Stages of New Product Development

The new product has to be developed by the companies with great care. It is necessary to understand the need of the consumers, competitive threats, availability of post-sales services and cost of marketing of the product.

However, in the contemporary era of competition a new product development is essential for the companies to make continuous efforts to develop a new product, though there remains the risk.

The new product failure rates in the packed products are about 80 per cent in USA according to some studies.

Among the services marketing the failure of new services is as high as 75 per cent in the states. These products include largely credit cards, insurance schemes, hire purchase schemes, investment plans and the like. These results largely depend on the methodology adopted in the survey.

The stages of new product development are:-

1. Idea Generation 2. Concept Development 3. Marketing Strategy Development 4. Business Analysis 5. Programme Development 6. Test Marketing 7. Commercialization Evaluation.

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List of all the Stages of New Product Development

Stages of New Product Development – 6 Stages: Idea Generation, Matching Products, Product Research, Identification of Requirements, Evaluation and Implementation

The ultimate objective of new product planning is to secure the long term viability of the company’s total activities and to form the basis for continued development and growth.

1. Idea Generation and Screening:

The stages involved are identification of the company’s differentiated assets, establishment and agreement of strategic product objectives, agreement of ideal product criteria and screening factors for new product, definition and agreement of product search areas, and preparation of working brief.

2. Matching Product / Market Profiles:

The stages involved are exploration of the markets to locate potential growth areas, assessment of accessibility of these growth areas to the company’s marketing facilities, identification of emerging market needs, definition and agreement of ideal market criteria and screening factors for new products, modification of product search areas.

3. Product Search:

This stage includes world-wide search for product, especially new or patented products.

4. Identification of Requirements:

The stages involved are investigation of productive requirements of new products, to identify any additional assets required, investigate marketing facilities required to identify any necessary addition to the existing organization, investigate any other new requirements such as finance, training, etc.

5. Evaluation:

In the comparison of characteristics of new products against set criteria, selection of a short list of most suitable new products are involved. This is followed by reassessment of size order of the markets and comparative re-evaluation of products. Final selection of most suitable new product(s) in terms of return on investment is a must.

6. Implementation:

Implementation involves planning in conjunction with engineering departments, and the preparation of production facilities. It also includes planning in conjunction with marketing department, the setting up of facilities for launching and marketing the new product(s) and assisting in the product launch and initial marketing of the new product(s).

New Product Strategies:

The investment objectives for the business and the thrust of the business are the major determinants of product policy and strategy which, in turn, relate to product goals (Investment strategy). A building strategy is adopted by companies which seek to develop by planned innovation in design, production, marketing and distribution methods. An innovative strategy may be founded on developing new uses for a product.

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Stages of New Product Development – 5 Stages: Idea Generation, Preparation, Incubation, Illumination and Verification

The product development process involves five stages —

i. Idea generation,

ii. Preparation,

iii. Incubation,

iv. Illumination (implementation) and

v. Verification.

These are explained below:

i. Idea Generation State:

The idea generation stage is the conscious identification of a product idea that indicates an opportunity. An opportunity is defined as the identification of a gap in “need” and the likelihood that if the product is developed to fill that need, it would also be wanted; i.e., there would be effective consumer demand. This idea may be born of entrepreneurial insight, creative mind-mapping or accidentally stumbling on an idea through a corridor of related activity.

When an entrepreneur is searching for an idea worthy of his commitment, he should not pursue one idea at a time. He should develop five or six simultaneously until one emerges so appropriate that it begins to dominate his thoughts and fantasies. To develop one idea at a time has several disadvantages. Choosing an idea is quite difficult and the entrepreneur has to weigh his intrinsic capabilities objectively in finalizing an idea.

In the idea stage suggestions for new products are also obtained from all possible sources — customers, competitors, distributors, employees and R&D. The idea generated or suggested has to be carefully screened to determine which one is good enough to qualify for a more detailed investigation.

ii. Preparation Stage or Giving the Idea Form:

Once an idea has taken root in the mind of the entrepreneur he must sit down and prepare a ‘bench model’ or ideal blue print. At this stage the entrepreneur is concerned with identifying a particular product that he hopes to market successfully at a reasonable profit.

Therefore identification and development of the right product is very essential for being successful in the business venture. The right product here means that which can be marketed at a reasonable profit. Various factors influence the entrepreneur in selecting the right product.

Verification of hypothesis means which is accepted from the alternatives.

The decisive factors in the Indian context are:

(a) Whether import restrictions or the items selected are banned items and would be considered favourably because in the case of banned items the domestic market offers considerable scope for selling as the demand for such a product would not be met by import.

(b) If the entrepreneur has gathered substantial amount of experience in the manufacturing and marketing of certain products, then the selection of such a product would be to his advantage. Therefore, most often the items selected are those products in which the entrepreneur has gathered enough experience. The product line in which he is not experienced obviously would not be favoured much as it would involve uncertain situations very often.

(c) The selection of the product will also be based upon the degree of profitability that generally rules the market. Such information can be collected from the banks or the market itself.

(d) Many concessions are available from the Government, for manufacturing a product which serves as an import substitute or even essential item. Hence if a particular product enjoys a substantial amount of incentives, concessions and liberal taxation policies, obviously the entrepreneur will select that item to enjoy these advantages conferred on the production of this particular type of product.

(e) Many products belong to priority industries or small scale sector also. Certain products are listed by the government for purchasing exclusively from the small scale sector. As a result, if a particular product belongs to this category, the selection of such a product would be advantageous for the entrepreneur; therefore, these factors also must receive due consideration before the selection of a product.

(f) The market for the product also plays an important role in the selection of the product. If the product also has an export market, it enlarges the scope for marketing, hence such a product has its own advantage in the success of the enterprise.

(g) Certain products are permitted for production only if the license is obtained from the appropriate authority while others belong to the de-licensed category. Obtaining license is not too easy. A product belonging to licensed category or de-licensed category is considered before selecting the product.

(h) Many products enjoy specific advantages or carry locational advantages for example, if produced in the backward areas special concessions are made available for manufacturing such a product.

(i) If the product belongs to an ancillary unit and serves as a major component for the parent industry, it provides a ready demand; hence selection of this type of product assures easy marketability.

(j) Last but not least, the selection of product would also be weighed in favour or against depending upon whether or not the machinery and raw materials required would be imported or indigenous. Moreover, the selection would be based upon the technical know-how which is indigenously available or would require foreign collaboration.

iii. The Incubation Stage:

If the product proposal is accepted, the innovator must implement the first stage of actual product development. The product must be devised and a prototype developed. The entrepreneurs should submit the prototype to testing. This stage of development may be quite lengthy and include having several prototypes field-tested under Government supervision to comply with Government regulations. For example, a new dental instrument may have to be tested by an approved investigator, and a qualified dental researcher.

The critical activity at this point is to write a formal business plan. The entrepreneur may have written an initial business plan at the proposal stage, but the product has probably undergone substantial changes that require a revised plan.

Corporate managers or investors and lenders involved with an independent entrepreneur are unlikely to approve more funding without having a well-developed business plan, market projections and detailed financial requirements. The decision to pursue commercialization rests on the innovator’s ability to pass this point.

iv. The Illumination (Implementation) Stage:

The third stage in product development involves limited manufacturing and is called the limited implementation stage. This is a preliminary effort to put actual products into the field to gather market feed-back. This stage represents a transition from prototype to limited manufacturing. This stage does not mean actual market introduction but to ‘test’ the market and gather realistic information from selected consumers on product performance under real-world circumstances.

v. Market Testing (Verification):

Even a simple product will have to be tested with actual consumers. The entrepreneur is eager to get feedback from individuals who are most likely to be future consumers. Results from market tests constitute another critical point in product development. Now the entrepreneur has to decide whether to go into full scale production or drop the product.

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Stages of New Product Development– 7 Stages of New Product Development Process

1. Idea generation.

2. Concept development.

3. Marketing Strategy development.

4. Business analysis.

5. Programme development.

6. Test marketing.

7. Commercialization evaluation.

Stage # 1. Idea Generation:

Idea means what one mentally visualizes. It is tangible to mind but intangible to world. A raw stage of a new product. All raw visuals may or may not be materialised. From many raw ideas very few materialise. A product is the product of someone’s dream, concept, doubt, question, research, in-depth thought, visualization, thought, and creativity. Creativity is the product of imagination and routine skill. In fact, ideas are nobody’s property. Hence, an idea may be generated from internal sources and external sources.

Internal sources mean those which belong to one’s own organisation. Usually, companies establish their own department called ‘Research and Development’, which is continuously involved in the process of finding a new thing. The contributions of those who practically involved in production, marketing, sales, consumers research, scientists, analysts, surveyors etc., may be considered.

The external sources are those who indirectly related and benefitted from company. Customers are the bundles of new ideas. Whenever a customer is using a product, the inconveniences caused to him make him to think of alternative product. This quest for higher comforts is the stream of new ideas. ‘What satisfies me more’ is the basic zeal that contributes to go for a new product. Observing the customers at the point of purchase, is the company practiced way of recording the customers ideas. But customers should be wisely selected in the known area.

The people who often come in touch with customers such as – distributors, retailers, sales promoters, and agent are also stockiest of the changes, suggestions of customers.

The competitor’s moves changes, experiments, additions, deletion, cross verifications provide sufficient information.

Though ideas flow rapidly from both internal and external sources, they should be managed properly. Recently a concept called ‘Idea Management System’ has been introduced to take care of ideas collection, viewed and reviewed, evaluation etc. A separate department may also be established within, ‘Idea Manager’ as its chief to consider the total views of internal and external sources to develop a new – product. This will support the growth of ‘ideas culture’ in the organisation.

Idea Screening:

The purpose of idea generation is to get large number of ideas. The purpose of idea screening is to reduce the number of ideas after evaluation.

The ideas generated are classified into three classes as:

i. Promising ideas.

ii. Marginal ideas.

iii. Rejects.

The purpose of ideas screening is to abandon those ideas which are not compatible with the objectives.

If ideas screening is not done properly, two types of errors are likely to be committed viz., A drop error or A go error.

A drop error occurs when a firm dismisses a good idea. A Go error is committed when a firm permits a poor idea to move into development and commercialisation.

The purpose of screening is to spot the errors and drop them as early as possible.

The ideas are screened in respect of their acceptability by the consumers, expected profitability and market share, and so on considerations such as – availability of technology, Government rules, etc.

Stage # 2. Concept Development:

The raw state of an idea is further shaped in the concept development stage. As Philip Kotler defines ‘A product concept’ is a detailed version of the idea stated in consumer terms.

The version of a product is defined, in the form of definition. A single idea may be conceptualized in different versions. In each version different expectations of customers and imaginations of founders are practically incorporated in the product.

Stage # 3. Marketing Strategy Development:

Once the concept is developed and tested, the next move would be to develop marketing strategy for initial period. New market for a new-product is the special factor of this stage.

Marketing experts identify three parts:

i. Target market.

ii. Product, price, distribution, marketing budget.

iii. Long run sales, profits, goals etc.

i. The nature and special features of components of probable market be defined. Basically the question is who would buy our product? The product may be exclusively for kids, old age, ladies, gents, lower income group, and high class society. If product is meant for kids then targeted market would be only kids. Based on this, rests of the policies are framed.

ii. The probable price, the mode of supply and cost of marketing budgets are defined. The price range is specified. The channels through which product is made available to ultimate customers. The marketing budget consists of estimating the probable expenditure for marketing.

iii. The third aspect would be to explain the estimated sales of product during growth, maturity, stages and profits there upon. All these are quantification of future expectations.

Stage # 4. Business Analysis:

A selection of best concept is followed by rigorous evaluation of business opportunities, market potential, sales, costs, rate of return on the investment etc., all stands in tune to the business objectives. It is the testing of economic viability of product concept by various departments such as marketing, production cost, finance, research and development, cash flow analysis, break-even point analysis etc. All should accept the products, soundness on economic consideration and give OK reports, then only the concept moves to Product Development Programme.

Stage # 5. Product Development:

In this stage, the concept of product takes the shape with physical features. The product development department will shoulder the responsibility of converting a design into tangible product. It is like sculpture’s work, who converts a drawing of lord Ganesh in Physical statue in the sandal wood with necessary instruments. The same concept may be developed with different versions with common features.

The following are the activities performed in the product development stage:

i. Developing a tangible product / visual form.

ii. Branding – Packing, Labeling.

iii. Consumer Testing.

The common most acceptable model by consumers would be finalised.

Stage # 6. Testing – the Product:

The product has passed through various stages which supported the development of a product. Unless the developed concept is tested before venturing into the real market situations it may experience sudden failure.

There, here different tests are conducted:

i. Concept testing.

ii. Product testing.

iii. Test marketing.

i. Concept Testing:

The idea or concept of product is tested to know the reactions of customers. The product details are explained to customers to obtain their responses. A team of researchers is employed to collect, tabulate, analyse the information collected. This attempt would help in the relative evaluation of merits of new product’s proposal, suggests for modifications, decide in advance the probable marketing decisions by the management. But too much rigorous concept testing may result into discouraging responses, extend the time of introducing the product, mislead the concept developers on wrong diagnoses of the customer’s pulses etc.

Concept Testing means “Testing new product concepts with a group of target consumers to find out if the concepts have strong consumer’s appeal” is concept testing.

Before introducing the ultimate product to the total population, the reactions, responses are obtained through sample tests. Product is introduced among the sample – group selected to record their observations. A simple questionnaire may be served with product to record the reactions.

All questions are directed to know the readiness of customers in accepting a new product. This process helps the company in choosing best among the alternative product concepts. The products attributes are crystallized with benefits expected by customers.

ii. Product Testing:

The successful concept testing would boost the organisation’s morale to go for product testing. Here, actually the physical product is placed among the few selected customers group. Analyses are directed towards testing the extent of the product meeting the pre tested concept.

It is an opportunity for the customers to place on record their felt experiences whether good or bad. The product’s actual performance is evaluated and successful market segments are identified with product testing technique. Though, there are no standardised measures to test the product, still testing among sample clusters reveals so many facts, opinions about the product.

iii. Test Marketing:

Product failure in the market cannot be simply avoided with concept and product testing but they can minimise the risk. Here, another attempt is made to reduce the failure through selective test marketing. The product is placed in the selected market segments with all product mix features, even slight variations may be brought in the different market segment to analyse elasticity of demand, ability to withstand the prevailing market competition, acceptability of product in toto.

Based on the experiences management can estimate the probable sales volume, profits and decide upon the suitable channel media of advertisement, competitive strategies etc.

The management of any organisation is not interested in meeting the big failures while introducing a new product. A planned pre-testing has become the strategy adopted by modern business organisations. All care should be taken for testing the product in the market selection, size of market, clusters of customers, competitive nature of market, collection and analysis of information time of testing (test-duration) the adoption of suggested modification, flexibility in launching the products etc.

It is rightly pointed out that, pre-testing is not for elimination of risks but only for reducing the chance of mistakes. Every attempt that reduces the chance of failure is an addition to the successful launching of a new-product. All such chances are welcomed by marketers.

Stage # 7. Commercialization:

A firm answers to the question whether to launch a product or not? has been well suggested up to testing stage. In this stage, product is placed / launched in the market, thus making a beginning to the first stage of product life cycle i.e., Introduction. The final stage decisions relating to timing, location, channels etc., are finalised. Though precautions were taken by the company, unexplainable reasons may stand as obstacles resulting into utter failure of product.

Usually, new product is introduced on phase wise basis. If, launched at all over the market, in advance, products should be stocked at the distribution ends. No customers should experience any problem while tracing and selecting a product. Hence ‘Place – safe policy’ should be adopted to make successful launching of product.

Innovating a new product is the need of market. Customers expect new products, the satisfaction of which is the responsibility of manufacturers and marketers. The organisations with commitment can successfully place right product, at right time, to the right customers as innovation has become the culture of modern entrepreneurs.

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Stages of New Product Development – With Major Factors Obstructing the Process of New Product Development

The new product has to be developed by the companies with great care It is necessary to understand the need of the consumers, competitive threats, availability of post-sales services and cost of marketing of the product. However, in the contemporary era of competition a new product development is essential for the companies to make continuous efforts to develop a new product, though there remains the risk.

The new product failure rates in the packed products are about 80 per cent in USA according to some studies. Among the services marketing the failure of new services is as high as 75 per cent in the states. These products include largely credit cards, insurance schemes, hire purchase schemes, investment plans and the like. These results largely depend on the methodology adopted in the survey.

The major factors that obstruct the process of the new product development are:

i. Limited creativity and paucity of new product ideas.

ii. Fragmented markets.

iii. Social and economic limitations.

iv. Government policies and restrictions.

v. Cost-effectiveness of the process of the new product development.

vi. Resource crisis at various levels in the process of the product devel­opment to launching in the market.

vii. Product development and launching time.

viii. Short product life-cycle.

The companies should strengthen their marketing network simulta­neously while launching the new products. It has been observed that the failure of new products is often due to the lack of organisational team­work. Thus, it is required to inculcate team behaviour in developing the new products and popularising them in the test market segments.

The results of the test markets may be further carried out in the larger segments. It is essential that a company should conduct brainstorming exercises for understanding the basic and secondary needs for the product, listing the product attributes and identifying the forced relationship of other goods and services with the new product. Idea generation in the process of the new product development is a major exercise.

This technique calls for listing of all major attributes of the existing product and the needed attributes in order to improve the same product. The forced relationship of the new product with the existing accessories need also to be studied e.g., developing a new television set may be related with the consumer need of clock, multichannel viewing on one screen, microphone attachment and a built-in video game.

Such a forced relationship has to be identified by the company before launching the product. The morphological analysis calls for identifying the structural dimensions of a problem and examining the relationships among them. The need identification can be done by interacting with the potential and the existing customers in a focus group meet.

The industrial marketeers can identify the new product ideas working in association with the lead users of the product. However, the brainstorming exercise is also an important tool, which stimulates the group creativity. In a brainstorming exercise, the following process is prescribed by Osborn.

i. Negative comments in the process may be withheld till the synthesis is over.

ii. Welcome freewheeling and wilder ideas for better steering.

iii. Encourage more number of ideas and categorise its utility.

iv. Establish inter-relation of the ideas for an overall synergy approach.

The basic purpose of this exercise generation is to generate a large number of ideas. These ideas need to be carefully screened in the inter­ests of the consumer satisfaction as well as the company’s profit. In this process, the company should avoid the Drop and Go errors. The former attempts dismiss the good idea, while the latter attempt allows the poor ideas to move into the process of commercialisation.

Hence, the purpose of screening the idea needs to be understood carefully. It is advised that a company should develop an idea-rating matrix on the basis of the emerging ideas and their usefulness. The product ideas have to be turned into a concept and the product concept can be turned later into the brand concept. The concept testing calls for testing of these compet­ing concepts with an appropriate group of target, consumers.

The concepts can be presented physically or symbolically. The consumers’ response may be summarized and the strength of the concept may be judged. The need gap and product gap levels may be checked and modified later. The concept testing and product development methodology applies to any product or service.

The business analysis includes estimating the sales as it would be of one-time purchase, frequently purchasing the product or at regular interval purchase product. The estimates should also be made in relation to its tendency of the first purchase, replacement purchase or repeat sales. Besides, the company should also assess the estimating marketing costs and the profits from commercialisation of this product.

The statement of such estimates may be made across the regions and years of sales (spatial and temporal) on the following variables:

i. Sales revenue.

ii. Cost of the goods.

iii. Gross margin.

iv. Development costs.

v. Marketing costs.

vi. Allocated overheads.

vii. Gross contribution.

viii. Supplementary contribution.

ix. Net contribution.

x. Gross contribution.

xi. Discount contribution.

xii. Cumulative discounted cash flow.

The sales projection may be set on the basis of the market assumption market share of the company and the factory realised price. The cost at which the goods are sold may be found by estimating the average cost of labour, product constituents, logistics and packaging. The difference between the sales revenue and cost of production would reveal the gross margin of the product.

The development cost consists of the expenditure incurred on the product development, research cost and operational cost including the development of the new equipment, inventory and designs. The marketing cost comprises of the costs of product distribution, adver­tisement and other costs. The overhead cost of this new product covers the share of its cost of executive salaries and infrastructure.

The gross contribution may be found by subtracting the preceding tree costs from the gross margin. The supplementary contribution is used to list any change in income from the other company products caused by the intro­duction of the new product. The discounted contribution may be of some sales incentives or any introductory offers given by the company to promote the product. The cumulative discount cash flow shows the cumulating of the annual contribution of the discounted contribution. The companies use also other methods to evaluate the good reason for introducing the new product in the market.

The product development at this stage is designing the prototypes on the lines of the derived concept that has passed through technical tests. The consumer testing of the product may be taken up in two forms – laboratory testing and home testing. The American home durable com­pany Du Pont developed new synthetic carpets and installed them in several homes, free of cost in exchange for old ones.

Consumer preference testing may be done through a variety of techniques such as – ranking, paired comparisons, rating scales and focus group discussions. However, while analysing the consumer preferences, the company has to take into account the advantages and limitations of each method. The number of responses in each category of preference of the products needs to be multiplied by the respective weights of the prefer­ences and the sum has to be divided by the total number of responses to get the preference score. The cut-off score has to be decided by the com­pany and viewed as the cutting edge. It should be generally at a reasonable margin above the break-even point.

The consumer foods marketing testing can be done by using the sales-wave research and controlled test-marketing method. The sales-wave research enables the company to estimate the repeat purchase rate, where consumers spent their own money and choose this product among other competing brands. The controlled test-marketing is conducted in a given territory of consumers and segment.

The retailers and consumers in the vicinity are identified and the consulting firm conducting the research delivers the product to the selected outlets with the total pack­age of promotion. The results of the consumers at the outlets can be collected in a structured questionnaire or scanned by a computer. The controlled test-marketing allows the company to test the impact of retail response as well as the buying behaviour of the consumers.

Commercialisation of the product is a strategic decision in which the company should look into the appropriate time, market and consumer seg­ment to launch the product. The company has to derive the geographical strategy with the logistics administration approaches. The time of launch of the product may be considered looking into three common choices – maiden entry or first look in the market, parallel entry with the similar or identical product of the competing brand and late entry when the firm delays positioning its product in the selected segment.

The commercialisa­tion process of the product also prompts the adoption behaviour of the con­sumers. There are five stages in the adoption process – awareness about the product, interest generated in using or adopting the product, evalua­tion of the product, trial of the product from the point of perceived use value and the perceived price and final adoption of the product for use.

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