PRODUCT DECISIONS

NEW PRODUCT
DEVELOPMENT
 8.1.4 New Product
Development
8.1.4.1 Learning Objectives
• To perceive and evaluate the distinctive stages
of developing and launching new products.
• To appreciate the importance of careful
management and planning at each stage.
• To appreciate how the tools, techniques and
concepts of new product development, ranging
from the techniques of creativity through to the
concepts of innovation and diffusion, can help in
new product development.
 8.1.4.2 The Need for
Innovation
• A firm must develop and launch products to survive
and prosper.
• Even when products are still in early stages of the
PLC, a firm may find that new, additional products
will promote sales & profit.
• However, innovation involves high risks which can
lead to company bankruptcy because the process
can be very expensive.
• The bulk of all new product ideas fail commercially
for a variety of reasons some of which are given
below.
The Need for Innovation (Cont.)
• Some of the more important reasons for
product failure include:
a) Inadequate demand
b) Poor Marketing
c) Inability to fit production capacity
d) Inadequate finance
e) Lack of management time
f) Lack of research
8.1.4.3 The New Product Development
Process
Kotler (2004) lists 8 stages as follows:
1. Idea generation;
2. Idea screening;
3. Concept development and testing;
4. Marketing strategy development;
5. Business analysis;
6. Product development;
7. Market testing;
8. Commercialisation.
 Development Process (Cont.)
1. Idea Generation
(a) Sources of ideas
• Customers-market pull. Research shows that
these stand a greater chance of success.
• Product Development Section-technology
push. These frequently fail in the market.
• Salesforce. Potentially valuable source.
• Competitors. Seems strange at first sight.
Careful scrutiny of competitor activity may
indicate a gap in the market.
 Idea Generation (Cont.)

(b) Creating New Ideas

An effective ‘scanning’ process which gets
ideas from the widest range of sources
possible, e.g. customers, middle
managers, competitors, management, etc.

Kotler tends to neglect the rich potential for

ideas from employees other than top
management.
 Idea Generation (Cont.)

(c)Ideas and Corporate Objectives

• It is increasingly, the quality rather than the quantity which is
important.
• The ideas need to be relevant to overall corporate objectives
and strategies.
• This means the firm must state:
Goals of the new product development;
Product/market areas for the new products;
Corporate objectives towards which the new products will
contribute.
 Idea Generation (Cont.)

(d) Screening Against the Market Need.

After generating ideas it vital they are
assessed:
• With respect to which they will meet a
clearly defined market need, and also
• The extent to which this need represents a
profitable marketing opportunity.
 New Product Development Process (Cont.)
(2) Idea/Product Screening
• This is the second stage which is aimed at preliminarily
assessing ideas to decide which should be dropped and which
should be retained for further development.
(a) “Drop-errors” and “Go-errors”
This is one of the most important stages. Kotler suggests a pre-
specified criteria.
(b) Screening Techniques
• Criteria Check Lists: Corporate objectives; Marketing criteria;
Financial criteria; and Production criteria. Each of these broad
areas is broken down into sub-criteria for evaluation.
• Profiting or Merit Number Systems. This uses a profiting
system, or merit number system which results in a quantitative
appraisal of ideas.
 Idea/Product Screening (Cont.)

(c) Benefits of Formal Screening.

• These formal systems force assumptions
(and prejudices, vested interests, etc)
about new products into the open.

• They also induce systematic and more

objective appraisal of new product ideas.
 Idea/Product Screening (Cont.)

(d) Screening is a process, Not an Event

• Though discussed as the second stage,

screening effectively takes place
throughout the development process.
• It go goes right up to (and after) launch.
• The idea of preliminary screening is to
spot “no win” products early, before
development resources are wasted.
 Idea/Product Screening (Cont.)

(e) Screening Requires a Team Effort.

• Effective screening requires the
consideration of a wide number of criteria.
• It is important therefore to have a wide
range of viewpoints and skills from
different functions.
• Analysis of past failures points to over-
enthusiasm of either R&D and/or
Marketing as a prime cause of “Go-errors”.
 Development Process (Cont.)
(3) Concept Testing and Marketing Strategy Development
These two stages are closely related.
3.1 “Product Idea” and “Product Concept”.
Idea: to produce a powder to add to milk to increase
nutritional value (we do not buy ideas)
This idea can be translated into a wide variety of product
concepts and eventual product uses:
(a) An instant breakfast drink for adults
(b) A tasty snack drink for children
(c) A health supplement for older adults
At this stage, no physical product will probably exist, we are
often testing concept statements.
 Product Concept (Cont.)
The concept can be tested-most importantly-positioned against
competition.
Concept testing can be used:
• To identify sure users.
• To obtain estimates of market sales.
• To develop suitable marketing strategies.
The following suggested during concept testing:
• pictures of the proposed product;
• a description of the product in use;
• a mock-up;
• a prototype; and ad material.
The testing is more dependable the more the concepts resemble
the final product/experience.
Concept Testing/Mktg Strategy (Cont.)

3.2 Marketing Strategy Development.

Results from the concept test can be used to
develop preliminary marketing objectives:
• Market targets
• Product positioning strategies
• Preliminary marketing mix decisions
• Preliminary estimates of sales, costs and profits.
If product satisfactorily passes these stages, then
we can move to the next stages of development.
 Development Process (Cont.)
(4) Business Analysis, Product Development and Market
Testing

4.1 Business Analysis.

Like screening, it is a process and not an event. It
requires estimates to be made in three areas:
• Sales. (likely total mkt potential; company demand; and
time scales, i.e pattern of sales.
• Costs. All costs and timing of costs.
• Margins, Profits, Return on Investment and Cash Flow
 Development Process (Cont.)

4.2 Product Development

• If business analysis points to a favourable
decision, the next stage is product development.
• Investment will now rise substantially.
• Once a physical product, e.g. a prototype, has
been developed, further testing, both technical
and consumer, should be done.
• Even at this stage an objective and critical view
needs to be taken about further investment in
the product.
 Development Process (Cont.)
4.3 Market Testing
• The penultimate stage before full-scale
commercialisation and launch is market testing
(covered in full in the next lecture).
• Full-scale test marketing is, however, only one
possibility.
• Increasingly, companies are looking to cut costs
(and time-scale) of market testing by using
laboratory tests or controlled test marketing.
• In industrial product markets, product-user tests
and/or dealer tests are more common.
 Development Process (Cont.)
5. Commercialisation
• The final stage is “commercialisation”, or
bringing product to market.
• Although previous stages should have reduced
risks, the stakes are now higher.
• As a consequence, even more care and
planning is required if the product is to succeed.
• Many otherwise successful products fail
because of an inadequately managed launch
phase.
 Commercialisation (Cont.)
5.1 Factors to Consider:
• When to Launch. Timing is critical; not too early and not
too late.
• Where to Launch. Geographical consideration. Critical to
this decision is the existence or absence of competition.
• How to Launch.
Detailed plan of attack will cover sales forecasts, budgets,
resources, and timing.
• At whom to Launch (Target Market Prospects).We need
to consider this aspect now, although Kotler places it
before “how to launch”. First,we need to have an
appreciation of the concepts of diffusion and innovation.
 Commercialisation (Cont.)
(a) Adoption
• The “adoption process” refers to the stages of: awareness;
interest; evaluation; trial and purchase that every prospect
for a new product has to pass through in a consumer’s
perceptions.
• All these have implications when we aim our initial
marketing and-more importantly-what we say or stress in
our marketing communications.
• Of interest and relevance to the new product market are
“innovators” and “early adopter categories” because by
definition these are the first to adopt new products and so
represent prime target markets.
 Commercialisation (Cont.)
(b) Diffusion
• This relates to the speed and extent of take-up of a new
product.
• Five product characteristics tend to favour a more rapid and
extensive adoption process:
1. Relative Advantage-the greater the perceived advantage the
faster the diffusion.
2. Compatibility-with existing life styles, uses.
3. Complexity-the more complex the slower
4. Divisibility-ability of product to be tried or used on limited scale
before full use, the faster.
5. Communicability- the easier for features or advantages to be
demonstrated or communicated, the faster the rate of diffusion.
END