4. New Product Development

8/2/2019 4. New Product Development

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MARKETING MANAGEMENT - I

NEW PRODUCT DEVELOPMENT

What is a New Product ? New Product means the Product new to

the company

Three Most Important Questions1. How often should company launch ?2. Percentage of New Products to Old

Products ?3. Who should be involved in development

team ?


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What is a New Product ? Original Products : Original to company as

well as the market

Modified Products : Existing products withalterations

Me Too Products : Copying one of the

successful product in the market Product Line Acquisition : Products

available from some subsidiary company


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In a New Product the company will always havesomething NEW into the Product Mix. It could be aNew Experience or New Products

Why New Product ? Risky not to innovate considering the competition Consumer Expectations : Consumers expectation

for steady stream of New & improved products

with changes in Needs & Wants Continuous innovation is the only way to avoid

Product Line Obsolescence


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Why Does A New Product Fail ? A senior level executive pushes a favorite idea in

spite of negative market research findings.

The idea is good, but market size is overestimated The product is not well designed The product is incorrectly positioned in the market,

not advertised properly, overpriced. The development costs are higher than expected. Competitors fight back harder than expected


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Difficulties in New Product Development Shortage of important new Product ideas Fragmented Market Growing social & Government constraints Cost of New Product Development Capital shortages Faster required development time Short life span of successful products


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New Product Development Organisation Product Managers New Product Managers (recruited exclusively

for new product lines - Product Planners) New Product Committees (handle new

portfolio with existing responsibilities)

Venture Team (gather knowledge pool withinorganisation and allow them to work on newproduct for next 2 - 3 years)


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New Product Development Stages Idea Generation

Idea Screening Concept Development Business Analysis Product Development Test Marketing New Product Launch




New Product Development StagesThe process starts with lot of ideas but only oneof them gets selected for the Product Launch

1. Idea Generation : Every New Product starts off as an Idea Most Ideas never become Products Large no. of ideas needed to locate good idea Greater the no. of ideas, better the best ones

are likely to be.




New Product Planning GroupResponsibilities Search - Active search in an environment

Stimulation - Motivate company personnelto develop more ideas

Enhancement - Reroute ideas to other

functional areas in the company forfeedback and idea enhancement



ORGANISATION OF IDEA FLOW

NewProduct

Cell

Customer

Technology

Competition

Top management

R & D

Sales




Scientific Method for Idea Generation : Attribute Listing - Modification of different

attributes in search of a new product Forced Relationship - List all the ideas &

consider each one in relation to the others

Brain Storming with Customers Survey your customers




2.Screening :The purpose of Screening is to eliminatethose ideas which are dissonant with eithercompany objective or resourcesTypical Company Objectives are Profit, Salesgrowth, company image etc.

Generally considered Company Resourcesare Capital, Know How, Physical facilities etc




2.Screening (cont.) :In other words Screening is Quantitative

evaluation of ideas against companysobjectives, compatibility with existingproduction & distribution facilities togetherwith gross economic factors such as potentialcompetition etc.




2.Screening (cont.) : Few Basic Questions :-

Can the existing production facilities be utilized Can the present raw material be utilized ? Can we use existing distribution channels ? Can we use the existing know how ? Can we produce economically smaller batches ? Can it be priced competitively ? Is there an existing demand ? What are the chances of stability of demand ?



NEW PRODUCT DEVELOPMENT Product Marketability Index (P.M.I.)

Excellent quantitative technique forevaluation of a new product.

1. Marketability Factors : Relationship with present distribution channel Competitive Price - Quality relationship Effect on Sales of Existing Products

2. Market Durability Factors : Size of potential market Resistance to economic fluctuation Product Life Cycle


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Product Marketability Index (P.M.I.)3. Production Capability Factors :

Equipment Needs Personnel necessary Raw Material need

Each of the above factor is rated on a scaleof 1 to 10 with 1 as Very Poor and 10 as

Excellent The weights of each of above factors could

be decided on what is the product, which isthe industry and how are you placed.


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Product Marketability Index (P.M.I.) I. Marketability Factor Weights(%) Rating Total Score1. Rela. to prese. Distr. Channel 5 4 20

2. Compet. Price/quality rela. 10 7 703. Effect in selling exi. Prod. 15 5 75

II. Durability Factor Weights(%) Rating Total Score1. Size of Potential market 20 8 1602. Resistance to eco. Fluctu. 10 7 703. Product Life Cycle 20 9 180


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NEW PRODUCT DEVELOPMENT Product Marketability Index (P.M.I.) (cont.) III. Prod. Capability Factor Weights Rating Total Score1. Equipment Need 5 2 102. Personnel Need 10 5 503. Raw Material Need 5 4 20

P.M.I = 655 / 1000 = 0.655

If PMI < 0.5 then drop the product, dont market If PMI > 0.5 then the Product can be consideredIf PMI > 0.6 then it is a preferred product


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3.Concept Development :Ideas which pass through screening

undergo further development into fullymature Product Concept Product Idea

Product Concept Product Image


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3.Concept Development (cont.): Product Idea :- It is a possible productdescribed in the objective functional termsthat the company can see itself offering to themarket.

Product Concept :- It is the particularsubjective concept that the company is trying

to build into the product. Product Image :- It is the particularsubjective picture that the consumer actuallyacquires of the product.


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3. Concept Development (cont.): If Product Concept and Product Image of your

company is mirror image then your productwould be the most successful one in market.

Consumers never buys a Product Idea, butonly the Product Concept which fits with theirpreferences

A product Idea can be turned into a largenumber of Product Concepts. One needs toknow who is the real user. e.g. Infants,Children, Family or Adults.


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3.Concept Development (cont.): Check the Core Product Concept against

criteria for selection of Product Concepts. Market Research to check the Consumer

preference for our core product concept.


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4. Business Analysis Demand Analysis Profitability Analysis Cost AnalysisA. Demand Analysis

Evaluate the demand in terms of Past,

Current and Future trends.For the Entire industry or for a Particularcompany or Specific Market or Substitutes


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A. Demand Analysis (cont.) To check the durability of demand against economicfactors affecting demand for a product.

B. Cost Analysis Past Current Future

Production Cost :- Capital EquipmentPlant Maintenance Cost

Marketing Costs :- Distribution Costs, PackagingCosts, Advertising Costs, Field Selling Costs

Overheads Costs


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C. Profitability Analysis The various tools used to measure theProfitability Analysis in the industry are

as under : Break Even Analysis Return On Investment Discounted Cash Flow Pay Back Period


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5. Product Development (cont.) Consumer Testing can be done in following methods :-

Paired Comparison Test : using 2 unmarkedcontainers. Generally a blind test and used for FMCG

products like Tea, Soft drink, Food items etc Multiple Choice Test : give several choices to

consumers and let consumer choose which one theywould prefer.

Ranking Procedure : Request customer to rank thevarious products they have tested and make ourdecision from there.


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5. Product Development (cont.) Branding : A brand is a name, term, symbol or

design or a combination of those whichintended to identify goods or services of oneseller from those of a competitor

Importance of Branding to Customers : To identify the Products or services

Identifies firm behind the product Allows comparison with the competitors Branded Products tend to improve in quality over

period


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NEW PRODUCT DEVELOPMENT 5. Product Development (cont.)

Reasons for Non - Branding Inability to advertise Inability to maintain quality Company considerations Nature of Product

Characteristics of Good Brand Brand name is a good reflection of Product benefits

e.g. Walkman Name is easy to pronounce, spell & remember e.g. Lux Distinctive brand names e.g. Vicks Can be versatile to include new products e.g. TATA


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5. Product Development (cont.) Importance of Branding

Importance to Manufacturers

Facilities advertising & display Reduce Price comparisons Facilitates expansion of Product Mix

Helps to increase and control market shares

O C O


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NEW PRODUCT DEVELOPMENT 5. Product Development (cont.)

Packaging - New Dimension Self Service - Attract buyers when kept on shelves Convenience, Appearance, Prestige Appeal -

Customers willing to pay a price

Innovations in Packaging - Aerosol Spray,Thermocole packaging

Packaging - Evaluations Production Tests Visual Tests Dealer Acceptance Test Consumer Acceptance Survey



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NEW PRODUCT DEVELOPMENT 6. Test Marketing :

Objectives :-1. To improve the knowledge of Potential Product Sales2. Pre-Test alternate marketing plans

Issues :- Number of Test Market Centers - It depends upon thenumber of alternate marketing plans company has.

Selection of Cities - It should be representation of

entire market. e.g. Pune, Bangalore etc. Duration of Test Marketing - up to 2 repurchases Information Collection Test Marketing Data Analysis


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Attributes Plan 1 Plan 2Without

any mktg

planProduct Very Good Average AveragePrice High Low Low

Promotion High High LowPersonal Selling Low High HighDistribution Low High High


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6. Test Marketing (cont.):Problems in Test Marketing :-1. Obtaining a Set of Test Market which

represents the entire market

2. Problems of translating National media intothe local equivalent

3. Close follow up of Test Marketing results

by Competition4. Change of economic factors during posttest marketing periods



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NEW PRODUCT DEVELOPMENT 6. Test Marketing (cont.):

Test Marketing Information Sources:- 1. Product Sales Data2. Retail Audits3. Consumer Panels

4. Buyer SurveysTest Marketing Data Analysis :-

TrialRate

RepurchaseRate

Actions to be Taken

High High Commercialise

High LowRedesign Product or AdvertisingMessage

Low HighIncrease Advertising & SalesPromotion

Low Low Drop the Product



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NEW PRODUCT DEVELOPMENT 7. Product Launch :

Activities : - Outline of tasks to be performed Time Schedule of all activities Budget of resources for plan & schedule

Typical Tasks : - Scaling up of Production facilities Inventory build up

Training of Sales Personnel Designing of Advertising Campaign Launch Conference Designing of packaging & POP materials


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Sr.No.

StageNo.of

Ideas

PassRatio

Cost perIdea (Rs.)

Total Cost(Rs.)

1 Idea Screening 64 1 : 4 5,000 320,0002 Concept Testing 16 1 : 2 100,000 1,600,0003 Product Development 8 1 : 2 1,000,000 8,000,0004 Test Marketing 4 1 : 2 5,000,000 20,000,000

5 National Launch 2 1 : 2 50,000,000 100,000,000129,920,000

Cost of finding ONE successful product from 64 Ideas

4. New Product Development

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