Everything you need to know about new product development. A new product is a product that is new to the company introducing it even though it may have been made in same form by others.
For example, in the area of toilet soaps, different brands introduced by each company are that way, new products as it is new to the company.
New products are those whose degree of change for customers is sufficient to require the design or re-design of marketing strategies.
Product development is the next step to product planning. Product development is the process of finding out the possibility of producing a product. It includes the decision as to whether it would be feasible or not to produce the product and whether it would be profitable or not for the enterprise to do so.
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Learn about:-
1. Definitions and Concept of New Product Development 2. Need of New Product Development 3. Classifications 4. Process 5. Product Planning and Development Process
6. Innovations 7. Evaluation 8. Established Patterns of Success 9. Business Analysis 10. Success of New Product Development 11. Reasons for Failure.
New Product Development: Definitions, Concept, Need, Classifications, Process, Product Planning, Innovations and Other Details
Contents:
- Definitions and Concept of New Product Development
- Need of New Product Development
- Classifications of New Product Development
- New Product Development Process
- Product Planning and Development Process of a New Product
- Innovations of New Product Development
- Evaluation of New Product Development
- Established Patterns of Success for a New Product Development
- Business Analysis for a New Product Development
- Success of New Product Development
- Reasons for Failure of New Product Development
New Product Development – Definitions and Concept according to William J. Stanton, M.J. Elzel and B.J. Walker
The definitions of new product development are given as under:
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“By new product we mean original products, product improvements, product modification and new brands that the firm develops through its own research and development efforts”.
In the light of above definition, a new product will be considered anything which is perceived as such by the consumer or with which the firm has no previous experience. It means that a consumer views a product as new if any new thing is experienced or any additional variants are provided with the existing product.
He must feel that such a new thing in the product had not come to his use earlier to the current one. Then from the view point of a firm, a product is new to it when existing products are improvised, capacity or life is enlarged or more want satisfying ingredients are added to the earlier products. A firm in order to deliver a new shaped product faces the problems as that of releasing totally new product to the market.
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It is quite difficult to give the concept of a new product. A product may be new to company but not new to customers or the product may be new to customers but not new to the company.
Booz, Allen and Hamilton have identified six categories of new product in the terms of their newness to the company and to the market place.
i. New to the world – New products that create an entirely new product.
ii. New product lines – New Product that allows a company to enter an established market for the first time.
iii. Additions to the existing product lines – New products that supplement a company’s established product line.
iv. Improvements in revision to existing product – New products that provide improved performance or greater perceived value and replace existing product.
v. Repositioning – Existing products that are targeted to new markets or market segmentation.
vi. Costs reductions – New product that provides similar performance at lower costs.
Concept of New Product Development:
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A new product is a product that is new to the company introducing it even though it may have been made in same form by others. In the area of toilet soaps, different brands introduced by each company are that way, new products as it is new to the company. New products are those whose degree of change for customers is sufficient to require the design or re-design of marketing strategies.
Product development is the next step to product planning. Product development is the process of finding out the possibility of producing a product. It includes the decision as to whether it would be feasible or not to produce the product and whether it would be profitable or not for the enterprise to do so.
W.J. Stanton, M.J. Elzel and B.J. Walker define ‘new product’ as, “A new product is one which is really innovative which is significantly different from existing and imitative products that are new to the company.”
If a company once has carefully segmented the market, chosen its target customers, identified their needs, and determined its market positioning, it is better able to develop new products. Marketers play a key role in the new-product process, by identifying and evaluating new-product ideas and working with R&D and others in every stage of development.
New Product Development – Need of New Product Development (With Examples)
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The need for new product development on various counts described below:
a. Putting All Eggs in One Basket:
If an organization depends on only one product to get all the business and profits, it faces the danger of losing everything in one stroke. E.g. Automobile Products of India (API) selling Lambretta scooters lost its business to Bajaj Auto and it had no option but to close down.
Similarly, Amrutanjan, India’s number one pain balm, a single product company, and Vazir Sultan Tobacco Company, manufacturer of the largest selling cigarette, Charminar, again a single product company, closed when they lost business to rival products.
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b. Creating New Avenues for Growth:
The market is always evolving itself and newer consumer needs and demands are created. To take care of such situations, organizations must come out with new products that will create new avenues for the growth of organizations. Organizations that are slow in creating new avenues fall behind others in business.
E.g. Godrej, the only organization manufacturing refrigerators in India (GEC, the other brand used to be imported), did not come out with smaller refrigerators to take care of the middle class willing to buy them and lost business first to Kelvinator/Leonard/Gem (all manufactured by Kelvinator but marketed by self/Blue Star/Voltas) and then to Hyderabad Alwyn and now Whirlpool/LG etc.
c. Giving Choice to Consumers for Selection:
The consumer needs and demands keep changing and upgrading/downgrading and organizations should create products in both upward and downward changes.
E.g. Maruti launched its 800 and van initially and then went on to introduce Zen, Esteem, 1000, Swift, Swift Dezire, WagonR, Ecco, SX4 etc., to give the consumers various choices and keep them tied to its own products.
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d. Multiple Attacks on Competition:
When competition is the market leader, organizations introduce multiple products to corner small portions of the competitor’s market share and collectively win a larger market share. E.g. Vadilal ice-cream introduced as many as 24 flavours to beat Quality Ice-cream and become the market leader (Quality sold out to Walls to become Quality Walls, a HUL company).
e. Cater to New Tastes of Consumers:
Consumers keep changing their expectations and the organization needs to give them newer products to take care of new needs. E.g. Introduction of dish washers and food processors in India by most of the electronics companies.
f. Taking Advantage of Market Fads/Fashion:
There are many fads and fashions that rule a particular time and organizations need to take care of them by introducing products for such fads/fashions. E.g. KeMnator had introduced refrigerators with various scenes like the Taj Mahal on Its door. It became an instant success and was followed by all the other companies.
New Product Development – Classification: New to World, New to Company, Additions to Product Line and Product Improvement
Broadly new products can be classified into the following four categories:
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i. New to the World:
These products represent innovative novel creations that did not exist before. A large number of products that are now taken for granted and considered old were once new to the world. Consider products such as microprocessor, nylon, post-it notes, transistor, television, and airplane were new products when they were created for the first time. Sony introduced to the world a device called Walkman that allowed people to listen to music on the go.
ii. New to the Company:
As the name of this category suggests, these products are not new to the world but are new for the company. Companies expand their offering to grow like ITC added readymade apparels and food products to its portfolio. Addition of new product lines fall into this category.
Micromax started its operations as a mobile handset marketer and added television line later. Sony added digital camera line to its existing portfolio in 1996.
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iii. Additions to Product Line:
Firms add new items to their existing product line in order to meet evolving consumer and competitive conditions. For instance, Pepsi added Pepsi Blue to cash in on a particular cricketing season. Nokia added Asha to its mobile phone line. Sony introduced a new model to its mobile phone line, Sony Xperia Z2, which they promoted as the ‘best phone ever’.
iv. Product Improvement:
Improved products are considered new because of their newness. These are linear improvements to a product. For instance, Maruti launched its cars with new K Series engines that delivered superior fuel efficiency.
Blue Star improved its air conditioners by improving its compressor to inverter technology. Sony listened to customer feedback and it was the first to improve its camera by making their devices dustproof and waterproof.
New Product Development – Steps in Product Development Process: Idea Generation, Idea Screening, Concept Development and Testing and Marketing Strategy Development
Development of new products is not a luxury but a necessity. Firms need a perpetual supply of new products to make up for the ones that decline and fade out. The failure to launch new products and improve the existing ones makes a firm vulnerable to decline. It for this reason, firms establish a department dedicated to developing new products.
New products do not fall from heavens. They are systematically developed in which the new product idea moves through a series of steps to becoming a tangible reality.
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The following steps are involved in new product development process:
Step # 1. Idea Generation:
Every product is aimed to solve consumer problems. Product embodies tangible form of an intangible idea. Idea is the basis of product development. For instance, the idea of safety guides the Volvo brand of cars and Hero Honda created its CD 100 motorcycle with an idea to give customers a fuel efficient bike.
New product ideas can come from several sources including customers, competitors, employees, Internet web pages, sales personnel, and complaint websites. One of the keys to ensure constant supply of ideas is to build a culture of openness. Firms that keep their sensors shut and do not allow flow of information from various sources are unlikely to exploit potential new product development ideas.
Power to observe subtle and explicit trends in the macro and micro business environment can provide clues about possible product and service introduction opportunities. For instance, Ratan Tata’s observation of a family of four dangerously perched on a two wheeler gave him an idea to create a car priced at just Rs.1 lakh.
Idea sources can be classified into two groups, namely internal sources and external sources. Ideas to generate new products can come from people who work inside the company in different departments. For instance, people working on the assembly lines are encouraged to give their suggestions in improving quality in companies such as Toyota and Suzuki.
Employees who come in contact with customers or suppliers get innovative ideas for improving products and creating new products. A firm can also get product innovation ideas from external sources such as suppliers, customers, competitors, and professional consultants.
With the advent of interactive communication technologies, customers are invited by firms to ‘co-create’ solutions for themselves. For instance, companies like Philips invite their customers to suggest ideas for new products and product improvements. Good companies listen to customer feedback and complaints that are posted on specialized websites like MouthShut(dot)com.
Step # 2. Idea Screening:
Ideas can flow from all directions and end up creating a large pool. The next concern in the new product development process is to separate good ideas from the bad ones. Bad ideas must be dropped. This is not an easy process because poorly executed idea screening can cause a good idea to get filtered and at the same time allow a poor idea to move on.
Screening out a good idea implies potential loss of sales, market share, and competitive advantage opportunity. However, when a bad idea is pushed forward, the firm may end up spending precious resources in pursuing a bad product. An idea must be worth pursuing.
Idea screening calls for the conduct of multidimensional analyses. First, an idea must be evaluated from the customer’s perspective. It should make sense to potential buyers. It must embody utility valued by customers, that is, that idea must make ‘customer sense’. Second, an idea is worth pursuing if it can lead to the creation of a competitively superior product.
A product should be relatively advantageous compared to competitive offerings. This filter can be labelled as that idea must be make ‘competitive sense’. Finally, an idea is not worth pursuing if it does not go well with overall company objectives and goals. An intent and capability incompatibility implies that the idea is to be screened notwithstanding its inherent appeal.
Step # 3. Concept Development and Testing:
Products are based on ideas, but they themselves are not ideas. Idea serves as the basic foundation that can be conceptualized in different products. Therefore, an idea needs to be evolved into a detailed statement expressed in consumer terms. Idea is an initial thought; when finished with details an idea becomes a concept.
For instance, mobile phones embody a basic idea of connectivity on the go. How this basic idea is interpreted and converted into several product concepts can be seen in the range of mobile phones marketed under various brands. All mobile phone brands are physical manifestations of the same core idea of mobile connectivity but they differ in their concepts.
i. Concept Development:
An idea when detailed in terms of consumer needs, technology, user, and use situation takes the form of product concept. The mobile communication idea can take shape of different product concepts.
These may include the following:
1. Concept 1—Basic communication device for entry level consumers
2. Concept 2—Communications device that allows busy executives to do office work while on the go
3. Concept 3—Fashion accessory with communication ability for socially conscious people
4. Concept 4—Communication device coupled with music capability
5. Concept 5—Phone complete with social media applications for socially networked people
These concepts are derived from the basic idea given to solving peoples’ need to stay in touch with other. These concepts provide alternate routes to product development. For instance, brands such as Lava, Fly, and iBall are based on the first concept, while concept two is visible in brands such as Blackberry and Lumia. Sony’s Walkman phones were designed in accordance to concept four.
ii. Concept Testing:
Concepts are expanded ideas. The concepts developed are tested with consumers to find out whether the idea is worth taking forward. A number of concerns arise at this stage regarding concept’s appeal, understanding, and relative superiority over other options in terms of preference, believability, and willingness to try and buy.
For testing purposes, the concepts may be verbally described, expressed through pictures, or developed into a physical form. These are then shown to a select group of consumers who are probed by asking questions meant to check their understanding of the concept, concept believability, and perceived superiority over existing options in relation to its reasonable pricing, and probability of purchase. Typically, the types of questions that can be asked when a concept is being tested.
Step # 4. Marketing Strategy Development:
After the scrutiny of alternative concepts, the next task is to conceptualize its marketing strategy. The idea here is to achieve clarity on certain questions related to marketing. Marketing is about segmentation, targeting, and positioning and arriving at an appropriate marketing mix.
Following are some important aspects related to marketing strategy:
i. Target Market:
Targeting is only possible when target consumers are described in terms of their identifiable descriptors such as age, income, and location. For instance, in our case the target market can be described as ‘people in the age group of 15—25 years located in urban areas with affordability to spend around Rs.10,000 who listen to music about 3—4 hours a day’. The statement of target market must be able to meet the criteria of effective targeting.
ii. Marketing Mix:
It represents the aspects related to strategy execution. Marketing is about being able to meet consumer needs profitably. For these decisions would have to be taken in the area of labelling, packaging, pricing, discounts, promotions, advertising, and channels and logistics.
For instance, continuing with the case of music phone the marketing mix elements can be elaborated upon as a brand that would be called ‘music express’ and would be made available in three variants. Each of the variants would be manufactured in three colours that will be indicative of their storage capacity and audio quality.
It would be made available through an established chain of electronic stores. The store would be given 2 percent of the market price for display and an additional 8 percent would be their commission per piece. The brand would be promoted primarily through social media and advertising with an estimated budget of Rs.1 crore in the first year.
iii. Objectives:
It is said that what cannot be quantified cannot be managed. Therefore, targets have to be established in various areas related to marketing strategy. To begin with, a clear statement has to be made about marketing goals and objectives that the product in question must achieve in a given period of time.
Distinction has to be made between objectives and goals. Abstract statement like the product should achieve decent sales, share, and profit is meaningless. The question is what is meant by ‘decent’. Therefore, goals need to be spelled out in quantitative terms. For instance, the objective may be stated as that the product is expected to achieve a sales target of Rs.10 crore in the first year that should yield an estimated 5 percent net profit.
New Product Development – 7 Steps in the Planning and Development of New Product: New Product Idea, Ideas Screening, Business Analysis and a Few Others
There are seven steps in the planning and development of a new product:
1. New Product Ideas:
We visualise the detailed features of a model product. Ideas may be contributed by scientists, professional designers, rivals, customers, sales force, top management, dealers, etc. We may need sixty new ideas to get one commercially viable product.
2. Ideas Screening:
We have to evaluate all ideas and inventions. Poor or bad ideas are dropped and through the process of elimination only most promising and profitable ideas are picked nip for further detailed investigation and research.
3. Concept Development and Testing:
All ideas that survive the process of screening (preliminary investigation) will be studied in details. They will be developed into mature product concepts. We will have precise description for the ideas and features of the proposed ideas. At this stage we can incorporate consumer meaning into our product ideas.
Concept testing helps the company to choose the best among the alternative product concepts. Consumers are called upon to offer their comments on the precise written description of the product concept viz., the attributes and expected benefits.
4. Business Analysis:
Once the best product concept is picked up, it will be subjected to rigorous scrutiny to evaluate its market potential, capital investment, rate of return on capital, etc. Business analysis is a combination of marketing research, cost benefit analysis and profitability analysis.
Business analysis will prove the economic prospects of the new product concept. It will also prove soundness and viability of the selected product concept from business viewpoint. Now we can proceed to concentrate on product development programme. The proposed product must offer a realistic profit objective.
5. Product Development Programme:
We have three steps in this stage, when a paper idea is duly converted into a physical product- (a) prototype development giving visual image of the product, (b) consumer testing of the model or prototype, and (c) branding, packaging and labeling. Consumer testing of the model products will provide the ground for final selection of the most promising model for mass production and mass distribution.
New Product Development – Innovations of New Product Classification Scheme Provided by A. Booz, Allen & Hamilton and Robertson
A. Booz, Allen & Hamilton Classification Scheme for New Products:
Booz, Allen & Hamilton is a consulting firm headquartered in Tyson corner, Fairfax County Virginia in Greater Washington DC with 80 offices in United States and many other countries. It was founded by Edward Booz in 1914 and is one of the oldest consulting firms in the world.
BAH (Booz, Allen & Hamilton) came out a new products classification scheme based on newness to company and newness to the market. This classification has been widely accepted ail over the world.
BAH classified the new products as:
Continuous innovation is adding/removing features in the products to suit changing consumer needs.
In continuous innovations, the following types are involved:
(a) Cost Reductions:
These new products are developed by reducing the production cost by applying new technology that helps reduce cost of raw materials and manufacturing costs. E.g. changing over to plastic molded parts in automobiles has considerably reduced the cost of manufacturing and raw materials. This has also helped reduce the weight of the automobiles, increasing fuel efficiency.
(b) Repositioning (Re-Launching, Re-Staging or Re-Marketing):
This happens whenever a product is re-positioned to include different segments of consumers, or is re-launched for a different use, or is being re-marketed after its withdrawal for a period of time. E.g. Tata’s Ace (Chhota Haathi) was launched as mini truck and with its success, it was re-positioned and launched as a new product, Ace – Magic, a passenger version.
One can see very easily that a successful brand can be repositioned (Ace – small truck to Magic – passenger vehicle) and can be extended to Super Ace (higher pay load) and Iris (lower pay load) and Magic Iris (lower passenger capacity).
(c) New and Improved Products (Next Generation Products):
Whenever a company launches a product with improvements in its features and benefits, it is also called a new product. E.g. Tata Indica was launched as a new product with improvements as Indica Vista. Maruti came out with improvements in WagonR and launched it as Sting Ray.
(d) Additions to Existing Product Lines:
Additions to existing product lines are derivatives or variations of existing products. E.g. Coke – Diet Coke, Lifebuoy – Lifebuoy Personal, Horlicks – Elaichi Horlicks, Chocolate Horlicks, Junior Horlicks, Mothers Horlicks etc.
If these variations are launched with another brand name, they are called flankers. E.g. Pepsi – Mountain Dew, Coke – Sprite, Rin – Sunlight, Wheel etc.
(e) New Product Lines (New to the Company):
When new products, those are new to the company but already exist in the market through other companies are launched by the company it is called new product lines. E.g. Cadbury’s launching biscuits (existing line – chocolates and Bournvita), Horlicks launching biscuits and oats (existing line – health foods), HUL launching water purifiers (existing lines – cosmetics, personal products, soaps/detergents etc.).
When new product lines are launched under the same brand name it is called brand extension.
2. Dynamically Continuous Innovations:
(a) Major Additions to Existing Product Lines:
When the company makes mayor additions to an existing product line that is affecting the total behaviour of the customer towards the company, it is called ‘major additions to existing product line’. E.g. Banks going in for core banking, ATM machines or online and mobile banking etc.
(b) New to the World Product Lines:
When a company comes up with a completely revolutionized version of an existing product that is new to the world or comes up with a totally new concept, it is called ‘a new to the world product’. E.g. Electric car, solar powered aircraft etc.
Discontinuous Innovations are NPs perceived by customers to be radically new, causing buyers to significantly alter their behavioral patterns, and also usually entailing extensive technological breakthroughs.
Digital movie downloads are purchased and consumed much differently than DVDs that are bought or rented. Electric cars requiring battery recharge are discontinuous innovations, while hybrid autos whose batteries recharge while driving are dynamically continuous.
B. Robertson’s Classification of Innovations Based on Behavioral Change (Continuous, Dynamically Continuous and Discontinuous):
Robertson also suggested another classification of new products that is similar to the BAH Classification Scheme to a large extent but talks about the behavioral changes of the consumers towards the products.
Thomas Robertson’s taxonomy is based on the consumer’s perceived degree of product novelty and the extent to which the product changes individual CB as well as the degree to which it affects behavior in the social structure.
Robertson presents three discrete NP categories arranged from incremental New Products to radical innovation- continuous innovations, dynamically continuous innovations, and discontinuous innovations.
(a) Continuous Innovations:
In this, consumer resistance to the new products is expected to be the lowest or nonexistent. Consumers will accept/adapt the new products readily without any resistance. E.g. Surf to Surf Matic to Surf Excel to Surf Excel Matic (for washing machines).
Innovations in packaging are also part of the continuous innovation process. E.g. Soaps have changed packaging from normal paper to butter paper to flex packaging to retain moisture in the soap cakes. Liquid soaps used to come in large bottles. Now they come with smaller dispenser packs and have become more attractive and useful to consumers.
(b) Dynamically Continuous Innovations:
Consumers view such New Products as somewhat new since they are more disruptive of their lives than continuous innovations, although the degree of change in customer buying and product use is modest. E.g. Film camera to digital camera, kick-starting two wheelers to button-starting two wheelers. The customers find them new and innovative and are happy to changeover as they are easy to operate.
(c) Discontinuous Innovations:
These are New Products perceived by customers to be radically new, causing buyers to significantly alter their behavioral patterns, and also usually entailing extensive technological breakthrough. E.g. Purchasing digitally downloaded movies in place of purchasing DVDs.
New Product Development – The Evaluation of New Products
A variety of new product check lists or evaluation techniques have been drawn up for individual industry or company use. Inevitably, they cover a lot of common ground although, obviously, some questions are considerably more relevant to some companies and products than others.
The chief value of such techniques lies in the discipline it imposes on management thinking in relation to new product development. It ensures that all relevant criteria are given due consideration and that product policy consciously takes account of the inherent strengths and weaknesses that make one company different from another company.
The new product evaluation chart opposite rates the product on a simple semantic scale—’Above Average’, ‘Average’ and ‘Below Average’—for a number of factors grouped according to certain key criteria. The ratings are illustrative only since the relative importance of the different factors used in the chart will vary from industry to industry and from company to company. The relative weight assigned to each of the rating factors must be considered in relation to their assumed importance to the company.
The Risks of Product Innovation:
Product innovation, important as it is for long-term company growth, is an extremely risky business. A great many new product ideas never come out of product research laboratories and are filed away. In other words, even when a manufacturer goes to the trouble and expense of trying out his new product under ‘live’ test marketing conditions, there is still only a fifty-fifty chance that the product will go on to be successful. But at least these are better odds than those facing the manufacturer who does not believe in the efficacy of test marketing.
How, therefore, can the risk of product innovation be reduced to a more acceptable level? First, manufacturers can reduce the risk by systematic product planning involving all the well-tried steps of product testing, market research, and test marketing and by asking all the right questions while the new product is still in the planning stage.
In this way they can ensure that action is based on knowledge of the facts rather than guesswork, provided the former can be obtained in a reasonable time and at reasonable cost. Second, they can reduce the risk by analysing and following established patterns of success based on their own past product and marketing experience and on the experiences of others in their own or related fields where these are discernible.
New Product Development – Established Patterns of Success for a New Product
On the basis of the successes which certain companies have achieved with new products it is possible to make a few tentative generalisations. These fall into three groups—those generalisations that can be made about the company itself, those that can be made about the product conditions which appear to be favourable to successful new product introductions, and those that can be made about the market conditions for new products under consideration.
First, as regards the company itself, success seems to be more likely if:
(a) The company has a background of engineering, marketing and research knowledge, skill and experience in the product fields concerned;
(b) Top management gives adequate attention and priority to the new product programme;
(c) The company has experience in the planning and management of test markets and in the analysis and interpretation of the results of test markets;
(d) There is an opportunity to use existing facilities, resources and personnel in order to keep down the level of costs.
Second, as regards the product conditions favourable to successful new product introductions, these would appear to include:
(a) The necessity for having a new product which offers a difference which is of significance to, demonstrable to and preferred by a large enough group of customers (this is by far and away the most important source of a company’s competitive differential advantage);
(b) The necessity for providing an opportunity to create a difference in advertising and promotion (it is often possible to build into a technically undifferentiated product a genuine customer benefit which will serve to distinguish it from the competition and provide a basis for customer preference, e.g., a better or more convenient form of packaging, a better way of distributing and making the product available at a time and place more convenient to the customer);
(c) The necessity for making a product that will meet a real need either not being filled at present or better than any competing products and that will sell in sufficient volume and provide a sufficient margin to pay for the promotional support needed to create sales.
Third, a new product, generally speaking, has a better chance of succeeding if:
(a) The market is an expanding one, and is broadly based across a large number of potential customers;
(b) If the market is going through a period of change;
(c) If there is a lack of strongly entrenched competition in the mind of the customer and therefore an opportunity to create a strong brand identity for the new product;
(d) If the competition is unlikely to be able to take serious counteraction quickly against the new product or the initiating company’s established products;
(e) If the market is relatively stable in the sense of being free from violent ups and downs of a general economic or seasonal nature.
A company can develop or acquire new products either out of its own skills, knowledge and resources or by the skills and knowledge of others through patent and know-how agreements, licensing arrangements to market other companies’ products, or by outright acquisition or merger. In the latter case, the object of a take-over or merger is unlikely to be motivated solely or even largely by the desire to acquire new products.
Company acquisition is, in general, much more likely to be dictated by the need for:
(i) Consolidation—the reduction of existing or potential competition by buying out a particularly troubles some competitor or ‘fishing’ for some of the more up-and-coming firms in the market;
(ii) Integration—the direct control of sources of raw materials, processes, suppliers or outlets for the company’s operations;
(iii) Economy—the lowering of production, marketing, management or overhead costs and the more efficient use of centralised specialist services;
(iv) Finance—to achieve the fuller utilisation of under-employed reserves, or to acquire greater liquid resources to finance future expansion;
(v) Management skill— the more profitable use of good surplus management through the build-up of companies bought on favourable terms when in difficult circumstances, or the buying-in of good outside management to strengthen the business.
The search for new products, therefore, emerges as probably the least important single reason for company acquisition or merger, and certainly the more expensive way of going about it since the purchase of some fairly costly and possibly superfluous and unwanted assets will usually have to form part of any deal.
New Product Development – Business Analysis for a New Product
Business analysis aims to finding out whether the new product if taken to its ultimate end will be a profitable business proposition or not. Profit is the residual that is left after deducting costs from sales revenue. Accordingly, estimates have to be made about sales and costs if the product moves into production.
Sales revenue is determined by demand. Therefore, demand for the product must be forecasted taking into consideration likely customer and competitor response. There are various ways of estimating demand. Historical data of similar products can be indicative of likely sales.
The firm can develop optimistic and pessimistic sales estimates. The other aspect of business analysis involves cost estimation. Both fixed and variable cost behaviours must be factored in estimates. By matching costs and sales, break-even point can be identified.
Break-even point can inform how long it would take the product to move into profit zone. The expression of break-even point in time and volume terms is helpful in making a judgement whether the product is worth pursing further.
Development:
After the product idea is flagged a green signal at the business analysis stage, the concept moves into development level. The verbal and visual product concept is passed on to product development department where engineering and R&D personnel work to transform it into a concrete reality.
For instance, Ratan Tata’s concept of a small inexpensive car was given to a team of engineers who worked on it to create the cheapest car Nano. The team for its development consisted of five engineers and each of its members represented a different part of the car such as engine and transmission, body, safety and regulation, industrial design, and vehicle integration.
Even, Ratan Tata himself was personally involved in Nano’s development. His contribution to car came in the form of a single windshield wiper instead of two.
Every product can be looked at from the perspective of function and form. Functional aspect represents utility of product that stems from its functions. For example, a car’s functional value lies in its ability to transport, comfortable ride, and fuel consumption. Similarly, a bottle of water quenches thirst and a watch keeps time.
Usually, functional value sits at the core of a product. The other aspect that must be paid attention to in product development process is product form or aesthetic value. Product’s sensory aspects or touch and feel factor is also important. Some of the products, especially in the luxury segment are developed predominantly with aesthetics considerations. Therefore, the role of function and form must be factored in the product development process.
Test Marketing:
Outcome of the development stage is creation of the product. The developed product combined with marketing strategy and business analysis makes it ready for a full-scale launch. As a precautionary and risk reduction step, the product is usually put through the process of a controlled launch. It is test marketed in a limited area, which simulates the total market along with the intended marketing strategy.
Test marketing is done to find out market response on a mini scale. It can provide a glimpse into whether the envisaged marketing strategy would be effective if the product is launched in the entire market. In test marketing, data are collected on specific outcomes such as customer trial, repurchase, satisfaction, advertising recall, product recognition, dealer response, and dealer satisfaction.
It must be understood that results of test marketing are useful only when it simulates actual market conditions. Discrepancies in firm’s marketing efforts or differences of test market with the actual market can lead the company into taking wrong decisions.
There are several ways a consumer good can be market tested:
i. Sales Wave Research:
In this method, the target consumers are given the tested product at a slightly reduced price. They are given an opportunity to buy the company or competitor’s product. This offer is made three to five times. For instance, a batch of 100 consumers can be selected for this research.
Each time the offer is repeated the company can find out how many of the 100 customers buy the company’s new product again. The company can also expose consumers to advertising to check how it affects consumers’ repeat buying behaviour. This testing method allows the company to estimate the repeat purchase rate under a condition that resembles the actual market condition. The consumers are charged for the product and are given freedom to the choose competitor’s brands.
ii. Simulated Store Test or Purchase Labs:
This technique simulates the real marketing environment in order to gauge consumer response to a product under test. A batch of consumers is assembled on a location and are shown television commercials including that of the product under study. However, neither the product nor the advertisement is singled out to the consumers.
After the screening of ads they are given some artificial money, which will entitle them to make purchases at a selected store. They are given the option to keep the money or buy things at the store. Their purchases are recorded and analysed considering how many consumers bought the test product and that of competitors. The simulated store test can give some idea about product trials and ad effectiveness.
iii. Controlled Test Marketing:
This test marketing is done by professional marketing research firms. These firms empanel stores for research purposes for some fees with an agreement that these stores agree to stock new products. The company interested in carrying out research instructs the research firm about the kind of store to be taken as a test marketing site.
The product is then delivered, displayed, point of purchase promotions arranged, and other marketing mix elements are manipulated. The sales data are then analysed considering the input manipulations executed in the store. This testing can provide insights into display, advertising, POP (point of purchase), promotions, and store effectiveness.
iv. Test Marketing:
It is done on a small geographical area that resembles the market that would be faced by the new product. Usually small cities are chosen for this purpose. Professional marketing research firms are hired for this purpose because test marketing is a specialized job for which in-house competence may not be available.
The product is then introduced in the test market with supporting marketing programmes (a scaled down version). The launch mimics the full-scale launch except that it is done in mini form. This test marketing helps the firm in developing reliable estimates of future sales.
If it is less than their expectations, then product and/or programmes can be reworked. A firm may have more than one marketing plans with different permutations and combinations of marketing mix elements. The effectiveness of these alternate plans can also be tested with test marketing.
Commercialization:
Commercialization is the last stage in the new product introduction process. If data collected in the test marketing stage provides positive indications then the product is considered ready for full-scale launch. Product commercialization commits the firm to the product’s introduction in the market. This involves incurring costs on real basis.
First, the product has to be manufactured or outsourced. If production is to be done in-house then questions arise about the existing plant’s scale. A full-scale launch would involve commitment of resources on building distribution network, appointment of dealers, sales force appointment and training, advertising, and promotion budget. Commercialization takes the product out of the four walls of a company and brings it to the market.
Broadly four aspects are important at this stage:
i. Timing:
A company must decide the exact time of launch of the new product. Several issues come to fore with regard to timing. For instance, it is no good to launch an air conditioner during the winter months or a woollen jacket in the summer months. If the new product seeks to replace an old one, then its launch should be postponed till its previous stocks are exhausted.
ii. Where:
There are two options with regard to geographical strategy of the launch. The company may choose from full-scale national or international launch or start with a limited area. Going for a full- area launch requires enormous resources, capital, confidence, and capacity.
Therefore, firms opt for a gradual roll-out starting with one region to the other. Even a well-endowed company like Apple does not go for a global roll-out of their new products. Apple products gradually move from North America to other parts of the world.
iii. Target:
New products do not appeal to all potential consumers equally. People differ in their receptiveness of new products and ideas. Therefore, consumers with best responsiveness should be chosen at the launch stage. Technically, the right prospects for any new product or service are innovators.
Innovators are psychologically inclined to try out new things. The ideal target consumer is the one, who is an early adopter, heavy user, spreads word-of-mouth communication, and is accessible at low cost.
iv. How:
This aspect concerns how marketing mix elements are orchestrated. The allocations must be made to different, marketing mix elements. For instance, what arrangements are made for the product’s movement from place of production to place of consumption or how the product would be promoted? How would the campaign unfold? How would it be synchronized with brand building events?
New Product Development – Measures for the Success of New Product
The acceptance of product by the customers is called success of it. Further, the accepted product continues to be there in market for more number of years. In other words, a product has to undergo all phases before it dies, could be termed as successful. The duration is undefined. It changes according to customers repeated buying’s and preferences. The lessons of product failure suggest the way and means to be followed for the success of it.
The following are the probable measures to be followed to attain success of product:
1. Proper research and development activities are to be carried out for the identification of new product concept.
2. Proper studies are to be conducted to know accurately the market conditions.
3. Product ideas are to be refined and redefined by the research team.
4. Proper co-ordination is needed at all the levels of management. The Research and Development department, production wings, purchase, finance, marketing etc., have to with co-operation & co-ordination.
5. Successfully launch the product with needed promotional support.
6. Property conduct the sample-test, pre-launch offer before heavy investment in production.
7. Be ready to modify the product in case market expects slight modification.
8. Add the values to the products which would satisfy the customers for the long-term.
New Product Development – Reasons for the Failure of New Products: Faulty Product Idea, Poor Timing of Launch, Lack of Demand, Technical Problems and a Few Others
Companies do put in sufficient amount of efforts and planning before introducing new products. In spite of this, there is no guarantee that a newly introduced product will succeed at the market. Failure of a newly introduced product can cause huge amounts of losses to the manufacturers.
Several seemingly good new products have failed in the market. Failure of a new product may mean several things-lack of customer acceptance, low sales, low profits, poor customer response etc. For every successful new product, there are many failed new products. The reasons for failure of a new product are several.
The following are a few reasons for the failure of new products:
i. Faulty Product Idea:
Every new product is based on a product idea or product concept. A company generally tests this idea or concept before launching the new product. If a company fails to study the idea or concept properly, it might launch the new product on a faulty idea or concept. The new product in such a case will definitely fail in the market.
ii. Poor Timing of Launch:
A new product must be launched at the appropriate time. A too late entry, a too early entry, launch during an economic downturn, launch along with strong competitor etc. will not help the product. If the product is launched at the inappropriate time it will fail in the market.
iii. Improper/Insufficient Planning:
A new product must be launched only after sufficient planning of several aspects related to the launch. The planning should include market study, product designing, consumer analysis etc. If the planning is not done properly, the product will fail in the market.
iv. Lack of Demand:
Every new product, to be successful needs a certain amount of demand. Demand analysis based on market research, is an important part that should precede a new product launch. If a manufacturer launches a product without such analysis and if the demand is lesser or absent, the product will fail in the market.
v. Technical Problems:
Certain products involve a sufficient amount of technology and all these aspects must be sufficiently studied, tested and perfected before the launch. If the products have some technological snags in them, the customers will reject the product.
vi. Wrong Target:
Every company, before introduction of a new product should study the market and define its target Customers, the product should be designed to suit such target customers, if the targeting is not done properly, the product will not suit the target customers’ needs and will fail in the market.
vii. High Price:
The challenge of a new product is to design it appropriately, offer it to the customer at the acceptable price but still earn sufficient profit. If the product is priced very highly in terms of the customers’ expectations and willingness to pay, it will fail in the market.
viii. Product Promotion:
Every new product, even if it is well designed and priced, needs to be supported by promotion activities. If a company does not promote its product well, the product will fail in the market.
ix. Improper Distribution:
A product to be successful should be well distributed so that it is easily available. A consumer should be able to purchase it very conveniently. If a company does not put in place a proper distribution system, it will fail in the market.
x. Absence of Sales Service:
Some products require an effective after sales service because of their technical nature. If the company does not offer well after sales service or if the spare parts are not available, the product will fail in the market.
xi. Too Advanced Product:
Customers are generally accustomed to a certain level of technology and if a product is much more advanced than that level pf technology, the customers will reject the product.
xii. Product not Up to the Expectation:
Some companies create a high level of expectations about the products in the minds of the consumers and if the product does not rise up to the expectation created, customers feel cheated and they reject the product.
xiii. Tough Competition:
A company might design a good product and do everything perfectly but if the competitors do it in a much better, manner, the company’s product will fail in the market.
xiv. Improper Positioning:
The success of a product depends on its positioning. If the positioning is not done properly, customers will not have clarity and will reject the product.
xv. Absence of Uniqueness:
Customers look forward to something new in every a product and if the new product has nothing new or unique, it might not be accepted by the market.