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New Product Development
Every company, regardless of size, must research and create new products to maintain or build
sales. Why? Customers want new products and choices, and competitors will be doing their best
to supply them. Over 16,000 new products (including line extensions and new brands) arrive on
grocery and drugstore shelves every year, having their way through the new product development
process from bright idea to testing to commercialization.
Types of New Products
Even though thousands of products are offered for the first time each year, less than 10 percent
are entirely new and innovative. Booz, Allen & Hamilton has identified six categories of new
products:
1. New-to-the-world products: New, innovative products that create an entirely new market,
such as the Palm Pilot handheld computerized organizer.
2. New product lines: New products that allow a company to enter an established market for the
first time, such as Fuji’s brand of disks for Zip drives.
3. Additions to existing product lines: New products that supplement a company’s established
product lines (package sizes, flavors, and so on), such as Introduction of Love & Care detergent
by HUL.
4. Improvements and revisions of existing products: New products that provide improved
performance or greater perceived value and replace existing products, such as Microsoft Office
2000.
5. Repositionings: Existing products that are targeted to new markets or market segments, such
as repositioning Johnson & Johnson’s Baby Shampoo for adults as well as youngsters.
6. Cost reductions: New products that provide similar performance at lower cost, such as Intel’s
Celeron chip.
Why do we need new products?
1. New products needed for faster, larger & sustained growth.
2. New products reflect the value game.
3. New products required for new profit.
4. New products required for meeting changing customer needs.
5. New products required to beat competition.
6. New products are required for combating environmental & technological changes.
New Product Development Stages
The process of developing new products spans eight stages, each with a particular set of marketing
challenges and questions to answer . If the company cannot answer “yes” to the key question at
each of the first six stages, the new product will be dropped; in the final two stages, the company
has the option of further development or modification rather than immediately dropping the new
product. This section covers the stages from idea to strategy and analysis; the following section
covers the stages from product development through market testing and commercialization.
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1. Idea Generation
The marketing concept holds that customer needs and wants are the logical place to start the search
for new product ideas. Hippel has shown that the highest percentage of ideas for new industrial
products originates with customers. Many of the best ideas come from asking customers to describe
their problems with current products. For instance, in an attempt to grab a foothold in steel wool
soap pads, 3M organized consumer focus groups and asked about problems with these products.
The most frequent complaint was that the pads scratched expensive cookware. This finding
produced the idea for the highly successful Scotch-Brite Never Scratch soap pad. The common
sources of Idea generation are –
⚫ Customer
⚫ Employees
⚫ Dealers
⚫ Market Research People
⚫ R & D People
⚫ Competitors
2. Idea Screening
Once the firm has collected a number of new product ideas, the next step is to screen out the weaker
ideas, because product-development costs rise substantially with each successive development
stage. Most companies require new-product ideas to be described on a standard form that can be
reviewed by a new-product committee.
3. Concept Development & Testing
A product idea is a possible product the company might offer to the market. In contrast, a product
concept is an elaborated version of the idea expressed in meaningful consumer terms. A product
idea can be turned into several concepts by asking: Who will use this product? What primary benefit
should this product provide? When will people consume or use this product? By answering such
questions, a company can often form several product concepts, select the single most promising
concept, and create a product-positioning map for it.
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Figure shows the positioning of a product concept, a low-cost instant breakfast drink, compared to
other breakfast foods already on the market. Next, the product concept has to be turned into a brand
concept. To transform the concept of a low-cost instant breakfast drink into a brand concept, the
company must decide how much to charge and how calorific to make its drink.
Brand-positioning map reflects the positions of three instant breakfast drink brands. The gaps on
this map indicate that the new brand concept would have to be distinctive in the medium-price,
medium-calorie market or the high-price, high-calorie market.
Concept Testing
Concept testing involves presenting the product concept to appropriate target consumers and
getting their reactions. The concepts can be presented symbolically or physically. However, the
more the tested concepts resemble the final product or experience, the more dependable concept
testing is. In the past, creating physical prototypes was costly and time-consuming, but computer-
aided design and manufacturing programs have changed that. Today firms can design a number of
prototypes via computer and then create plastic models to obtain feedback from potential
consumers. Companies are also using virtual reality to test product concepts.
4. Marketing Strategy Development
After testing and selecting a product concept for development, the new-product manager must draft
a three-part preliminary marketing-strategy plan for introducing the new product into the market.
The first part will describe the target market’s size, structure, and behavior; the planned product
positioning; and the sales, market share, and profit goals sought in the first few years. The second
part will outline the planned price, distribution strategy, and marketing budget for the first year.
The third part will describe the long-run sales and profit goals and marketing-mix strategy over
time.
5. Business Analysis
In this stage, the company evaluates the proposed new product’s business attractiveness by
preparing sales, cost, and profit projections to determine whether these satisfy company objectives.
If they do, the product concept can move to the product-development stage.
Estimating Total Sales
First, management needs to estimate whether sales will be high enough to yield a satisfactory
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profit. Total estimated sales are the sum of estimated first-time sales, replacement sales, and
repeat sales.
Estimating Costs and Profits
After preparing the sales forecast, management should analyze expected costs and profits based on
estimates prepared by the R&D, manufacturing, marketing, and finance departments. Companies
can also use other financial measures to evaluate new-product proposals. The simplest is break-
even analysis, in which management estimates how many units of the product the company will
have to sell to break even with the given price and cost structure. The most complex method of
estimating profit is risk analysis.
6. Product Development
The job of translating target customer requirements into a working prototype is helped by a set of
methods known as quality function deployment (QFD). This methodology takes the list of desired
customer attributes (CAs) generated by market research and turns them into a list of engineering
attributes (EAs) that the engineers can use. For, example, customers of a proposed truck may want
a certain acceleration rate (CA). Engineers turn this into the required horsepower and other
engineering equivalents (EAs).
When the prototypes are ready, they are put through rigorous functional tests and customer tests.
Alpha testing means testing the product within the firm to see how it performs in different
applications. After refining the prototype further, the company moves to beta testing, enlisting
customers to use the prototype and give feedback on their experiences.
7. Market Testing
After management is satisfied with functional and psychological performance, the product is ready
to be dressed up with a brand name and packaging, and put to a market test. The new product is
now introduced into an authentic setting to learn how large the market is and how consumers and
dealers react to handling, using, and repurchasing the product.
Consumer-Goods Market Testing
In testing consumer products, the company seeks to estimate four variables: trial, first repeat
purchase, adoption, and purchase frequency.
The major methods of consumer-goods market testing, from the least to the most costly, are:
➤ Sales-wave research. Consumers who initially try the product at no cost are reoffered the
product, or a competitor’s product, at slightly reduced prices, as many as three to five times (sales
waves). The company notes how many customers select its product again and their reported level
of satisfaction.
➤ Simulated test marketing. Up to 40 qualified buyers first answer questions about brand
familiarity and product preferences. These buyers are invited to look at commercials or print ads,
including one for the new product, then they are given money and brought into a store where they
can make purchases. The company notes how many people buy the new brand and competing
brands as a test of the ad’s relative effectiveness against competing ads in simulating trial.
Consumers are also asked why they bought or did not buy; non-buyers receive a free sample of the
new product and are re-interviewed later to determine product attitudes, usage, satisfaction, and
repurchase intention.
➤ Controlled test marketing. A research firm manages a panel of stores that will carry new
products for a fee. The company with the new product specifies the number of stores and
geographic locations it wants to test. The research firm delivers the product to the participating
stores and controls shelf position; number of facings, displays, and point-of-purchase promotions;
and pricing. Sales results can be measured through electronic scanners at the checkout. The
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company can also evaluate the impact of local advertising and promotions during this test.
➤ Test markets. When full-blown, the company chooses a few representative cities, the sales force
tries to sell the trade on carrying the product and giving it good exposure, and the company
unleashes a full advertising and promotion campaign in these markets. Here, marketers must decide
on the number and location of test cities, length of the test, what to track, and what action to take.
Today, many firms are skipping extended test marketing and relying instead on faster and more
economical market-testing methods, such as smaller test areas and shorter test periods.
8. Commercialization
If the company goes ahead with commercialization, it will face its largest costs to date. The
company will have to contract for manufacture or build or rent a full-scale manufacturing facility.
In addition to promotional decisions, other major decisions during this stage include:
➤ When (timing). Marketing timing is critical. If a firm learns that a competitor is nearing the end
of its development work, it can choose: first entry (being first to market, locking up key distributors
and customers, and gaining reputational leadership; however, if the product is not thoroughly
debugged, it can acquire a flawed image); parallel entry (launching at the same time as a rival may
gain both products more attention from the market); or late entry (waiting until after a competitor
has entered lets the competitor bear the cost of educating the market and may reveal problems to
avoid).
➤ Where (geographic strategy). The company must decide whether to launch the new product in
a single locality, a region, several regions, the national market, or the international market. Smaller
companies often select one city for a blitz campaign, entering other cities one at a time; in contrast,
large companies usually launch within a whole region and then move to the next region, although
companies with national distribution generally launch new models nationally.
➤ To whom (target-market prospects). Within the rollout markets, the company must target its
initial distribution and promotion to the best prospect groups. Presumably, the company has
already profiled the prime prospects—who would ideally be early adopters, heavy users, and
opinion leaders who are able to be reached at a low cost.
➤ How (introductory market strategy). The company must develop an action plan for introducing
the new product into the rollout markets. To coordinate the many activities involved in launching
a new product, management can use network planning techniques such as critical path scheduling
(CPS), which uses a master chart to show the simultaneous and sequential activities that must take
place to launch the product.
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THE CONSUMER ADOPTION PROCESS
Adoption is an individual’s decision to become a regular user of a product. How do potential
customers learn about new products, try them, and adopt or reject them? The theory of innovation
diffusion and consumer adoption helps marketers to identify and target early adopters—people
who adopt products before the majority of consumers in the market.
Innovations take time to spread through the social system. Rogers defines the innovation diffusion
process as “the spread of a new idea from its source of invention or creation to its ultimate users
or adopters.”18 The consumer-adoption process focuses on the mental process through which an
individual passes from first hearing about an innovation to final adoption.
Adopters of new products have been observed to move through five stages:
(1) Awareness (consumer becomes aware of the innovation but has no information about it);
(2) Interest (consumer is stimulated to seek information about the innovation);
(3) Evaluation (consumer considers whether to try the innovation);
(4) Trial (consumer tries the innovation to estimate its value; and
(5) Adoption (consumer decides to make full and regular use of the innovation).
Factors Influencing the Adoption Process
Five characteristics influence the rate of adoption of an innovation: (1) relative advantage—the
degree to which the innovation appears superior to existing products; (2) compatibility—the
degree to which the innovation matches the values and experiences of the individuals; (3)
complexity—the degree to which the innovation is relatively difficult to understand or use; (4)
divisibility—the degree to which the innovation can be tried on a limited basis; and (5)
communicability—the degree to which the beneficial results of use are observable or describable
to others. The new-product marketer has to research and consider all of these factors in designing
the new product and its marketing program.
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Categories of Innovation Adopters
According to Rogers, not everyone has the same motivation for adopting a new idea. He
identifies the following five types of adopters:
Innovators Innovators are
the first customers to try a new product. They are, by nature, risk takers and are excited by the
possibilities of new ideas and new ways of doing things. Products tend to be more expensive at
their point of release (though some products do defy this trend) and as such innovators are
generally wealthier than other types of adopters.
Early Adopters
Early adopters are the second phase of product purchasers following innovators. These tend to be
the most influential people within any market space and they will often have a degree of “thought
leadership” for other potential adopters. They may be very active in social media and often create
reviews and other materials around new products that they strongly like or dislike.
Early Majority
As a product begins to have mass-market appeal, the next class of adopter to arrive is the early
majority. This class of adopter is reasonably risk averse and wants to be sure that their, often more
limited, resources are spent wisely on products. They are however, generally, people with better
than average social status and while not thought leaders in their own right – they will often be in
contact with thought leaders and use the opinions of these thought leaders when making their
adoption decisions.
Late Majority
The late majority is rather more skeptical about product adoption than the first three classes of
adopters. They tend to put their resources towards tried and tested solutions only and are risk averse.
As you might expect, in general terms, this category of adopter has less money, lower social status,
and less interaction with thought leaders and innovators than the other groups of adopters.
Laggards
Laggards are last to arrive at the adoption party and their arrival is typically a sign that a product
is entering decline. Laggards value traditional methods of doing things and highly averse to change
and risk. Typically laggards will have low socio-economic status and rarely seek opinions outside
of their own limited social set. However, it is worth noting that in many cases laggards are older
people who are less familiar with technology than younger generations and in these cases they may
still have a mid-level of socio-economic status.
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Product Failure
Many new product ideas do not reach market at all. Many among those that manage to reach market
fail in the market place. Even many successful products die out after initial boom.
Reasons for failure
1. Faulty Product Idea
2. Failure to understand consumers’ needs and wants
3. The innovation amounting to mere tinkering
4. Fixing a Non-Existent Problem
5. Distribution related problems
6. Inappropriate pricing
7. Ineffective marketing strategy & communication
8. Wrong timing in entering the market
9. Time to market becomes unduly long
Example of a Product Failure
Nestle launched Paloma Iced Tea in India in the 1980’s. It is assumed that as India is a tea drinking
country with a hot climate, iced tea would be a winner. But the product did not take off. Indians
preferred tea as a hot drink. You can see Indians are having a hot cup of tea even in the middle of
the summer season. They did not accept the concept of tea as a cold drink. The café culture was
not so popular in India at that time.