Everything you need to know about the process of New Product Development (with 7,8 Stages, Steps and Examples).
Process of New Product Development: Stages, Steps and Examples
Process of New Product Development (7 Stages)
In marketing parlance, ‘new product’ has six definitions that are commonly used (in addition to BAH and Roberson’s classification schemes).
They are as follows:
New to the World- When a product is newly developed or invented and unknown to the entire world it is called’ new to the world’.
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New to the Country of Operation- There are many products which are available in various countries but are absent in other countries. When such products are being introduced to the country where they are not available, it is called ‘new to the country’.
New to the Organization- A product is developed and sold by one company and it becomes successful. Other companies also want to copy such a product and sell it. In such cases, though the product is known in the market and to consumers, it is new to the organization selling it for the first time.
New to the Area- Many organizations have many products that are being sold selectively in particular areas only. When these products are sold in areas where they were not sold previously, it is called ‘new to the area’ product.
New to the Segment: When a marketer declares newer uses of a product directed towards a new segment, it becomes a new product for the segment. E.g. Natural gas that was being used as fuel for furnaces in the industry was introduced as automobile fuel and cooking gas. It was new to these segments.
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Reduction in Price- When a marketer reduces the price of the product to include the price-sensitive lower end of the segment, it becomes new to the segment.
Process of New Product Development # 1. Idea Generation:
Idea generation starts at various levels of an organization and involves all the stakeholders of an organization.
For example-
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Consumers can come out with ideas in their feedback about existing products. This happens more number of times in industrial/institutional sales situations where the purchase manager asks his existing suppliers,” Why don’t you people start manufacturing and supplying so and so product to us?” This becomes an idea for marketing personnel.
Suppliers can also be a part of idea generation. Suppliers, while supplying raw materials can get ideas of supplying new raw materials that may be available easily and at reasonable levels. These suppliers may suggest some new product ideas to the purchase managers and works managers.
III. Distribution Channel Partners:
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Distribution channel partners like warehousing agents, clearing forwarding agents (CFAs), distributors, wholesalers and retailers come in contact with various persons from other organizations. These people may give out some new product ideas while talking to the marketing/accounts personnel.
People working with advertising agencies come in contact with various persons from other organizations. These people may give out some new product ideas while talking to the marketing/accounts personnel.
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People working in research agencies come across various types of consumer reactions. These reactions when reported to the marketing manager can lead to new product ideas.
While working in the market, sales staff may come across new products introduced by competition or a local manufacturer who is able to attract a good number of consumers can report it to the marketing manager, leading to new product idea.
VII. Senior Managers:
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While touring in various parts of the world, senior managers may get attracted to some products and may suggest them as new product ideas.
VIII. Research and Product Development Team:
Organizations have research laboratories where research and product development work is undertaken. These persons may come out with new product ideas.
Extension of the Product Line and Length:
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The Marketing Manager can decide to take benefit of the current popular product/brand and extend it to take benefit of the popularity as acceptance and adoption becomes easy.
An example of this can be as follows:
Navratna Body Talk- Navratna Hair Oil with its popularity as ‘Thanda – Thanda Cool – Cool’ oil has extended the USP to body talk with the same slogan and an added slogan, ‘Duniya ka sabse chotta AC’.
Colgate Tooth Powder- Colgate, a leading toothpaste brand extended its line by introducing Colgate Tooth Powder to include rural customers in their product users. Also, they launched toothbrushes and mouthwash in the product line successfully.
ENO Brand Extension- ENO Fruit Salt was sold in a bottle pack traditionally. To modernize the image, it was launched in sachet pack in 1986. Now the organization is extending the line by launching many flavors to ensure the customer does not shift to any other brand.
Horlicks Brand Extension- Horlicks also extended its brand to different flavors and products like Horlicks Plain, Elaichi, Chocolate, Horlicks for Mothers, Junior Horlicks for small kids etc.
Process of New Product Development # 2. Idea Screening:
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All ideas that are received need not be good and practical so all of them need to be screened for their practicality and prima facie commercial viability. Many times, two errors are found to occur in idea screening.
They are:
Some of the very brilliant ideas that have come from new recruits or persons working at very low levels of the organization are not considered at all and are dropped without being properly considered.
E.g.-IBM dropped ideas that were put forward by Bill Gates who was not considered to be experienced enough to come out with good ideas. Bill Gates, who then started his own organization, Microsoft, implemented them and his company became bigger than IBM.
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In exactly the opposite situation of drop error, many organizations accept ideas that come from the top executives and lose considerably high amounts in them. E.g. Smith kline Beecham launched a product called Marmite that was very close to the then Chairman & Managing Director.
Marmite is a very popular brand in UK and its non- vegetarian version Bovril is also very popular in UK since generations.
Since the non- vegetarian product would have a small consumer base, the vegetarian version Marmite was launched. Marmite was locally available as an imported product in all five metro cities. The quantity sold was very small. For example, in a city like Pune, the product was available regularly with ‘Dorabjee’ in Camp and no other place.
Sycophants declared that since Vitamin ‘B’ tablets are the highest selling medicine in India, and Marmite being a natural source of Vitamin ‘B’, it would sell like hot cakes. The product was launched all over India but since it failed to generate any sale, it was withdrawn. The product is available today also as an imported product in the same shops and the quantity sold is very small.
Similarly, Nestle launched ‘Lemon Tea’ in 1983 as product to be taken in summers as iced tea. It had not done well. But still it has been re-launched again and again with moderate success currently. This must only possible because some high ranking person in Nestle must be pushing it.
Process of New Product Development # 3. Concept Development and Testing:
Once the idea is accepted, it needs to be developed into the concept that may have many variations.
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Each variation needs to be tested for:
A marketing manager should ask himself one question – “Why will the customer buy my product when other products are already available?” The answer to this question will lead to product differentiation and USP (Unique Selling Proposition).
By creating product differentiation the marketing manager creates reasons for the customer to try the new product and the USP will give the customer a reason to keep buying the new product and justifying his actions to others (friends and relatives).
Michael Porter suggested differentiations through the following which he calls ‘Drivers to uniqueness’.
i. Policies and Decisions:
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The organization’s policies and decisions that are responsible for its image, its products and the service provided by it to its customers, play a vital role in differentiating the organization from others.
ii. Linkages among Activities:
If the organization’s activities are well coordinated, it gets a competitive advantage due to activities being properly linked to each other and creates a better image of the organization.
iii. Timing:
The timing of the introduction of the product to the market plays an important role in differentiating the product from others (at that time there may not be any other product in the same category).
iv. Location:
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Where the product is being introduced can lead to uniqueness of the product, especially in services. For example-
a. A new lodge in a scenic location where there are no facilities.
b. A new hospital in the area where the special treatments are not available.
c. A new specialty restaurant that is new to the market (say Thai food).
d. A travel agency where there is no travel agency.
e. An automobile showroom.
f. A fuel station (petrol pump) in a remote area.
v. Interrelationships:
If the organization’s products are interrelated, it creates uniqueness in the organizational activity and impresses customers as a major player in a particular category.
vi. Learning:
Learning from own or competitors’ mistakes about the features of the product or learning from consumer research before the introduction of a product.
vii. Integration:
If all the activities in the organization are integrated (for various products lines) then it creates differentiation in the minds of customers about the organization.
viii. Scale:
Scale of activities can give uniqueness to the product, be it on very large scale in mass marketing or on a miniscule scale as niche marketing can differentiate the product greatly.
ix. Institutional Factors:
The organization may have developed a unique image in the customer’s mind that gives it an advantage and leads to differentiation. E.g. A product from HUL in India has a unique advantage as customers respect it for quality superior to others.
Some of the ideas can be very good but not practical. E.g. So many organizations have tried to sell fresh tender coconut water in packets. Most of them have failed because the quantity sold is small and shelf life is less than two months, so over a period of time, sales volume is less than stock returns.
Similarly, many organizations have tried to market Pedha and Burfi as branded products. Both these products have a shelf life of 36 hours without refrigeration so it becomes practically impossible to manufacture, package and sell in other cities because by the time they reach the retailer’s shelf, their shelf life is over.
Price determination is a major hurdle, price depends on technology being used, raw materials being used, the source of raw materials, the packaging required and the selling cost that may be incurred. Considering all these aspects, the price is determined. This price needs to be compared with the nearest competitor that may be present in the market and finalized.
Eg. Many automobile companies are trying to get import duty reduction for cars that are being imported to reduce the selling price, as the current price is out of reach for many consumers. These automobile manufacturers are unable to manufacture these cars in India as the expected sales volume does not permit them to do so (the cost of setting up the plant, the investment as against the volume is very high).
Another example is of Glucose biscuits. No new entrant is able to manufacture and sell Glucose biscuits in competition to PARLE as they are maintaining the MRP at a very low level that is economical to them only because they are market leaders and have nearly 90% market share at very high volume sales.
Once the product concept is ready and the price determined, it needs to be checked for consumer acceptance. Consumer acceptance is checked through proper marketing research using different research techniques like factor analysis, conjoint analysis, depth interviews, market testing etc. These tests help finalize the features of the product so that it becomes attractive to a large number of consumers.
Most of the time, the marketing research directed towards consumers is to find out:
i. Cost benefit analysis – price verses the features offered.
ii. Combination of various features in view of consumer reactions.
iii. Price verses quantity offered.
iv. Feature of the product most liked by consumers and to be used in promotions.
v. Most common reasons why consumers liked the product to be used in promotions.
vi. Variations in pack designs, for finding the most attractive pack design in the minds of consumers.
vii. The media that has the highest reach to the targeted customers.
V. Product Positioning:
Product positioning is a major decision that leads to the decisions on product features, pricing, distribution strategy and promotions. Product positioning becomes very important when the product is being introduced in a market with many competitors.
The marketing manager needs to decide as to how the customers will view the product and accept it. Perceptual mapping of customers is the technique used by the marketing manager to decide the product’s position in the customers’ mind.
VI. Perceptual Mapping:
Perceptual maps are plotted after consumer research on how customers see the current products on various parameters. The comparison is always on two relevant aspects of the product features. The perceptual map of the beer industry can illustrate it as follows.
In this map, features of beer (price and heaviness) are plotted which are major considerations in buying decisions of consumers. The perceptual map shows the gaps where a marketer can position his product to give USP and differentiation.
VII. Packaging Requirement:
Products need to be packed for two reasons:
a. Packaging for Product Safety:
Product needs to get transported from manufacturing point to the customer through the distribution channel. During this journey, the product needs to maintain its quality and so proper packaging is required to ensure product safety.
b. Packaging to Attract Customers:
Product packaging can become a mode to attract customers towards the product. Various packaging are found to enhance product quality perception in the minds of the customer while product quality is comparable with other products.
Process of New Product Development # 4. Marketing Strategy:
Depending upon the product features and pricing, the marketing manager decides the marketing strategy.
The marketing strategy is decided in two parts:
The marketing manager can think of selling the product in three ways:
i. Exclusive Distribution Strategy:
When the product is high priced and has a very small number of customers concentrated in an area or spread over a large area, exclusive distribution strategy is used. For concentrated customers, the marketer can open an exclusive showroom and for spread over customers, direct to home marketing by mail order or by appointing a sales team for direct marketing is used.
E.g. ‘CharagDin’, an exclusive brand of readymade clothes is having an exclusive showroom only in Colaba, Mumbai. Similarly, many wristwatch brands are being sold through exclusive showrooms either in Mumbai or Delhi. CharagDin is also available through mail order.
Many other products are only available on mail order exclusively.
ii. Selective Distribution Strategy:
When the product has customers concentrated in groups at various locations, the marketer can use selective marketing strategy. In this strategy, the marketer opens ownership showrooms or showrooms through franchisees to offer the products to the customers.
Since the size of the segment is small, selling the product all over is not commercially viable but selling it selectively where the customers are concentrated works out commercially. E.g. Pizza Hut, KFC, Mc. Donald’s, automobiles, branded textiles etc.
iii. Extensive Distribution/Mass Marketing Strategy:
When a product is acceptable to all types of customers, then it is sold through mass marketing/extensive distribution strategy.
In this method, you need to build a distribution chain with various types of middlemen like clearing forwarding agents (CFAs), distributors, wholesalers, semi wholesalers and retailers that are spread over the entire area and make the product available readily to all the customers all the time.
The key for success in this type of strategy is to ensure constant supply of products at all levels.
(II) Strategy for Pricing in Competitive Markets:
Three types of pricing strategies are used in competitive markets.
They are:
i. Market Penetration Pricing:
When the market is dominated by a strong brand leader, marketers use market penetration pricing strategy. In this strategy, the products are offered at a significantly lower price than the market leader to attract customers to try the product. If the customers are satisfied with the product, they start buying it repeatedly and then the marketer can increase the price to the market leader’s level.
E.g. Peter England launched their shirts and trousers at the lower end to attract customers and establish the brand. Now Peter England showrooms mostly sell the higher priced premium varieties and lower end products are not available.
Similarly, Westside, a TATA enterprise chain started selling their ‘Richmond’ brand which was offered at a low price and that too, with promotional offers like Rs.1000/- for three shirts. Today they sell only premium priced varieties and ‘Richmond’ is not available.
Penetration pricing may not succeed all the time. E.g. Many toothpaste brands, tea brands and soap brands launched at significantly lower price than established brands have failed, as customers consider them to be low quality.
A marketer may decide to sell his products at a higher price than the competition. This type of strategy is called premium pricing strategy. In this strategy, the marketer is required to highlight benefits that are better than the existing products and so demand a premium. A classic example of premium pricing is Boost.
When Boost was launched, the market leader was Bournvita with 100% market share (Ovaltine, the earlier brand leader had stopped its sale in India) and was sold in a tin pack at Rs.13/- for 500 gms. Boost was launched in a wide-mouthed bottle for Rs. 13.50/- for 500 gms, declaring it as creamier and more chocolaty than Bournvita. Boost is a success story.
Similarly, LG launched its high-end brands first to establish its product supremacy and then launched its lower-end products at premium price.
The media reach needs to be flexible so the marketer can restrict his reach to local customers or should be able to reach the entire lot. Sometimes, a marketer needs to restrict the media reach so that customers outside the ambit of the planned area do not get the marketing communication.
iii. Strength of Distribution Network Available:
Distribution network needs to be strong to ensure that the product is available to customers easily. Many products have failed because there is no proper distribution network available.
Some of the retailers’ associations also block some products and demand donations from the manufacturers to their local associations before they give a NOC (No Objection Certificate) to the manufacturers. This is rampant in case of liquor business and pharmaceuticals where no alternative arrangements are possible.
ITC has successfully launched many confectionary products, incense sticks (Dhupbatti), and biscuits because of a strong distribution network. They were able to place the products with all the available retailers with prominent displays. This helped ITC to generate good amount of trials and repeat purchases.
Most Likely/Expected Business Projections for Three to Five Years:
The manufacturer is required to project most likely business projections for the next
In this strategy, the marketer launches his product at the same price as that of the brand leader in the market, suggesting that the product is equivalent to the brand leader but is new.
Process of New Product Development # 5. Business Analysis:
Business analysis is a major part of new product development.
In this activity, the following areas are covered:
I. Market Where the Product will be Launched:
Careful consideration is required to decide the location of the product introduction. The following considerations are taken into account for the same. E.g. Climatic conditions play a big role in deciding what kind of cloth range should be introduced in which market. One cannot introduce a heavy winter clothes range in a tropical market like Mumbai or Chennai.
II. Concentration of Customers:
Locations where the concentration of customers is high can become good locations as chances of trials and adaption is high in such locations. E.g. Food chains like Pizza Hut, Domino’s and KFC have still not opened their outlets in many cities of Bihar, Jharkhand and Orissa, while they have already opened up in many smaller cities in Maharashtra and Gujarat, as they do not have enough customers for getting breakeven plus business.
III. Strength of the Competition:
Strength of the competition is always considered a precautionary measure. Some marketers may decide to launch the product where the competitor is strong to challenge him with high volume promotional efforts while some marketers will choose locations where the competitor is weak and establish without challenge from competition.
IV. Customer’s Willingness to Try New Products:
Customers differ culturally in various parts of the country. Some of them are very rigid and do not adopt new products easily, whereas some of them are ready to try new products and adopt them immediately.
The early adopters may change to new products easily and the rigid types hold on to the existing product loyally for long and change only when everyone else has changed. Market research agencies give information on the customer’s willingness to try new products and a marketer may decide the location on that basis.
V. Available Media and Its Reach:
Any product launch needs media with good reach to the targeted customers. This helps the marketer to send marketing communication to the targeted customers three to five years. While doing this, they need to take into account the likely retaliatory reaction from the competition to protect their market shares and the rate of growth of the market. They also need to consider additional new products that may come and start competitions.
If the projections show a stable sale and growth in sales, then the product gets a ‘go ahead’.
VI. Financial Projections and BEP Calculations:
Depending upon the business projections, the expenses required to sustain the projected sales and beat the competition need to be projected. With these financial projections, the marketer can work out the BEP (breakeven point).
Indian companies are generally not willing to wait for a longer breakeven and look for breakeven in less than one year period. Because of this, we do not see many Indian companies coming out with any new product on their own (they come out with a copy of successful products).
Multinationals are willing to wait and are happy if the breakeven comes in five years also; a three year breakeven is treated as the best. Actually, all financial institutes also give loans for any new venture readily if the BEP is coming in five years.
Kellogg’s famously declared, “We changed the breakfast habit of the Japanese in 10 years. We are willing to wait for 20 years for Indian customers to change their breakfast habits.”
Maggie Noodles, a successful product now, also took more than twenty years to become profitable.
Process of New Product Development # 6. Product Development:
After the financial projections are okayed, the product development starts.
The product is made and market tested to make it ready for test marketing through the following steps:
Products are transported in various load sizes to difficult terrains to check the amount of pressure the packaging can withstand. This helps to make required changes in the packaging.
Products are stored at various locations at various environmental conditions to check their shelf life (how long they remain consumable without any harm to consumers. This leads to the ‘Best before’ date on the pack). This will help make any changes required to increase the shelf life to longer periods.
Product Testing- The product is tested with consumers to find out their reactions and feedback in a limited environment.
It is done in two ways:
i. Product Testing by Consumer:
The product is supplied to various consumers known to the employees and these persons are asked to keep it a secret. As these persons are known people, their feedback and opinions are found to be useful.
The products are placed in select stores for a period of time without any promotional efforts discretely and the consumer buying pattern is observed. Sometimes these consumers are interviewed and their opinions are sought. Since these customers are purchasing the product, using their opinions is more useful.
Process of New Product Development # 7. Test Marketing:
Even after doing all the research and following all the steps, the marketing manager does want to leave anything to chance, in order to remove any doubts or to refine any marketing activity to be done after the commercialization.
Many organizations avoid doing test marketing as the competition comes to know about the new product and gets time to copy/counter the product, making it difficult to achieve the projected sales.
Generally, test marketing is done at two different locations, geographically separated but demographically having a similar consumer base. One of the markets is used as constant and another is manipulated through various promotional efforts. This helps to judge the impact of the promotional activity and also the rate of adoption without any promotions.
If the product is not likely to have any existent or immediate competition, then the test marketing can be done in one market also. E.g. Anti-Dandruff Brylcreem was test marketed only in Mumbai city with author, the writer, being in-charge of planning and executing the test launch. Anti-Dandruff Brylcreem is a successful product.
Process of New Product Development # 8. Commercialization:
After all the steps, the product is launched/commercialized with a proper day to day plan and monitoring system. Every plan needs to have a benchmark to compare the results. When the results are compared with the benchmark, the marketer comes to know the success of the commercialization and any corrective actions needed.
(a) Place Where the Product will be Sold (Market):
The marketing manager can always look for newer markets to sell his products because newer markets lead to more customers leading to more business.
Newer markets in marketing has various meanings like:
I. New geographical location.
II. New segment of consumers having newer use of the same product.
III. New segment of consumers with the same use of the product.
All these variations lead to an addition in the consumer base leading to more consumers buying the products and increase in volume of sales.
(b) The Customer to Whom the Products Will be Sold (Consumer):
The marketing manager must define the customers to whom the product is to be sold so that the focus of all the promotional activities will be directed towards these customers and cost effectiveness will be achieved in promotions.
(c) The Price at Which the Product will be Sold (Price)- Price must be at optimum level where the organization gets profit and the customer is satisfied.
(d) Promotional Efforts-I- Plan efforts that will attract customers and make them buy the products. E.g. Various marketing communications and Pull promotions.
(e) Promotional Efforts-ll- Plan efforts that will make the customer loyal and prefer the product over competition.
Stages in New Product Development (New Product Development Process)
The product life cycle makes it clear that there are different stages in the product life cycle. A firm cannot rely on their current products to always remain in the stages of growth and maturity of its life cycle. When the products enter the decline stage, the company should take steps for its survival by adding new products to its product line.
The new product can be a result of research and development, acquisitions, mergers, technology transfer, new inventions, etc. For example- Kinetic Motors, the Pune based popular two wheeler company, spent Rs.5 crores to develop a small car for the Indian market.
The company expected some tax concessions from the government for those who buy the car. But due to the change of the central Government, that plan didn’t materialise and even after spending major profits from the two wheeler sector, the car designed by the company is yet to be introduced into the Indian market.
Another example of a new product is the Good knight mosquito repellent. Mr. Mohan, a Keralite who invented it, was a chemistry graduate who made a fortune out of that. His daughter was allergic to mosquito bites and all the treatment which he gave her in Mumbai did not give any relief to the child. As a result he developed a mosquito repellent and later entered the market and it became an instant hit. Those were the first mosquito repellent machines and mats in the Indian market.
The eight steps in the planning and development of a new product are explained below:
New Product Development: Stage # 1. Idea Generation:
This is the first stage in the new product development process. Ideas may be contributed by scientists, professional designers, competitors, customers, dealers, top management, company salesmen, etc. Companies must monitor the new product development of their competitors. Many companies often copy the competitors’ products and build a better one.
For example- BPL introduced the CONVERTI refrigerator, a unique product. Now, competitors in the same field are coming up with similar products, with similar or more attractive features. Similarly, Bajaj Auto Ltd. introduced India’s first 4 – stroke scooter with a throttle regulated ignition control system, for maximum fuel efficiency. Now, competitors from the two wheeler sector are developing similar products with added features to their credit.
New Product Development: Stage # 2. Idea Screening:
If the purpose of idea generation is to create a number of good ideas, idea screening, is done to reduce the number of idea. At this stage, though ideas at not clear, some rough guess work is done as to the market size, product price development time and costs, manufacturing costs level of return, target market etc., on the basis of this analysis, poor or bad ideas are dropped and only the most promising and profitable ideas of picked up for detailed investigation and research.
New Product Development: Stage # 3. Concept Development and Testing:
At this stage, those ideas that have survived screening must be developed into fully mature product concepts. For example- if the Bangalore Dairy Development Corporation gets an idea to produce a milk powder that consumers can use instead of milk, then this is a product idea and it can be turned into a large number of product concepts; like whether the product can be a substitute for baby food or the taste, nutrition, energy and refreshment contained in the product; whether the product can be substitute for milk; and so on. At this stage, it is advisable to conduct a consumer survey, which will enable the company to know which concept has the strongest appeal. Accordingly, the firm can develop the product.
New Product Development: Stage # 4. Marketing Strategy and Development:
This is the stage of introducing the product into the market, based on the ideas and consumer preferences gathered at the concept development stage. A marketing strategy is developed for the product. For example- when MILKMAID introduced its kulfi mix, the company offered it as a dessert that could be prepared in five minutes.
The introductory price was half of the original price and four kulfi moulds were distributed as a free gift. At this stage, a company gathers information from the market about the behaviour of the target market, the expected sales, intended price, distribution strategy, etc.
New Product Development: Stage # 5. Business Analysis:
At this stage, the management has to analyse the business feasibilities of the proposal. In other words, the management must analyse future sales, costs, profit estimate, etc. to evaluate whether they satisfy the company’s objectives. If they satisfy the desired objectives, then the product concept is moved to the product development stage. Thus at this stage the economic prospects of the new product are analysed in detail. On this basis, the company has to aim at attaining the desired profit level.
New Product Development: Stage # 6. Product Development Programme:
A product concept that is found feasible during business analysis is turned over to the Research and Development department to be developed into a physical product. To develop and convert the product description into a physical and feasible product, huge capital investment is involved. Consumer testing is also done at this stage, usually by distributing free sample in sachets.
Moreover, the branding, packaging and labeling of the product are also finalised upon at this stage. For example- the Pune based Kinetic Motors developed its product concept, a small car for the Indian market for which the company spent Rs.5 crore on Research and Development.
New Product Development: Stage # 7. Market Testing:
Market testing is the stage where the product and marketing programme is introduced in select cities or areas. This helps the company understand consumer reaction through a trial and error approach. The company can gather valuable information for product improvement, modifications, marketing mix, marketing strategy, etc. For example- Master card International is planning to introduce multi – purpose smart cards in India in the next 6-18 months.
Towards this Master card will initially launch its “Mondex” smart cards as a pilot project in one city, say, Bangalore and later move on to other cities. In this case, Bangalore is the test market for the “Mondex” smart cards. Test marketing is a must to find out the viability of the marketing programme at the national level. Test marketing helps predict future sales, the trying out of different marketing plans, etc.
It is not done for industrial products like computers, gadgets and machinery. It is popular for products like cosmetics, credit cards, and toiletries. Industrial goods, automobiles, etc. are introduced at trade shows in order to analyse the market potential, a buyer’s interests, distinctive features of the product from rival companies and similar purposes.
New Product Development: Stage # 8. Commercialisation:
This is last stage of new product development. At this stage the management takes the final decision of launching the new product. If the decision is to go ahead with the idea, the company will have to arrange for machinery for the required production, along with the full-fledged advertising and sales promotion campaign to go with the mass production.
The decision to commercialise involves four important decisions:
a. Timing:
This is an important issue concerned with a product. If the new product is an improvement over the existing product, then the product introduction has to be delayed until the old product stock is completely exhausted. For example- if a text book’s revised edition at a reduced price has to be introduced, the old edition at a higher price has to be completely sold out.
If the product is completely seasonal, say for example a soft drink, it is advisable to introduce the product during summer. But if it is mineral water it can be introduced at any time. Similarly, if the test market calls for an improvement of the product, the product should be introduced with the modifications, even if the company has to delay the product launch.
b. Geographical Strategy:
This decision is concerned with issues of whether a company should launch its product in a single city, in selected cities of a single state, in selected states or at the national or international level. For example- when BPL introduced its Double Cool refrigerators, it was done at the national level.
c. Target Market:
The target market is another important factor to be considered in association with the product launch. A company gathers the necessary information about this through test marketing. As a result, it gets to know about the customer demand and can thus propagate the sale of the product by targeting it at the right category.
d. Introducing Marketing Strategy:
The final step in the commercialisation stage is to introduce the product in the market. For example- the Indica car was first introduced in a trade fair and through advertisements they popularised the product and started accepting orders also. Some companies popularise and introduce the product specifying the distinctive features of the product as compared to rival products in the market. For example- Kenstar’s water purifiers always state their distinctive features or price in their advertising campaign against Aqua Guard.
Failure of a Product:
Despite all the efforts made for the success of a product by development and planning, some products have a very short life span and are market failures.
Following are the reasons given for the failure of new products:
1. Inadequate market analysis and market appraisal
2. Insufficient and ineffective marketing support
3. Bad timing of introduction of a new product
4. Failure to recognise rapidly changing marketing environment
5. Absence of formal product planning and development procedure
6. Failure to satisfy customer’s needs or expectations about the new product
7. Technical or production problems
8. Higher costs than estimated costs
9. Product problems and defects
10. Failure to estimate strength of competition, and
11. Market may be flooded with new products, all giving more or less the same features, etc.
But a company can avoid the reasons mentioned above for product failure through proper planning, analysis and control measures since these factors are within the control of the management.
Chances for the failure of a new product are less, if the product has any of the following advantages:
1. Product advantage
2. Marketing advantage, or
3. Creative advertising advantage.
In other words, if a product can satisfy customer needs precisely, supported by a better marketing and advertising advantage, the product will definitely be a success. For example Hotmail, the Internet’s first free e-mail service, made Sabeer Bhatia rich, famous and sought after. Sabeer Bhatia and his friend Jack Smith, while trying to communicate with each other without any middlemen, hit on Hotmail by chance. Now we know that this led to an Internet revolution and it already has 65 million users worldwide.
Branding:
One of the most significant product policy decisions that an organisation faces is the means to identify its products. In general, branding is a means for an organization to identify its offering and distinguish them from those of its competitors. In simple terms a brand can be defined as “a name, term, sign, symbol, design or a mix thereof used to identify the product of one firm and to distinguish it from competitive products.” A brand can be composed of a name, mark or a mnemonic.
Moreover, a brand name is the part of a brand which can be vocalized. For example- the brand mark of Wipro Ltd. is a sunflower, that of Air India is the maharaja and the ISI mark is for manufactured goods. Brand marks are designed to aid the easy and immediate identification of a product.
The continued uses of a brand mark are generally due to:
i. Crowing competition,
ii. Growth of national, local and international advertising,
iii. Growth of packaging, and
iv. The development of consumer brand consciousness.
Harry L. defined a brand image as “the impression of a particular product that has formed in the consumer’s mind.” ‘Brand’ plays a significant part in deciding the production policy. When a marketer opts to brand his product, he is intending to create an asset out of his brand. Moreover, his promotional programmes get centered around the distinctive features of his brand. On the other hand, if the basic brand decisions go wrong, then the entire marketing programme will suffer a set-back.
For developing a brand, the first step is to give the product an-identify through a name. The second step is to enhance its recognition by the provision of a symbol of identity. The third step is to develop a unique image for the brand and to build its personality over a long term. Building a brand personality is a difficult task for any product and service and only a handful of brands emerge successfully. Moreover, years of uninterrupted nursing with the support of a good marketing programme is required to get a brand established in the market.
Selecting a brand name is a difficult task for the marketer. A good brand name must be distinctive, easy to pronounce, recognize and remember. Also, it must represent something about the nature or function of the product and be appealing to the general public. For example- Amul is a popular brand name. Along with the brand name, companies also use a logo for visual identification. For example- the logo used by the State Bank of Mysore is a blue circle with a central dot.
Successful brands are major assets for companies. It is a valuable, renewable and lasting asset capable of producing a sustainable competitive advantage for the company. This will help the company earn its reputation and profits for years just like any other durable asset.
1. Branding confers status and prestige upon consumers who gain identity through a product or service. For example- Mercedes Benz ensures the high status of its buyer.
2. Branding helps consumers to compare the prices of its products with those of other companies. For example- when one detergent company reduced its price other companies also reduced their rates. Now, consumers are getting detergent powder at 45% lesser than the earlier rates.
3. When a product is distinguishable by its brand, a consumer has the assurance of quality and consistency in the product attributes being offered. For example- dairy products from Amul.
4. Branding is also helpful in saving considerable amounts, time and energy while shopping for goods and services because a brand renders product identification much easier.
5. Branding helps the consumer to lodge complaints and claims against marketing when a branded product fails to live up to its proclaimed value satisfaction. For example- the consumers of Airtel mobile phones are entitled to get the connection in 14 minutes from the time of purchase. If not, they have the right to lodge a complaint.
6. Branding ensures comparability when the buyer uses more than one source of supply. For example- Wipro lights are the same products regardless of the place of purchase.
7. Branding helps the seller achieve greater stability in sales volume and price.
8. Branding helps the seller work as a vehicle to achieve the goodwill of the general public. For example- Nestle dairy products ensure quality as an assurance.
9. Branded products tend to improve their quality over the years. For example- the mosquito repellent Good Knight first came with a long cord, then cordless and finally the odourless model.
1. A brand imposes responsibility for maintaining consistent quality and delivering the proclaimed value satisfaction. In case of product failures the company should withdraw it immediately from the market, otherwise it will affect the other products also. For example- research reports stating that soft drinks contain pesticides affected sales drastically and the concerned company had to give press statements to reinstate its credit worthiness.
2. Some products cannot be branded by their very nature. For example- fruits, vegetables, meats, fish, etc. unless canned or imported.
3. Lastly, building up brand recognition and loyalty is very expensive. Small businesses cannot afford it. Thus, it helps promote market monopolies.
Copeland M.T. has defined a trade mark as “a sign, mark, symbol, word or words which indicate the assign or ownership of a product and which others have not the equal right to employ for the same purpose.” In simple terms, when a brand receives legal protection and the owner reserves the right to its exclusive use, it is referred to as a trade mark.
Usually the letter “R” or “TM” is suffixed to the brand name so as to denote its registration and legal status; For example- John Louis, ORACLE, etc. Trade mark is subject to renewal every seven years. Indian trademarks are not valid in any other country just as foreign trademarks are not valid in India, unless used or applied for/ granted in India.
The symbol® is used for a registered trademark and for unregistered one. Trade marks can be registered by giving an application, in the prescribed manner with the appropriate fee, to the registrar for trademarks. Trademarks should be capable of identifying and distinguishing the goods of the proprietor. Moreover, a trademark should not be in conflict with one prior registered or a pending mark.
Packaging plays a significant role in deciding the total personality of a product. Moreover, these days packaging has become a very important part of product management. With increasing competition, marketers are turning to innovative packaging to establish a distinctive edge.
Marketers are providing value addition to products and greater benefits to consumers through packaging, thereby attempting to increase brand value. In simple terms packaging, may be defined as “the general group of activities in product planning which involve designing and producing the container or wrapper for a product.”
Branding, packaging and labeling play a significant role in selling the product. Packaging and labeling represent the product personally. Branding, packaging, labeling, product guarantee, warranty and after sales service are the product related strategies responsible for making the marketing programme effective. They are also the best means of promotion. They project the product in the most favourable way.
Packaging is important to the buyer’s recognition of the product and can secure higher sales and profit. Moreover, packaging provides handling convenience. For example- milk packed in sealed plastic bags, juice in sealed bottles, ice cream in plastic containers, etc. It can also effectively prevent adulteration.
Philip Kotler defines packaging as “an activity which is concerned with protection, economy, convenience and promotional considerations”. The Indian Institute of Packaging has defined packaging as “the embracing function of package selection, manufacture, filling and handling”. Packaging is closely related to labeling and branding because the label often appears on the package and the brand is on the label.
Process of New Product Development (Stages in New Product Development Process – With Suitable Examples)
New product development is the process of developing a new product for the market. A number of steps are involved in the process starting from conception of an idea to developing and manufacturing the product and making it available in the market.
A business has to continually introduce new products or improve the existing ones in order to face the cut throat competition in modern business world. Innovation is the key to success in the marketing sphere. Innovation in product planning is the process of doing something that has never been done before.
Creatively designed products are differentiated from others available in market. For long-term success it is essential that the firm keeps on innovating and developing new products that provide value to the customer.
The risk of failing is high for new products, so a product should be introduced only after adequate market research. It is vital that the customer accepts the new product; otherwise all the marketing efforts will be a waste.
The basic requirements of a new product are:
1. Customer acceptance
2. Innovative and unique
3. Satisfactory performance
4. Economical production
5. Effective packaging and branding
6. Adequate after-sales service
7. Ultimate replacement
Factors Necessitating New Product Development:
1. Due to changing market dynamics, existing products and product lines become inadequate for meeting buyer’s demand.
2. Changes in technology have widened the existing markets and opened markets for newer goods.
3. To maintain profitability even in highly competitive markets.
4. Diversification of risk.
5. To even out sales fluctuations resulting from seasonal factors.
6. To utilise waste or scrap from present production.
All these factors are related to management’s desire to improve profitability. Sometimes the market gets flooded by imitation products or products which offer only marginal competitive advantages. This is not innovation and does not lead to competitive advantage. A company’s product planning efforts should be designed to innovate and develop products which meet customer needs and contribute to company growth.
Steps in the Process of New Product Development
1. Exploration:
The first step involves exploration of new ideas that can be converted into products. Idea generation is an on-going process. Management and planning staff is always on lookout for concepts that have market potential. Market research can be used to gain ideas about customer wants, needs and desires. Tools like brainstorming, focus groups, etc. can be used to explore new ideas.
2. Screening of Ideas:
The ideas need to be screened to check if they can be developed into a commercial possibility. Not all ideas have the potential to be converted into a successful product. Ideas need to be evaluated on the basis of customer desires, market situations, competitor’s products, etc. to see if they are viable.
Marketing research and collection of data about the needs of the people are important. Ideas should be analysed from a technical viewpoint also. They should be appraised for sales potential, profitability, existing facilities and availability of other resources like finances.
3. Business Analysis:
The consideration of market potentials and profitability requires assessment of production facilities, availability of raw materials, possibility of using existing plants and finance allotted for the project. The finance, cost accounting section and marketing department are involved in the development of a new product.
The finance department is concerned with allocation of funds and cost of marketing research, while marketing department is responsible for sales policies and sales strategies. All departments coordinate in the new product project. Departmental heads frequently meet to discuss the new product.
4. Product Development:
Once it has been decided that the new product fits well with the organization goals, the higher authority gets the designs and samples of the product prepared. Decisions regarding product design, brand and packaging should be taken at this stage keeping in view the customer preferences.
5. Test Marketing:
This is a very significant step. The product is tested on a small sample of customers to check its acceptability in the market. The product is made available to a small segment of the target market and the response of the consumers is studied.
In case of a positive response, the decision is taken to produce it on commercial basis. But if the response is unfavourable, the reasons behind it may be studied and the product may be improved further.
6. Commercialization:
The last stage in product development is launching of the product on a commercial basis. If the product gave promising results in test marketing, then it is manufactured and introduced in the market. The company needs to schedule the production processes efficiently and ensure availability of the products in all the target markets.
Causes of Failure of New Product
1. Inadequate market analysis- Products that are launched without sufficient market analysis have high rate of failure.
2. Product defect- Technical faults in product will make it unacceptable to customers.
3. Higher costs of production- The Company would not be able to make profits if it spent too much on developing the new product.
4. Poor timing- Wrong timing of launch can compromise company’s chances of success.
5. Competition- If the competition is very high, then the company may not find any takers for its products.
6. Insufficient marketing effort- In the absence of proper marketing campaigns and advertisements, the new product may fail as people would not be aware of it.
7. Improper distribution- If the distribution system is not proper, then the product would not reach all the target markets at the right time.
New product development is a time consuming, risky and expensive process, but it gives excellent results if done in a proper way. Innovation and introduction of new products in the markets gives the company an opportunity to create a wider customer base, and strengthen relations with existing customers.
The markets are constantly evolving and so do customer requirements. A successful company regularly monitors the environment, identifies the emerging wants of the customers and designs new products for satisfying them. This would help them to not only increase their sales and attract new buyers, but also to build up a competitive edge over others in the industry.