MANAGEMENT OF NEW PRODUCT

Chapter 3
DEVELOPMENT PROCESS
WHY COMPANIES LAUNCH NEW PRODUCTS?
 Choice of Strategy
 Organizational Issues
 Philosophy of Innovation
 Handling Risk
CATEGORIES OF NEW PRODUCTS

New to the World

Additions

Improvements

Repositionings

Cost reductions
New products range from new-to-the-world products that create an entirely
new market to minor improvements or revisions of existing products. Most
new-product activity is devoted to improving existing products.
Some of the most successful recent new consumer products have been brand
extensions:
a) Colgate-Palmolive in India has different variants of the Colgate
toothpaste brand, Colgate toothbrushes, mouth wash, and other oral
hygiene products.
b) At Sony, modifications of established products account for over 80
percent of new-product activity. It is increasingly difficult to identify
blockbuster products that will transform a market, but continuous
innovation can force competitors to play catch-up and also broaden the
brand meaning.
ROLE OF NEW PRODUCT DEVELOPMENT PROCESS IN
AN ORGANIZATION
New product development process (NPDP) Ensures that the product-mix
matches to the changing environmental conditions and product
obsolescence can be avoided.
NPDP enables the marketer to compete in new and emerging market
segments.
NPDP reduces marketer’s dependence on particular elements of a product
range or on a vulnerable market segments.
NPDP helps in filling excess capacity.
NPDP helps in achieving greater long-term growth and profit.
NEW PRODUCT DEVELOPMENT PROCESS:
1. Idea generation: Searches for product ideas that meet company objectives.
2. Idea Screening: Comprises of an initial analysis to determine which ideas
are pertinent and merit more detailed study.
3. Concept development & Testing:
4. Marketing strategy development:
5. Business Analysis: Further evaluates the ideas on the basis of quantitative
factors, such as profits, Return-on-investment (ROI), and sales volume.
6. Product Development: Turns an idea on paper into a product that is
demonstrable and producible.
7. Market Testing: Conducts commercial experiments necessary to verify
earlier business judgments.
8. Commercialization: Launches products.
STEP 1: GENERATING IDEAS

1. Interacting with employees

2. Interacting with outsiders
3. Studying competitors
4. Adopting creativity techniques
STEP 2: IDEA SCREENING
 Overall Probability Probability of Probability of
Probability = of technical X commercialization X economic
of Success completion given technical success given
completion commercialization
STEP 3: CONCEPT DEVELOPMENT & TESTING

Concept testing means presenting the product concept to target

consumers, physically or symbolically, and getting their reactions.
1. Communicability and believability—“Are the benefits clear to
you and believable?” If the scores are low, the concept must be
refined or revised.
2. Need level—“Do you see this product solving a problem or
filling a need for you?” The stronger the need, the higher the
expected consumer interest.
3. Gap level—“Do other products currently meet this need and
satisfy you?” The greater the gap, the higher the expected
consumer interest. Marketers can multiply the need level by the
gap level to produce a need-gap score.
4. Perceived value—“Is the price reasonable in relationship to
value?” The higher the perceived value, the higher is expected
consumer interest.

5. Purchase intention—Would you (definitely, probably, probably

not, definitely not) buy the product? Consumers who answered the
first three questions positively should answer “Definitely” here.

6. User targets, purchase occasions, purchasing frequency —

Who would use this product, when, and how often?
STEP 4: MARKETING STRATEGY DEVELOPMENT
It follows a successful concept test
1. Target market’s size, structure, & behavior; the planned brand
positioning; the sales, market share & profit goals in first few
years
2. Planned price, distribution strategy, and marketing budget for
the first year
3. Long-run sales & profit goals and marketing-mix strategy over
time
STEP 5: BUSINESS ANALYSIS
• Aims to finding out whether the new product if taken to its ultimate
end will be a profitable business proposition or not.

• After management develops the product concept and marketing

strategy, it can evaluate the proposal’s business attractiveness.
Management needs to prepare sales, cost, and profit projections to
determine whether they satisfy company objectives. If they do, the
concept can move to the development stage.

• Total estimated sales are the sum of estimated first-time sales,

replacement sales, and repeat sales. Sales-estimation methods
depend on whether the product is purchased once (such as an
engagement ring or retirement home), infrequently, or often.
STEPS 6 TO 7: DEVELOPMENT TO COMMERCIALIZATION

 Product development
• Physical prototypes
• Customer tests: alpha & beta testing

 Market testing
• Consumer-goods market testing: seek to estimate four
variables: trial, first repeat, adoption, and purchase
frequency
• Business-goods market testing
PROTOTYPE TESTING
The goal of the R&D department is to find a prototype that embodies the key
attributes in the product-concept statement, performs safely under normal
use and conditions, and can be produced within budgeted manufacturing
costs. When the prototypes are ready, they must be put through rigorous
functional and customer tests before they enter the marketplace.
• Alpha testing tests the product within the firm to see how it performs in
different applications.
• After refining the prototype further, the company moves to beta testing with
customers.
• After management is satisfied with functional and psychological
performance, the product is ready to be branded with a name, logo, and
packaging and go into a market test.
TEST MARKETING
A controlled experiment is conducted in a limited but carefully selected
marketplace.
Two major objectives and occasionally a third one: –
 Evaluation of performance of the new product and alternative marketing
strategies.
 To serve as a pilot operation to give experience to sales, product
managers and channel members as well as unearthing potential
problems with product and implementation process.
 In case of very costly products, to demonstrate the ‘success’ to
apprehensive customers.
TEST MARKET DECISIONS

 How many test cities?

 Which cities?
 Length of test?
 What information to collect?
 What action to take?
LIMITATIONS OF TEST MARKETING
Test Market Limitations
Can the outcomes of the test market be projected to the national market?
Can a local plan be projected at national level?
There is a risk of revealing the plans to competitors.
High cost competitions of test marketing.
STEP 8: TIME OF MARKET ENTRY-COMMERCIALIZATION

Commercialization incurs the company’s highest costs to date.

The firm will need to contract for manufacture or build or rent a
full-scale manufacturing facility.

Suppose a company has almost completed the development work

on its new product and learns a competitor is nearing the end of
its development work. The company must decide whether to
enter first, parallel, or late.
When to Introduce the Product (timing)?
• First entry firms enjoy a first mover advantage.
• Parallel entry is timed with the competitors’ entry.
• Late entry can benefit from seeing how the competition fares.

Where to Introduce the Product (Geographical Distribution)?

To whom to Target the Product (Target Market Prospects)?

How to Introduce the product in the Market (Introductory Marketing

Strategy)?
REASONS FOR NEW PRODUCTS FAILURES:

Over Estimation
of Market Size

Poor Product Design

Incorrect Positioning
High Pricing

Ineffective
Advertising