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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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NEW PRODUCT DEVELOPMENT
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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NEW PRODUCT DEVELOPMENT
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
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
New Product Development Stages Idea Generation
Idea Screening Concept Development Business Analysis Product Development Test Marketing New Product Launch
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NEW PRODUCT DEVELOPMENT
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.
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NEW PRODUCT DEVELOPMENT
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
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ORGANISATION OF IDEA FLOW
NewProduct
Cell
Customer
Technology
Competition
Top management
R & D
Sales
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NEW PRODUCT DEVELOPMENT
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
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NEW PRODUCT DEVELOPMENT
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
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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.
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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 ?
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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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NEW PRODUCT DEVELOPMENT
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
NEW PRODUCT DEVELOPMENT
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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
NEW PRODUCT DEVELOPMENT
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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
NEW PRODUCT DEVELOPMENT
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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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NEW PRODUCT DEVELOPMENT
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
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