Before a product is introduced to the market, it goes through a series of steps or phases. This planning process, which is called the New Product Development Process, allows a firm to generate and evaluate ideas, to eliminate the least attractive ones, to develop the product and finally test and introduce it to the marketplace.
The most important steps involved in the new product launch are as follows:- 1. Idea Generation 2. Idea Screening 3. Business Analysis 4. Marketing Strategy 5. Concept Development and Testing 6. Product Development 7. Market Testing 8. Commercialization.
What are the Steps Involved in New Product Launch: From Idea Generation to Commercialization
New Product Launch – Idea Generation, Idea Screening, Concept Development and Testing, Business Analysis, Market Testing and a lot More…
Before a product is introduced to the market, it goes through a series of steps or phases. This planning process, which is called the New Product Development Process, allows a firm to generate and evaluate ideas, to eliminate the least attractive ones, to develop the product and finally test and introduce it to the marketplace.
Because introducing new products on a consistent basis is important to the future success of many organizations, marketers in charge of product decisions often follow set procedures for bringing products to market. In the scientific area that may mean the establishment of ongoing laboratory research programs for discovering new products (e.g., medicines) while less scientific companies may pull together resources for product development on a less structured timetable.
A 7-step process comprising the key elements of new product development is presented. While some companies may not follow a deliberate step-by-step approach, the steps are useful in showing the information input and decision making that must be done in order to successfully develop new products. The process also shows the importance market research plays in developing products.
We should note that while the 7-step process works for most industries, it is less effective in developing radically new products. The main reason lies in the inability of the target market to provide sufficient feedback on advanced product concepts since they often find it difficult to understand radically different ideas. So while many of these steps are used to research breakthrough ideas, the marketer should exercise caution when interpreting the results.
Step # 1. Idea Generation:
The first step of new product development requires gathering ideas to be evaluated as potential product options. For many companies idea generation is an ongoing process with contributions from inside and outside the organization. New products are, by their nature, innovations. These innovations result from creative insight and free thinking.
Such creativity is crucial to success. The organization must generate ideas that tap the potential of these markets. These are the ideas and not the final product, that will be interactively determined throughout the development process, but these ideas do form a basis for further investigation and a set of starting points for innovations.
While it may be possible to develop ideas in a vacuum, it is possible to couple creativity with information from various sources such as – marketing, R&D, engineering, etc.
New products activities start from a number of alternatives initiating forces. These forces also act as sources of ideas. To be effective the organization should not only look at the initiation source, but all potential idea courses.
Some of the sources of ideas are as follows:
i. Market Needs and User Solutions – Since new products achieve final success through sales and profit, the consideration of market needs seems to be the most obvious source of ideas.
ii. Technology – New technologies can present new opportunities to meet consumer need or can fill needs that were previously latent.
iii. Engineering and Production – Are often neglected as sources of innovation as firms use R&D and marketing to find new product ideas.
iv. Inventions and Patents – External consulting companies may have a portfolio of ideas that can be reviewed or suppliers of material may have developed ideas for use of their raw materials in new final products.
v. Competitors and Other Firms – The reason for competitors’ success and knowledge about their developmental strategies are important inputs to idea generation.
vi. Management and Employees – The creative potential of an organization is high. Those who are not directly involved in the new product effort may have valuable ideas and insights.
Methods of Generating Ideas:
Methods to generates ideas can be as simple as setting up information channels that are sensitive to idea sources or as sophisticated as using creative group methods. Some creative ideas come directly from the environment and all an organization must do is be sensitive to the ideas’ sources and conduct a direct search of opportunities.
The goal of idea generation is a large number of very different ideas. The more ideas generated in this step, the more likely one or two of those will pass the screening tests in the idea management phase and progress toward the design phase of the development process.
i. Direct Search:
To effectively tap external idea sources, it is useful to allocate people to do basic information collection. Competitive activities can be monitored by a feedback system that reports a competitor’s sale practices, distribution, and new products. Search effort can be made to investigate acquisitions and thereby obtain product experiences and development skills.
ii. Exploratory Consumer Studies:
Observing how people buy and use the product can be done initially by casual observation and introspection on ones’ own behavior. Although this is useful, care must be taken not to generate fixed opinions based on these ad hoc observation since the observation may not be based on a representative sample of consumers. Surveys and focus groups using activity, product or problem analysis are commonly used to measure consumer problems.
a. Activity analysis focuses on a particular activity and the survey or focus group attempts to determine what problems the consumers have during the performance of the activity.
b. Product analysis examines the purchase and/or use of a particular product or brand associated with using the product or brand.
c. Problem analysis mentions a list of problems and asks the respondents to indicate which activities, product or brands are associated with those problems.
iii. Facilitate User Solutions:
Users not only have needs but may possess solutions. Rather than wait for the user to bring solutions to us, we could expand effort to find and facilitate this problem solving process. Users may have solved your development problem. It is useful to examine your organizations’ past history and see where successful ideas have come from. If users have been active contributors, you should devote effort to cultivating them and maximizing their input to the idea generation.
iv. Exploiting Technology:
If technological ideas are to be generated, the most recent and relevant technical information’s must be in hand of the project group charged within developing a new product within a specific market. Action to improve communications flows is important to exploring the potential of technological ideas through technological forecasting. This requires careful projection and monitoring of trends in all environments.
v. Consumer Engineering:
To be successful an organization must match the consumer needs to technological capabilities, even if this matching process requires engineering breakthroughs. Looking at markets rather than applications of specific technologies gives a different and creative perspective. It is calling “consumer engineering” because use engineering to meet needs in particular market segment.
vi. Individual Incentives:
Turning the source information into an idea for a new product may be straight forward, or it may come from spontaneous creativity of an individual within organization. The organization can set up reward structures on encouraging ideas.
vii. Creative Groups Methods:
Creative group’s methods are not magic, they cannot guarantee solutions to impossible problems, but they do encourage to fertile climate for creativity by removing inhibitions and unproductive structures. These techniques assume that each individual has a wealth of knowledge and is by nature capable of creativity.
The task is to encourage individuals to draw upon their personal knowledge, no matter how irrelevant it may appear, and apply this knowledge to develop creative solutions, no matter how impossible to implement they may seem.
In this approach a group tries to generate a large number of ideas. No criticism is allowed and group members are encouraged to improve on other people’s ideas. Attributes are listed for existing products and then efforts are made to adapt, modify, magnify, minify, substitute, rearrange, reverse, or combine them.
Step # 2. Idea Screening:
In Step 2, the ideas generated in Step 1 are critically evaluated by company personnel to isolate the most attractive options i.e., in screening, poor, unsuitable, or otherwise unattractive idea are weeded out from further consideration. This means undertaking an assessment of an idea’s potential, using information that is already available within the organization.
If nobody seems prepared to make out a case for the idea, there is a little point in investing in more serious and costly external research and testing. It is better to drop bad ideas, after a fair hearing, as soon as possible, to allow concentration on better ideas.
The screeners must ask at least three questions:
i. Will the customer in the target market benefit from the product?
ii. Is it technically feasible to manufacture the product?
iii. Will the product be profitable when manufactured and delivered to the customer at the target price?
Screening can be viewed as a filtering process. The objective of this stage then is to assess whether the idea fits with the broad strategic plans and development directions of the organization. It is also important to establish whether the idea’s implementation is technically feasible.
Usually, the idea and its preliminary screening analysis are presented to management as a proposal. This will describe the product arising from the idea, outline how it compliments existing products, analyze its target markets and market segments, define and analyze the competition, development time and costs, and forecast its likely margin and its sales profile over time so that recommendations can be made whether or not to proceed.
Depending on the number of ideas, screening may be done in rounds such as:
a. Check List:
The first round involves company executives to prepare new product check list; list new product attributes considered most important and compare each idea with these attributes. Attributes can be in terms of general characteristics, marketing characteristics and production characteristics, etc. Check list is standardized and allows ideas to be compared.
b. Feasibility Check:
The second round deals with judging the feasibility of ideas while successive rounds may utilize more advanced research techniques. In this phase an idea is explored in more depth in order to determine the feasibility of engineering the requested product within the scope of the business needs.
As the ideas are whittled down to a few attractive options, rough estimates are made of an idea’s potential in terms of sales, production costs, profit potential, and competitors’ response if the product is introduced.
c. Sorting of Ideas:
The last round deals with sorting of ideas after checking out its feasibility with the markets, and other attributes. The sorted ideas i.e., the attractive and reliable ideas should be written down and reviewed by the idea committee, which sorts them into three groups – promising ideas, marginal ideas, and rejected ideas.
Screening encourages evaluators to be systematic and so reduces the chances of their overlooking some pertinent fact. Compared with other phases, the largest number of new product ideas are rejected during the screening phase.
Step # 3. Concept Development and Testing:
Attractive ideas must be refined into testable product concepts. A product idea is a possible product the company might offer to the market. A product concept is an elaborated version of the idea expressed in meaningful customer terms.
Once an idea has been accepted in principle at the internal screening stage, it needs to have some external endorsement. This is the third stage of new product development process, called concept development and testing. According to Schwartz, “Concept Testing is a printed or filmed representation of a product or service. It is simply a device to communicate the subject’s benefits, strengths, and reasons for being”
Concept testing should focus upon the following issues:
i. Who is the target market and who is the decision maker in the purchasing process?
ii. What product features must the product incorporate?
iii. What benefits will the product provide?
iv. How will consumers react to the product?
v. How will the product be produced most cost effectively?
vi. Prove feasibility through virtual computer aided rendering, and rapid prototyping.
vii. What will it cost to produce it?
With a few ideas in hand the marketer now attempts to obtain initial feedback from customers, distributors and its own employees. Generally, focus groups are convened where the ideas are presented to a group, often in the form of concept board presentations (i.e., storyboards) and not in actual working form.
For instance, customers may be shown a concept board displaying drawings of a product idea or even an advertisement featuring the product. In some cases focus groups are exposed to a mock-up of the ideas, which is a physical but generally non-functional version of product idea.
During focus groups with customers the marketer seeks information that may include – likes and dislike of the concept; level of interest in purchasing the product; frequency of purchase (used to help forecast demand); and price points to determine how much customers are willing to spend to acquire the product.
Step # 4. Business Analysis:
At this point in the new product development process the marketer has reduced a potentially large number of ideas down to one or two options. Now in Step 4 the process becomes very dependent on market research as efforts are made to analyze the viability of the product ideas. (In many cases the product has not been produced and still remains only an idea).
The key objective at this stage is to obtain useful forecasts of market size (e.g., overall demand), operational costs (e.g., production costs) and financial projections (e.g., sales and profits).
Predicting the cost and to build products and also the profits, before they are introduced, is a difficult but essential part of the business analysis.
i. Estimating total sales – Management needs to estimate total expected sales to find out whether sales will be high enough to yield a satisfactory profit.
ii. Estimating costs and profits – After preparing the sales forecast, management should estimate expected costs and profits.
The various financial measures to evaluate the merit of a new product proposal are:
i. Break-Even Analysis:
In this 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 management believes sales could easily reach the break-even number, it is likely to move the project into product development.
ii. Risk Analysis:
In this method three estimates (optimistic, pessimistic, and most likely) are obtained for each uncertain variable affecting profitability under an assumed marketing environment and marketing strategy for the planning period. The computer generates possible outcomes and compute a rate of return profitability distribution showing the range of possible rates of returns and their probabilities.
Additionally, the organization must determine if the product will fit within the company’s overall mission and strategy. Much effort is directed at both internal research, such as -discussions with production and purchasing personnel, and external marketing research, such as customer and distributor surveys, secondary research, and competitor analysis.
Step # 5. Product Development:
Ideas passing through business analysis are given serious consideration for development. Companies direct their research and development teams to construct an initial design or prototype of the idea. Marketers also begin to construct a marketing plan for the product. Once the prototype is ready the marketer seeks customer input.
However, unlike the concept testing stage where customers were only exposed to the idea, in this step the customer gets to experience the real product as well as other aspects of the marketing mix, such as – advertising, pricing, and distribution options (e.g., retail store, direct from company, etc.).
When the prototypes are ready, they must be put through rigorous functional and consumer tests:
i. Functional Tests:
They include Alpha and Beta testing. 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, 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.
ii. Consumer Testing:
It can take a variety of forms, from bringing consumers into laboratory to giving them samples to use in their homes. In-home tests are common with products ranging from ice cream flavors to new appliances.
Favorable customer reaction helps solidify the marketer’s decision to introduce the product and also provides other valuable information such as estimated purchase rates and understanding how the product will be used by the customer. Reaction that is less favorable may suggest the need for adjustments to elements of the marketing mix.
Once these are made the marketer may again have the customer test the product. In addition to gaining customer feedback, this step is used to gauge the feasibility of large-scale, cost effective production for manufactured products.
Step # 6. Market Testing:
Products surviving to Step 6 are ready to be tested as real products. In some cases the marketer accepts what was learned from concept testing and skips over market testing to launch the idea as a fully marketed product. But other companies may seek more input from a larger group before moving to commercialization.
The most common type of market testing makes the product available to a selective small segment of the target market (e.g., one city), which is exposed to the full marketing effort as they would be to any product they could purchase. In some cases, especially with consumer products sold at retail stores, the marketer must work hard to get the product into the test market by convincing distributors to agree to purchase and place the product on their store shelves.
In more controlled test markets distributors may be paid a fee if they agree to place the product on their shelves to allow for testing. Another form of market testing found with consumer products is even more controlled with customers recruited to a “laboratory” store where they are given shopping instructions.
Product interest can then be measured based on customer’s shopping response. Finally, there are several high-tech approaches to market testing including virtual reality and computer simulations. With virtual reality testing customers are exposed to a computer-projected environment, such as – a store, and are asked to locate and select products.
With computer simulations customers may not be directly involved at all. Instead certain variables are entered into a sophisticated computer program and estimates of a target market’s response are calculated.
Deciding what to measure?
i. Repeat Purchases – A measurement of repeat purchasing is probably most important item of information to obtain in a test market, without it total consumers sales can be misleading. A continuous consumer panel is useful for measuring repeat purchases. With this panel the purchasing activities of the sampling units can be studied over a period of time, and the extent of repeat purchasing can be determined.
ii. Advertising effectiveness – It is important to determine the rate at which target consumers are made aware of a new product, the amount of message they retain and the degree of knowledge they possess of the product’s characteristics, because these factors affect the rate of adoption and the rate of subsequent purchases.
iii. Effectiveness of an introductory offer – Many companies rely on an introductory offer to accelerate consumer trial of the new product. The effectiveness of this offer can be determined by ascertaining whether consumers know about it and whether they availed themselves of it.
iv. Effectiveness of a trade offer – Many companies furnish the trade with an incentive to stock a new product. The effectiveness of this offer can be easily judged from information provided by the sales force.
v. Share of the total market – This is the new product’s volume and units and dollars expressed as an percentage of the total volume for the product involved.
vi. Characteristics of buyers and rate of adoption – These data are essential in estimating future sales. Rate of adoption and repeat purchase rates is affected by adoption effectiveness. The data on the characteristics of households provide clues as to what audience groups are buying and to what extent.
vii. Reasons for not adopting or for discontinuing usage – It should be possible to locate consumers who fall into various user categories and then to interview them in depth.
Selection of Test Markets:
The selection of the appropriate test markets is difficult. When selecting test markets the following criterion are typically used:
i. The markets should not be over tested.
ii. The markets should be normal regarding the historical development of the product class involved.
iii. The market should be typical regarding the competitive advertising situation.
iv. No single industry should dominate the markets.
v. Markets that contain groups not normal to the product’s target should be avoided.
vi. The market should have a media pattern similar to the proposed national media plan.
vii. The markets should not be too small to provide meaningful results or so large that the testing becomes unusually expensive.
viii. The markets should be relatively self-contained. That is, not too much waste circulation going outside the market and no strong outside media present.
Management should also take into consideration the following issues while conducting market testing:
i. How many test cities?
ii. Which cities?
iii. Length of test?
iv. What information?
v. What action to take?
There are two major kinds of test markets:
i. Conventional (Traditional) Test Market:
The product is introduced in small cities that represent the United States. Some popular cities for test marketing include – Buffalo, Syracuse, Seattle, Dallas, Erie, Portland, Sacramento, Dubuque, Dayton, and Peoria. Most test markets are conducted in two or three cities and last about ten months or so.
One additional purpose of the test market is to test various marketing strategies (e.g., different ways of positioning a product). One thing you want to see is the trial rate (the percentage of people trying the new product) and the repurchase rate (what percentage buys it a second time). One danger of a test market is that the competition can steal your ideas by monitoring the results of your test market.
ii. Simulated Test Market (STM):
A STM is conducted by a research firm and there is total confidentiality. STMs are sometimes conducted in shopping malls. Consumers are invited to evaluate new television programs. Of course, the television programs include commercials; at least one of the commercials is for the product being test marketed.
Consumers are then invited to “shop” in a room that is set up to look like a supermarket. Those consumers who purchase the product being tested will be called several days later and asked whether they would purchase the product again. One problem with a STM is that it cannot be used to predict trade response (the reaction of wholesalers and retailers to the new product). A simulated test market is far less expensive than a conventional test market.
Step # 7. Commercialization:
If market testing displays promising results the product is ready to be introduced to a wider market. Some firms introduce or roll-out the product in waves with parts of the market receiving the product on different schedules. This allows the company to ramp up production in a more controlled way and to fine tune the marketing mix as the product is distributed to new areas.
Company can now start the full-scale production but has to decide upon certain issues such as:
i) When (Timing) – In launching a new product, market entry timing is critical because the success or failure of many products depends on when the product is introduced.
The company has three choices:
a. First entry – The first firm entering a market usually enjoys advantage of an early start in terms of locking up key distributors and customers and gaining reputational leadership.
b. Parallel entry – The firm might time its entry to coincide with the competitor’s entry.
c. Late entry – The firm might delay its launch until after the competitor has entered.
ii) 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.
iii) To Whom (Target Market) – The company must target its initial distribution and promotion to the best prospect groups. The company may focus on early adopters, heavy users, and opinion leaders that could be reached at a low cost.
iv) How (Introductory Market Strategy) – The company must develop an action plan for introducing the new product into the market. The company must decide the introductory price, promotion, campaign, distribution and even product features and models.
New Product Launch – Idea Generation, Marketing Strategy, Product Development and Commercialization
A venture team is a cross functional group charged with developing a specific product or business. Some companies may have a high level management committee comprising of ‘new product’ managers and they work with a given budget, a timeframe and a skunk work setting (skunk works are informal work places like garages where entrepreneurial teams work on developing new products.)
New product ideas can come from:
i. Interacting with others (sales representatives and intermediaries)
ii. Creativity techniques – attribute listing, mind mapping
i. First phase – Describe the target market
Plan product position
Plan market share, sales volume, profit goals
ii. Second phase – Pricing strategy
3. Product Development:
At this stage, the company has to decide whether the product idea can be translated into a technically and commercially feasible product, as there will be a considerable jump in investment if the company wants to go ahead with the proposal. Otherwise the accumulated project cost will be lost except gaining some useful information.
Moreover, consumer testing has to be done in the form of bringing consumers into the laboratory for usage under controlled conditions, giving them samples to use in their homes, or product demonstrations to elicit their off-the-off reactions.
i. Market testing – Sales-wave research – working with consumers who initially try the product at low cost and when the product is re-offered at slightly reduced prices.
ii. Simulated test marketing – working with small number of qualified shoppers by inducing them to buy the new brand and later giving a comparative feedback in regard to its performance relative to the existing brand.
iii. Controlled test marketing – engaging a number of stores that will carry the new product for a fee.
iv. Test market – to expose the new product to a full-blown market test by engaging company’s sales force. The company thus use advertising and promotional campaign in these markets.
Major decisions to be taken are:
i. Timing of commercialization, i.e., when to commercialize?
a. First entry
b. Parallel entry
c. Late entry
ii. The geographic strategy, i.e., where to commercialize?
iii. Who are the target market, i.e., whom to commercialize?
iv. Introductory marketing strategy, i.e., how to commercialize?
What are the Steps Involved in New Product Launch – Generation of New Product, Screening of Ideas, Business Analysis, Product Development and a Few Others
Following are the stages that come in the process of development for any new product.
Initiation of concept, its deep analysis, commercial analysis, product engineering, trial marketing and to commence production on commercial level when the concept is proved right. We see that the initiation of the concept is the first stage of product therefore, it is not necessary that every concept will ultimately convert in the product.
Creation of concept should be in a large number so that the certain thoughts found good on analysis can be implemented. An ideal firm always focuses on these points and they adopt formal and informal stage in order to receive concept.
A foresighted firm should make a formal arrangement so as to receive the concepts.
Several useful concepts cannot access where such arrangement is not made. The powers relating to the atmosphere (i.e. consumer, technical department and the competition etc.,) as also the employees of company perpetually create such concepts.
An efficient officer should be appointed by the organisation to understand their concept, conceive of them and for bringing them in a systematic manner for management. It will all good if this assignment is given to the marketing research officers.
The three main duties of such officer are; to explore the concept of good product, to inspire the employees through suggestions and to inspire other activities of company so as to make further deliberation on the available concept.
Booze, Allen, Hamilton have recommended the following methods while launching and bringing a new product in the market:
Step # 1. Generation of New Product Ideas or Sources of New Product Ideas:
The concept relating to the development of a new products are obtained through the following sources:
i. From Customers:
The first and foremost source of product concept is the consumers of company’s product. When the buyers use the product of a company are consumed by the buyers they get experience and it is necessary for a company to know their responses. Recommendations and complaints regarding products should be asked for the customer and good concepts should be priced.
A company should arrange a meeting of consumers in order to deliberate their concept and recommendations because their useful concepts collected through this process can be most useful in term of profits of company.
ii. Technical Development:
The ever changing technical age faces a new product launched in the market every day. An undertaking should therefore, set up a permanent chamber for industrial research and activity in its organisation and the organisation engaged in research should be consulted. It will enable the company to know about the new products.
The products launched in the market should be kept for the competition because it makes to know the characteristics of other products and sometimes, good concepts are received as a result of such efforts made.
iv. Company Personnel:
The employees of marketing department in a company are also a good source of concepts because they come under the direct contact of consumers, sellers and the dealers. They therefore, experience directly the complaints in the market. They are fully aware of the competition hence, their suggestions are to be asked for time to time and sometimes, and they should be rewarded for their valuable suggestions.
v. Top Management of the Company:
As the managers of a company are well aware of the power and weakness of organisation hence, they sometimes, provide with the good concept. On the basis of their experience, they can explain the utilisation of capacity in suitable production and distribution of new products.
Step # 2. Screening of Ideas:
In this step of product development process, the evaluation of concepts is very first made by taking in account; the objectives and resources of the company. The concepts not helpful to attain the objectives or beyond the capacity of the institution are left behind.
For example, if any concept requires capital in bulk quantum and the business institution is unable to collect so huge capital. Such concept will be left in the same way if the capacity of profit earning is not increasing or no increase in the quantum of sale or no expansion in the image of an institution, the product concept is left behind.
The companies or business institutions receive the concepts in large numbers. The main problem they feel is that how to hold the concepts or proposals in a series for them. It is done because the company can select the supreme concept through this process. The commercial institutions or companies use check-list for this work. Under this check-list, the concepts are evaluated on the basis of several important factors like — the quantum of sale, raw material, quantum of production, its impact on existing product etc.
Step # 3. Business Analysis:
At this third stage of product development process, a solid work on new product concept is started.
The management mainly performs the following acts:
(i) Identifying of Product Characteristics – The particularities of new product are identified.
(ii) Estimating Future Profits and Sales – To know the effect of new product concept on the profits, cost and future sale within a specified period by estimating rightly the future sale.
(iii) Programming for New Product Development – An outline of the programme is framed in order to obtain wide information on this concept.
(iv) Detailed Investigation of Practical Production or Consumers Acceptability – Whether the consumers will accept new product should be a question for deep analysis. Commercial analysis in truth is adhered to a prime objective of developing a model. This model is used to know that how will a new concept of product influence the demand, profit, cost and the sale in a given time.
Step # 4. Product Development:
Under this stage of development process, a concept of new product till this stage on papers, is changed into a physical product. According to the particular analysis specification, the product is manufactured in small quantum or product models are made. In order to assess the engineering and production practicability, necessary experiments in laboratories including other technical evaluations are made.
Following three stages fall in the development of product:
(i) Developing Proto-type
(ii) Consumer Testing, and
(iii) Brand and Packaging
(i) Developing Proto-type – On the completion of commercial analysis, the concept is assigned to the technical development so that it can develop and manufacture such ideal form or model of product which can win the consumer preference concomitant to lower cost incurred while manufacturing and free from ail other difficulties. Having several models manufactured by the technical departments, a satisfactory model is selected.
(ii) Consumer Testing – Consumers’ taste regarding the models so manufactured by the technical department is discovered. Under the examination of consumer choices, their preference regarding different models is known and the best model is approved for manufacture,
(iii) Brand and Packaging – A problem of brand and packaging comes after assessment of the consumer’s choice.
Step # 5. Test Marketing:
It is necessary to examine the product through test marketing prior to its large scale production. Test marketing is meant by estimating the consumer preference by manufacturing in small quantum and launching the product in certain selected markets.
The product is manufactured in small quantum and an effort to see the trend of buyers, improvements expected as also the methods and process for marketing of that product required etc., is made after launching that product in the market.
Test marketing is one of the most useful technique in a world of bitter-competition as we see today. Certain companies do not adopt test marketing because they think it unnecessary and burdensome on their plea that they have full confidence on their consumers, demand and the market but it is not all right.
Test marketing provides knowledge of the possible sale, the price, prospective demand and consumer reaction to the producers and it is most useful in the future. The managers are known to any particular defect which could not see or traced before test marketing.
The company can frame a suitable marketing programme for future only on the basis of result obtained through the test marketing. It can develop proper marketing techniques and can decide the mode for advertisement and marketing of product.
According to Masan and Rath – “Test market means marketing of goods experimentally to consumers in several carefully selected areas before releasing them on wide scale.”
In the opinion of Phillip Kotler – “Test marketing is the stage where the entire product and marketing programme is tried out for the first time in a small number of well-chosen and authentic sales environment.”
It can be said on the basis of above definitions that a product is not directly launched in the market under the test marketing but initially, it is sold in a certain selected areas. If the results of tests are good, decision for manufacture in large scale is made.
Reasons for Test Marketing:
Andy Cadbury has described two advantages of test marketing to the marketing company:
i. Test marketing provides an opportunity of product-testing in the complex situation of the market and the test marketing thus measures the sales executed. The top management becomes able to estimate properly, the prospective sales of the product in the national market. Generally, the decision as to production of the goods on national level or not is made on the basis of this information.
ii. The management on limited sale of product under test marketing gets an opportunity that it should trace the defects of the marketing programme as also of the product and remove them. Thus, product modification and improvement prior to its production on commercial basis and its launching in the national level market can be made properly.
To Test or not to Test:
Each manufacturer should whether prefer test marketing or not, is the last question which requires solution. However, in spite of these advantages, a decision of test marketing cannot be still said as a regular function. An act of collecting the information relating to the reactions of the customers on new product is most expensive and troublesome.
Hence, it should be applied as an ultimate mean and not as a general and mandatory mean. Test marketing proves helpful in reducing company losses but it does not increase its profits.
A decision to test or not to test should be made by taking into account the following factors:
i. It is necessary that the cost and the risk taking place at the stage of product failures to be compared with the profits which would obtain in case the product is successful. If the cost and risk at the stage of product failure is lesser, it is better to launch the product on commercial basis straightly in the national level market without test marketing. Contrary to it, if the cost and risks are felt more, test marketing always proves advantageous.
ii. It is also important to see the difference between the amount proposed for investment on test and investment on launching-the product in national level market. If the differential amount is very less, test marketing is not required and one should straightly launch the product in the national market.
iii. The other questions to see are to know the possibility of the competition, possibility of copying/imitating the product by the competing companies at what speed and their grip on the possible national and international market to what extent etc. If the process of test marketing is time consuming and if there is possibility for copying the product by competing companies, it will be in the interest of company not to decide the test marketing.
iv. Bulk marketing and investment is required when the new product is manufactured on the commercial level which may be less or much according to the quantum of representation. On representation of new product, heavy expenditure is incurred on its advertising and sales promotion.
It requires much time for enforcing sale, concentration and efforts as also space is required for sticking the bills on the windows of retail shops and wholesale stores which can be obtained sometimes by replacing the existing products of the same company. Apart from it, the cost incurred on the product and on sales promotion will lick dust if the product meets to failure and it on other side, tarnishes the image of company also.
It can be concluded that test marketing is an important instrument for marketing of products. In order to reduce the heavy risks in course of representing new product, test marketing is most essential.
Following procedure shall have to be followed for test marketing of any product:
i. To Determine the Number of Cities:
A first step for test marketing is to ascertain the number of such cities in which marketing is proposed. Selection of cities should be made so skillfully that neither their number should so less as the result cannot be obtained more reliable and relevant nor so large as more cost incurred.
The number of cities should be ascertained for marketing by taking in mind the nature of product, its demand, prospective area for sale, quantum of area differences and the efforts of the competitions.
ii. To Select Cities:
After ascertaining an adequate number of cities, a problem relating to selection of cities is arisen. The cities free from the particularities of prospective sales areas should be selected. Generally, cities of distinct characteristics are selected for every product.
iii. Duration of Test:
It is most necessary to ascertain that how long will the test run? It has been observed often that test marketing continues for several month and even several years and only the conclusion is arrived.
The period of test for every product remains distinct and it depends actually on the following three factors:
(a) Average Repurchase Period – It is meant by that maxim time in which a buyer repurchases any product for consumption purposes. Certain goods are bought immediately while some are re-bought after a certain time frame. It is not necessary that the consumer really is satisfied otherwise why would he buy again. It may possible that he would buy next time for the test purpose and not satisfy till that time. Hence, these points are to be kept in mind.
(b) Competitive Situation – The testing period should not be so lengthy as we till then remain busy on testing and our competitor launch other product with some modifications in the market.
(iii) Cost of Test Marketing – The prospective cost of test marketing is worth keeping in mind in course of ascertaining the test.
iv. Necessary Information:
It is also to keep in mind while planning for test marketing that what type of necessary information and elements are to be collected. Useful information about sale of product, loading in store, information about buyers and the size of demand for the produced goods etc., are worth collection for this purpose.
v. Drawing Conclusions:
When the test marketing is completed and necessary information and statistical material is available, there remains final decision to be made regarding the product.
Three kinds of conclusions can be derived about a product – (i) Product is right and its production on large scale will profitable or; (ii) The product can grip the market if some modifications as per experiences/reports received are made, or- (iii) As the product in question cannot grip the market, the proposal to develop product and to add it with the product series is worth cancellation. The test marketing process is completed when such decisions are made.
Advantages of Test Marketing:
i. Estimate of Sale – The prospective sale of the product under examination is estimated through this process. The idea of product manufacture can be abandoned if lesser sale is recorded in the period of testing. It will avoid the major risks in future which would arise due to production in large scale.
ii. Development of Marketing Mix – Test marketing helps in development of marketing mix.
iii. Formulation of Policy Related to Middlemen – A policy related to middlemen can be devised by discovering their reactions, it will enable the middlemen doing their best efforts for sales promotion.
iv. Removal of Defects and Bulk Profits – Packaging, pricing, sales promotion etc., related deficiencies/shortcomings found in course of test marketing can be rectified later on and quantum of profit can be increased by making the product more cost effective.
Failure of New Products:
Oftenly, a few products can grip the market which the manufacturers very first launch in the market. The failure percentage of new products is found in the range of 80 to 90%. The firms which opt for well product planning even have to suffer from failure when they launch their product in the market. Several surveys of markets have proved now that the products manufactured after thorough research, development and which were commercialised, could not achieve success in the market.
However, failure percentage of such products is lower as compared to other products. National industrial Conference Board in America has made survey of as much as 87 companies known for promoting successful product. It had found that in spite of perfect research, development and commercialisation, about three products out often were failed and could not win the market sentiments. Numerous reasons are held for such failures.
Factors Responsible for the Failure of a New Product:
Out of a numerous reasons held responsible for the failure of new product, following are the main reasons:
i. Product Defects – The main reason for the failure of new products is their being defective. Improper design, lack of durability, mal-functioning of product etc., can also be included in defects.
ii. Inadequate Market Analysis – Sometimes, proper analysis of market before commercialisation of the product cannot be done. Owing to it, proper estimate of consumers’ demand, correct understanding of market necessity and profitability of the related fields is left ignored. As a result of this being, the products suffer failure.
iii. Fast Competition – New product is failed to win the market segment because of inability to cope with competition. It happens several times or generally with regards the products.
iv. Insufficient Marketing Effort – New products sometimes met to failure due to insufficient marketing efforts. Mainly lack of marketing means, lack of market planning, shortcoming in physical distribution, non-co-operation of middlemen etc., are included with it.
v. Weakness of Sales Force – It is understood often that the success of new product is the success of marketing power but if the sales power of undertaking is feeble viz., sales personnel are unqualified and untrained or not duly motivated ; the new product in the circumstance, has to see the face of failure definitely.
vi. Selling Price – Selling price too stands as cause for failure of new product, if price are fixed more due to high production cost, middlemen are deprived of profit or selling price is beyond the purchasing parity of the consumers, new product has to meet failure.
vii. Timing – New product should be launched in the market at an appropriate time. If it is launched ante or post to appropriate time, the possibilities of product failure in both circumstances are increased.
It has become clear from the above reasons for failure that even a little deficiency left uncured in product planning, marketing plan and market research; the new product has to suffer from failures.
Guiding Principles of Test Marketing:
Following guiding principles for ascertainment of exact time and the time not suitable for test marketing are worth keeping in mind:
i. If test marketing can increase competition or the competitors can influence the product contrarily, test marketing in the circumstances, is to be avoided.
ii. If the proposed product is technically complex and if it requires long research, test marketing always proves good because the rivals cannot imitate it easily and shortly.
iii. If the proposed product will effect reversely the sales of the existing product of the same institution, decision of test marketing can be made only when comparative study of the profits is duly made.
iv. Test marketing can be avoided if the institution wants to launch new product before its rivals.
v. If consumer response is essential to know particularly for proposed marketing programme regarding the new product so proposed, test marketing is must.
vi. Test marketing is not necessary if immediate modification/rectification in product is possible. However, possibility of more time required to cure the defect makes the test marketing necessary.
vii. Test marketing can be abandoned if the buyer is agree to accept less developed product due to excess demand. For example, demand of TV, fridge, scooter and motor cycle was so high in some years of recent past that mere product trial was sufficient. There was no need for the test marketing.
Test Marketing in India:
Buyers’ market has begun to set up in Indian economy and technical know-how has been spread out and collected to a large extent. The industrialists have therefore, started adopting new marketing techniques in India.
It is true that there is lack of systematic communication system here and information regarding such tests as adopted by numerous companies has not covered by media, the information to the extent available so far reveals that the marketing managers in India have started recognising such tests.
For example, Hindustan Lever Ltd, Mumbai does test marketing before launching the products on commercial level. Further, Colgate Palmolive Company had executed test marketing for its new soap in I960.
Distinction between Test Marketing and Product Testing:
Often both test techniques provide the company with important information and control the risks relating to the marketing and pre-level production of the products. Yet, there is good distinction among them.
At the stage of the development of new products mainly in the field of marketing, test marketing and product examination/trials are made prior to launching them in large scale and before their exploitation in full. Test marketing is made after the product trial and it is done for providing support to the laboratory results.
It is test marketing that tells whether the proposed product is good to launch on commercial basis or not. Product trial on the other hand is a test which is made for the trial of functioning when it is developed physically. Such tests can be made either in laboratory or outside.
The proposed product is not marketed in course of such trial. This test is objective test of the product’s functioning and it is free from the elements of marketing mix like pricing, packaging, branding etc.
In brief, product trial/test is related to examination of product itself and evaluates the execution capacity of the product. The trial marketing is subjective and relates to the trial of consumer priorities. Trial marketing is also called market selling and it is done always in the form of territorial trial.
Step # 6. Commercialization/Launching the Product:
When all basic stages of development of new product are completed and the product achieves success in trial marketing, a problem of commercialization of such product is arisen at this stage.
The product under this stage is brought into market on commercial basis. Before launching it in the market, the company has to decide finally regarding brand and packaging coincide the characteristics of the product.
The company has to invest capital in bulk so as to commercial production in large scale and programmes for sales promotion and advertisement can be made successfully. In development of new product, more expenses then already incurred hitherto are required.
The companies often do not launch the new product simultaneously in the whole market and it is launched only in certain premier fields and thus, the entire market is gripped systematically. It can also be named as planned policy for market expansion.