Executive summary

Turning a concept into a profitable product or product platform is not an easy job;
new product development (NPD) is a complex, collaborative process that requires
coordinating the innovation efforts of many to meet a common goal. The present
study examined what innovative marketing process should be emphasized when
developing new service products. Companies need to enhance product development
processes in order to bring profitable products to market in a predictable, repeatable
way.
The report concludes that for companies to remain competitive in the face of a more
challenging innovation environment and challenging corporate profitability
objectives, they must significantly improve product development performance. It
mainly focuses on the successful NPD and the process, taking an example of
hostelworld.com, illustrate the way of how they deal with their product development
plan and implementations.
1.0Introduction

The nature of marketing is to produce product that suits customers’ needs and wants.
Firms need to learn and be aware of how to deal with the dynamics of consumers,
competitors and technologies to be successful, all of these require companies to
review and reconstitute the products and services they offer to the market. This, in
turn, needs the development of new products and services to replace or reinforce
current ones.

With all the factors that related with successful NPD, processes and structures which
are customer-focused recur. A customer focus may be manifested in NPD in
numerous ways, spawning much research into the nature of new product activities:
their nature, their sequence and their organization.
The ideas of new product do not automatically translate into workable, appealing
products. The idea has to be given a physical reality which performs the function of
the idea, which potential customers find an attractive alternative for which they are
prepared to pay the asking price. This task requires NPD to be managed actively,
working though a set of activities which ensure that the eventual product is makeable,
affordable, reliable and attractive to customers.

This paper explored the case of hostelworld.com, illustrate the way of how they deal
with their product development plan and implementations. After conducting an
interview with the Marketing Manager of Hostelworld.com, G. Edwards, the
following objectives of Hostelworld.com were identified and these will be referred to
consistently throughout the research paper.

The objectives are:

-To retain the position of number one hostel booking website

-To enhance customer loyalty through the new product development

-To reinforce the Hostelworld.com brand position

-To continue to build awareness of Hostelworld.com among the target market of

Student and Youth Travellers
 (Source: G. Edwards,
2010)

2.0The Evaluation of NDP

There are numbers of research has been carried out into the area of new product
development.
Product can be seen as the core element of the company that meet customer’s needs
and wants. Product strategy is part of the overall marketing strategy of the firm, it is
very important just like the other elements of the marketing mix, need to be managed
well. So the creation of innovative products of the enterprise is vital in order to
provide new or better services and products.
According to the “New Product Development Survey 2011” in food and beverage
industry, it shows that 45 percent of respondents plan to launch more new products
into the marketplace in 2011, while 44 percent plan to launch the same number.
Driving new product introductions are consumer demands, changing tastes and the
need to create excitement in a product line. Companies that are striving to remain
competitive by developing new products (Sethi & Iqbal, 2008)
The key factor to remaining competitive is innovation. According to Peter Drucker,
“Innovation is the effort to create purposeful focused change in an enterprise‘s
economic or social potential” (Davila, Epstein, & Shelton, 2005, p. 5). Innovation
affords the chance for organizations to put their mark on the development of business.
It allows them to set the standards and become industry leaders. Superior innovation
provides businesses with the opportunity to grow bigger and better than their
competition. Innovation can be disruptive to business operations. It requires changing
the way things are done, and reengineering how ideas and strategies are promoted
(Ringland & Young, 2006). However, if done properly the temporary discomfort can
lead to big profits and market share growth. The process of new product development
can be generally identified into four stages: idea generation and screening, internal
marketing and training, market analysis and commercialization, and technical
development (Avlonitis & Papastathopoulou, 2001).
 2.1Case study of Hostelworld.com
There are little literatures focused on new product development in hospitality and
tourism industry. Product in hospitality and tourism industry is mainly about the
service, product here means customer value, which is “the perceived benefits
provided to meet the customer’s needs and wants, quality of service received, and the
value for money”(Middleton & Clarke 2001, 89). The tourist product is
fundamentally a complex human experience (Gunn 1988), which is an output of a
production process, where the tourist utilises the facilities and services to generate the
final output, experience (Smith 1994, 590- 591). The following case study discusses
how a successful hostel booking website hostelworld.com develops their new product
or service and how they implement it into their market place.

In 1999 Ray Nolan and Tom Kennedy founded Web Reservations International
(WRI) and created an online reservation site for hostel bookings -
www.hostelworld.com. The backpack software was modified to enable hostels to
seamlessly integrate with the online booking system at www.hostelworld.com. The
company now is the biggest global provider of confirmed online reservations for the
budget accommodation sector.
The Hostelworld.com brand is the best known of all WRI sites
(www.hostelworld.com) and allows visitors to choose a destination or hostel, select a
date and length of stay, and quotes prices in any currency, all of which makes the
booking procedure extremely straightforward. Hostelworld aims to continually
strengthen its position as the best known brand for hostel booking.
The Hostelworld.com brand is the best known of all WRI sites. Marketed to the
budget, youth and independent travel market, it attracts over 2.5 million unique
visitors per month. Hostel world.com features more than 12,000 hostels and other
budget accommodation including low-cost hotels, bed and breakfasts and camping
villages. The site is the market leading brand for hostel reservations and has become
synonymous with hostellers the world over. In addition to online hostel reservations,
Hostelworld.com features more than 1 million customer reviews, a travel network for
users and comprehensive online content including downloadable guides, pod casts
and maps (http://www.webresint.com/brands.php). However, the company now is
planning to increase their market by targeting the family group.
2.1.1 Best Practices and the Stage-Gate process
The different best practices have been widely used by companies to improve the
timeliness and effectiveness of their new product development (NPD) process.
Dooley, Subra and Andersonwidely (2000) explored that; best practices will lead to
greater NPD effectiveness and more successful products.
The Stage-Gate is one of the useful processes in the development of new product.
The Stage-Gate evaluation combines output controls into five stages: 1) Scoping, 2)
Building business case, 3) Development, 4) Testing and Validation, and 5) Launch.
The purpose for the gates is to allow products that properly meet screening criteria to
move further. Thus bad projects are stopped, or they are reversed through the previous
stages to give them another chance advancing. The underlying principle of the Stage-
Gate process is to make certain that all projects are evaluated against the same
criteria. When organizations commit to the Stage- Gate process, they are more likely
to reduce costs and waste due to the removal of weaker projects, increased speed of
market entry, and a more unbiased way of allocating resources to different projects.
Moreover, when organizations use the Stage Gate process it helps product
development efforts in regards to promoting discipline, improving performance,
boosting efficiency, and reducing new product cycle time (Sethi & Iqbal, 2008;
Cooper, Edgett, & Kleinschmidt, 2002).
The Stage-Gate process consists of a series of stages where essential activities are
carried out. In the early stages, activities generally focus on discovering opportunities
and generating ideas, while the later stages focus on concept development, testing,
and commercialization.
Applying to the case, Hostelworld.com is planning to develop their new product
which is to target the family group and to sell cheap family friendly accommodation.

In analyzing this situation, it is important to identify the factors that might in turn
affect a number of vital variables that are likely to influence the organization’s supply
and demand levels and its costs (Kotter & Schlesinger, 1991; Johnson and Scholes,
1993). A PEST is merely a framework that categorizes environmental influences as
political, economic, social and technological forces. It is an appropriate strategic tool
for understanding the “big picture” of the environment in which business operates,
enabling a company to take advantage of the opportunities and minimize the threats
faced by company’s business activities.
  Political factor- Irish government and EU regulations and legal issues define
both formal and informal rules under which WRI must operate. For instant,
WRI is an online tour operator that sells accommodation and other relevant
items to travellers. Therefore WRI must operates under Irish law and
legislation such as the Tour Operators (licensing) Regulations, SI Number
182/1993., Package Holidays and Travel Trade Act Number 17, 1995,
Electronic Commerce Act, 2000 and Employment Regulations Order, SI
Number 114/1997. WRI business is also affected by this kind of law and
regulation such as the Competition Act, and The Consumer Information Order
not only in Ireland but also internationally.

Additionally, EU enlargement, EU funding structure in Irish economy, issues of

“availability of labour” and “labour costs/wages and the effect of government policy
on the ‘taxation environment’ are deemed to have huge impact on their business
(NCC, 1999).

 Economic- Economic factors affect the purchasing power of potential

customers and also affect the WRI’s offerings. From the International
Monetary Fund (IMF) Country Report (2006), Irish economic growth is
strong, unemployment is low and labor participation rising, and government
debt has been reduced dramatically over the past two decades. Nevertheless, it
observed that growth has become increasingly unbalanced in recent years,
with heavy reliance on building investment, sharp increases in house prices,
and rapid credit growth, especially to property-related sectors. It means Irish
people would choose travelling instead of buying property that bring to WRI a
huge opportunity to increase their sale. At the same time, competitiveness has
eroded, reflecting the combination of faster wage growth in Ireland compared
to its trading partners, declining productivity growth, and the appreciation of
the euro against the other foreign currencies such as the U.S. dollar. Exchange
rates are favourable for Irish residents for travelling abroad. On the other hand
it threatens the biggest overseas market- Americans.

 Social - Changes in life cycles have had a major impact on leisure travel.
People tend leave home younger and marry later in life more so now than in
the 1950s. With this increased independence and higher disposable incomes,
 people are free to travel more extensively than they did in the past. People also
have a longer life expectancy noe than fifty years ago. They have no major
financial commitments as their children have grown up, they have normally
cleared their mortgage and they usually have plenty of leisure time. In the
current economic climate, many people are earning more money than ever
before. However, those with such wealth have less time to spend it as they are
working longer hours and are becoming time poor. Increased disposable
incomes, cheaper transport costs and a shortage of leisure time has resulted in
people taking three or four short breaks over a year (Irish Tourism Board,
2000). There are 2,060,000 Internet users as of March/05, 50.2% of the
population in Ireland, according to Computer Industry Almanac
(http://www.internetworldstats.com/eu/ie.htm, 21/03/08). Almost half of the
Irish population have yet to use the Internet; consequently the potential market
for WRI is massive. Nowadays, budget travellers are often older people or
families. They demand a more structured travel experience, seeking outdoor
adventure or cultural activities and tours, spending plenty of money in
restaurants rather than cooking in a communal hostel kitchen. A few years
ago, a hostel would have been full of people cooking their pasta or lentils, and
they would all arrive by bike. Now everyone arrives by taxi from the ferry or
airport and they all head into town for dinner (David, 2005).

 Technology- The development of information technology and the global

expansion of industries have broken down boundaries that used to exist in
society. Travel programmes are very popular on television and viewers
become better informed about faraway places. These factors can result in the
consumer seeking out more exotic and unusual destinations. The development
of transport in the latter half of the 20th century, particularly air transport, has
resulted in a shrinking world. Destinations that were once regarded as being
exotic and remote can now be reached in a comparatively short period of time
at relatively affordable prices. This has created more competition for
established tourist destinations, particularly in Europe. The development of the
internet and the use of email give potential travellers an increased number of
ways to select, plan and book their holiday with far wider choices than were
previously possible (Irish Tourism Board, 2000). Tourism has been a popular
 area for mobile information systems. Indeed, as mobile phones and other
portable devices become more advanced, tourism is one obvious application
area (Brown & Chalmers, 2003). Should WRI invest into this new area?
Further feasibility analysis needs to be conducted before making the strategic
decisions.
Due to intensive competition among in the hospitality industry and increasing market
saturation, maintaining competitiveness calls for increased action in the field of
innovation and product development (Pikkemaat, & Weiermair, 2007). One of the
most important tasks as a competitive unit is the creation of products and offers
tailored to certain target groups, in which the existing resources are combined in the
sense of plain customer orientation in a way that allows customers to recognise its
uniqueness in comparison with other similar product. That can be achieved through
innovative due to intensive competition and increasing market saturation, maintaining
competitiveness calls for increased action in the field of innovation and product
development (Pikkemaat, & Weiermair, 2007).
The service management literature points out that new-product development in
service industries should follow a structured planning framework (see e.g. Lovelock,
Vandermerwe & Lewis 1999, Zeithaml & Bitner 1996).
The first actual step in the new-service development (NSD) is the idea generation,
which can be systematic search of new ideas. Typical sources of ideas may be formal
brainstorming, solicitation of ideas from employees and customers, lead-user
research, learning about competitors offerings etc.
During the idea generation a large number of ideas are often created. The purpose of
screening the ideas is to reduce the number of ideas. The idea screening is the
appropriate time to review carefully the question of product line compability. (Kotler
et.al. 1999, 291-292; Zeithaml & Bitner 1996, 202). The key questions to ask when
screening product ideas are, if there is a market for the product, if the product is a
right one for the company product strategy and if the product can be produced
profitably (Morgan 1996).
The next step is to determine the feasibility and potential profit implications. Demand
analysis, revenue projections, cost analyses, and operational feasibility are assessed at
this stage. The stage will involve preliminary assumptions about the costs of hiring
and training personnel, delivery system enhancements, facility changes and any other
projected costs. (Zeithaml & Bitner 1996)
Once the new service concept has passed all the front-end planning stages, the
concept is ready for the implementation stages. During this phase, the concept is
refined to the point where a detailed service blueprint representing the implementation
plan for the service can be produced and tested by the personnel. A very important
phase is the postintroduction evaluation. At this point, the information gathered
during commercialisation can be reviewed and changes made to the delivery process,
staffing or marketing-mix variables. (Zeithaml & Bitner 1996)
The table below shows the New-Service development process
Front-End Planning

 Business Strategy Development or Review

 New-Service Strategy Development

 Idea Generation

Screen ideas against new service strategy

 Concept Development and Evaluation

Test concept with customers and employees

 Business Analysis
Test for profitability and feasibility

Implementations

 Service Development and Testing

Conduct service prototype test

 Market testing

Test Service and other marketing-mix elements

 Commercialization
 Posintroduction Evaluation

(Source: Zeithaml & Bitner 1996, 200).

3.0 Research
With in the case, according to the Marketing Manager of the hostelworld.com, the
basis of their new-product development lies on their business plan, this refers to
producing or providing family-based experiences for the chosen target groups in a
certain area. The need for new-product development arises from the customer needs:
in most of the cases both of the existing customers and new customers need more than
just student accommodations.
The need for new-product development process usually starts from either a client or a
supplier asking for something new or suitable for different groups, and they have to
have new products for customers that constantly use their services.
When a new-product need arises, the company must first narrow down the
possibilities: safety parameters, budget, limits of implementation, time factors.
The existing customers has directed their strategy to service development (introduce
new products to present customers) and market penetration (modification of existing
products for present customers). Market development (repositioning present products
to attract new markets) has been considered. The new-product ideas are in most cases
based on the opportunities of the three bases, the idea generation is derived from the
capabilities of the company, and also, the company has conducted a market research
on consumers’ attitude about the cheap family friendly accommodation.
As highlighted throughout this article Hostelworld.com positions itself within the
student and youth market or those between the ages 16-24. Hostelworld.com has
done an excellent job in building their reputation within this category but there is
definite room for expansion. The family market is not a demographic that hostels
generally aim their marketing campaigns towards. However, with the correct
structure and an innovative marketing campaign there appears to be room for
Hostelworld.com within this market especially in the current economic climate. The
prospect of cheap family friendly accommodation is something that will really entice
customers to book their accommodation through Hostelworld.com. The alternative of
booking a hotel or villa to accommodate a family of four for example during the time
of a recession may prove to be too costly therefore the alternative of booking a hostel
could be very attractive.
The idea is then developed to a theoretical program around the idea; this program has
to be tested by some existing customers and staff. After this first testing the core
product, the service concept is ready for further development.

4.0 Recommendation
The successful tourist product development is a continuous service system
development, which involves continuing development of the company strategy.
In terms of setting the appropriate infrastructure for success, companies should
execute their new product development processes following proven, best practice
processes. To succeed in bringing profitable products to market, companies should
focus on excelling in the following aspects of new product development:

 Coordinate the product development project around customer needs, and

establish the right NPD teams and approaches.
 Communicate customer requirements to all participants, and keep them
informed of all aspects of status.
 Measure performance on project and enterprise levels. Companies that are
best-in-class at meeting product development targets measure performance
more frequently, and on a broader scale.
 Standardize and automate NPD processes. Standardized processes are a
leading approach to improving product development performance. Process
automation can be used to help implement and enforce standard processes.

In order to be successful with repositioning the brand Hostelworld.com elements of

the current marketing communications mix that are being used by the company should
be altered to fit the profile of the family market. Not only this, but new elements can
be introduced as deemed necessary. The author also has outlined a number of
suggestions that may be used by Hostelworld.com to help the company expand their
market share to include families.
 Hostelworld.com use public relations as an effective means of marketing the
company to youths and students. Public Relations are something that not only
benefits the public but the management also (O’Dwyer 2005).
 Hostelworld.com has a fantastic selection of merchandising techniques in use
at present. The merchandise that is distributed to customers and hostels is
very appropriate for their initial position.
 Social networking sites are not used exclusively by the younger generation.
There is plenty of scope to target families using the same method of internet
advertising that is in operation for the youth market. Creating partnerships
that allow Hostelworld.com to advertise family events on their website would
benefit the company.
 As the market leader, Hostleworld.com is in the position to lead the way in
opening new markets for hostels the world over. They have the experience
and knowledge to know what it takes to create a successful marketing
campaign. Expanding in to a new market does not mean that Hostelworld.com
can neglect its current market of young and individual travellers.
5.0 Reflections

Today’s successful firms learn and re-learn how to deal with the dynamics of
consumers, competitors and technologies, all of which require companies to review
and reconstitute the products and services they offer to the market. Of the many
factors associated with successful NPD, processes and structures which are customer-
focused recur (Cooper, 1979; Maidique and Zirger, 1984; Craig and Hart, 1992). A
customer focus may be manifested in NPD in numerous ways, spawning much
research into the nature of new product activities: their nature, their sequence and
their organization (Mahajan and Wind, 1992; Griffin, 1997).
A specific new product strategy explicitly places NPD at the heart of an
organization’s priorities, sets out the competitive requirements of the company’s new
products and is effectively the first ‘stage’ of the development process. It comprises
an explicit view of where a new programme of development sits in relation to the
technologies that are employed by the company and the markets which these
technologies will serve.

In a nature-based activity operator company a core tourist product, the service

concept, consists of modules, which are based on the needs of the customer.
Accommodation is one of the Basic types of the modules. Successful tourist product
development is a continuous service system development, which involves continuing
development of the company strategy.
The new service development occurs in a service system environment, the service
system creates the corporate image and identity of the company as well as limits and
the opportunities for the NSD. The company has to pay great attention to the service
system development, which enables or prohibits the new innovations.
The first stage in our NSD-framework is the service concept development, which can
be divided in four phases: idea generation, core product screening, concept testing,
and concept development. The sources of idea generation for the for the experience
can be divided into internal and external. The main determinant should be the
customer need and expectation. The core idea may get a form of key modules, which
then are to be screened against the service system available.
Service process development indicates the precise planning and pricing mode of the
tourist product. Every single module has to be blueprinted as a chain of activities,
with time scheduling, costs, identifying all the service quality factors and possible
gaps in the delivery system (see Zeithaml, Parasuranam & Berry 1990).
During the market testing stage the key components of the experience are tested and
the key message of the promotion, the “appeal” is identified for the commercialisation
of the product. After launching the product to the market it should be important to
investigate the sources of the success or unsuccessful of the product in order to use
the information in further NSD processes.

6.0 Conclusion

In conclusion, the brand - Hostelworld is living in a competitive business

environment. In order to achieve marketing goals, Hostelworld has recently developed
new product, and repositioned itself in the market place, however the process brought
challenges for the company, this is for WRI where the probable gap is a widening
between their expectation from rebranding and the reactions from their customers and
other key stake-holders – employees, suppliers, journalists, and even competitors.

The Five Stage-Gate evaluation process allows the company to develop new products
and services in a way that ensures the future success of the creations. The Stage-Gate
process helps control organizational budgets by reducing costs and waste, also
increases the time-to market speed of new products, and weeds out weak projects and
ideas. When the Stage-Gate process is used to develop new or redesign existing
products and services, the chance of the products being successful increases. The
extreme competitiveness of the hospitality and tourism industry forces organizations
to work harder to add value to services and products. They must work harder to
communicate with customers, to maintain business relationships, and to sell additional
products and services.