CHAPTER ONE: NEW PRODUCTS DEVELOPMENT

1.1. Definition of new products

 A new product is a product that opens up an entirely new market,
replaces an existing product, or significantly broadens the market for an
existing product.
 A new product can be defined as: ―A good, service or idea that is
―perceived‖ by some potential customers as new.
 ―New Product Development is a business and engineering term which
describes the complete process of bringing a new product to market‖.
 It is the development of original products, product improvements,
product modifications, and new brands through the firm’s own product
development efforts.
 New products are important—to both customers and the marketers who
serve them. For customers, they bring new solutions and variety to their
lives.
 For companies, new products are a key source of growth.
 1.2 Types Of New Product Categorization

 Even though thousands of products are offered for the

first time each year, less than 10 percent are entirely
new and innovative.
 The term new product is somewhat confusing because
its meaning varies widely.
 Actually, the term has several ―correct‖ definitions.
 A product can be new
 to the world,
 to the market,
 to the producer or seller,
 or to some combination of these.
 THERE ARE SIX CATEGORIES OF NEW PRODUCTS:
1. New -to-the –world products: -New, innovative products that create an entirely new
market.
 New-to-the-world products represent the smallest category of new products.
2. New product lines: -These products, which the firm has not previously offered, allow it
to enter new or established markets.
3. Additions to existing product lines: - new products that supplement a company's
established product lines (package sizes, flavors and etc.).
4. Improvements and revisions of existing products: - new products that provide
improved performance or greater perceived value and replace existing products.
5. Repositioning: - existing products that are targeted to new markets or market segments.
6. Cost reductions: - new products that provide similar performance at lower cost.
 The new-to-the-world category involves the greatest cost and risk because these
products are new to both the company and the marketplace,
 so positive customer response is far from certain. That’s why most new-product
activities are improvements on existing products.
 1.3 Organizing New-Product Development
Companies handle the organizational aspect of new-product development in several ways.
The most common are:
Product managers: Many companies assign responsibility for new-product ideas to product
managers.
 In practice, this system has several faults. Product managers are so busy managing
existing lines that they give little thought to new products other than line extensions.
They also lack the specific skills and knowledge needed to develop and critique new
products.
New-product managers: Kraft and Johnson have new-product managers who report to
category managers. This position professionalizes the new-product function. However,
like product managers, new-product managers tend to think in terms of modifications
and line extensions limited to their product market.
New-product committees: Many companies have a high-level management committee
charged with reviewing and approving proposals.
New-product departments: Large companies often establish a department headed by a
manager who has substantial authority and access to top management.
 The department’s major responsibilities include generating and screening new ideas,
working with the R&D department, and carrying out field testing and
commercialization.
New-product venture teams: A venture team is a group brought
together from various operating departments and charged with
developing a specific product or business.
They are ―intrapreneurs‖ relieved of their other duties and given a
budget, a time frame, and a ―skunk works‖ setting.
Skunk works are informal workplaces, sometimes garages, where
entrepreneurial teams attempt to develop new products.
 1

1. Idea Generation
 Development process starts with the search for ideas. New
product ideas can come from interacting with others and using
creativity generating techniques.
 Idea generation is the systematic search for new product ideas.
 The objective of this stage is to obtain
 New ideas for products
 New attributes for the existing products and
 New uses of the existing products
 Major sources of new-product ideas include internal sources and
external sources such as customers, company salesman, dealers,
scientists, competitors, top management, industrial consultants,
advertising agencies, marketing research firms, industrial
publications, universities and commercial laboratories, R&D
department, focus groups, employees, or trade shows.
 2. Idea Screening
 Any company can attract good ideas by organizing itself properly.
 The company should motivate its employees to submit their ideas to an idea manager
whose name and phone number are widely circulated.
 Ideas should be written down and reviewed each week by an idea committee, which sorts
them into three groups: promising ideas, marginal ideas, and rejects.
 Each promising idea is researched by a committee member, who reports back to the
committee.
 The surviving promising ideas then move into a full-scale screening process.
 The company should reward employees submitting the best ideas.
 The purpose of screening is to drop the poor idea which is incompatible with the company
objectives.
Eliminate unsound concepts or must ask different questions:
 will the target market benefit from the product
 Is it technically feasible to manufacture the product
In screening ideas, the company must avoid two types of errors:-
DROP ERROR:-when the company dismisses promising good idea.
GO-ERROR:-When the company permits a poor idea to move into development&
commercialization.
 3. Concept Developing And Testing
 An attractive idea must be developed into a product concept. It is important to distinguish
between a product idea, a product concept, and a product image.
 A product idea is an idea for a possible product that the company can see itself offering to
the market.
 A product concept is a more refined and detailed version of a product idea.
 It is a detailed version of the idea stated in meaningful consumer terms.
 A product concept provides a clearer understanding of what the product will be and how it
will meet the needs of consumers.
 A product image is the way consumers perceive an actual or potential product.
Concept development: - In this concept to measure the need, targets, purchase frequency of the
consumers, the gap level between new product & existing product in market. A product
idea can be turned into several concepts.
The first question is: Who will use this product? It can be aimed at infants, children,
teenagers, young or middle-aged adults, or older adults.
Second, is what primary benefit should this product provide: Taste, nutrition, refreshment, or
energy?
Third, when will people consume this drink: Breakfast, midmorning, lunch, mid afternoon,
dinner, late evening?
By answering these questions, a company can form several concepts
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 alternative physical products (for example,

small appliances or toys) on a computer, and then produce plastic
models of each.
 Potential consumers can view the plastic models and give their
reactions.
 Companies are also using virtual reality to test product concepts.
  The new product ideas which survive in screening are then
pursued further through concept testing.
The major objectives of concept testing are:
 To get the reaction of consumers’ views of the new product idea.
 To give direction regarding the development of the project.
 To choose the most promising concepts for development.
 To ascertain whether the product in question has adequate
potential for its commercialization
The concept test can take three different forms:
 It can be entirely verbal – A statement about what it does.
 It can be visual – in form of a photograph or drawing.
 A mockup or samples of the product may be used – this is
merely a fake product to get across the idea.
 4. MARKETING STRATEGY DEVELOPMENT:-

 After testing, the new-product manager must develop a

initial marketing-strategy plan for introducing the new product
into the market.
The plan consists of three parts.
 1st describes the target market’s size, structure, and
behavior;
 2nd the planned product positioning;
 3rd the sales, market share, and profit goals sought in the
first few years
 5. Business Analysis
 Once management has decided on its product concept and marketing strategy, it
can evaluate 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 they satisfy the company's objectives.
 If they do, the product can move to the product development stage.
 To estimate sales, the company might look at the sales history of similar
products and conduct surveys of market opinion.
 It can then estimate minimum and maximum sales to assess the range of risk.
 After preparing the sales forecast, management can estimate the expected costs
and profits for the product, including marketing, R&D, operations, accounting,
and finance costs.
 The company then uses the sales and costs figures to analyze the new product's
financial attractiveness.
 6. Product Development
 involves developing the product concept into physical product in order to ensure that
the product idea can be turned into a workable product.
 So far, for many new-product concepts, the product may have existed only as a word
description, a drawing, or perhaps a crude mock-up.
 If the product concept passes the business test, it moves into product development.
 Here, R&D or engineering develops the product concept into a physical product. The
product development step, however, now calls for a large jump in investment.
 It will show whether the product idea can be turned into a workable product.
 The R&D department will develop and test one or more physical versions of the
product concept.
 R&D hopes to design a prototype that will satisfy and excite consumers and that can be
produced quickly and at budgeted costs.
 Developing a successful prototype can take days, weeks, months, or even years. Often,
products undergo hard functional tests to make sure that they perform safely and
effectively.
 The prototype must have the required functional features and also convey the intended
psychological characteristics.
  In this stage, the company to develop product prototype so as to ascertain
whether the company has the necessary technology available or procure
the technology to manufacture product which satisfy the consumes
,business needs.
 When the prototypes are ready, they must be put through hard functional
tests and customer tests.
 Alpha testing is the name given to 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.
 It enlists a set of customers to use the prototype and give feedback on
their experiences.
 Beta testing is most useful when the potential customers are
heterogeneous, the potential applications are not fully known, several
decision makers are involved in purchasing the product, and opinion
leadership from early adopters is sought.
There are two types testing:-
Alpha testing: - test within the firm.
Beta testing:-test with customer.
 7. Test market
 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 introduced into an dependable setting to learn how large the
market is and how consumers and dealers react to handling, using, and
repurchasing the product.
 Test marketing provides important clues, weakness about the product.
 In this stage where, the entire product and marketing program is tried out for the
first time in a small number of well-chosen and sales environments.
 After the concept testing and development of a new product, it is necessary to find
out whether it is going to be accepted or not in the market. This is achieved
through test marketing.
 The main objective of test marketing a new product is to reduce the commercial
risk when it is brought in the market
 Test marketing is a controlled experiment, done in a limited but carefully selected
part of the market place, whose aim is to predict the sales or profit consequences,
either in absolute or in relative terms, of one or more proposed marketing actions.
 It is essentially the use of the market place as a laboratory and of a direct sales
measurement which differentiates this test from other types of market research.
 If the product passes functional and consumer tests, the next step is test marketing, the
stages at which the product and marketing program are introduced into more realistic
market settings.
 Test marketing gives the marketer experience with marketing the product before going
to the great expense of full introduction.
 It lets the company test the product and its entire marketing program positioning
strategy, advertising, distribution, pricing, branding and packaging, and budget levels.
 The amount of test marketing needed varies with each new product.
 Test marketing costs can be huge, and it takes time that may allow competitors to gain
advantages.
 When the costs of developing and introducing the product are low, or when
management is already confident about the new product, the company may do little or
no test marketing.
 Companies often do not test market simple line extensions or copies of successful
competitor products.
 8. Commercialization
 Companies often do not test market, Test marketing gives management the
information needed to make a final decision about whether to launch the new
product or not.
 If the company goes ahead with commercialization—introducing the new
product into the market—it will face high costs.
 The company will have to build or rent a manufacturing facility.
 The company launching a new product must first decide on introduction
timing Next, the company must decide where to launch the new product—in
a single location, a region, the national market, or the international market.
 Few companies have the confidence, capital, and capacity to launch new
products into full national or international distribution.
 They will develop a planned market rollout over time. In particular, small
companies may enter attractive cities or regions one at a time.
 Larger companies, however, may quickly introduce new models into several
regions or into the full national market.
  If the product is found to be suitable as a result of analysis &study of the
result of test marketing, it is ready to be launched in the market.
In commercializing a new product, certain decisions are very crucial.
A. When (timing of market entry)
In commercializing a new product, market-entry timing is critical.
Suppose a company has almost completed the development work on its new
product and learns that a competitor is close to the end of its development
work.
The company faces three choices:
1. First entry: The first firm entering a market usually enjoys the ―first
mover advantages ―of locking up key distributors and customers and
gaining reputation a leadership.
But, if the product is quick to market before it is systematically repaired, the
product can acquire a imperfect image.
2. Parallel entry: The firm might time its entry to coincide with the
competitor’s entry. The market may pay more attention when two
companies are advertising the new product.
3. Late entry: The firm might delay its launch until after the competitor has
entered.
 The competitor will have borne the cost of educating the market.
 The competitor’s product may reveal faults the late entrant can avoid.
 The company can also learn the size of the market.
 The timing decision involves additional considerations.
 If a new product replaces an older product, the company might delay the
introduction until the old product’s stock is drawn down.
 If the product is highly seasonal, it might be delayed until the right season
arrives.
B. 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.
 Most will develop a planned market rollout over time.
 Company size is an important factor here.
 Small companies will select an attractive city and put on a blitz campaign.
They will enter other cities one at a time.
 Large companies will introduce their product into a whole region and then
move to the next region.
C. To Whom (Target-Market Prospects)
 Within the rollout markets, the company must target its initial distribution and
promotion to the best prospect groups.
 Most probably, the company has already profiled the prime prospects, who
would ideally have the following characteristics: They would be early
adopters, heavy users, and opinion leaders, and they could be reached at a low
cost. Few groups have all these characteristics.
 The company should rate the various prospect
groups on these characteristics and target the best prospect group.
The aim is to generate strong sales as soon as possible to motivate the sales
force and attract further prospects.
Many companies are surprised to learn who really buys their product and why.
D. How (Introductory Market Strategy)
 The company must develop an action plan for introducing the new product into the
rollout markets.
 Because new-product launches often take longer and cost more than expected, many
potentially successful offerings suffer from underfunding.
 It’s important to allocate sufficient time and resources—yet not overspend—as the
new product gains traction in the marketplace.
 By estimating how much time each activity takes, planners estimate completion time
for the entire project.
 Any delay in any activity on the critical path—the shortest route to completion—will
delay the project.
 If the launch must be completed sooner, the planner searches for ways to reduce time
along the critical path.
 1.5 Factor For Successful Innovation

 The most important factor in successful new product

introduction is
A good match between the product and market needs—as the
marketing concept would predict.
Successful new products deliver a meaningful and perceivable
benefit to a sizable number of people or organizations and are
different in some meaningful way from their intended
substitutes.
Firms that routinely experience success in new-product
introductions tend to share the following characteristics.
☛A history of carefully listening to customers
☛An obsession with producing the best product possible
☛A vision of what the market will be like in the future
☛Strong leadership
☛A commitment to new-product development