Explain New Product Development process.

Developing a new product is a key to organisations survival in the ever changing marketing environment. Some organisations set a price limit while others focus on adding value, and making the existing product better than before with price factor coming at latter stage. Depending on the organisations size and past experience, the new product development process may vary. We will look at the commonly accepted process-

1) New product strategy – studies have shown that more than 75% of the companies formally treat strategy as the first step in New Product Development. (Marketing Management; Cravens, Hills, Woodruff, A.I.T.B.S. Publishers and Distributors, 2002, pg. 335). The corporate strategy and objectives give guidelines for new product development by assessing organisational expertise and external opportunities. The SWOT analysis gives inputs for emerging markets and emphasis is given to the threats and opportunities. The same are aligned with the strengths and weaknesses of the organisation. This gives direction as well as boundaries to the top management for new product development.

2) Idea generation – major sources for idea generation include employees, customers, competitors, distributors, entrepreneurs and suppliers. Customer surveys are important when developing a new product. Imagine a customer giving an input to seller who is making a custom made shoe. The feedback will eventually result is a shoe that meets the customers need exactly. By direct observation or conducting a brainstorming session with potential customers, organisations get an insight into the buying behaviour, needs, and wants of the target market. Customers are a source of ample information that can be utilised for adding new product features, etc. Internal employees, R & D team members too can be source of ideas. The organisation should encourage ideas by rewarding employees. Close observation of competitor product, and their acceptance in the market also helps in idea generation. Besides this, inputs from the suppliers, sales representatives, distributors, and retailers who serve the competitor also contribute largely to idea generation. Entrepreneurs, university students and inventors are also source of ideas of new inventions outside the organisation. Companies can sign contracts and help them financially or employ them for their ideas or concepts. The organisation should have a designated manager or idea committee to compile ideas from different sources.

3) Idea screening – the process relies mostly on the experience of the members in the top management and their judgement. Not all the ideas are good ones, and this process is to ensure mistakes are avoided at the early stage. Key factors to be considered are new product’s value to the customer, expertise available within the organisation, stipulated time for manufacturing the product, scope for promotion activities, financial feasibility (cost and profit margin), sustainability in the market and customer service if needed (after sales service). Basis the new product strategy or SWOT analysis done, the best idea is selected. Most of the organisations are more successful with products for which they have the expertise. It is unlikely for a firm operating in electronics equipment to work on a new product for an automobile industry.

4) Concept development and testing – A company can form several concepts from an attractive idea by analysing different aspects. Product concept is a detailed version of the idea that a potential buyer will be able to understand. Here some organisations conduct concept testing by discussing the concept of the new product with few potential buyers via discussion in focus groups (group of 10-12 potential buyers) or individual interviews and their reaction to the concept is recorded. Technology has helped marketers in concept testing wherein consumers can have a very close experience of using a product. For example, virtual reality programs use computers and system by which customers can experience driving an automobile or wear an attire via simulation. The inputs from consumers help organisations assess the customer appeal, customer expectations, target customers etc. The marketers can prepare a questionnaire and arrive at a final score or percentage.

5) Business analysis – It refers to the detailed study of economic feasibility of the new product ideas. The management prepares the sales, costs and profit projections to assess if the new product should be introduced. It gives a clear picture on whether to continue with the development and evaluation process or drop the idea. To estimate sales, the organisation can look at the sales history or market acceptability of similar products in the market or conduct market surveys to understand the market. To understand the risk associated, the organisation can estimate minimum and maximum sales. Basis the sales forecast the cost and profits are assessed. The costs include promotion activities, R & D, distribution, production, and associated services like consulting, accounting, legal, etc. The organisation then arrives at the attractiveness of the new product in relation to the target market.

The firms sometimes use the break-even analysis which determines the volume of sales to break even the costs of producing, distributing, and selling a new product. Discounted cash flow analysis considers that both revenues and costs are likely to change over time.

6) Product development – The product in the form of concept – word description, drawing – takes the form of a prototype. One or more physical versions of the product are made. This stage provides information on the costs of manufacturing, distribution, and packaging. If the estimates are not feasible to the organisation technically, or more modifications need to be done that are undesirable, the product idea may be dropped at this stage. If the firm wishes to go ahead with the production, supporting strategies are also developed at the same time to save product introduction time. These may include packaging, labelling, brand names, etc.

The prototype passes through functional as well as customer tests. Alpha testing refers to testing the product with in the firm and see how it performs. Beta testing refers to seeking feedback from a group of customers by making them use the prototype. This can be done via various ways. Either by asking the potential buyers to visit the laboratory or giving them samples for use. The prototype should have the desired functional features and also portray and signal the intended psychological characteristics.

7) Market testing – This stage thoroughly evaluates the market acceptance through market research before complete product introduction in the market. The prototype product is introduced in a small section of the market, which represents the whole market. This is done to determine the products acceptability, and test marketing mix elements. Few companies go into launching the product for the whole market. It depends on the organisations capability, time pressure, and the risks involved.
The test results from market testing help organisations to estimate the projections. The most serious problem of conducing market testing is a competitor discovering the same and monitoring the results. Sometimes the competitor buys large quantities of the prototype from the test location. This results in inaccuracies in the test data. If the product has not been patented or there are no such laws in the region, the competitor may launch same kind of product much earlier than the organisations launch.

8) Commercialization – The new product after successfully passing the test marketing stage is launched in the entire market with all the related decisions like distribution, packaging, after sales service, etc. Resources are committed to implement the new product strategy. Contracts with suppliers are signed, channels of distribution are selected, and manufacturing facility and supporting services are set into operation on full scale. This stage incurs highest costs to date. Timing of product introduction is critical to firms. For example, a company which is into manufacturing woollen clothes will most likely go for whole market introduction if the winter season is about to start or competitor is on the verge of entering the market. Similarly, if the organisation learns that a competitor is on the verge of developing a similar product, the organisation has to make a decision like Early entry, Parallel entry,or Late entry. All these three choices have their advantages and disadvantages, like early entry enables a firm to have a strong distribution network and gain a reputation in the market. In Late entry, the firm saves the cost of educating the consumer about the market (promotion activities).

There is pressure on the firms to get through this process as quickly as possible because it is only in the commercialization stage that a firm starts making sales and earns return on the investments made. The organization can stop the new product development process at any stage if the objectives are seen not being met.