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Ch-6 (New Product Development)
Ch-6 (New Product Development)
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Chapter - 6.
New Product Development
• Existing products targeted to new market/market segment.
• Example: Bajaj Caliber – Caliber Chrome – Hoodibaba.
Cost Reduction:
• New product that provide similar performance at lower cost.
• Example: Cadbury’s Five Star – from 5Rs pack to 2Rs pack by
using flavors instead of pure cocoa.
Idea Generation:
- New product development process starts with search for ideas.
- Sources of new product ideas could be
Customers:
• Market research could be done with recent customer/lead users
(customer who make advance use of product & recognize
improvement needs).
• Market research determines product improvement required.
R & D / Employees:
• Employees could be encouraged to give new product ideas &
rewarded suitably.
Competition:
• Through study/analysis of competitive products.
Marketing Channel & Their Staff:
• Dealers, distributors, employees of distributors & dealers.
Senior/Top Management:
• Product innovators could be senior management.
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Chapter - 6.
New Product Development
Morphological Analysis:
• Identify structural dimension of a problem & examine
relationships among them.
• Example: Moped: Motorised/Stronger/Cycle.
• Hence, convenient/economical/effortless.
Customer Need / Problem Identification:
• Do market research on customer to determine their needs.
• Wherever customer is dissatisfied, the reason for dissatisfaction
could lead to a new product.
• Example: Dettol used to burn, hence came Savlon.
Brainstorming (Technique developed by Alex Osborn):
• 6-10 people discuss a specific problem.
• Asked to come up with ideas for some time.
• Guidelines could be
No criticism/evaluation of ideas.
Free flow of thought is encouraged.
Quantity is encouraged.
Combining/better/improved ideas is encouraged.
75-80 new ideas are required for a company to develop a new product.
HLL came with 84 new products.
Ranbaxy came up with 46 new product in the last year.
Idea Screening:
- Ideas generated need to be screened for action.
- To start with, ideas are sorted into
Promising ideas.
Marginal ideas.
Rejects.
- Promising ideas are evaluated by a committee.
- Surviving promising ideas are screened through a process.
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Chapter - 6.
New Product Development
Requirements for
product success. Relative Product Rating Ratings Overall
Weight /Idea
Score
Unique/Superior Product 0.40 0.6 0.24 0.00 – 0.30 = Poor.
High Performance 0.30 0.5 0.15 0.31 – 0.60 = Fair.
High marketing support 0.2 0.7 0.14 0.61 – 0.80 = Good.
Lack of strong 0.1 0.8 0.08 0.81 + = Excellent.
competition Minimum acceptable score = 0.61
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Chapter - 6.
New Product Development
1.0 0.61
- Only those product ideas with a score of 0.61+ are taken ahead to the next stage.
Concept Development:
- A product idea is converted into concepts.
Example: Product Idea (Food Processing Company).
Desires to produce a powder which is nutritious & tasty.
- To convert to concept answer following questions:
Who will use this product?
• Children / Young working Professionals / Elderly.
What primary benefit should product provide?
• Taste / Nutrition / Refreshment / Energy.
When will consumers consume product?
• Breakfast / Snacks / Dinner.
- Each concept represent a category concept, i.e., each concept positions the idea within a
category.
- Category defines the products competition.
Example:
• Competition for C1: Paranthas/ Idlis/ Toast/ Cornflakes.
• Competition for C2: Maggi noodles/ Grilled Sandwiches/ Indian
Snacks/ Burgers/ Potato Chips.
• Competition C3: Normal food items/ Dial up food
- Next task is to determine where each category would stand in relation to its concept.
- For this, we can use:
Product Positioning Map.
= Idlis.
Price = Paranthas.
= Cornflakes.
= Space for C1.
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Speed
Chapter - 6.
New Product Development
= Brand A.
Price = Brand B.
= Space for New Product
.
Nutrition/Calories
Concept Testing:
- Involves testing product concepts with appropriate customer group to obtain customer
reaction.
- Concepts presented in verbal / visual / form (Computer visualization may be used).
- Dimensions of concept tested out includes:
o Communicability / Believability:
Are the benefits clear / believable?
o Need Level:
Do you see a product filling a need?
To what extent?
o Gap Level:
Do other products currently meet this need and satisfy you?
o Perceived Value:
Is the price reasonable with respect to the value?
o Purchase Intention (Juster Scale):
Minimum 30% - 40% top box score.
Would you buy the product?
o User Targets/Purchase Occasion/Purchase Frequency:
Who would / when / how / often use this product?
- Consumer preferences for alternative product concepts tested out through Conjoint
Analysis.
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Chapter - 6.
New Product Development
- After concept testing, for concepts that qualify a preliminary marketing strategy is
created to introduce new product into market.
- Marketing strategy may be refined in later stages.
- Marketing strategy plan made up of:
o Part ‘A’:
Target market size/structure/behaviour.
Planned product positioning.
Sales/Market share/Profit objective in 2/3 years.
o Part ‘B’:
Product’s price planned.
Product form/shape/size of packs.
Distribution strategy.
Marketing budget for first year.
o Part ‘C’:
Long term sales/profit goals.
Marketing mix strategy over time.
Business Analysis:
- After product concept/marketing strategy is developed, company can evaluate proposal’s
business attractiveness.
- For this,
Sales.
Cost.
Profits.
• Are projected for 5 years period.
- These are matched with company’s objectives. If there is a match, the new product
concept moves to product development stage.
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Chapter - 6.
New Product Development
- Each sales category is estimated using market research techniques with demand
forecasting methods.
- Costs calculated using concepts of discounted cash flow (DCF) / Net Present Value of
Money.
- Based on above following data is analysed.
o Maximum Investment Exposure:
Highest loss that a project can create.
o Pay Back Period:
Time taken by company to uncover all investment in new product.
o Break Even Point:
Number of units that a company have to sell of a new product to break
even.
Give price (cost structure).
o Risk Analysis:
Uncertainties in projection analysis.
To come up with 3 estimates.
• Optimistic.
• Pessimistic.
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Chapter - 6.
New Product Development
• Realistic (Most Likely).
- Based on above, profit/profitability determined/projected for next 5 years.
Product Development:
- If a product concept passes the business analysis test, it is taken forward to the product
development stage.
- So far, the concept exists on paper.
- In product development, concept is provided in detail to R & D to make physical
product.
- Stages in product development could be:
o Prototype development.
o Prototype Lab Testing.
Test for Functionality.
Test for Psychological aspects such as color.
Test for Looks/Styles.
Test for Price Fitment.
o Functional Testing.
Test for Safety/Effectiveness.
o Consumer Testing.
Test samples with consumers in lab.
Market Testing:
- At this stage, new product is ready for:
Brand Name.
Packaging.
Preliminary Marketing Program.
- Objective of market testing could be:
Test product in actual market setting.
Learn about actual market size.
Learn about how consumers/dealers handle, use, repurchase new product.
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Chapter - 6.
New Product Development
- Methods for market testing.
Sales wave research.
Simulated test marketing.
Controlled testing marketing.
Test markets.
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Chapter - 6.
New Product Development
- All marketing mix elements are as per normal marketing program.
- Typically, 3-9 cities selected All- India.
- Cities represent A/B/C category cities.
- Duration of test should permit product repurchase if applicable.
- Test information monitored through:
Stock off take from ware house/godowns.
Retail stores audit.
Consumers panel surveys.
Buyer research.
Commercialisation:
- After successful market testing, new product moves to commercialisation stage.
- During this stage, production of new product on a commercial basis is rapidly built up.
- New product is formally launched. For this, decision to be taken could be:
o When to Launch:
First entry for first mover advantage.
• Example: Nokia, Intel.
Parallel entry to coincide with competitor.
• Example: NIIT and APTECH (GNIIT and ESSACP).
Late entry to learn from competitor experience (Used apple approach).
• Example: Used only by market leaders.
• Colgate waited for Meswak to sell its product in market. After
seeing the response, colgate came up with Colgate Herbal.
o Where to Launch:
All India.
Regional roll out.
State by state.
Urban/Rural (city categorization).
o To Whom:
Distributors/ Promotion needs to be aimed at:
• Early adopters.
• Heavy users.
• Opinion leaders.
• Reachable at low costs.
o How to Launch:
Decisions encapsulated initial marketing strategy.
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Chapter - 6.
New Product Development
Introductory offers may be involved.
Adoption:
- Individual’s decision to become a regular user of a product.
- Adoption when sustained leads to loyalty.
- New product marketers aim at those customers who are early adopters.
- According to early adopters concept:
Persons within a target market/segment differ in the time elapsed
exposure to new product and trying it.
Early adopters are similar to each other and different from late adopters.
Efficient media exist to reach out to early adopters.
Early adopters tend to be opinion leaders & help in advertising product to
other product customers.
- New product marketers should aim to facilitate consumer movement through these
stages.
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Chapter - 6.
New Product Development
• Early Majority.
• Late Majority.
• Laggards.
Personal influence of others/peer groups
• More active in evaluation stage of the adoption process.
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