New Product

Development
What is a New Product?
Any product perceived by the
customer as being new...it could
involve…
 Repositioning of existing products
 Offering the existing products at low
prices
 Making improvements in the existing
product
 Adding new product items to the existing
product line
 Taking up a product line which is totally
new to the organization/new to the world.
Only 10% of the new products,
arising out of technological
breakthroughs, can really be termed
as “New”, as they are the ones which
the market is not exposed.
Factors contributing to new
product development…
 Internal Factor: Surplus Capacity of a
firm.
 External Factors:
 Changing customer preferences
 Technological changes
 Government Policy
New Product Development Strategy

 Customers want and expect the new and

improved products that competition will do
its best to provide. A company can obtain
new products in two ways.
 One is through acquisition—buying a whole
new company, patent or licence to produce
someone else’s product.
 The other is through new product
development—development of original
products, product modifications and new
brands through the company’s own R&D
efforts.
New Product Development
 NPD is a process which is designed to
develop, test and consider the viability
of products which are new to the market
in order to ensure the growth or survival
of the organization.
New Product Development (NPD)
Process
Marketing Business
Strategy Analysis

Concept Product
Development Development
and Testing

Idea Test
Screening Marketing

Idea Commercialisation
Generation
Idea Generation

New product development

starts with idea
generation, the systematic
search for new product
ideas. To obtain a flow of
new product ideas, the
company can tap many
idea sources including:
Internal sources
Customers
Competitors
 Distributors and suppliers
 Other sources
 Idea Screening
 The purpose of idea generation is to create a large
number of ideas. The purpose of the succeeding
stages is to reduce that number.
 The first ideas-reducing stage is idea screening, in
order to spot good ideas and drop poor ones as soon as
possible. While screening the ideas, firms might
commit two types of errors:
 ‘Drop error’- A drop error occurs when a company
dismisses an otherwise good idea because of lack of
vision of its potentialities. If companies make too many
drop error then its standards are obviously too
conservative.
 ‘Go error’- A go error occurs when the company lets a
poor idea to proceed to development and
commercialization stages.
 Concept Development and Testing
 Attractive ideas must be refined into testable
product concepts.
 It is important to distinguish between a
product idea, a product concept and a product
image.
 Product idea- is a possible product that the
company might offer to the market.
 Ex- A large food processing company gets the
idea of producing a powder to add to milk
to increase nutritional value and taste. This
is a product idea, but consumers don’t buy
product ideas; they buy product concepts.
 Product concept- is an elaborated version of the idea
expressed in consumer terms.
 Product image- what image consumer derive out of the
product

A product idea can be turned into several concepts.

 The first question is : Who will use this product?
 The second is : What primary benefit should this product
provide
 Third : When people will consume this drink?

By answering these questions, a company can form several

concepts-

Concept 1- An instant breakfast drink for adults who want quick

nutritious breakfast without preparation.
Concept 2- A tasty snack for children to drink as a midday
refreshment.
Concept 3- A health supplement for older adults to drink in the late
evening before they go to bed.
 Contd…
A product idea can be turned into several concepts.
 The first question is : Who will use this product?
 The second is : What primary benefit should this product provide
 Third : When people will consume this drink?

By answering these questions, a company can form several concepts-

Concept 1- An instant breakfast drink for adults who want quick

nutritious breakfast without preparation.
Concept 2- A tasty snack for children to drink as a midday
refreshment.
Concept 3- A health supplement for older adults to drink in the late
evening before they go to bed.
 Once the concept is decided the next task is to show where the
powered product would stand in relationship to other breakfast
products.
 Perpetual maps are a visual way to display consumer perceptions
and preferences.
Concept Development and Testing
(contd…)
 Concept testing means presenting the product
concept, symbolically or physically, to target
consumers and getting their reactions. The more the
tested concept resembles the final product or
experience , the more dependable concept testing is.

 Concept testing of prototypes can help avoid

mistakes, but it is challenging for new innovations.

 These days companies use rapid prototyping to design

products on computers, and then produce rough
models of each to show potential consumers for their
reactions.
 Marketing Strategy Development
 After a concept has been chosen, the next step is
marketing strategy development - designing an initial
marketing strategy for a new product based on the product
concept.
 The marketing strategy statement consists of three parts:
 The first part describes the target market, the
planned product positioning, and the sales, market-
share and profit goals for the first few years.
 The second part of the marketing strategy
statement outlines the product’s planned price,
distribution and marketing budget for the first year.
 The third part of the marketing strategy statement
describes the planned long-run sales, profit goals
and marketing mix strategy.
 Business Analysis
 At this stage the management evaluates the
business attractiveness of the proposal.
 Business analysis involves a review of the
sales, costs and profit projections for a new
product to find out whether these factors
satisfy the company’s objectives.
 To estimate the sales, the company should
look at the sales history of similar product
and should survey market opinion.
 The costs are estimated by the R&D,
manufacturing, accounting and finance
departments
Total Sales Estimation:
It is the sum of the estimated first time sales,
replacement sales and repeat sales.
For estimating a new product’s sales, the first
time purchases of the new product are estimated.

Estimating Costs & Profits:

Financial tools used for estimating the profitability of
the new product are:
1.Break-Even analysis: estimates the no. of units
of a product a company would have to sell to
break even with the given price and cost
structure.
2.Risk analysis: a computer simulates possible
outcomes & computes a rate of return probability
distribution, which shows the range of possible
rate of returns and their probabilities.
 Product Development
 At this stage technical analysis is conducted
to know whether the product can be produced
at costs low enough to make the final price
attractive to the customers.
 A product protocol is prepared which is a
detailed document which involves all the
information related to market specifications
and expectations from the product.
 A product moves through a no. of stages like
design, construction, testing and refinement
etc. during product development.
 Contd…Product Use Testing
 Product testing is carried out to test the
functionality of the prototype and the final
product.
 Types of product testing methods:

Alpha testing- a group of target audience is

selected from the employees of the
company. It is less expensive.
Beta testing- carried out at the customer
site.
Gamma testing- carried out on a long-term
basis, where the customer uses the product
extensively. Often used in pharmaceutical
industry .
Test Marketing
 Test marketing is the stage at which the
product and marketing programs are
introduced into more realistic settings
 Test marketing lets the marketer get
experience with marketing the product,
finding potential problems and learning
where more information is needed before
going to the great expense of full
introduction
Commercialization
Test marketing gives management the
information needed to make a final decision
about whether to launch the new product.
If the company goes ahead with
commercialization—introducing the new
product into the market—it will face high
costs.
Activity considerations The company
launching a new product must make four
decisions: when, where, to whom and how.
Consumer- Adoption Process
The Buyer Decision Process for
New Products
An Innovation is a good, service or idea
that is perceived by some potential
customers as new.
The Adoption process is the mental process
through which an individual passes from
first learning about an innovation to final
adoption.
The Diffusion is the process by which the
acceptance of an innovation is spread by
communication to members of the social
systems.
 Stages in the Adoption
Process
1. Awareness: the consumer becomes aware
but lacks information about the product.
2. Interest: the consumer seeks information
about the new product.
3. Evaluation: the consumer considers the
new product.
4. Trial: the consumer trials on a small scale
to estimate value.
5. Adoption: the consumer decides to make
full and regular use of the product.
 Categories of New Product
Adopters
Everett Rogers has classified the new
product adopters into five categories based
on the relative time taken for adoption:
Innovators: Consumption pioneers,
technology enthusiasts, venturesome but
volume-wise small in size
Early Adopters: Opinion leaders, members
are venturesome in nature but a sizeable
segment
Contd..
Early Majority: Positive in approach to try
out the new product.
Late Majority: Skeptical in their approach
to new things and try them only after a lot
of people around them have adopted it.
Laggards: Tradition-bound, try out a new thing
after it becomes a known and accepted in the
market.
Time of Adoption of Innovation
Influence of Product Characteristics
on Rate of Adoption
Relative advantage: the degree to which an
innovation appears superior.
Compatibility: the degree to which an
innovation fits the values and experiences of
the potential customer.
Complexity: the degree to which an innovation
is easy to understand.
Divisibility: the degree to which an innovation
may be tried on a limited basis.
Communicability: the degree to which using
the innovation can be observed or described
to others.