New product development

Author : A Sainath
Mesco Institute of Management and Computer Sciences

WHAT IS NEW PRODUCT?

• A product that opens an entirely new market

• A product that adopts or replaces an existing product
• An old product introduced in a new market
• An old product packaged in a different way
• An old product marketed in a different way.

New Product is essential for existing firms to keep the momentum and for
new firms they provide the differentiation. New Product doesn't mean that
absolutely new to the world. It may be modification, or offered in the new
market, or differentiate from existing products.

A Company can obtain New Product in 3ways

• Acquisition (buy another company) (Kelvinator bought by
Whirlpool?)
• Acquire patents from another company (Crocin tablets/ syrup: Glaxo
SKF; Cibaca toothpaste: Glaxo to P&G)
• Licensing to manufacture Produce some one else's’ product.

New product development is a process which is designed to develop, test

and consider the viability of products which are new to the market in order
to ensure the Growth or survival of the organization.

New Product is essential for existing firms to keep the momentum and for
new firms they provide the differentiation. New Product doesn't mean that
absolutely new to the world. It may be modification, or offered in the new
market, or differentiate from existing products.

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A product can be considered new under the following situations :-

 New-to-the-world products

 New product lines

 Additions to existing product lines

 Improvements and revisions of existing products

 Repositioning

 Cost reductions.

The launch of a new product or service, hereafter referred to as product,

requires careful consideration of how a product is positioned in the market.
A poorly positioned product is destined to prove unsuccessful and regardless
of amt of resources thrown at it, will fail, or at best, only to achieve
mediocrity. Key to establishing correct product positioning in the market
place is the associated pricing strategy that accompanies its launch price too
high and no customers will buy, price too low and customers will buy a
competitor’s products because of perceived value and quality concerns
associated with low-priced products. As a component of marketing mix,
pricing strategy can be considered the keystone to an effective marketing
plan. “Image is not only reflected in the promotional messages which are
directed towards the market target but also in the pricing strategy”. Pricing is
as relevant to product image as styling and design are. Primary goal of

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market introduction is to gain market share, build awareness and recover
expenses.

“People purchase products and services to satisfy their needs and wants to
obtain benefits with this realization in mind, a company introducing a new
product must correlate its pricing strategy with the value the customer paces
in the satisfied need or want”.

Stages of New Product Development

Before the introduction of a product into the market, it goes through several
stages of development. These stages are known as stages of new product
development. It includes the following:

• Idea Generation

• Idea Screening

• Concept development and testing

• Market strategy development

• Business Analysis

• Test marketing

• Commercialization.

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Idea Generation -:

Companies seek new ideas to enhance the performance

of the existing products and to innovate new ideas. This stage is called idea
generation stage. There are many sources for idea generation. It may be from
customers, dealers etc.

Employees throughout the company can also be a source

of idea. Toyota claims that its employees submit two million ideas annually
over 85% of which are implemented.

Companies also find good ideas by researching

competitor’s products and services. They can find out what the customers
like or dislike about their competitor’s products. Ideas can also come from
investors. External research, surveys industrial publications research and
development etc.

But the main source of idea generation is the customers

by their grievances and complains and feedback. However, although ideas
can flow from many sources, it is not feasible to implement all the ideas
generated due to lack of time and capital.

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Idea Screening -:

The main purpose of idea generation is to collect a

larger number of ideas. However, not all ideas can be commercially viable.
Therefore, the companies filter the less viable ideas with the help of
systematic process. Companies can use various parameters to screen the
ideas such as market size, technical capabilities, potential competition etc.

Addressing the following issues will also help the

companies to analysis the attractiveness of ideas.

1) Whether the product idea match the existing products of the company.

2) The degree to which the new product can cannibalize the sale of the
existing product.

3) Company’s ability to produce and market the product.

4) Buying behavior and the probable changes in the environment.

While screening the ideas, an organization may commit two types or errors.

i) Drop error where the firm rejects a very good idea.

II) Crop error where a company selects a poor idea.

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Concept Testing And Development :-

All ideas that survive in the process of screening

will be studied in details. They will be developed into mature products. At
this stage, the idea is submitted for the external evaluation to get a feedback
from the market. It helps a firm are organization to collect important
information like customers initial reactions towards the product
development. During this stage, new product idea is described in the form of
one or more benefit that is then presented to a sample of potential customers
for their reactions.

Marketing Strategy :-

Following a successful concept test, the new product

manager will develop a preliminary strategy plan for introducing new
product in the market. The plan consists of three parts.

1) The first part describes the target market size, structure and behavior
for the first few years.

2) The second part outlines the planned price distribution strategy and
marketing budget for the 1st year.

3) The third part of marketing strategy plan describes the long run sales
and profit goals and the marketing mix strategy over time.

Business Analyses:-

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 After management develops the product concept and
market strategy, it can evaluate the business attractiveness. Business
analyses are the first in-depth financial evaluation of new product to be
developed. Here management needs to prepare sales cost and profit
projections to determine whether they satisfy company objectives. If they
do, then concept can move to the development stage. SOWT analysis will be
conducted at this stage by the organization. It also includes the following:

• Total sales estimation

• Estimation costs and profits

• Product Development.

I) Total sales estimation -:

These are the sum of estimated first- time

sales, replacement sales and repeat sales. Its method depends upon whether
the product is one time purchase(an engagement ring), an infrequently
purchased products like toaster, auto mobile etc. or a frequently purchased
products like consumer and industrial non durables.

II) Estimation costs and profits -:

The profitability of the new product is estimated through

various financial tools. The simplest technique is the breakeven analysis in
which the management estimates how many units of the product the
company would have to sell to break even with the given price and cost
structure. If the management believes that sales could easily reach the break
even number, it is likely to move the project into development stage.

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III) Product Development -:

In this stage, detailed technical analysis is conducted to

know whether the product produced at costs is low enough to make the final
price attractive to the customer.

Here a working model or a prototype is developed to

disclose all tangible and intangible attributes of the product. A product
protocol is prepared which is a detailed downiest containing the important
attributes that are expected in the product. Once the protocol has been
developed, it is handed over to the research the development department to
develop the prototype of the product.

Test Marketing :-

The test marketing is the stage where the product is

introduced in a few selected cities. During this stage, the company has to
fate the following expense:

 High advertisement

 High manufacturing cost.

 High distribution cost etc.

For testing the product, marketer needs to make

the decision on the following issues.

 The no. of cities in which the product is to be tested.

 Geographic location of the cities.

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  Time to carry ort test marketing

Through this exercise, company can know the

customers response, feedback, suggestions, complaints and any other
changes required to be done for product modification.

After successfully laughing the product in selected

cities the company launches the new product in all other cities.

There are certain methods of product testing.

Alpha Testing

In this method, a group of target audience is selected

from the employees of the company.

Beta Testing:

It is carried out at the customer’s site. Generally, it is

applicable for industrial products where the customization takes place.

Gamma Testing:

It is carried out on a long term basis where the customers

uses the product extensively and gives response after a long period of time.
Say six months.

Commercialization :-

The results of the test marketing help marketers to decide the changes that
are needed in the marketing mix before entering into the market. It also

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helps the marketer to decide the amount of production distribution strategy,
selling efforts and other issue like providing guarantees, service after sales
etc. the product enters the market during the commercialization stage.

Key successful factors in new product development

• Operating Philosophy

• Organization Structure

• The Experience Effect

• Management Style

1) Operating Philosophy -:

Successful companies are more committed to growth through

new products developed internally. They are more likely to have had a
formal new product process in the place for a longer period of time than
successful companies. They are more likely to have a strategic plan that
includes a certain portion of company growth from new products.

2) Organization Structure -:

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 Successful companies are more likely to house the new product
organization and are more likely to allow the marketing functions to have
greater influence on the new product process.

3) The Experience Effect -:

Experience in introducing new products enables companies to

improve new product performance. New product development cost conform
to the experience curve: The more you do something, the more efficient you
become at doing it. This experience advantage stems from the acquisition of
knowledge of the market and of the steps required to develop a new product.

4) Management Style -:

Successful companies appear not only to select management style

appropriate to immediate NPD needs but also to revise and tailor that
approach to changing new product opportunities.

CONCLUTION -:

Now-a-Days New product development has become fast paced and

competitive. Managers need to realize that the traditional, sequential
approach to developing new products will not work in the new arena.
Instead, they must adopt a more flexible, holistic product development
strategy where a development team works as a unit to reach a common goal.

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