New Product Development

Process
To create successful new products, a company
must understand its consumers, markets, and
competitors and develop products that deliver
superior value to customers.
8 steps in new product development process
are involved.
New Product Development Process
• Idea Generation
• Idea Screening
• Concept Development & testing.
• Marketing Strategy Development.
• Business Analysis.
• Product Development.
• Test Marketing.
• Commercialization.
New Product Development Process
1. Idea Generation:
A company typically generates hundreds of ideas, even
thousands, to find a few good ones.
Major sources are internal and external sources. However in one
survey, 750 global CEOs reported that only 14 percent of their
innovation ideas came from traditional R&D. Instead, 41 percent
came from employees, and 36 percent came from customers.
a) Internal Sources:
Using internal sources, the company can find new ideas through
formal R&D.
Employees of other departments can also generate ideas.
New Product Development Process
b) External Sources:
Distributors
Suppliers
Competitors
Marketing research firms.
Trade magazines.
Customers
Crowdsourcing:
Open innovation idea programs.
New Product Development Process
2. Idea Screening:
Reduce the huge number of generated ideas.
Spot good ones and drop poor ones.
R-W-W new product screening framework.
Real-Win-Worth
New Product Development Process
3. Concept development & testing:
Explain your product concept to the customers in different ways
to evaluate the best one.
Testing:
Explain in words or a picture description is
enough.
New Product Development Process
• • Concept 1: An affordably priced midsize car
designed as a second family car to be used around
town for visiting friends.
• • Concept 2: A mid-priced sporty and appealing to
young singles and couples.
• • Concept 3: A “green” car appealing to
environmentally conscious people who want
practical, low-polluting transportation.
New Product Development Process
4. Marketing Strategy development:
The marketing strategy statement consists of three parts. The first
part describes the target market; the planned value proposition;
and the sales, market share, and profit goals for the first few years.
The target market is younger, well-educated, moderate- to high-
income individuals, couples, or small families seeking practical,
environmentally responsible transportation. The car will be
positioned as more fun to drive and less polluting than today’s
internal combustion engine or hybrid cars. The company will aim
to sell 50,000 cars in the first year, at a loss of not more than $15
million. In the second year, the company will aim for sales of
90,000 cars and a profit of $25 million.
New Product Development Process
4. Marketing Strategy development:
• The second part of the marketing strategy statement outlines the
product’s planned price, distribution, and marketing budget for
the first year.
The battery-powered electric car will be offered in three colors—red,
white, and blue— It will sell at a retail price of $25,000, with 15
percent off the list price to dealers. Dealers who sell more than 10
cars per month will get an additional discount of 5 percent on each
car sold that month. A marketing budget of $50 million will be split
50–50 between a national media campaign and local event
marketing. During the first year, $100,000 will be spent on marketing
research to find out who is buying the car and what their satisfaction
levels are.
New Product Development Process
4. Marketing Strategy development:
• The third part of the marketing strategy statement
describes the planned long-run sales, profit goals, and
marketing mix strategy.
We intend to capture a 3 percent long-run share of the
total auto market .To achieve this, product quality will start
high and be improved over time. Price will be raised in the
second and third years if competition and the economy
permit. The total marketing budget will be raised each year
by about 10 percent. Marketing research will be reduced
to $60,000 per year after the first year.
New Product Development Process
5. Business Analysis:
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 sales, the company might look at the sales history
of similar products and conduct market surveys. 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.
New Product Development Process
6. Product Development:
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.
Product testing can be done by both company itself as
well as customers.
New Product Development Process
7. Test Marketing:
The stage of new-product development in which the
product and its proposed marketing program are tested
in realistic market settings. It lets the company test the
product and its entire marketing program—targeting
and positioning strategy, advertising, distribution,
pricing, branding and packaging, and budget levels.
New Product Development Process
8. Commercialization:
Introducing a new product into the market.
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.
For example, to introduce its McCafé coffee in the United
States, McDonald’s spent $100 million on an advertising
blitz that spanned TV, print, radio, outdoor, the Internet,
events, public relations, and sampling.