New Product Development Process
Many companies follow different types of new product development system. Though it is difficult to generalise a common process, the author has tried to develop a standard new product development system. The diagram on New Product Development Process (Figure) represents the various work steps that occur.
After defining the overall area of business development, an effort is directed at concept generation and market structure identification. If the go/no go screening criterion is met then advertising is developed and the product formulation specified and tested.
Table of Contents
- 1 New Product Development Process
- 1.1 Concept Generation and Market Structure Identification
- 1.2 Idea Generation
- 1.3 Advertising Development
- 1.4 Product Formulation and Testing
- 1.5 Testing the Product
- 1.6 Product Prototype Testing
- 1.7 From Development to Commercialisation
- Concept Generation and Market Structure Identification
- Idea Generation
- Advertising Development
- Product Formulation and Testing
- Testing the Product
- Product Prototype Testing
- From Development to Commercialisation
If these results meet standards, pre-test market and test marketing activities are undertaken. If successful, the product is launched. The system is an integration of traditional qualitative research, which has been used in the package goods field.
Concept Generation and Market Structure Identification
The first step in the new product development process centers on concept generation and market identification. In this part of the new product development process, there are four key activities namely idea generation, structure identification, sales potential, and concept screening.
The first stage of the new product’s evolution begins with an idea for the product. Hence this stage is also termed ‘Idea Generation’. Ideas may originate from the following sources:
- Sales Personnel
- Marketing Personnel
- Research and Development Department
- Top Management Executives
- Production Department
- Customer Service Decisions
- Employee Suggestion System
- Competitive Products
- Foreign Products
- Advertising Agencies
- Distribution Channels
- Public’s Unsolicited Ideas
New product ideas can be generated both directly and indirectly. Both approaches can be undertaken simultaneously and can vary from highly structured and loosely structured to unstructured procedures.
Direct methods rely heavily upon the creativity of individuals as well as groups and consumer survey data for techniques e.g. forced relationship, transfer analysis, brainstorming, motivation research, multi-dimensional scaling, etc.
Consumer ideas are obtained from focus group interview sessions, which determine the consumer’s perceptions of brands, advertising, and the way products are used. The product manager searches for competitive vulnerability and consumer trends in the category. How do consumers see the category changing relative to the way they use the product now and how they anticipate they will use the product in the future?
Indirect methods refer to the ‘synthetic’ methods; methods that are used for other purposes but with little ingenuity, they can be employed just as well in exploration, e.g. quadrant analysis and magnitude estimation have been used in product testing.
The result of the idea generation step is the consumer’s view of the market in qualitative terms; an understanding of the technical development potential and a possible list of new product ideas in untested and raw idea form.
Market Structure Analysis
The next step in the process of new product development process is to implement a market structure. This process delineates the consumer’s perception of the market by building a map outlining critical consumer dimensions, positioning existing brands on the perceptual map, and indicating favorable new product opportunities.
This technique is extremely helpful as it puts the new product thinking on the right track in terms of consumers’ view of the market. This also helps in finding out the distance of new product opportunities from the ideal point. It helps the new product group to focus on further technical and marketing development program.
It helps in identifying where the opportunity exists and gives a rough estimate of how big is the new opportunity. In order to supplement the consumer’s perception mapping, a fact book or business review document is made outlining all the available knowledge about the particular category.
Much of the syndicated market data is included so that the new product development group has all the accurate and up-to-date information on overall market size, segmentation data, and market share data.
In this step, the potential of a new product entry into the market structure is estimated. Executive judgment and Delphi techniques are used to develop a simulated market model, as most of the input data are available with the new product team.
The purpose of developing such a model helps in establishing a rough estimate of the size of the business potential and to establish a base case for use of this model for continuous monitoring of the sales forecast and its advances throughout the new product development process. This will help in continuously refining the market share and rupee volume estimates of the size of new product opportunity
At this stage, the ideas collected are scrutinized to eliminate those inconsistent with the product policies and objectives of the firm. Patents may already protect some ideas and some others may not be fit for consideration because of the non-availability of raw materials for production.
Thus most of the ideas screened need not essentially be good. They may be further subjected to a more detailed examination. The main intention of this phase is only to eliminate unsuitable ideas as quickly as possible.
Screening criteria are established as evaluative standards in new product development. They make arbitrary decisions less likely. They provide a unity of purpose and they provide a perspective for new product planners.
Screening criteria usually concern themselves with three factors – markets, products, and finances. More frequently used market criteria are market size, market growth, market positioning, distribution features, etc. The following sets of ‘must have’ and ‘would like’ criteria have been suggested for the planners of new products.
The ‘must have’ criteria include the following:
- Fill a perceived need with a sufficiently defined group of heavy users for the product.
- Have unique product characteristics that offer distinctive benefits to the user.
- Be saleable in large, expanding territories.
The ‘would like to have’ criteria include the following:
Be compatible with and be able to carry the company’s brand name.
- Provide the basis for a continuing business.
- Lend itself to mass media advertising.
The product manager is likely to make two mistakes during the screening stage. The ideas generated at the earlier stage can be grouped as good ideas and bad ideas. There are two strategic options that the manager has, viz. to take an idea further or to drop an idea.
If the product manager continues with a bad idea and subsequently launches products based on a bad idea, then he is likely to make a ‘go error’. In contrast event of dropping a good idea leading to loss of opportunity, the product manager is likely to make a ‘drop error’.
The product manager needs to evaluate the ideas by developing a fact book for each idea and evaluating the relevance of ideas in the context of business opportunity and competition. The focus group discussion will lead to the development of market research where the product concepts can be quantified and preliminary product feasibility and development can be tested.
This stage is crucial for the product manager as he can take an idea from the stage of an ‘abstraction’ to a valuable product proposition. The concepts so generated can also be put into ‘intend to buy’ tests to find out the primary points of the test for minor/major competitive advantage.
This stage of new product development involves the development of advertising and formulation of products. All the advertising and technical developments of the product concept have a greater focus due to the results from the earlier stages. This stage typically involves two activities, viz. development of advertising strategy and product formulation.
The main objective of advertising is creating advertising copy, which can reflect the product’s points of difference to the consumer. Asking the client servicing and creative team to observe the focus group discussion helps in initiating the advertising strategy development process.
Both teams get a chance to look at the real consumers and listen to them talk about the product category and product proposition. At this stage, three documents are developed, namely, a strategy statement, a consumer profile, and an end-benefit psychology statement.
The strategy statement helps in getting the selling message of the product down to a straightforward statement, outlining the core advantage of the product concept. It should be a declarative statement, which is an expression of a specific set of symptoms within the defined target segment. In addition to the strategy statement, a consumer profile is developed.
It goes beyond the demographic profile and explains the psychological profile of the user. The third statement is a psychological description of how the consumer views the end benefit of the new product and how it relates to the consumer problem that the product aims to solve. These three statements constitute the basis for the creative platform.
The client and agency should arrive at an agreement related to the direction of the product concept through this creative platform. The agency tries a number of platforms and storyboards to arrive at a final proposition. The next step involves a review of the storyboard.
Storyboards should be relevant to the consumer’s perceptions of the category, identifying and pinpointing the differential advantage of the concept to the competing products. In a world of segmented markets, it is essential to communicate the points of difference for giving a ‘reason why’ for the consumer to buy.
Consumers buy products and services for a specific set of reasons and in many instances, these reasons are ingrained in their thought processes. So the new product manager must demonstrate what he is offering is better than the available offers in the market so that they will at least be willing to try the new product.
After the storyboards (normally four or five) are selected, they should be pre-tested by potential consumers. They should be tested in animatic form as they cost less compared to the cost of completely developed multiple shoots.
They can be tested through methods like on-air testing and in-theatre testing. In theatre, testing is better because it is more diagnostic than on-air testing. The factors can be controlled better in ‘in theatre’ testing than on-air methods. It helps in building greater insight into the development of the advertisement leading to a higher level of problem-solving.
Product Formulation and Testing
While advertising formulation happens in the advertising agency, product formulation happens in the laboratory. During this stage, the ‘idea-on-the-paper’ is turned into a ‘product-on-hand’. In other words, the idea is converted into a product that can be produced and demonstrated.
This stage is also termed ‘Technical Development’. It is during this period that all developments of the product, from idea to final physical form, take place.
The final decision on whether a product should be developed on a commercial scale or not is decided at this stage because the time lag required to attain this stage is a long one and it is possible that some adverse developments might have taken place during this period.
Once the management decides to go ahead with the product idea, the following activities are undertaken:
- Establishing development projects for each product
- Building the product with the changed specifications, if necessary
- Completing laboratory evaluation and sending the product for testing and then launching
The first stage in the product formulation and development process is a detailed product profile that outlines all the elements of the product and the product’s points of difference so that the laboratory can formulate a product prototype for limited consumer user testing.
Then a detailed product feasibility report is written and circulated to all staff groups inside the company for their input. These staff groups include manufacturing, finance, legal, medical, and quality control departments involved in the new product development process. Many conflicting interests and opinions will emerge at this stage and this will lead to the development of formal business analysis.
Business analysis is only a continuation of the evaluative process that began when the new-product idea was first generated. Once the product concept is developed, business analysis can evaluate the business attractiveness of the proposal.
The purpose of business analysis is to serve as a basis for a decision on whether the corporate resources should be committed to the development of the new product. As per Sachs and Benson, the decisions of business analysis hinge on various factors like category demand, profitability, and targeted return on investment in the new product proposition.
Information from advertising, creative evaluation, and business analysis helps in developing product prototypes and testing them in lab conditions. Then standard consumer usage testing is done for the prototypes.
At this stage, the new product management team has got the following information:
- A product concept statement that has been developed by market structure analysis and has been refined by focus group interviews.
- Advertising has been developed which is strong enough to launch the new product.
- A physical product that consumers perceive as a successful match between the claims made for it and the functionality of the product.
If the sales forecast meets the ‘go’ decision, then only the product is put to test.
Testing the Product
It is at this stage of product testing that the new product manager can check the feasibility and accuracy of product performance. Thus, commercial experiments are necessary to verify earlier business judgments. The objective of this stage is to assess whether the product meets the technical and commercial specifications developed at various levels of concept development for ascertaining product acceptability.
There are three types of tests conducted at this stage as mentioned below:
- Concept Testing
- Product Prototype Testing
- Test Marketing
These are explained below:
This step is conducted many times and also before developing the prototype. We are presenting here for simplicity of understanding. This step is concerned with measuring customer reactions to the idea or concept of a product. In fact, it is a kind of research in which the product idea is screened before any money, time, or labor is committed to making the prototype products.
The idea of a product with as many details as possible is made known to the customers either verbally or through the use of suitable blueprints. The response of the customers is checked and only if it is found encouraging, then the development of the product prototype taken up.
For instance, when the rest of the world had largely gone in for synthetic detergent in powder form, it was decided by HLL to test a detergent bar as a concept because in India most people do not use washing machines or even buckets and are accustomed to using a bar to rub on the fabric.
This led to the launch of Rin bar in the Indian market. The idea of Ujala, Wheel, Aquaguard, and Vanish were found to be more fruitful when they were put to concept testing.
Concept testing can tell whether the product is likely to be a success or not. To achieve better results, however, the product concept should include the finished product itself with all details viz., packaging, price range, brand name, etc.
On the basis of these details, interviews are conducted to collect the opinions of the would-be purchasers. The major advantage of concept testing is that the management can form early judgments on the likelihood of the market success of the new ideas.
The other objectives of concept testing can be:
- To evaluate the relative merits of several new product proposals
- To determine whether the product idea is to be abandoned or modified
- To determine the size of the potential market
- To guide the management to adopt suitable marketing policies in advance
Concept testing has the following limitations or drawbacks:
- It entails some risk of disclosing the company plans to competitors
- There is a time lag in obtaining and assessing the results;
- Respondents may overstate their interest and encourage unsound development
- The validity of any measure of potential market size obtained through early-stage concept testing may often be dubious;
- Findings may also be misleading if the test is not carried out properly.
Product Prototype Testing
Once the concept test of the product is successful, the next step is to put the real product into a few selected markets. This test will prove whether the product performs as expected and whether it lives up to the promise of the concept.
Such a test enables the management to pick out the likes and dislikes of the consumers towards the product. It also gives an opportunity for the buyers to compare the product with the competitive products.
The prototype is developed as the end result of a product development process. This prototype is developed in the lab and is put under technical testing. Then it is put under a standard consumer usage test.
The concept statement used earlier is presented to the consumer with the product so that the product manager is sure that the product’s benefit in use matches with the way the product will be presented to the consumer through the advertising.
Product testing is done to assess proper product performance. It is also done to minimize the risks attached to the full-scale launching of a new product. Product testing also helps in identifying the most productive market segments and collecting necessary data about the responsiveness of customers.
However, this is not a foolproof system for predicting the future. It cannot help in forecasting the market size, sales volume, brand share, and repeat buying. Correct pricing also cannot be assessed at this stage.
Even the most favorable results from the two tests mentioned above are not conclusive evidence for the success of a new product. For instance, even where the product is seen to possess high quality, market failure is still a possibility if other important factors in the marketing mix show weakness.
It is, therefore, logical to examine how conducting test marketing may help in testing the company’s total marketing mix. However, due to prohibitive cost structure, many product managers put the product under purchase laboratories.
Purchase laboratories are the most significant marketing research tools for new product launches. The purchase lab generates the ultimate estimate of the magnitude of new product sales using completed packaging, product, brand name, and advertising. Purchase labs are run in shopping centers.
Interviewers approach users of a product category and they are asked if they are willing to participate in the research study. They are interviewed about purchase patterns, the number and type of brands purchased, reasons for purchase, attribute ratings for each brand, and other questions related to the category.
The consumers are shown advertisements for the new product, along with competitive advertising for the category and they are taken to a shelf that is set up like a grocery store’s shelf space in a shop. Each of these customers is given seed money for purchase and they check out paying for the product with the seed money.
The product is taken home and used. The consumers are interviewed again to determine the product’s performance. All of the data is put into the evaluation process through the simulated model, which can generate an estimate of the market share at various levels of distribution and advertising outlays.
Once the purchasing lab is cleared, the product is put for test marketing. Under test marketing, the product is introduced in selected areas often at different prices in different areas. These tests provide the management an idea of the amount and elasticity of the demand for the product, the competition it is likely to face, and the expected sales volume and profits it might yield at different prices.
Experience shows that the chances of a new product being successful are ‘significantly greater’ if it is first put into a controlled test market where it is exposed to realistic competitive conditions.
Product managers use test marketing for various reasons. They are used to evaluate a complete marketing plan including advertising budgets, the intensity of distribution, the level of sales network, and different levels of pricing. It is also used to determine the promotional media mix, and types of channels and to forecast the likely sales volume.
Test marketing has certain limitations. Competitors’ response and their defensive actions may not allow test marketing to provide a conclusive result. Test marketing is a costly affair and it is a time-consuming method. Many firms avoid test marketing since they wish to be ‘the first in the market’.
Though test marketing is not a perfect simulation of full-scale production and distribution, it may provide very useful information for better planning of the full-scale effort. It also permits initial pricing mistakes to be made on a small rather than large scale.
However, test marketing does not eliminate risks; it only improves market and product knowledge and reduces the chances of making expensive mistakes. Therefore, most firms resort to testing marketing. For example, Liril Soap, introduced by Hindustan Lever Limited, was originally tested in Hyderabad and Lucknow.
These towns were selected because of their different characteristics, which make them representative of a large spectrum of towns in India. The product was distributed in all normal outlets in both towns and supported by advertising to inform the customers. The results of the test enabled the company to make several improvements, which were successfully incorporated before the product was extended nationally.
To make test marketing more fruitful, a ‘post-test market launch’ survey should be conducted. The survey will reveal whether the earlier satisfaction continues to be derived, whether people like the product and make a repurchase, and whether the advertising appeals to the target audience.
On the basis of the findings, changes in the marketing mix will have to be incorporated before the product is finally launched in the market. We present herewith a typical test marketing process in Figure.
From Development to Commercialisation
In this stage, the product is submitted to the market, and thus commences its life cycle. Commercialization is also the phase where marketing is most active in connection with the new product. This stage is considered to be a critical one for any new product and should therefore be handled carefully.
For instance, it should be checked whether advertising and personal selling have been done effectively and whether proper outlets have been arranged for distribution.
Despite the care with which the previous development stages have been planned, unforeseen events can impair commercialisation seriously.
The following activities are usually undertaken during this stage:
- Completing final plans for production and marketing
- Initiating coordinated production and selling programs
- Checking results at regular intervals
It should be remembered that new products should be launched in the market only stage by stage. In other words, the introduction may be restricted to a few regions in the first instance. This is to avoid a short supply of the product due to initial gaps in production and distribution. It is not prudent to extend a product nationally and then not be able to meet the demand or to come across some unexpected deficiency.
‘Gold Café’ was heavily advertised nationally in 1987 but it was not available at retail stores. Many companies decide to go for a regional role out than a full-scale launch. The company divides the national market into smaller regional markets and launches the new product in sequence one after the other.
A regional rollout helps in managing and covering the market one by one and managing the new product launch with a limited budget. In the case of regional rollout, advertising carries a catch line titled ‘only available in select cities’.
All the stages explained above stress the fact that the development of a new product must pass through certain logical stages. Innovation is necessarily an orderly and predictable process and can be performed only in a sequence. For example, commercialization cannot precede the development stage of a product.