1. Effective Organisational Arrangements:
The various steps involved in the Process of New Product development must be clearly defined with specific objectives laid down. Ideally, a team of personnel within the Organization, headed by a Product or Brand Manager, should be entrusted with this task, with clearly defined authorities and lines of communication.
2. Clearly Defined Product Development Policy:
Based on the Organization’s culture, traditions and policies, a Product Development Policy should be clearly established, indicating the boundaries within which new Products could be developed. For example, an Organization, which is involved in Marketing Infant Food Products, would not like to identify itself with the marketing of a Rat Poison or an insecticide. This must be clearly laid down in the Development Policy.
Some key criteria, which should be included in a Development Policy, are:
a. The maximum financial commitment by the Company for a new Product.
b. The period within which all activities including Tests should be done and the Product ready for launch.
c. Should such Development be done using existing resources or can the procurement of outside resources be permitted.
d. The availability of technical know-how and facilities to conduct relevant Tests.
e. The period within which the return on investment should be achieved.
f. The minimum level of Profits the Organization can achieve.
3. Consumer-Orientated Approach:
Those involved in new Product Development must as a rule, be Consumer-orientated. They should sincerely believe that, irrespective of what they do at the various stages of developing a Product, the success or failure of the Product finally rests with the Consumer. The all-important Consumer should be the pivot around which all Marketing activity revolves. Thus, in a disciplined Product Development operation the Consumer should be consulted, whenever possible in terms of designing the Product and the attributes it offers. This can be done by carefully designed Consumer surveys and Consumer panel discussions.
4. Experienced Marketing Management and Research Staff:
Product Development should be the responsibility of a strong and experienced team headed by a Brand Manager or a Marketing Manager. He should be ably supported by experienced Research and other Management staff from Sales, Commercial, Quality Control, Finance and Production departments. Their competence and experience is vital for the final success of the Product to be developed. In fact, they should be “all round” Managers with –
i. An interest in Scientific Development
ii. Creative Marketing Vision
iii. Strong Research sense
iv. Good leadership qualities
Special attention must be given to the various research functions, which would eliminate the risk of failure, in the final analysis.
The research function should cover the key areas listed below:
a. Market Research
b. Economic Research
c. Product Performance Research
d. Packaging Research.
New Product Development – Challenges
In the early seventies, in a leading international company in Sri Lanka, we planned to launch a Product called ‘Coconut Cream’ to attract the Rural Housewife. The rural sector of Sri Lanka constitutes over 70% of the population. Almost all Sri Lankan housewives prepare curries with Coconut milk.
The Rural housewife undergoes an ordeal to husk, split, scrape and prepare the Coconut Milk. This process takes a lot of her time. Thus, the Company identified an excellent opportunity to develop and market a packet of Coconut Cream equal to the strength of 6 Coconuts. Over 10 years were spent in formulating and testing the Product.
The Product was Test Marketed on 3-4 occasions, after all Product Development disciplines were followed. However, the Company dropped its Marketing plans, as the final Test Market did not yield projected results. The Product attracted only the housewife in the Urban Sector who has a different lifestyle, but not her counterpart in the Rural Sector, which represented the bulk of the Target Market.
One of the reasons was a psychological and cultural one. By substituting the Cream, the rural housewife felt that her role as a housewife diminished as her working time was reduced significantly. She felt that her contribution to the household was rendered minimal, compared to her husband who worked a full day in the fields, often in the sweltering heat.
This is an example, which reflects the frustrations and challenges of developing and launching new Products, despite the Company having faithfully adhered to accepted Marketing disciplines.
New Product Development – Future
In the new millennium, we are seeing more segmentation; there will be even more competition for almost every company than it is today; and life cycles of products will continue to get shorter or stay short. Similarly, most of the forces acting to increase the costs of innovation will remain high or will increase.
In most instances productivity will increase as all producers will focus so intensely on improving productivity as they will see this approach as only path to lower costs and produce higher quality product. On the positive side, three forces acting at least partially will offset the negative forces.
All three of these positive forces will get stronger, not weaker. The first, technology, is the strongest of all can alter future of product development in more definitive ways than anything else. We know that computerization, automated manufacturing, molecular biology, fiber optics and surface ceramics are just a few of many fields that offer certainly more technological opportunities in the next 25 years than happened in the past 50 years.
Molecular biology has the potential for outstripping anything else done so far in this century. Moreover, there is an amazing move to invest large sums of money in older technologies, especially in the so-called mature industries. And as a final plus international opportunity continues to grow and contribute to new markets, new skills and new concepts of management.
The second positive force is the general willingness of consumers to accept new items, otherwise there is absolutely no basis for innovation. And third, management’s general capability has been growing almost exponentially, particularly by taking advantage of the many MBAs entering the work force and the wide array of continuing education opportunities for existing managers.
The combined results of these negative and positive forces are mixed, of course, but the negatives had no perceived effect on the development and marketing of home video systems or on the development of new drugs in recent years, giving enough reason to be optimistic.