New Product Development Process

NEW PRODUCT DEVELOPMENT PROCESS

A Seminar byMohan Kumar G.1st Sem., M.Tech. (M.E.M.),S.J.C.E., Mysore.05-01-2016

Plan of PresentationIntroduction to New Product DevelopmentWhy? When? & How?8 Stages in N.P.D.N.P.D. Decision ProcessStages from Idea to real ProductWhat Next?Consumer Adoption ProcessReferences

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Introduction to New Product Development Process New Product Development (N.P.D.) is the development of original products, product improvements, product modifications, and new brands through the firms own R & D efforts.

Why New Product Development (N.P.D.) ?To maintain and build sales through replacement productsTo shape the companys futureTo fulfil the ever changing customer preferences3

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When N.P.D.?Once a company has Segmented market carefully. Chosen its target customer group. Identified their needs / preferences / requirements. Determined the appropriate mix of 4Ps for that market.Then, it is ready to develop / launch suitable new product.

Marketing actively interacts with other departments (such as R & D) for product development.4

How N.P.D.?New products range from new-to-the-world products that create an entirely new market to minor improvements or revisions of existing products. New Products can be added through: Acquisition : Company acquisition, Patent acquisition, License / FranchiseeNew Product Development : By way of In-house R&D or Outsourced.New-to-the-World Product: Creates essentially new market. Example: Sony walkman, Apple I-Pod.New Product Lines: New product that allows a company to enter an established market for first time. Example: HUL entering Toothpaste segment with Close-Up.5

Addition to Existing Product Lines : New product that supplement a companys established product lines (Pack sizes, Flavours). Example: HUL adding Pepsodent to its toothpaste segment.Improvements/Revisions of Existing Product Lines : New product gives increased performance & replaces existing products. Example: Hero Honda, from Splendor to Splendor +.Repositioning: Existing products targeted to new market / market segment. Example: Bajaj Caliber Caliber Chrome Hoodibaba.Cost Reduction: New product that provide similar performance at lower cost. Example: Cadburys Five Star from 5 pack to 2 pack by using flavours instead of pure cocoa.6

8 Stages in N.P.D.To minimize risk of new product failure, new product development follows a structured process.

Idea Generation. Idea Screening. Concept Development & Testing. Marketing Strategy Development. Business Analysis. Product Development. Market Testing. Commercialization.

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N.P.D. Decision Process

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Stage 1: Idea GenerationSearching for product ideas that meet company objectives.Internal idea sources: R & DExternal idea sources: Customers, competitors, distributors, suppliers

R & D / Employees: Employees could be encouraged to give new product ideas & rewarded suitably.

Senior/Top Management: Product innovators could be senior management.

Customers: Market research could be done with recent customer/lead users (customer who make advance use of product & recognize improvement needs).9

Competition: Through study/analysis of competitive products.

Marketing Channel & Their Staff: Dealers, distributors, employees of distributors & dealers.

Crowd Sourcing: Many companies are now developing crowd sourcing or open-innovation new-product idea programs.

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Inventor Sir James Dyson is willing to endure many failed prototypes as long as he comes up with a winner, like theAir Multiplier bladeless table fan.11

Idea Generation Techniques :Ideas may be generated using creative techniques as

Attribute Listing:List out major attributes of a product.Modify each attribute in search of an improved product.

Forced Relationship:Several objectives are considered in relations to one another to create a new product. Example: Fax + Telephone + Table Display.12

Morphological Analysis:Identify structural dimension of a problem & examine relationships among them. Example: Moped: Motorised/Stronger/Cycle.Hence, convenient/economical/effortless.

Customer Need / Problem Identification:Do market research on customer to determine their needs.Wherever customer is dissatisfied, the reason for dissatisfaction could lead to a new product. Example: Dettol used to burn, hence came Savlon.13

Brainstorming :This is a Technique developed by Alex Osborn, which involves around 6-10 people discussing a specific problem. They are asked to come up with ideas for some time.

Guidelines could beNo criticism / evaluation of ideas.Free flow of thought is encouraged.Quantity is encouraged.Combining/better/improved ideas is encouraged.

Around 75-80 new ideas are required for a company to develop a new product.14

Forces fighting new Ideas.15

Stage 2: Idea ScreeningIdeas generated need to be screened for action. To start with, ideas are sorted into :Promising ideasMarginal ideasRejects.

Promising ideas are evaluated by a committee. Surviving promising ideas are screened through a process.

Objective of screening is to drop poor ideas at the earliest. Ideas are screened using Product Idea Rating process.16

Product Idea Rating Process:New product ideas are described in details likeProduct idea.Who is target market?Who is/are competitor?Estimate of:Market size.Product price.Development time/cost.Manufacturing cost.Rate of returns.17

Ideas are evaluated against a set of criteria. Base criteria could be :Does product meet a need?Would it offer superior Value / Price performance?Can it be distinctly positioned / advertised.Fit with companys objective / strategies & resources seen.

Company's objective / strategies fitment include : Profit objective.Sales objective.Sales growth objectives.Customer goodwill objectives.18

Fit with company resources include : Does company have required capital or can it acquire it?Does company have / acquire required production/marketing know how?Does company have / acquire required distribution ability?

If answer to any of the above question is nominal / insignificant / No, then the idea is rejected.

Surviving ideas are then rated using Weighted Index Method.

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Weighted Index Method :Weighted Index Method is used to give rational rating for the screened ideas. Weighted Index method tries to quantify the success probability of an idea. Ex : Dove Soap

Hence, Only those product / ideas with a score of 0.61 or greater than 0.61 are taken ahead to the next stage.20

Stage 3: Concept Development and TestingAttractive ideas should be refined into listable product concepts.

Product Ideas: Possible product that company may offer to the market.

Product Concept: Elaborated version of the idea expressed in meaningful consumer terms.

Product Image: Picture that consumer acquire of an actual/potential product.21

Concept Development Let us illustrate concept development with the following situation: A food-processing company gets an idea of producing a food powder which is nutritious and tasty.

Here, the Product Idea of "producing a food powder which is both nutritious and tasty" is converted into concept. To convert to concept answer the following questions:

Who will use this product?Children / Young working Professionals / Elderly.

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What primary benefit should product provide?Taste / Nutrition / Refreshment / Energy.

When will consumers consume product?Breakfast / Snacks / Dinner.

Based on the answers from the above, concepts could be C1 : Instant breakfast for working professionals who want quick/convenient/nutritious breakfast.C2 : Tasty snack for children.C3 : Lunch/dinner item for elderly customer staying on their own.

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Each concept represent a category concept, i.e., each concept positions the idea within a category.Category defines the products competition. For ex:

Competition for C1: Paranthas/ Idlis/ Toast/ Cornflakes.Competition for C2: Maggi noodles/ Grilled Sandwiches/ Indian Snacks/ Potato Chips.Competition for C3: Normal food items/ Dial up food

Next task is to determine where each concept would stand in relation to its concept. For this, we can use Product Positioning Map and Brand Positioning Map.24

Product Positioning MapTASTEPRICE25

Brand Positioning MapFinally, there may be 2 to 3 ideas resulting in 6 to 7 concepts.26

Concept TestingConcept Testing means presenting the product concept to target consumers, physically or symbolically, and getting their reactions.

Concepts are presented to target consumers in verbal / visual form. After receiving this information, researchers measure product dimensions by having consumers respond to questions like these:1. Communicability and believabilityAre the benefits clear to you and believable? If the scores are low, the concept must be refined or revised.2. Need levelDo you see this product solving a problem or filling a need for you? The stronger the need, the higher the expected consumer interest.27

3. Gap levelDo other products currently meet this need and satisfy you? The greater the gap, the higher the expected consumer interest. 4. Perceived valueIs the price reasonable in relationship to value? The higher the perceived value, the higher is expected consumer interest.5. Purchase intentionWould you (definitely, probably, probably not, definitely not) buy the product? Consumers who answered the first three questions positively should answer Definitely here. 6. User targets, purchase occasions, purchasing frequencyWho would use this product, when, and how often?

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Stage 4: Marketing Strategy DevelopmentAfter concept testing, for concepts that qualify a preliminary marketing strategy is created to introduce new product into market.

The marketing strategy statement consists of three parts.

Part A:Target market size/structure/behaviour.Planned product positioning.Sales/Market share/Profit objective in 2/3 years.

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Part B:Products price planned.Product form/shape/size of packs.Distribution strategy.Marketing budget for first year.

Part C:Long term sales/profit goals.Marketing mix strategy over time.After product concept / marketing strategy is developed, company can evaluate proposals business attractiveness in the next stages.

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Stage 5: Business AnalysisAfter management develops the product concept and marketing strategy, the company will not evaluate the proposals business attractiveness. This is known as Business Analysis.

For this, Management needs to prepare "Sales, Costs and Profits" projections for next 5 years period, to determine whether they satisfy company's objectives.

If indeed they match with the company's objectives, then the new product concept moves to product development stage.

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Estimating Total Sales: Total estimated sales is the sum of estimated first-time sales, replacement sales, and repeat sales. Sales-estimation methods varies with the product type.

If the product is,a) One Time Purchasing ProductFirst time sale is adequate. Ex:- House, Honeymoon.

b) Infrequently Purchasing ProductFirst time sales + Replacement sales need to be calculated.Ex:- Automobiles, Toaster.32

c) Frequently Purchasing ProductFirst time sales + Repeat sales need to be estimated.Ex:- Soap, Toothpaste.

Each sales category is estimated using market research techniques with demand forecasting methods.

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Estimating Costs And Profits: Costs are estimated for the next 5 years, jointly by the R&D, manufacturing, marketing, and finance departments.

Costs elements include:Cost of goods sold.Development costs.Marketing costs.Allocated overhead.Supplementary contribution.

Supplementary contribution is made up of:Drag Along IncomeCannibalized Income34

i) 'Drag Along Income': It is an additional income on own company products due to new product. Example: Maruti launching Maruti finance, which resulted in increase in sales of Maruti 800 cars.

ii) 'Cannibalized Income': It is the reduction in income on own company products due to new product.

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The Costs are calculated using concepts of discounted cash flow (DCF) / Net Present Value of Money.

Based on the above, following data is analysed.

a) Maximum Investment Exposure:Highest loss that a project can create.

b) Pay Back Period:Time taken by company to uncover all investment in new product.

c) Break Even Point:Number of units that a company have to sell of a new product to break even.Give price (cost structure).

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d) Risk Analysis:Uncertainties in projection analysis.To come up with 3 estimates. Optimistic. Pessimistic. Realistic (Most Likely).Based on the above calculations, profit/profitability is determined/projected for next 5 years.

If a product concept passes this kind of business analysis test, it is taken forward to the product development stage.37

Stage 6: Product DevelopmentUp to now, the product has existed only as a word description, a drawing, or a prototype.

The next step represents a jump in investment that dwarfs the costs incurred so far. The company will now determine whether the product idea can translate into a technically and commercially feasible product.

In product development, concept is provided in detail to R & D to make physical product.

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Stages in product development are:Prototype development.Prototype Lab Testing.Test for Functionality.Test for Psychological aspects such as colour.Test for Looks/Styles.Test for Price Fitment.

Functional Testing.Test for Safety/Effectiveness.

Consumer Testing.Test samples with consumers in lab.

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Physical Prototypes : The goal of the R&D department is to find a prototype that embodies the key attributes in the product-concept statement, performs safely under normal use and conditions, and can be produced within budgeted manufacturing costs.Prototype Lab Testing: R&D must also decide how consumers will react to different colours, sizes, and weights. Historically, a yellow mouthwash supported an antiseptic claim (Listerine), red a refreshing claim (Lavoris), and green or blue a cool claim (Scope).Alpha testing tests the product within the firm to see how it performs in different applications.40

After refining the prototype further, the company moves to beta testing with customers.

Consumer Testing : Consumer testing can bring consumers into a laboratory or give them samples to use at home. Procter & Gamble has on-site labs such as a diaper-testing centre where dozens of mothers bring their babies to be studied. In-home placement tests are common for products from ice cream flavours to new appliances.

Once management is satisfied with new product, functional / psychological performance, product is ready for market.41

Stage 7: Market TestingNow the product is ready to be branded with a name, logo, and packaging and go into a preliminary market testing.

Objectives of market testing could be:Test product in actual market setting.Learn about actual market size.Learn about how consumers/dealers handle, use, repurchase new product.

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The Extent of market testing depends on:Investment Cost & Risk: Higher investment cost/risk needs, market testing more thoroughly.Time Pressure: May reduce testing time.Newness of Product: More newness of product leads to more testing.

Methods for market testing:Sales wave research.Simulated test marketing.Controlled testing marketing.Test markets.

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1. Sales wave researchThe brief procedure to conduct the 'Sales wave research' testing is as follows:Consumers are offered free samples.Same consumers are then offered product at prices slightly lower than actual prices.This is repeated with product at small discounts 3 to 5 times.Number of consumers buying again is noted & their satisfaction level studied through market research.

Example: Amul milk : It gave free samples of milk at first and then at discounted price for a week.

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2. Simulated Test MarketingCertain numbers of qualified shoppers are researched on familiarity/preference in specific product category.Consumers invited to see advertisements. These advertisements are for mixed products.Consumers rewarded for their time with shopping coupons/money for shopping & invited to a store where they can buy anything.Consumers who buy new product or competitor product is noted. This helps to understand trial rates.

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Consumers who dont but new product are given free samples.After suitable time, consumers researched for satisfaction levels/ repurchase intent.

Example: ITC (Kitchens of India): Launched ready meals for working young professionals in mind. They invited them for a seminar and then presented them with a free sample. Then they did follow up of them and asked for their review.

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3. Controlled Test Marketing

Panel of stores identified who would carry new product for a fee (normally done by market research)At the store,Shelf Facing.Display.Point of Purchase promotions are used.May include local advertising.Retail sales monitored over specific period of time.47

4. Test MarketsTest Markets is the best way to test a product before commercialization. Normally all automobile companies do this. Few cities identified to sell product.All marketing mix elements are as per normal marketing program.Typically, 3-9 cities selected All- India.Cities represent A/B/C category cities.Duration of test should permit product repurchase if applicable.48

Test information monitored through:Stock off take from ware house/godowns.Retail stores audit.Consumers panel surveys.Buyer research.Effectiveness of all marketing mix elements tested out.If results are negative, new product may need to be redesigned / dropped.Example: Tata Indica to Indica V2.

Not all companies undertake market testing. The main issues are: How much market testing should be done, and what kind(s)?The amount is influenced by the investment cost and risk on the one hand, and the time pressure and research cost on the other.

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Stage 8: CommercializationAfter successful market testing, new product comes to commercialisation stage. During this stage, production of new product on a commercial basis is rapidly built up. For new food products, marketing expenditures typically represent 57 percent of first-year sales.

For formally launching a New Product, the following decisions to be taken:When to launch (Timing)Where to launch (Geographic Strategy)To Whom (Target-Market Prospects)How to launch (Introductory Market Strategy) 50

When to launch (Timing)i) First entry : for first mover advantage Example: Nokia, Intel. ii) Parallel entry : to coincide with competitor Example: NIIT and APTECH, Flipkart's Big Billion Day 2015 v/s Amazon's Great Indian Festive Sale iii) Late entry : to learn from competitor experience. Used only by market leaders. Example: Colgate waited for Meswak to sell its product in market. After seeing the response, colgate came up with Colgate Herbal.51

Where to launch (Geographic Strategy)All IndiaRegional roll out.State by state.Urban/Rural (city categorization).

C) To Whom (Target-Market Prospects)The company must target initial distribution and promotion to the best prospect groups, to aim at: Early adopters. Heavy users. Opinion leaders. Reachable at low costs.

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D) How to Launch (Introductory Market Strategy) Decisions encapsulated initial marketing strategy.

To coordinate the many tasks in launching a new product, management can use network-planning techniques such as critical path scheduling (CPS)

Introductory offers may be involved.53

What Next???Now we have come all the way from initial stage of Idea Generation to real Product in Market. Now What?

For early market penetration of new product, marketers need to understand the consumer adaptation process.

Adoption is an individuals decision to become a regular user of a product and is followed by the consumer-loyalty process. i.e., How do potential customers learn about new product & try them/adopt them/reject them?

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Consumer Adoption ProcessThe consumer-adoption process is the mental steps through which an individual passes from first hearing about an innovation to final adoption. They are:1. AwarenessThe consumer becomes aware of the innovation but lacks information about it.2. InterestThe consumer is stimulated to seek information about the innovation.3. EvaluationThe consumer considers whether to try the innovation.4. TrialThe consumer tries the innovation to improve his or her estimate of its value.5. AdoptionThe consumer decides to make full and regular use of the innovation.

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Referenceswww.google.comwww.wikipedia.org"Marketing Management text book, 14th Edition, by Philip Kotler & Kevin Lane Keller"Principles of Marketing", text book, 15th Edition, by Philip Kotler & Gary Armstrong"Marketing Management", text book, 4th Edition, by V.S. Ramaswamy & S. Namakumari

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Thank You57