New Product Development describes all the phases and tasks in launching a new product or service in the market from the emergence of the idea to its commercialisation. It refers to competitive pressures, cost challenges, and increased customer expectations that are driving companies to improve the way they develop and introduce products to the market. A company can add new products through development or acquisition.
The acquisition route can take three forms.
1) The company can buy other companies,
2) It can obtain patents from other companies, or
3) It can buy a franchise or license from another company.
New product development is the following step towards product planning. New product development is the procedure of finding out the possibility of producing a new product. It includes the decision as to whether it would be feasible to produce the product and whether it would be profitable for the company not to do so.
New Product Meaning
New products are goods and services that differ significantly in their features or intended uses from products previously produced by the company. Defining a new product is not an easy task for an organization. In an absolute sense, it is something new which has not existed earlier. When considered in a relative sense, it is something new that has not been experienced before and is perceived as new. In defining new products, the relative view is regarded as more useful because whether or not something is new, the interested individuals who have not yet experienced it may represent opportunities or problems for consideration.
Thus, a new product is a multi-dimensional concept that needs satisfying capabilities for the stockholders interested in it and which has not been experienced by a significant number of them; but is capable of offering a strong strategic competitive advantage. It means a major opportunity for an organisation to create value. Although there are numerous perspectives from which one could define a new product, the following definitions are worth noting.
New Product Definition
According to Musselman and Jackson, “A product is said to be a new product when it serves an entirely new function or makes a major improvement in a present function.”
According to Stanton, “New products are those that are really innovative and truly unique replacements for existing products that are significantly different from the existing goods and include initiative products that are new to a company but not new to the market. If the shoppers perceive that a given item is significantly different from competitive goods being replaced with some new features, like appearance or performance, then it is a new product.”
According to Kotler, “New products mean original products, improved products, modified products and new brands which are developed by the firm through its own research and development efforts and includes those products which the consumers see as new. A new product is thus perceived differently by different people. It is a need-satisfying concept with benefits for buyers bundle of need-satisfying features; for marketers, a way to add value; for intermediaries, an opportunity to design; for R&D and to assemble and process for the production department.
According to Simpson and Darling, “Product development involves the adding, dropping, and modification of item specifications in the product line for a given period of time, usually one year”.
Reasons for the Failure of New Products
Organizations invest enough time, money, energy and skill to develop a new product. Despite all these efforts, the new products may experience failure in many cases. A failure brings loss to the company in terms of money, time, motivation and image. So it is important to find out the possible reasons for the failure of new products.
Several reasons may cause the failure of new products, some of which are:
1) Over-estimation of Market Size
If the market of the product is over-estimated, a new product, despite being good in quality, cannot generate the desired level of revenue and may fail.
2) Under-Estimation of Competition
If the marketer fails to anticipate the competitor’s strength and reaction, the new product has to face stiff competition, for which they are not prepared. It may cause the failure of the new products.
3) Poor Market Research
Seeds of failure may lie in their origin. If the market is not studied properly, and the marketer makes wrong predictions about customers’ needs, the product, despite being perfect, may fail to satisfy customers.
4) Lack of Uniqueness
If the new product is incapable of providing meaningful differences in comparison with competitors’ offerings, customers find no reason to accept it.
5) Poor Design
When the new product is designed poorly and is inconvenient to use, the product may fail.
6) Lack of Superiority
A new product is bound to justify its existence by providing something better, in the true sense, than what competitors provide. Only superfluous claims made by marketers cannot create sales of the new offerings.
7) Wrong STP Approach
When the marketer fails to segment the market properly, target the right group and position the new product correctly, it fails to get a toe-hold in the market, and experiences failure.
8) Technical Problem
If the new product suffers from any technical problem, observed by the customer during its use, it fails.
9) Huge Cost of Production
When the actual cost of production exceeds the expected cost of production to a large extent, the company has to set a high price for the product, which may also result in product failure.
10) Wrong Entry Timing
If the management makes a hasty decision to enter the market or gets late in entering the market, the product may fail.
11) Poor Promotion
When the marketer is incapable of utilising its promotional tools properly to make customers aware of the new product and motivated to purchase the product, the product may fail to perform its desired functions.
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.
This process involves shifting through the ideas generated above and selecting ones that 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 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.
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. However 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.
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
- 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 communication 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 little 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 they needed 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.
Levels of a Product
There are five levels of a product and each level adds more customer value.
1. Core Benefit
It means the fundamental benefit or service that the customer is buying. For example, rest and sleep are the core benefits in the case of a hotel.
2. Basic Product
It means the physical dimension of a product. In the case of a hotel room, a bed, bathroom towels, desk, dresser and closet constitute the basic product.
3. Expected Product
It means a set of attributes and conditions that buyers normally expect when they buy the product. For example, a hotel customer expects a fresh towel, a clean bed, working lamps and a quiet room.
4. Augmented Product
It means something beyond the customer’s expectations A control TV fresh flowers, fine dining and room service are parts of the augmented product in the case of a hotel room
5. Potential Product
It includes all the augmentations and transformations that the product might ultimately undergo in the future. The all-suite hotel where the guest occupies a set of rooms represents an innovative transformation of the traditional hotel product.
Effect of Competition on Product
Due to a rise in customer demand and competition. It is becoming very difficult for marketers to maintain competitiveness and satisfy customers for long without regularly adding value. Value addition is a tool used to increase the worth of a product for its customers. Functional value, esteem value and exchange value are the scopes of value addition. Functional value is the ability of a product to perform required functions to fulfil customer needs. Esteem value is also known as prestige value, it is a brand’s ability to give a sense of pride to its customers.
Exchange value reflects the amount a customer is ready to pay for the service or product. It is a function of the functional value and esteem value of a product. With an increase in technological know-how and access to it. functional properties of a product, like quality and reliability, have now become an expected benefit for any reasonable good brand. Also, since any new functional value addition (tangible features) in a product is fast copied by competitors, functional value addition often gives temporal gains. Though this approach to value addition helps to differentiate, it doesn’t ensure it over a long period. Response to such market challenges to continually differentiate from rivals and keep customers sticking to a brand could be esteem value addition.
The esteem value of a product is its ability to confer prestige on its customers and it plays a vital role in placing a product under the premium category and creating aspirant group customers. This is mainly associated with exclusivity or high brand equity.