New Product Development Process

In order to stay successful in the face of maturing products, companies have to obtain new ones by a carefully executed new product development process. Nevertheless, they are confronted with some challenges as discussed in the introductory part of this chapter. Out of the numerous products entering the development process only a handful reach the market. Therefore, it is crucial to understand consumers, markets and competitors in order to develop products that deliver superior value to customers. In other words, there is no way around a systematic, customer-driven new product development process for finding and growing new products. Figure 8.2 represents the eight major steps in the NPD process.

Idea Generation Stage

The NPD process starts with idea generation. Idea generation refers to the systematic search for new-product ideas. Typically, a company generates hundreds of ideas, maybe even thousands, to find a handful of good ones in the end. Two sources of new ideas can be identified. The first is the internal idea sources where the company finds new ideas internally through R&D and contributions from employees. The second is external idea sources where the company finds new ideas externally. This consists of all kinds of external sources, for example customers, distributors and suppliers, as well as competitors. The most important external sources are customers, because the NPD process should focus on creating customer value.

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New product development process flowchart

Figure 8.2 New product development process flowchart.

Idea Screening Stage

The next step in the NPD process is idea screening. Idea screening means nothing else than filtering the ideas to pick out the good ones. In other words, all ideas generated are screened to identify the feasible ones and drop those that the firm considers not feasible. While the purpose of idea generation is to create a large number of ideas, the purpose of the succeeding stages is to reduce that number. The reason is that product development costs rise greatly in later stages. Therefore, the company would like to go ahead only with those product ideas that will turn into profitable products. Dropping the poor ideas as soon as possible is, consequently, a crucial and timely action.

Concept Development and Testing Stage

To go on in the NPD process, attractive ideas must be developed into a product concept. A product concept is a detailed version of the new product idea stated in meaningful consumer terms. You should distinguish the following:

■ A product idea - an idea for a possible product

■ A product concept - a detailed version of the idea stated in meaningful consumer terms

■ A product image — the way consumers perceive an actual or potential product.

Two parts of this stage are discussed in detail. They are concept development and concept testing.

Concept Development

Imagine a car manufacturer that has developed an all-electric car. The idea has passed the idea screening and must now be developed into a concept. The marketer’s task is to develop this new product into alternative product concepts. Then, the company can find out how attractive each concept is to customers and choose the best one. Possible product concepts for this electric car could be:

Concept 1: an affordably priced midsize car designed as a second family car to be used around town for visiting friends and doing shopping.

Concept 2: a mid-priced sporty compact car appealing to young singles and couples.

Concept 3: a high-end midsize utility vehicle appealing to those who like the spacious SUVs but also want an economical car.

As one can see, these concepts need to be quite precise in order to be meaningful. In the next sub-stage, each concept is tested.

Concept Testing

New product concepts, such as those given above, need to be tested with groups of target consumers. The concepts can be presented to consumers either symbolically or physically. The question is always: Does the particular concept have strong consumer appeal? For some concept tests, a word or picture description might be sufficient. However, to increase the reliability of the test, a more concrete and physical presentation of the product concept may be needed. After exposing the concept to the group of target consumers, they will be asked to answer questions in order to find out the consumer appeal and customer value of each concept.

Marketing Strategy Development Stage.

The next step in the NPD process is the marketing strategy development. When a promising concept has been developed and tested, it is time to design an initial marketing strategy for the new product based on the product concept for introducing this new product to the market. The marketing strategy statement consists of three parts and should be formulated carefully:

■ A description of the target market, the planned value proposition, and the sales, market share and profit goals for the first few years

■ An outline of the product’s planned price, distribution and marketing budget for the first year

■ The planned long-term sales, profit goals and the marketing mix strategy.

Business Analysis Stage

Once decided upon a product concept and marketing strategy, management can evaluate the business attractiveness of the proposed new product. The fifth step in the NPD process involves a review of the sales, costs and profit projections for the new product to find out whether these factors satisfy the company’s objectives. If they do, the product can be moved on to the product development stage.

In order to estimate sales, the company could look at the sales history of similar products and conduct market surveys. Then, it should be able to estimate minimum and maximum sales to assess the range of risk. When the sales forecast is prepared, the firm can estimate the expected costs and profits for a product, including marketing, R&D and operations. All the sales and costs figures together can eventually be used to analyse the new product’s financial attractiveness.

Product Development Stage

The NPD process goes on with the actual product development. Up to this point, for many new product concepts, there may exist only a word description, a drawing or perhaps a rough prototype. However, if the product concept passes the business test, it must be developed into a physical product to ensure that the product idea can be turned into a workable market offering. The problem is, though, that at this stage, R&D and engineering costs cause a huge jump in investment. The R&D department will develop and test one or more physical versions of the product concept. Developing a successful prototype, however, can take days, weeks, months or even years, depending on the product and prototype methods.

In addition, products often undergo tests to make sure they perform safely and effectively. This can be done by the firm itself or outsourced. In many cases, marketers involve actual customers in product testing. Consumers can evaluate prototypes and work with pre-release products. Their experiences may be very useful in the product development stage.

Test Marketing Stage

The last stage before commercialization in the NPD process is test marketing. In this stage of the NPD process, the product and its proposed marketing programme are tested in realistic market settings. Therefore, test marketing gives the marketer experience with marketing the product before going to the great expense of full introduction. In fact, it allows the company to test the product and its entire marketing programme, including targeting and positioning strategy, advertising, distributions and packaging before the full investment is made.

The amount of test marketing necessary varies with each new product. Especially when introducing a new product requiring a large investment, when the risks are high or when the firm is not sure of the product or its marketing programme, a lot of test marketing may be carried out.

Commercialization Stage

Test marketing has given management the information needed to make the final decision: launch or do not launch the new product. The final stage in the NPD process is commercialization. Commercialization is the introduction of a new product into the market. At this point, the highest costs are incurred: the company may need to build or rent a manufacturing facility. Large amounts may be spent on advertising, sales promotion and other marketing efforts in the first year.

Some factors should be considered before the product is commercialized:

Introduction timing: For instance, if the economy is down, it might be wise to wait until the following year to launch the product. Flowever, if competitors are ready to introduce their own products, the company should push to introduce the new product sooner.

Introduction place: Where should the new product be launched? Should it be launched in a single location, a region, the national market or the international market? Normally, companies do not have the confidence, capital and capacity to launch new products into full national or international distribution from the start. Instead, they usually develop a planned market rollout over time.

In all of these steps of the NPD process, the most important focus is on creating superior customer value. Only then, the product can become a success in the market. Only very few products actually get the chance to become a success. The risks and costs are simply too high to allow every product to pass every stage of the NPD process.

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