New Product Development

New Product Development

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Reasons Customer needs & tastes are changing. Technologies are changing. PLCs are short. Increasing competition. At the same time new product development is risky. There are high chances of failure associated with it. Reasons for failure are:  Idea is good but market size is overestimated.  Product is not well designed.  Product is incorrectly positioned.  Competitors fight back harder than expected.  Social & governmental constraints (consumer safety & environmental concerns).  Shortage of funds.    

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Reasons & types  Eg: Coke, one of the biggest beverage

companies, came up with vanilla coke. The product failed miserably in India. Activity – Identify some new products that have failed in the recent past. Types of new products:  Really innovative – Computer, photocopy machine. 3M comes up with many innovations.  Significantly different – Mobile phones, digital cameras.  Imitative – New to the company but not new to the market. Eg: new models of automobiles.

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Process Idea Generation

Idea Screening

Commercialization

Market Testing

Concept Development & Testing

Product Development

Marketing Strategy Development

Business Analysis

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Process Idea Generation:  Analyzing customer needs. Eg: Officials at 3M conducted focus group interviews across USA to find out what problems people face with steel wool/ traditional soap pads. They found out that the main problem was that utensils got scratched. Thus the idea of Scotch Brite came.  Learning from competitors’ products.  Sales representatives – a good source of ideas as they are in direct contact with customers. Idea Screening: Evaluating different new ideas & deciding which one needs attention. Company has to avoid two types of errors.  Drop error – when company dismisses a good idea. People generally find fault with other’s ideas.  Go error – when company permits a poor idea to go into development & commercialization. 

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Process Concept development & testing: A product idea is a possible product the company might offer. A product concept is an elaborated version of the idea expressed in meaningful consumer terms. Eg: Idea – Health drink; Concept may be 1.Instant breakfast 2.Tasty snack drink for children. 3.Health supplement for elderly. Concept testing involves presenting the concept to target consumers & getting their reactions. After receiving information consumers respond to the following questions: 

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Process Question Are the benefits clear to you? Is it filling your need? Do other products meet this need? Is price reasonable in relation to value? Would you buy the product? How often would you buy the product?

Product dimension measured Communicability Need level Gap level Perceived value Purchase intention Purchase frequency

Marketing strategy development: After testing the product manager must develop a preliminary marketing strategy. Consists of three parts: 1.Define target market size, positioning. 2.Outline the planned price, distribution strategy & marketing budget for the first year. 3.Describes the long-run sales & profit goals. 7

Process Business Analysis: Here the company evaluates the business attractiveness by the following: 1. Estimating sales – management must decide whether sales will be high enough to yield satisfactory profits-depends on whether the product is one time purchased product or a frequently purchased product. In the first case sales rise at the beginning, peak & then fall as the no. of potential buyers is exhausted. In the second case the sales rise, fall slightly & then plateaus as repeat purchase occurs. 2. Estimating costs & profits – costs can be had from R&D, manufacturing, marketing & finance departments. Break-even analysis is the commonest technique used. 

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Process Product development: The R&D or engineering department converts the idea/ concept into a physical product. They change the desired customer attributes to engineering/ R&D attributes. Eg: In the health drink example

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Customer attributes R&D attributes Snack drink for children Tasty Health supplement for Vital nutrients elderly

C o m p a n ie s m a y g o fo r a lp h a te stin g ( testing within the firm to see how it p e rfo rm s) & b e ta te stin g ( e n listin g a g ro u p o f cu sto m e rs to u se th e p ro to typ e &g ive fe e d b a ck ). 9

Process Market testing: product is given a brand name, package & put to market test. Not all companies go for it. Eg: Revlon, as most of their cosmetics are highly priced. Consumer goods market testing – 1. Sales wave research-consumers who initially try the product at no cost are reoffered the product at lower prices. Process repeated to see how many select again. 2. Simulated test marketing-consumers are shown ads of running products as well as new product & given some money & asked to shop. Company notes how many of them buy the new product. 3. Controlled test marketing-some stores are selected that carry out the new product for a fee. Response can be judged by sales data. 4. Test markets-few cities are selected & product is promoted there. After looking at the result the product is launched in the whole country. 10 

Process & Adoption Commercialization: some factors are important. When (timing)- first entry, parallel entry, late entry. Where (location)-a specific zone or whole country. To whom (prospects)-targeting the best prospects (health drink examplechildren/elderly/adults) . 

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 Consumer adoption – an individual’s

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Adoption process Stage

Activity

Awareness

Exposed to the product, becomes a prospect

Interest

Interested enough to seek information

Evaluation

Compares with other products

Trial

Tries a sample

Adoption

Decides to use it

Confirmation

Becomes a user after assuring that the purchase decision was correct

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