New Product Development Process, Strategies
Table of Contents:-
New Product Development Process
There is an eight-step process of NPD comprising the key elements of new product development. While some organisations may not follow a deliberate step-by-step approach, the steps are useful in showing the information input and decision-making that must be done to successfully develop new products. The process also shows the significance that market research plays in developing products.
The process of new product development is given below:
1) Idea Generation: The first step of new product development requires ideas to be evaluated as potential product options. For many organisations, idea generation is an ongoing process with contributions from inside and outside the organisation. Many market research techniques are used to encourage ideas including channel members, running focus groups with consumers, and the company’s sales force; encouraging customer comments and suggestions via toll-free telephone numbers & website forms, and gaining insight on competitive product developments through secondary data sources.
One significant research technique used to generate ideas is brainstorming where open-minded, creative thinkers from inside and outside the company gather and share ideas. The dynamic nature of group members’ floating ideas, where one idea often sparks another idea, can produce a wide range of possible products that can be further pursued.
2) Screening: This process involves shifting through the ideas generated above and selecting ones which are workable and feasible to develop. Pursuing non-feasible ideas can be expensive for the company. In Step 1 the ideas are generated and in Step 2 ideas are critically evaluated by business personnel to isolate the most attractive options.
Depending on the number of ideas, screening may be done in rounds with the first round involving business executives judging the feasibility of ideas while successive rounds may utilise more advanced research techniques. As the ideas are whittled down to a few attractive options, rough estimates are made of an idea’s potential in terms of sales, production costs, profit potential, and competitors’ response if the product is introduced. Acceptable ideas move on to the further next step.
3) Concept Development and Testing: With a few ideas in hand the marketer now tries to get initial feedback from customers, distributors and employees. Generally, focus groups are convened where the ideas are presented to a group, oftentimes in the form of concept board presentations (i.e., storyboards) and not in actual working form.
For example, customers may be shown an idea board displaying drawings of a product idea or even an advertisement featuring the product. In some cases focus groups are exposed to a mock-up of the ideas, which is material but generally a non-functional version of the product idea.
The organisation may have come across what they believe to be a feasible idea; however, the idea needs to be taken to the target audience. What do they think about the idea? Will it be practical and feasible? Will it offer the advantage that the organisation hopes it will? Or have they overlooked certain issues? Note the idea and concept are taken to the target audience not a working prototype at this stage.
4) Marketing Strategy and Development: How will the product or service idea be launched within the market? A proposed marketing strategy will be written laying out the marketing mix strategy of the product segmentation, targeting and positioning strategy, sales and profits that are expected.
After testing, the product manager must develop a preliminary marketing-strategy plan for introducing the new product into the market. The plan consists of three parts:
i) The first part describes the target market’s structure, size, and behaviour; the planned product positioning; and the sales, market share, and profit goals sought in the first few years.
ii) The second part outlines the planned price, distribution strategy, and marketing budget for the first year.
iii) The third part of the marketing-strategy plan describes the long-run sales and profit goals and marketing-mix strategy over time.
5) Business Analysis: At this stage in the new product development process, the marketer has reduced a potentially large number of ideas down to one or two options. In this step, the process becomes very dependent on market research as efforts are made to study the viability of the product ideas. (in many cases the product has not been produced and remains only an idea.) The key purpose at this stage is to obtain useful forecasts of the market size (e.g., overall demand), financial projections (e.g., sales and profits) and operational costs (e.g., production costs).
Additionally, the Organisation must determine if the product will fit within the company’s overall strategy and mission. Much effort is directed at internal research, such as discussions with production, and purchasing personnel, and external marketing research such as customer and distributor surveys, competitor analysis and secondary research.
The organisation has a great idea, and the marketing strategy seems feasible, but will the product be financially worthwhile in the long run?
The business analysis stage looks more intensely into the cash flow the product could generate, what the cost will be, how many market shares the product may achieve and the expected life of the product.
6) Product and Marketing Mix Development: At last, it is at this stage that a prototype is finally produced. The prototype will run through all the desired tests and be presented to the target audience to see if changes ought to be made. New ideas passing through business analysis are given serious regard for development. Companies direct their research & development teams to make an initial design or prototype of the idea.
Marketers also start to create a marketing plan for the product. Once the prototype is ready the marketer anticipates input from the customer.
However, unlike the concept testing stage where buyers were only exposed to the idea, in this step, the customer gets to experience the real product as well as other aspects of the marketing mix, such as advertising, pricing, and distribution options (e.g., retail store, direct from the company, etc.). Favourable customer reaction helps solidify the marketer’s decision to introduce the product and also provides other valuable information such as estimated purchase rates and an understanding of how the product will be used by the customer.
7) Test Marketing: The term ‘test marketing’ is also sometimes called ‘field-testing’. The word “test” means examination or trial. Test marketing is the testing of the product in the market before the product is commercialised on a large scale. This is done to understand the market and the marketing considerations like the nature of competition, nature of demand, the consumers’ needs, etc.
Test marketing means testing the product within a specific place. The product will be launched within a particular region so the marketing mix strategy can be monitored and if needed, be modified before the national launch.
According to Philip Kotler, “Test marketing is the stage at which the product and marketing programs are introduced into more realistic market settings”.
Products surviving step six are ready to be tested as real products. In some cases, the marketer accepts what was learned from concept testing and skips over-market testing to launch the idea as a completely marketed product. But other companies may seek more input from a larger group before moving to commercialisation. The most common type of market testing makes the product available to a selective small segment of the target market (e.g., a city), which is exposed to the full marketing effort as they would be to any product they could buy.
8) Commercialisation – Launching the Product: If the test marketing stage has been successful and displays promising results then the product will go for a national launch. Certain factors need to be taken into regard before a product is launched nationally. These are
- the timing of product launching,
- how the product will be launched?
- where the product will be launched?
- will there be a national roll-out or
- will it be region by region?
Some companies introduce or roll out the product in waves with parts of the market receiving the product on different schedules. This allows the company to ramp up production in a more controlled manner and to fine-tune the marketing mix as the product is distributed to new areas.
Strategies for New Product Development
Developing new products or modifying existing products so they appear new, and offering those products to present or new markets is the definition of product development strategy. There is nothing simple about the process. It needs keen attention to competitors and customer needs now and in the future, the ability to finance prototypes and manufacturing processes, and a creative marketing and communications plan.
There are many subsets of product development strategy:
1) Product Development Diversification Strategy: This market is employed when a company’s existing market is saturated, and revenues and profits are stagnant or falling. There is very less or no opportunity for growth. A product development diversification strategy takes a company outside its existing business & a new product is developed for a new market.
An example of this strategy is a company that has sold insurance products and decided to develop a financial education program aimed at college students. The new product is not revolutionary as other organisations are producing similar products, but it is new to the company producing it.
2) Product Modification Strategy: Product modification strategies are generally aimed at existing markets, although a side benefit may be the capturing of new users for the new product. An example of this strategy is toothpaste. Toothpaste that promotes whitening ability or anti-cavity attributes is made on existing plain toothpaste that only promises clean teeth.
3) Revolutionary Product Development Strategy: Revolutionary products are those for which there was no real prior need. Computers and cell phones are good examples. Before these products appeared in the market, consumers did not know that so they need them. But, the germ of an idea on how to better communicate resulted in products that have drastically changed the world and have even changed the competitive landscape.