Lesson 13. NEW PRODUCT DEVELOPMENT
Module 3. Elements of marketing mix – I. product
NEW PRODUCT DEVELOPMENT
For growth of any organization, it has to think beyond the existing products. A growth oriented firm maintains new product development as an important function of its product management policy. Today's rapidly changing world witnesses fast pace of scientific and technological developments resulting into change in existing practices. There is change in food habits, society, consumer’s expectations and requirements. Consumers always demand new improved products providing more convenience in tune with latest fashion which ultimately provide more value for money. Business organization has to satisfy these consumers’ expectations and thus have to go in for new product development. New products help the organization to earn higher profit. The dynamic nature of environmental factors also poses new threats to organizations and makes them vulnerable to closure. To avoid this situation also new product development is required.
13.2 Types of New Products
New Products are classified into two categories based upon its origin.
a) New Products emerging due to technological innovation.
b) New Products emerging due to market modifications.
The new products due to technological innovation will be a completely new product with complete new features and new functional utility associated with them. The new products resulting due to market modification will involve change in colour, design, package, brand name etc. As such new product development due to technological innovations requires huge sums of money and long time duration. Therefore such product development processes are generally undertaken by large organizations. Whereas the new product development in terms of market modifications is undertaken by large and small organizations.
13.3 New Product Development Process
This is a step wise process including following steps.
1. Generating New Product ideas
2. Screening of ideas
3. Concept testing
4. Business and market analysis
5. Development of the product/product prototype testing
6. Test marketing
13.3.1 Step 1: Generating new product ideas
New product ideas may come from variety of sources. They are: Sales people, marketing person other than sales person, Research and Development department, Consumers, employees, foreign and competitive products, consultants, members of distribution channel, market research studies, certain special creativity techniques. Focus group interview, brain storming and synetics techniques are used by a trained person to elicit new ideas from small number of persons as a group activity.
13.3.2 Step 2 : Idea screening
An organization may come out with large number of new product ideas. But it is not feasible to implement all of them. All the ideas thus pass through a screening test and only few potential ideas which are considered worthwhile by the management are further worked upon by the organization. All the new product ideas are evaluated in relation to following questions:
a) Whether there is any felt need for the new product?
b) Whether the new product is improvement over existing product?
c) Whether the new product matches with existing product line of the organization or is a totally related with altogether new product line?
d) Is it possible for existing marketing network to handle the new product?
e) If extra expertise is essential to develop and market the product, approximately what will be the cost?
This step helps to avoid arbitrary decisions, lead to unity of purpose and provide perspective for new product planners. The new product idea must satisfy a perceived need of a defined target group of consumers in sufficiently large numbers. It must have a unique product features which provide distinctive benefit to the consumers and must be able to be sold in large markets. It should be compatible with the existing products of the organization. At the screening stage there are possibilities of committing two types of errors, one that of dropping a good idea and other that of developing a bad idea.
13.3.3 Step 3: Concept testing
At this stage concept of the product is tested in terms of following aspects.
a) Whether the new product idea is clearly understood by all the prospective consumers.
b) Whether the consumers are receptive toward the idea.
c) Whether the consumers really need such a product and whether they would purchase it if it is offered to them.
In this stage the concept of the product is described orally to the consumers or shown the blue prints. This step gives idea about market success or failure of the concept. Thus it is essential that narrative description include maximum possible details about the product including price, package, brand name etc. This step decides whether the idea should be developed further as such, modified and then developed or discarded altogether. It gives idea or future potential market and thus it is possible for management to take appropriate measures well in advance.
It is necessary to carry out the concept testing step with utmost care otherwise there are possibilities of wrong results and wrong conclusions. There is also risk of company's secret plans may be known by competitors.
13.3.4 Step 4: Business analysis and market share analysis
Financial and marketing viability of the project is decided at this stage. By using the techniques of investment and profitability analysis under different assumptions, the projects viability is decided. This stage requires the accurate forecasts of demand and other market related factors to arrive at correct decisions. Commonly following information pertaining to following aspects are required at this stage. Demand estimation of proposed new product and its price elasticity, competitions and type of competition, Seasonality of the product if any, cost volume profit analyses, distribution channel, marketing organization etc.
13.3.5 Step 5: Development of product/product prototype testing
At this stage with involvement of all major departments of the organization, the actual product is developed. The prototype is developed in the laboratory and technically tested and later on used for carrying out standard consumer usage test. The product is then introduced in some selected markets only so as to know consumers perception about the product.
13.3.6 Step 6: Test marketing
At this stage, the product is offered for sale in selected markets. Test market acts as a controlled experiment, results of which decide about the full fledged commercial manufacture of the product. The complete evaluation of whole marketing plan is carried out during test marketing which includes promotion type and its budget estimate, intensity of distribution, level of sales network and different price levels. One of the limitations of this step is that competition may come to know the plans of the organization and hence sometimes some of the firms skip this step.
13.3.7 Step 7: Commercialization
This is the stage at which the organization decides about large scale production and marketing of the product. This stage is commenced only if favourable results are obtained in all the previous steps. At this stage final plans are completed for production and marketing, coordinated production and selling programmes are initiated and results are checked at regular periods. It is advisable to roll out the product sequentially in different markets so as to avoid the problem of short supply. If product is heavily advertised and is not available in the market then it has a detrimental impact on image of the organization.
13.4 Reasons for New Product Additions
1. Profit maximization
2. Diversification necessitated by change
3. To make use of strengths
4. Undertake forward or backward integration to consolidate firm’s position.
5. To take advantage of government incentives.
6. Excess Capacity
13.5 Challenges in Launching New Products
New product development is a very costly and risk taking process. It is generally adopted by resource rich big organizations who want to be a market leader. Many other small organizations prefer to remain market follower due to following reasons.
1. New Products suffer from high attrition rate. After a long product development process, large number of new product ideas does not reach the market.
2. New products also face higher market failures. Those products which enter the market, many of them fail in the market.
3. Those products which succeed in the market, they also have short life.
Many new product failures have occurred as the organizations have not spent sufficient time in the initial steps/stages of new product development process. Identification of organizations strengths and weaknesses in relation to demands of the proposed new product is a key of success in new product development process.