New Product Development Stages: Top 7 Stages, Process, Steps and Notes (with notes)
Answer 1. Stages in New Product Development:
New product Development (NPD) process passes through various stages to reach its customers.
These stages are as following:
The nature of the new product development process generally differs with the product to product across different industries. In a pharmaceuticals company like Ranbaxy, NPD process will be different from a software company like Microsoft or an automobile company like Maruti Suzuki or a consumer electronics company like LG or an FMCG company like Dabur or Nirma.
In a pharmaceuticals company, the development of a drug starts with thousands of compounds, years of extensive clinical trials and innumerable failures to get an effective and commercially successful drug. Similarly in the software business, after the software development, a beta version is issued to test the product. Once all the problems are rectified in the beta version, the final version is launched.
In an automobile company like Maruti Suzuki, the NPD process passes through new design and engine for the car, to test run to corrections based on the feedback and then to the final product like Maruti Suzuki Swift. The hugely successful Swift is based on an extensive research on the needs, trends and the suggestions made by Maruti Suzuki’s existing customer base in India.
Maruti Suzuki invested Rs. 440 Crores in the Swift project. It sent 25 Indian Engineers and Designers to Europe for 6 Months to study the trends. Then they went to Japan for 18 Months to design and develop the Swift. Based on the European styling, Japanese quality and precision and Indian engineering capability; Swift became a huge success in India.
The new Swift Dzire is also based on the same platform by adding a boot in the car. Both Swift and Swift Dzire have been so successful in Indian market that the customers are waiting for weeks together to get the delivery of their favourite vehicle. Recently this car has celebrated its fifth anniversary. The attractiveness of this segment has led Tata Motors to launch Indigo Manza to compete with Swift Dzire.
Product and brand failures occur on an ongoing basis to varying degrees within most product-based organizations. This is the negative aspect of the new product development and marketing process. In most cases, this failure rate syndrome ends up being a numbers game. There must be some ratio of successful products to each one that ends up being a failure.
When this does not happen, the organization is likely to fail, or at least experience financial difficulties that prohibit it from meeting profitability objectives. The primary goal is to learn from product and brand failures so that future product development, design, strategy and implementation will be more successful.
A product is a failure when its presence in the market leads to:
i. The withdrawal of the product from the market for any reason;
ii. The inability of a product to realize the required market share to sustain its presence in the market;
iii. The inability of a product to achieve the anticipated life cycle as defined by the organization due to any reason; or,
iv. The ultimate failure of a product to achieve profitability.
Failures are not necessarily the result of substandard engineering, design or marketing. Sony’s Beta format was a clearly superior product to VHS, but their decision to not enable the format to be standardized negatively impacted distribution and availability, which resulted in a product failure. Apple has experienced a series of product failures, with consistent repetition as they continue to fight for market share.
In India, Tata Sierra, Rajdoot 350, Maruti Omni with High Roof, Maruti Versa are the examples of product failures.
On the global platform, Cadillac Cimarron, Pontiac Fiero, Chevrolet Corvair, Ford Edsel, IBM’s PCjr—introduced in March 1985, Apple’s Newton, Apple’s Lisa, Coleco’s Adam, World Football League, Women’s National Basketball Association, World League of American Football, United States Football League, Burger King’s veal parmesan, Burger King’s pita salad, Polaroid instant home movies etc. had failed earlier.
The reasons for the failure can be attributed any of the following:
1. Faulty concept
2. Faulty product design
3. Overestimated market size
4. Incorrectly positioned product
5. Ineffective promotion, including packaging message
6. Incorrectly priced—too high and too low
7. Misleading market research that did not accurately reflect the actual consumer’s behavior for the targeted segment
8. Conducted marketing research and ignored those findings
9. Key channel partners were not involved, informed, or both and
10. Lower than anticipated margins
Using these potential causes of a product or brand failure may help to avoid committing those same errors. Learning from these lessons can be beneficial to avoid some of these pitfalls and increase the chance for success when you launch that next product or brand.
Taking a cue from the failure of Maruti Versa, Maruti relaunched Versa as ‘Eeco’ in 2010 with a cheaper price tag by almost Rs. 1 lac and making some changes in the engine and interiors. Now the failure in Versa has turned around with success in Eeco for Maruti Suzuki. Similarly a company can relook at their product and marketing strategies to increase the chance of success.
Answer 2. Product Planning and Development:
Product planning is concerned with the different range of products which a company plans to develop and successfully market. It is concerned with generation of new product ideas, screening them and then converting them into tangible product. Finally they are produced on a large scale for selling in the market at a profit. The entire process of new product development requires close co-ordination with different departments of the company.
Product planning is concerned with three important aspects:
(i) Introduction of a new product (product innovation)
(ii) Modification of the existing product
(iii) Elimination of unprofitable product
A new product is a one that is perceived new by a majority of people in the given market. It is something which is new to the market, which may be due to product innovation or product modification. Newness may be slight change in packaging, new product lines, duplicate of competitor’s product, launching the product in different market and such other changes.
New products pull the attention of the customers. It helps in reaping higher profit margins and boosts the declining product. Launch of a new product marks the growth and expansion of the company.
Product Planning and Development Process [Top 7 Stages]:
Product planning is the process of determining that product which can provide maximum satisfaction to the consumer.
Every new product goes through a product planning process comprising of following stages:
The new product development starts with the search and generation of ideas which may arise from various sources like company’s R&D department, market and consumers trends, competitors, focus groups, employees, sales people and such other.
At this stage, the generated ideas are screened down on the basis of their feasibility and viability, only practical and workable ideas are developed. The purpose of screening is to have a critical evaluation of product ideas and drop the poor ideas.
The company may have considered the idea to be feasible, but is has to be tested with the target audience. Here the product idea is converted into meaningful consumer item and presented to appropriate target consumers to know their reactions. If the reaction is positive, the company moves to next stage.
After successful concept testing, the marketing manager will develop a preliminary marketing strategy for introducing the product in the market. The marketing strategy will highlight the segmentation, targeting and positioning strategy.
Business analysis is the study of economic feasibility of the new product i.e. whether the product will be financially worthwhile in long run or not. This stage estimates the expected future profitability of the new product, i.e. what cash flow product can generate, what will be the cost of production, what will be the expected life of the product, share of market product may get etc.
Once the product is declared economically feasible, the company gives the product its physical shape. This stage involves huge investments to be made, as compared to the pervious stages. The physical product as it would appear is prepared so that it can be tested.
Test marketing is a stage where the new product is tested with a particular target market, to find out whether it is acceptable to the consumers or not. The expectation of the consumers from the product is tested here. Any improvement or modification required can be taken care of. Test marketing, thus, help in pretesting of the product and the marketing plan, before it is launched in the market.
Successful test marketing gives way to actual introduction of the product in the market place. Here the company has to consider certain factors like when to launch the product, where and how the product will be launched, which market and which consumers to target etc. Market entry timing is also very important.
The whole process of new product development is a very crucial one and requires a high degree of coordination between the top management, the middle management and the product manager. At the same time, before launching the final product in the market, an enterprise needs to properly assess the market potential.
Most of the time new product fails because they fail to meet the expectations of the consumers. The failure of a product is reflected in factors such as declining sales, declining profit margins, high running cost, high investment cost, etc.
Some of the reasons for new product failure are:
1. Improper Planning:
Improper analysis of the market often leads to failure of the product. Companies often while caring for the customers fail to appreciate the changes taking place in their needs and wants. Life style changes bring changes in their preferences. Similarly, the needs of the industrial buyers are affected by the changing environment, business opportunities, technological changes and so on.
2. Improper Timing:
Launching a product at wrong time also leads to the failure of the product. Marketers many times launch the product too early which results in high cost or too late by which time the demand of the product may decrease. Thus, appropriate time has its strategic importance in product success.
3. Poor Quality:
New product may not be of that quality that the consumer expects and may therefore fail. The quality of the product is not only reflected in its superior features but also its difference from the existing product. New product many time do not satisfy unique needs of the consumers, or does not satisfy a new function. They are not distinct from other products, and therefore they fail.
4. Gap between Idea Generation and Introduction of the Product:
Many good ideas have failed due to long gestation period. At the time when idea is conceived, there is demand for it, but since companies take long period to convert it into commercial product, the demand decreases. As a result of this new product fail.
5. Deficiencies in the Product:
Technical deficiencies in the product are common cause for new product failure. Though the engineers try to get the best laboratory products, technical deficiencies may be there and the product may fail.
6. Overestimation of the Capability:
Many times the marketers overestimate their capabilities or underestimate the competitors strength and do not look at the performance of the product. As a result actual product performance is not good and product fails. Executive many times try to make a particular product because it is tied to their personal dreams and ambitions. This introduces an element of bias and as a result product fails.
7. Bad Ideas:
Many products fail because the basic idea was not good. This type of failure is because a wrong idea was allowed to grow. The defect here lies in the screening process which could not filter out the unfit ideas. The very process of new product development has to be looked into by the company and corrective measure should be incorporated, if company wants to avoid this type of failure.
8. Tough Competition:
The competitive environment may be such that new product fails to gain ground and grow. If the competitors are strong or more in numbers, it becomes difficult for the company to make the product a success. Firm should therefore carefully analyse the competitive environment and only then go for new product development.
9. Improper Promotion:
Many times product fails because company do not give due attention to the promotion. Without sound communication about the product to the consumers, markets remained uninformed and they do not buy the products. New products in general require aggressive promotion so that the markets accepts it. In absence of this, products may not succeed.
Companies should make efforts to avoid new product failure as it involves huge cost to develop a product. For this, a systematic analysis of the market requirement and marketing requirement should be made beforehand only by the top management. Further, the top management should give full support to the process, so that other organisational problems may be easily overcomed.
Good screening process should be there to weed out the wrong and unprofitable ideas. Better connection with the research institutions would provide a good source of new product ideas. Lastly, new product development is a crucial task and should be carried out seriously and diligently. It should never be a hurried affair.
The new product development process is a very crucial task which is evident from the fact that rate of new product failure is very high. Companies often fail to recognise the real needs of the customer and hurriedly go for a new product. At the same time, the new product development process is not the responsibility of a particular individual. Many times the responsibility is not clearly defined.
It is vested either with the Chief Executive or the top management. This may result in confusion and the process of new product development may suffer. Thus, it is required that the responsibility for developing and marketing new products should be clearly defined. This calls for good organisation structure. The alternative organisational structure available as listed out by C. N. Sontakki is – New product departments, New product committee, New product manager and Venture team.
The process of new product development can be entrusted to a separate department i.e. new product department consisting of engineers, researchers, production manager, sales manager, finance manager, human resource manager, etc. Here the firm isolates the new product development process from the activities of the existing products. Since it is a crucial task the responsibilities is entrusted to a capable person having capability to coordinate and control the activities.
This department is concerned with all the functions related to the new product development process such as determining new product objectives, generating new product idea, screening new product ideas, developing new product specification, conducting test marketing and commercialisation of the product.
The efficiency of this department depends upon the top management’s support, which is very essential for the working of this department. This type of organisation structure draws clear line of authority and responsibility for the personnel and there is no internal conflict.
Instead of having a full-fledged department for new products, many companies prefer constituting a new product committee. The committee consists of members of various departments within the organisation. The new product committee serve special functions such as generating new product ideas, developing new product specification, conducting test marketing and assisting new product introduction. The committee structure has advantage that the activities are performed form within the organisation only, therefore less conflict is there.
Most of the decisions are made by top management, based on the ideas of the key executives, so they are easily accepted. The committee may meet as and when required. However, the chief drawback is that most of the executives’ time is wasted in the activities and the other activities of the firm suffer. New product development is a full-fledged activity, requiring more time therefore existing employee cannot justify the work. Further, the existing employee may not have the required skills for making new product decisions.
Most of the firms now-a-days have Product manager who has the responsibility of an existing product or product line. They have the specialized knowledge in the concerned product. Under this option, the firm gives the product manager, dual responsibility of the existing product and developing the new product. He has the responsibility of conceiving new ideas and developing them. Since they are in touch with the markets, they have the better ideas and information about the market and its requirements.
He has to remain in close contact with the top management, discuss his ideas with them and go ahead with the development process. The problem with this method is that product manager gets the dual responsibility which becomes a burden for him. At the same time, the amount of authority of product manager does not commensurate with his responsibilities. The task of new product development is an entrepreneurial task and therefore cannot be simply delegated to a product manager performing managerial task.
This is a new type of organisational structure for developing new product. In this, a separate organisational entity is established which is entrusted with the task of developing new products. The entity is composed of specialists from different fields, engaged in developing new products different from the existing product.
The team is headed by the team manager, who has the authority to make major decisions. He reports to the Chief executive. The team works in a conductive environment without any deadlines. However, lack of cooperation between team and department manager poses problem for the organisation.
Answer 3. Stages of New Product Development:
Different stages involved in the process of New Product Development are:
1. Idea Generation:
The process starts with the search for ideas. The ideas can originate from R&D, distributors, customers, employees, vendors etc.
2. Idea Screening:
At this stage the ideas collected are scrutinised to eliminate those inconsistent with the product policies and objectives of the firm. It is a very crucial step. Errors like dismissing a good idea (Drop-error) and permitting a poor idea (Go-error) are prominent at this stage.
3. Concept Development and Testing:
Concept Testing means presenting the product concept, symbolically or physically to the target customers and getting their reactions. For concept development rapid prototyping is used these days to design a product on computers and produce rough models to show to the potential customers.
4. Market Strategy Development:
A three part strategy plan is made for introducing the new product into the market. First stage describes the target market’s size, structure and behaviour for product positioning and sales forecast. Secondly planned pricing, distributing strategy and marketing budgets are discussed. In the third stage long run sales and profit goals are discussed and a marketing mix strategy is made.
5. Business Analysis:
Management needs to prepare sales, cost and profit projections to determine whether they satisfy the company objectives. This can be done by the process of break-even analysis, risk analysis etc.
6. Product Development:
During this stage the ‘Idea-on-paper’ is turned into a ‘Product-on-hand’.
7. Market Testing:
After the management is satisfied with the product performance at the development stage the product is ready with a brand name and packaging and put into a market test, wherein estimation of four variables is done viz., trial, first repeat, adoption and purchase frequency.
In this stage the product is submitted to the market and commences its life-cycle. A full strategy for production and marketing of product is needed.
Steps Taken in Planning and Development of a New Product:
Product Planning and Development:
Product development does not just happen, it has to be planned. Dynamic firms plan their innovations for five to ten years in advance.
The function of planning and developing new products involves six stages as given below:
1. The product planners must visualise new product ideas. Ideas may come from brain-storming sessions of the management. The source of ideas is not so important as the firm’s system for stimulating new ideas and then acknowledging them and reviewing them promptly.
2. The screening of the ideas generated must be done scientifically and properly. The basic purpose is to find out which ideas warrant further study. The list of information required in evaluating new product possibilities should be drawn in such a manner as to throw some light on the profitability, risk and cost of capital required.
3. Only the most feasible and profitable ideas are picked-up for further detailed investigation. Marketing research is quite critical during this phase since it can reveal the changing behaviour of buyers, strategies of competitors and availability of new technological ideas.
4. A proper programme is made for the proper development of the product. Precise description of the features of the proposed product should be studied thoroughly. Selected consumers may be called upon to offer their comments on the proposed product. Decisions regarding branding, packaging, labelling, etc., are also made in this phase.
5. Test marketing is done to find out the viability of the marketing programme for large scale production. Customers’ reaction may be noted and product may be improved further, if necessary.
6. Having obtained the green signal through test marketing, the marketing department will launch a full-fledged production promotion campaign for mass distribution. Distribution channels will be chosen to make available the product, wherever it is demanded.
Way to Determine Innovative Ideas for New Products:
There are various ways of generating new ideas for new product development:
(i) Run informal sessions where group of customers meet with company engineers and designers to discuss their problems and their needs.
(ii) Allow time off for technical people to better on their own projects, for example, 3M has allowed 15% time off.
(iii) Survey your customers. Find out what they like or dislike in your as well as the competitors’ products.
(iv) Have your marketing and technical people visit your suppliers’ labs and spend time on finding out what is new.
(v) External sources can also generate ideas. In this list sources like customers, employees, scientists, engineers, channel members, marketing agencies, top management and even competitors are important.
Product Idea Screening:
At this stage the ideas collected are scrutinised to eliminate those inconsistent with the product policies and objectives of the firm. The reasons could be the idea is already being protected by patent, or non-availability of raw material for production, or market potential is not there to earn profit for the company. The main aim of this stage is to drop unsuitable ideas as quickly as possible.
This stage is very important as the product development cost rises substantially with each successive development stage. Thus, it is important to identify whether the idea would be successful in the market or not.
Since this process is subjective in nature, based on forecast and marketing research generalization, errors are bound to occur. Two types of errors are possible by a marketer at this stage viz., – drop-error or go-error.
Drop-Error occurs when the company dismisses a good idea. This is very common, as it is easy to find faults in other people’s work.
Go-Error occurs when the company permits a poor idea to move into development and commercialization. It is relatively more dangerous since it involves loss to the company.
Concept testing means presenting the product concept symbolically or physically to target customers and getting their reactions. Concept testing of prototypes can help avoid costly mistakes.
Earlier creating a product prototype was a costly and time taking affair but nowadays with the help of computers, virtual reality programmes are used for creating rapid prototyping.
After creating a prototype the product is tested for customer responses with the following questions:
(i) Communicability and believability – Are the benefits clear to you and believable?
(ii) Need Level – Do you see this product solving a problem or filling a need for you?
(iii) Gap Level – Do other products currently meet this need and satisfy you?
(iv) Perceived Value – Is the price reasonable in relationship to its value?
(v) Purchase Intention – Would you buy the product?
(vi) User targets, purchase occasions, purchasing frequency – Who would use this product, when and how often?
Thus, by getting answers to these questions the management could form early judgement on likelihood of the market success of the new idea.
Apart from this, other objectives of concept testing are:
(i) To evaluate the relative merits of several new product proposals.
(ii) To determine whether the product idea is to be abandoned or modified.
(iii) To determine the potential size of the market.
(iv) To guide the management to adopt suitable marketing policies in advance.
Market testing is a tool used by companies to provide insight into the probable market success of a new product or effectiveness of a marketing campaign. Market testing is generally used by a business to evaluate factors like the performance of the product, customer satisfaction or acceptance of the product, distribution requirements, etc.
In other words, Market testing is a tool used by the companies to check the viability of their new product or marketing campaign before it is being launched in the market at a large scale. It helps in ascertaining the probable market success of new product’s performance, the level of acceptance of the product and efficiency of the marketing campaign.
Objectives of Market Testing:
(i) To evaluate a complete marketing plan including advertising, distribution, sales, pricing etc.
(ii) To determine media mix, channels etc.
(iii) To forecast sales volume.
Conducting Market Testing:
(i) Customers are invited to purchase the product at throw-away prices so that they can try the product, and ask them about their idea of repurchase after trial.
(ii) Consumers receive a small amount of money and are invited into a store where they may buy the product. Then they are asked for their purchase or non-purchase.
(iii) Company asks a research firm to conduct market testing. The firm delivers the product to selected stores and measures sales, impact of advertising and promotions.
(iv) The company chooses few representative cities and the sales force tries to sell the product. Marketing mix strategies are also applied. This test is- done for a maximum period of one year.
When a product is ready with the brand name and packaging, it is put into a market test, i.e., an authentic setting where the marketers can learn how consumers are reacting to the handling, using and repurchasing of the product.
Test marketing is done with the products which are high investment and high risk products, where the chances of failure are high and the cost of market testing is insignificant in terms of total project cost.
Consumer product tests seek to estimate four variables:
(ii) First repeat,
(iii) Adoption, and
(iv) Purchase frequency.
The new product is put into the test market. The company chooses few representative cities and the sales force tries to sell the product, giving it full exposure. Advertising and promotion campaign is put into force.
Generally two to six cities are tested for a few months to a year. The information such as customer attitude, usage, satisfaction, purchase attributes etc., is gathered.
By using this information, marketer can take a decision for further commercialization of product.
As a marketer, it is important to conduct test marketing:
i. To evaluate a complete marketing plan including advertising, distribution, sales, pricing, etc.
ii. To determine media mix, channels, etc.
iii. To forecast sales volume.
Marketers prefer to go for test marketing before launching a product as they spend huge sums of money on product development and they want to make sure that their product is a sure success in the market.
Test marketing helps the marketers in correctly assessing the market conditions. It helps in proper understanding of the market including people’s responsiveness to product or service.
It forms a crucial part of marketing and is a key to effective marketing. Marketers usually go for test marketing before trying to sell a product in order to check and confirm that the consumers accept it.
There is a great possibility that a product can fail in the market. If it happens, a firm may have to suffer huge monitory losses. Therefore test marketing is carried out to make sure that a particular product is really desired by the target consumers.
The feedback of consumers helps the marketers in making necessary modifications in the product before introducing the product in the market. Test marketing confirms the unique selling benefit that a firm is willing and capable of offering to its consumers.
Test marketing also helps the marketers in generating new ideas with the help of response given by the potential customers. Test marketing also helps the marketers in assessing the emotions and feelings the customers have developed for a particular brand.
Moreover, it helps the marketers in spotting any kind of defect in the product which they remove and rectify before the actual launch of the product.
Answer 4. Stages of Product Development:
Following three stages are mainly involved in the product development:
1. Product Development Process:
For every marketer, it is compulsory that he must keep an eye on the changing environment so that he can identify the new needs of the market and be able to produce goods accordingly. So, it has become necessary for every undertaking that it should increase its product-mix through continuous development of the products.
Research and development department has been separately established in large institutions for product development. It mainly explores the prospects of product development, analyses those prospects, tests marketing experiments and proceeds towards product commercialization.
The product development process in various industrial and commercial institutions may be distinct but the common process takes place in following stages:
(i) Conception of an Idea:
The process of development for a new product begins with the origin of new concepts. Company’s employees, middlemen, technicians, trade associates, competitors, top management can be the source of new product ideas. The companies having their own Research and Development Department too continuously provide information for developing new products or for improving the existing ones.
(ii) Evaluation of Idea:
After exploring the ideas about the development of an existing product or the development of a new product, every idea is evaluated analytically so that the idea may be converted into action. Analysis of an idea includes, whether the idea is in accordance with the objects of the enterprise such as-(i) Technical knowledge; (ii) Financial resources; (iii) Plant capacity (iv) Managerial ability etc. If the idea qualifies above two standards, it is selected.
(iii) Business Analysis:
This is the third step of product development process. At this stage, the best product concept screened is analysed. Business analysis may be defined as an evaluation of product idea in depth with a view to determine its demand, cost and profitability worth in a given set of business environment.
This analysis covers estimation of future demand, sales, cost and problems of production, cost and problems of distribution, manpower requirement and its cost, investment requirement and its return etc. If these are suitable to the manufacturer, a decision for manufacture of new product is taken.
(iv) Product Development:
This is fourth step of product development. Product development may be defined as devising a product to meet the exact requirement of the market. Product development is the process of finding out the possibility of producing a product keeping in view the customers’ needs and wants. It includes the decision as to whether it would be feasible or not to produce the product and whether it would be profitable or not for the enterprise to do so. Product development also includes modification of existing products and elimination of unprofitable products.
(v) Test Marketing:
According to Philip Kotler, “Test marketing is the stage where the entire product and marketing programme is tried out for the first time in a smaller number of well-chosen and authentic sales environment.” Test marketing implies the production of same product in small quantities in the initial stage and later on sending those products in some selected markets to find out the limit to which those products have been preferred by the consumers.
In this type of marketing, efforts are made to know the reactions of buyers towards the products that have been marketed after producing them in small quantities. This helps the manufacturer to know the improvements needed in the products and what medium and process need to be adopted for marketing the product.
(vi) Product Commercialisation:
Commercialisation of the product is the last step in the process of development of a new product. It includes all the activities performed by an enterprise in starting the full scale production of the product, advertising and selling the product in the market and providing after-sale services to the consumers.
The manufacturer has to decide whether to launch in entire market or in selected markets and whether to enter market by market or in the entire state or in international market. As huge investment is involved in launching the product, it is desirable that the company enters the market that is most promising, at a time. If it proves to be successful as expected, other markets can be entered.
2. Product Improvement:
Product improvement means the changes brought into the qualities, variety, shape and size of the product. The prime objective of product improvement is to increase the variety of product, to achieve success in the competition and earn maximum profits. The improvement in quality, size, style, fashion design and packing etc., are included in product improvement. Product improvement includes quality improvement, type improvement, style improvement, fashion design improvement, packing improvement etc.
3. Packing Improvement:
Packing improvement is an important factor of product development. Packing may be defined as the general group of activities in product planning which is value designing and producing the container or wrapper for a product.
Packing may also be defined as the art and/or science concerned with the development and use of materials, methods and equipments for applying a product to a container or vice-versa designed to protect the product throughout the various stages of distribution.
Packing is not confined in the form of an action but it is considered as a separate occupation. We see that there are a number of companies exclusively engaged in packing only.
Answer 5. Notes on the Stages of Product Development:
The process of starting the production of a new product is called the process of new product development.
There are six stages in this process:
1. Generation of New Product Ideas
2. Screening of Ideas
3. Business Analysis
4. Product Development
5. Test Marketing, and
6. Commercialisation of the Product.
At every stage of this process, a deep study is carried out as to whether the product should go to the next stage or not. A product is thrown into a market only when it passes through earlier five stages successfully.
1. Generation of New Product Ideas:
New thoughts always generate in the mind regarding products and then those thoughts are converted into shaping those products. Generally all the thoughts cannot be converted, yet the best idea is converted into shaping the product. For this, ideas in large number are collected. The more the ideas, the more is the possibility of selecting a good idea.
For the development of a new product the ideas can be collected from the following sources:
(i) From Sellers:
The retail sellers of manufactured goods and salesmen have direct relation with the buyers of the products. The salesmen at once get their ideas and complaints about that product. Sometimes the customer expresses his reaction about that product in an uninteresting way and it is the way to know the desire of the customer. These things give birth to new ideas.
(ii) From Customers:
The customers are also a source of providing new ideas. The opinions and suggestions regarding the product can be asked from the consumers and on this basis their new ideas help in the development of the product. The ideas of the customers can be known in any field after inquiring different customers.
(iii) From Competitors:
The signal of new ideas is sometimes received from the products sold by some other producer and the medium can be middlemen, salesmen or sellers. A good producer analyses his competitors’ products in his laboratory and this supplies him new ideas.
Big manufacturers set up their own laboratories and they appoint quality scientists to run them. These scientists also present new progressive ideas.
(v) Universities and Government Research Laboratories:
Sometimes the new ideas are published from the laboratories of universities and government research laboratories which are very helpful in the development of new products.
(vi) Company Personnel:
The personnel of marketing department of the company prove a good sources of supplying ideas about the development of the product because they remain in direct contact with the customers, distributors and shopkeepers. So they have direct experience of complaints. They also have the information of competition. Therefore their suggestions must be valued from time to time and they should be encouraged by giving awards.
(vii) Management of Company:
The managers of the company are also expert in giving their ideas because they are very familiar with the strength and weakness of the organisation. On the basis of their experience they can tell about the production of new product and distribution where the strength of the company lies. They can provide the idea of production of main products and its supplementary products.
All the ideas collected may not be acceptable. Ideas which are quite inconsistent with the product policies and objectives of the firm may be dropped right away. There may be some other ideas which are good and consistent with company’s product policies and objectives but these cannot be developed due to certain limitations e.g., non-availability of raw materials or technology required, or short financial resources, or limited plant capacity or managerial ability. Thus, due to these constraints, such ideas are also dropped.
Remaining ideas which have been found suitable and feasible should be listed in order of their importance.
In this step efforts are made to establish whether the new product will be suitable or not.
In business analysis following three types of estimates are made:
(i) Estimating Future Sales:
For business analysis first we estimate future sales of the product. Though, it is very difficult to forecast the sales of a product which has not yet been developed, but efforts are made to have an idea of these sales.
(ii) Estimating Future Costs:
Different elements of the costs are analysed. Estimated costs of the product to be developed provide a real base for measuring the profitability of a product.
(iii) Estimating Future Profits:
After estimating the sale and costs of a product, producers estimate future profits. It is also considered whether these profits will provide desired rate of return on capital invested or not. If not, the idea is dropped and if yes, it is finally selected.
Product development is the process of finding out the possibility of producing a product keeping in view the customers’ needs and wants. According to S. Kodvekar, “The product development may be defined as devising a product to meet the exact requirement of the market.” It includes the decision as to whether it would be feasible or not, to produce the product and whether it would be profitable or not, for the enterprise to do so. Product development also includes modification of existing products and elimination of unprofitable products.
The process of development of a product includes following stages:
(i) Developing Model, Size and Design:
The decision of the model, design and size of the product is a part of the process of product development. Research and development department develops different models for the product. The management of the enterprise has to select single model for the product out of these models. The size of a product may be small, medium or large. Design of the product includes the determination of form, structure and colour etc., of the product.
(ii) Consumers’ Preference Testing:
The selection of a particular model of the product is a very important decision. For this, some selected consumers are invited and efforts are made to select a particular model. For this, various techniques may be adopted, such as pair comparison, multiple choices and ranking procedure etc.
(iii) Brand, Packaging and Label:
After selecting a particular model of the product, decisions are taken regarding brand, packaging and label. Brand is a name, symbol or design, which distinguishes the product from those of the competitors and help in easy recognition.
Packaging protects the product from spoilage, ensures freshness, prevents adulteration and provides easy transportation and storage. Product development involves decision regarding package material, package size, design and shape. Packing must be changed according to time.
Label is the information tag attached to the product, which gives details regarding quantity, ingredients, date of manufacture and expiry date etc., of the product.
Meaning and Definition of Test Marketing:
Test Marketing is to find out the reaction of customers after presenting the product in one part of the market.
Thus test marketing implies the production of some products in small quantities in the initial stage and later on sending these products in some selected markets to find out the limit to which those products have been preferred by the customers. In this type of marketing, efforts are made to know the reactions of buyers towards the products that have been marketed after producing them in small quantities. This helps the manufacturer to know the improvements needed in the products and what medium and process need to be adopted for marketing the product.
Now it can be concluded that test marketing is a technique of selling a product on trial basis in some selected areas of the market. The object of test marketing is to get the response of consumers of these segments about the product and marketing policies, programmes and strategies of the enterprise. It helps in ascertaining the defects and drawbacks of the product. It also helps in making necessary improvements in the product so that the possibilities of failure of product may be minimized.
Commercialisation of the product is the last step in the process of development of a new product. It includes all the activities performed by an enterprise in starting the full scale production of the product, advertising and selling the product in the market and providing after-sale services to the consumers.
The manufacturer has to decide whether to launch in entire market or in selected markets and whether to enter market by market or in the entire state or international market. As huge investment is involved in launching the product, it is desirable that the company enters the market that is most promising, at a time. If it proves to be successful as expected, other markets can be entered.
Answer 6. Steps Involved in New Product Development:
Process of New Product Development/Steps Involved in Developing a New Product:
The development of new product starts with the exploration of new ideas. There may be number of sources of exploring these new ideas.
Some of the main sources of idea generation are:
(i) Taking Consumer’s opinions and suggestions.
(ii) Taking the opinion and suggestions of retailers or salesman or distributors.
(iii) Observing the competitors’ products, by doing so it gives a lot of idea to innovate the firm’s products.
(iv) Focusing and investing more towards Research and Development.
(v) Frequently referring the inventory journals published by Universities and Government research laboratories.
(vi) By taking the enterprise’s employees innovative ideas through Brain Storming.
At this stage, ideas collected are scrutinized. All the ideas collected may not be acceptable. Ideas which are quite inconsistent with the product policies and objectives of the firm may be dropped out rightly.
There may be some other ideas which are good and consistent with company’s product policies and objectives but these cannot be developed due to certain limitation e.g., non- availability of raw materials or technology required or short of financial resources, or limited plant capacity or managerial ability.
Thus due to these constraints, such ideas are also dropped. Remaining ideas which have been found suitable and feasible should be listed in order of their importance.
At this stage, the following activities are involved:
(i) Expanding each idea into full product concept.
(ii) Collecting facts and opinion to decide whether the product idea can be converted into a business proposition.
(iii) Assessing each idea for potential value to the company.
The main object of this step is to scrap unsuitable ideas as quickly as possible and look out for the idea which can be developed.
This is a continuation of the above stage. When an idea is finally selected, a further analysis is necessary. A rough idea is studied in detailed manner, determining its desirable market feasibility and features of the product and developing specifications and establishing a definite programme for the product.
Thus for this purpose the following 3 types of estimates are necessary:
(i) Estimating future sales of the product under consideration
(ii) Estimating future costs of the product, if developed as a product. For this different elements of costs are to be analyzed.
(iii) Estimating future profits.
At this stage, the management goes ahead to produce the goods in its physical form. The idea, thus, is converted into a product that is worth producing. Under this stage, all decisions to bring the idea to final physical form are taken. The final decision whether a product should be accepted for production on commercial scale is taken in this stage.
After designing, the next step is testing the product in the market. The product, under this stage, is introduced in the whole market or in a segment of the market. If it is an industrial product, cost of testing will be much less because the users of such product are less and can be approached easily. In case it is consumer product, it will take more time for testing the product and the cost of testing will be much higher.
The result of testing is then analyzed and if the product proves successful, the decision to produce it on commercial basis is taken. If unfortunately, it proves unsatisfactory it may be withdrawn or it may be modified in the light of the opinions and suggestions of the consumers or dealers.Testing the product in a segment of the market reduces the risk of the producer to great extent.
The objectives of test marketing are:
(i) To evaluate a complete market plan including advertising, distribution sales, pricing etc.
(ii) To determine media mix, channels etc.
(iii) To forecast sales volume.
If the product is proved successfully in testing, a decision to produce it on commercial basis may be taken.
Thus the last in the product development is the introduction or launching or marketing the product. This is also expensive. From top to bottom everyone is busy in calculating for the vast investments as the product may not prove profitable for three or four years in future.
Test marketing means to bring out the product in the market for the front before it is introduced in the market commercially. For this purposes, the product is put to test in a selected market segment. It will provide the market an opportunity to know his product and also the results which may be expected when the product is put in market commercially.
In test marketing the consumers are closely observed so that the nature and response of the market towards the newly introduced product may be known. If any defects in the product come to the knowledge of the marketer, they should be removed before throwing the product in the market commercially.
In this test, the marketer may also identifies the effective marketing techniques e.g., suitable distribution channel, suitable price, most effective methods of advertising and sales promotion for marketing the product at large scale.
The term test marketing is defined by Philip Kotler as – “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 environments”.
Thus, test marketing is a technique of selling the product on trial basis in a well-chosen market to observe the response of the customers and to decide whether the product can be sold on large scale successfully.
Despite careful attention to details in product planning and development as many as 50% of new products actually entering the market has a very short life span and market failure occurs.
The following are the reasons given for failure of new products:
(1) Inadequate market analysis and market appraisal.
(2) Insufficient and ineffective marketing support.
(3) Bad timing of introduction of the new product.
(4) Failure to recognize rapidly changing market environment.
(5) Absence of formal product planning and development procedures.
(6) Failure of the product to fill consumer needs to the due ignorance about consumer’s attitude towards the product.
(7) Technical or production problems.
(8) Higher costs than estimated cost.
(9) Product problems and defects.
(10) Failure to estimate the strength of competition.
(11) Too many new products entering the market.
(12) Many products not perceived as new by the consumers.
Most of the reasons for failure of new products can be eliminated by the company itself. The faults for new product failure lie within the managerial control.
Chances of success of new products are relatively bright if the company launching the new product has at least one advantage –
(i) Product advantage,
(ii) Market advantage,
(iii) Creative advertising advantage.
Of course, product advantage is of paramount importance. If your product can fill the customer needs precisely, it is bound to have a bright future.
Better marketing research is essential to evaluate market needs and prospects. Marketing begins with consumers and products must fill needs. The marketer must adopt improved screening and evaluation of ideas and products.
Integrated business planning must be continuously done to establish profitable relationship with changing customer and changing environment.
Answer 7. Stages in New Product Development [with notes]:
Product development does not just happen, it has to be planned. Dynamic firms plan their innovations for five to ten years in advance. They have a definite idea of exactly what product developments they want and what new products they will need to cater to the demand of their customers, Experience has shown that those firms which are most successful in developing marketable products are the ones which have formally recognised the function of product planning and development.
1. Generation of New Product Ideas:
The product planners must visualises new product ideas. Ideas may be contributed by professional designers, scientists, customers, salesforce, dealers, competitors, etc. Ideas may also come from brainstorming sessions of management. It may be noted that the source of ideas is not as important as the firm’s system for stimulating new ideas and then acknowledging them and reviewing them promptly.
New product ideas may come from company’s research and development department, managers, salespersons, consumers or industrial users, middlemen, company suppliers of raw materials, governmental agencies, company competitors and their products, trade associates, private research organisations, inventors, commercial laboratories and trade journals, etc.
Ideas may also come from “brainstorming” sessions of management, suggestions from employees, engineers, and other outside sources, both solicited and unsolicited. Consumers’ complaints or dissatisfaction can also be the source of new ideas. The consumers are said to be one of the best sources.
As would be clear from the observation made by Cannon and Wichert, “A meat packer began producing onion soup at the suggestion of a company executive’s wife. A pottery manufacturer produced a new vase after viewing museum exhibit. A producer of office machinery developed an envelop opening device as a result of thorough examination of a wholesaler’s catalogues and several interviews with office managers. A chemical firm began manufacturing a detergent after extensive laboratory research.”
Panasonic India launched AC branded as cube in 2011 as a result of insights received from the Indian consumers.
2. Detailed Study of New Product Ideas:
This is the stage of ‘concept testing’. The ideas generated at the first stage are examined to eliminate those which have no potential or which are capable of making any significant contribution to the marketing objectives. The ideas should be screened properly because any idea passing this stage would cost the firm both money and time.
This involves evaluating the company’s capabilities with respect to scientific knowledge and technical skills in terms of possible new products and product improvements. The basic idea is to find out which ideas warrant further study and refinement.
The screening should be rigorous enough to eliminate poor stuff, but not so rigorous as to eliminate potential good possibilities. The list of information required in evaluating new product possibilities should be drawn up in such a way as to throw some light on the profit possibilities, the risk and cost of capital involved.
3. Commercial Feasibility:
The product planners evaluate the nature and importance of market needs and appraise the extent to which present products fulfill them. They evaluate new ideas in the light of the company’s capability with respect to scientific knowledge, technological skills and financial resources.
Only the most feasible and profitable ideas are picked-up for further detailed investigation. Marketing research is critical during this phase since it can reveal the changing behaviour of buyers, strategies of competitors and availability of new technological ideas.
4. Product Development:
This phase relates to actual development of the new product based on the product data evaluation system. A programme is made for the proper development of the product. First of all, precise description of the features of the proposed product should be studied. After this, selected consumers may be called upon to offer their comments on the proposed product.
Decisions regarding branding, packaging, labelling, etc., are also made during this phase. When the product takes a tangible form, consumer testing can be done. Consumer testing will provide the ground for final selection of the product for mass production and distribution.
5. Test Marketing:
Test marketing is necessary to find out viability of marketing programme for large-scale distribution. Before the product is widely distributed, it is tried in a selected market. It is also known as mini-market testing. Customers’ reaction may be noted and product may be improved further, if necessary.
Test marketing allows greater control over the new product. If there are defects in the product, it could be withdrawn from the market quickly without any loss to the reputation of the firm. Test marketing is generally done by consumer goods companies rather than by industrial goods firms who usually try out new products with selected customers or obtain general reactions by having their sales people demonstrate products when they make their rounds.
The possible benefits of test marketing are as under:
(i) It offers an opportunity to examine the product in a natural marketing environment to obtain a measure of its sales performance.
(ii) It can identify weakness in the product or in the overall marketing plan.
(iii) It helps the management to develop a profile of potential customers and their purchasing habits.
(iv) It enables the marketing manager to evaluate alternative marketing strategies.
(v) It offers an opportunity to compare consumer reactions to the test product and competing products.
6. Launching the Product or Commercialisation:
After the test marketing gives green signal for the introduction of product in the national market, the firm may proceed to finalise all features of the product. The marketing department will launch a full fledged production promotion campaign for mass distribution. Distribution channels will be chosen to make available the product wherever it is demanded.
After this, the life cycle of the product will start and the marketing manager will adopt different strategies during different stages of the product life cycle to maximise sales volume. Necessary improvements in the product may also be introduced as and when necessary in the light of changed customer requirements and innovations in technology.
Each of the above stages becomes progressively more expensive in terms of money and scarce manpower. But once the produce idea passes through these stages and careful analysis has been done at each stage, the chances of product failure will be reduced considerably.
Concept Testing and Test Marketing:
Concept testing stands for pre-testing of product idea which is concerned with measuring customers’ reaction to product concept or idea. For instance, synthetic detergent is used in powder form in several countries of the world. But Hindustan Unilver Ltd. proceeded to test a detergent bar as a concept because most of the Indians are accustomed to using a bar to rub on the fabric.
Concept testing is a kind of research in which the product idea is screened before any money, time or efforts are committed to making the prototype product. The idea of a product with as many details as possible is made known to the customers either verbally or through the use of suitable blueprints.
The response of the customers is checked and only if it is found encouraging then the development of product is taken up. Concept testing guides the management in taking decision about the introduction of a product.
It serves the following objectives:
(i) To determine whether the product idea is to be abandoned or refined further.
(ii) To determine the size of the potential market.
(iii) To guide the marketer in adopting suitable marketing strategies in advance.
However, concept testing is exposed to the following limitations:
(i) It entails some risk of disclosing the firm’s plans to the competitors.
(ii) There is a time-lag is obtaining and assessing the results.
(iii) Respondents may overstate their interest and encourage unsound development.
(iv) The validity of any measure of potential market size obtained through early stage concept testing is often dubious.
(v) Findings may be misleading if the test is not carried out properly.
Concept Testing Vs. Test Marketing:
Concept testing is followed by product testing which involves internal laboratory testing of the proposed product in terms of product features and quality. If product testing is successful, it is to be tested for the market.
Product testing is intended to achieve the following objectives:
(i) To assess performance of the product to be launched.
(ii) To minimise the risks attached to full-scale launching of a new product.
(iii) To collect necessary data of responsiveness from the customers.
(iv) To identify the market segments where the product is likely to be successful.
Test marketing is required to examine how the company’s total marketing mix is doing in the market. It is carried out after concept testing and product testing which do not guarantee success in the market. Test marketing is broad per in scope. It evaluates the whole marketing plan including product, pricing, promotion and distribution. It helps in forecasting sales of the product to be launched.