Marketing Decision Related to Product – New Product Development Process

Topics covered in this article are as follows:

1. Introduction
2. The New Product Development Process

2.1 Generation of a New Product Idea:

2.2 Idea-Generation Techniques:

2.3 Screening of Ideas:

2.4 Concept Development and Testing:

2.4.1 Concept Testing

2.5 Developing a Tentative Marketing Plan:

2.6 Business Analysis:

2.7 Product Development:

2.8 Market Testing:

2.9 Commercialization:

3. Product Life Cycle (PLC)

3.1 Introduction Stage

3.2 Growth Stage

For a detailed understanding of various aspects of marketing practices, in a Simple, Systematic & Comprehensive manner, refer to [2nd Edition] of Taxmann's Principles of Marketing

1. Introduction

New product development is part of company strategies that allow companies to deliver the essential value propositions to the customers on a perpetual basis and meet the desired growth objectives.

Several recognizable categories of new products are:

• • Products that are really innovative, i.e. truly unique. In recent years due to technological breakthroughs, there is a flood of new product offerings providing unknown functions and services. Smartphones, Smart television, iPad, iPhone are performing radically new functions, serving non-existent, newly created needs.
  • Replacements that are significantly different from existing products in terms of form, function, and benefits provided. Disposable contact lenses, e-rickshaws, digital cameras are replacing predecessors as the newer products deliver new or added benefits desired by buyers.
  • Imitative products that are new to a particular company but not new to the market. The annual model of automobiles is appropriately placed in this category. In another situation, a firm may simply want to capture part of an existing market with a ‘me too’ product. Liquid detergent or flat-screen TV is a new product of this kind.

If buyers perceive that a given offer is significantly different from competitive products in appearance or performance, then it is a new product. Nowadays anything labeled digital is especially appealing to customers. Thus, digital has been attached to telephones, televisions, lights, music¹ etc. Development of such new products have to be considered, planned, developed, and introduced carefully to the market. Organizations have three main options to ensure a stream of new products:

• • Buy finished products from other suppliers, or license the use of other products for specific periods of time.
  • Develop products through collaboration with suppliers or even competitors.
  • Develop new innovative products, often through R&D or through adapting current products through minor design and engineering changes.

Whatever the preferred route, the procedure of new product development adopted by the company reflects its attitude to risk, strategy, product and market and its approach to customer relationships.

2. The New Product Development Process

The development of new products is complex and involves high risk, so companies usually adopt a procedural approach. The procedure consists of several phases that enable progress to be monitored, test trials to be conducted, and the results analyzed before there is any commitment to the market.

New product development requires scientific management of two things:

• • It should be entrusted to a separate group or department. New product development should be a casual activity, i.e. a new department should be formed and an individual should be assigned the charge of taking up the task.
  • This process should be managed carefully at all stages.

As a new product is developed, it progresses from the idea stage to the production and marketing stages. At every stage, the marketer decides about the possibility of moving to the next stage and seek the desired set of additional information².

Stages in the New Product Development

Major steps and decisions in the new product development process are:

2.1 Generation of a New Product Idea:

The first stage of new product development is the systematic search for new product ideas. Management at this stage defines the product and its emphasized market(s) and defines the objectives of developing new products. Companies, however, need to estimate the amount of effort is devoted to developing breakthrough products, modifying existing products, and copying competitor’s products. Internal sources and external sources such as customers, scientists, employees, competitors, channel members, and top management are the major source of new product ideas.³

• • Customers: In several cases, customers offer clues that led to new product ideas. Technical and companies offering products to business users can take new ideas from customers as their customers are relatively few, firms can follow their use of products closely and solicit suggestions and ideas to improve these products either by using a formal approach, such as focus groups, interviews, or surveys or through more informal discussions. The firm’s development team then works on these suggestions, sometimes in consultation with the customer. This joint effort between the company and the customer significantly increases the probability that customers eventually will buy the new product, they might also spread favourable word of mouth.
  • Employees, scientists, engineers, designers: Company’s workforce can be a source of ideas for improving production and developing new products. Firms innovate to have ways to motivate their employees to give the best ideas. Many companies are going beyond their formal research and development departments in order to seek innovative ideas for new product development. New product idea can come from inventors, patent attorneys, marketing research firms and it is the responsibility of the development team to give serious attention to each idea.
  • A new product idea can also emerge from the top management, as in the case of the Tata Nano-a a small, affordable, four-passenger city car with a rear engine. In metros and towns, a father driving a two-wheeler with the older child standing in front and the wife holding a baby at the back is a very common sight and forced Ratan Tata to create a safer form of family transport. The idea was to offer a safer and affordable means of personal transport to a family of four that usually used a scooter⁴.
  • Competitors: Companies can find good ideas by following the competitor’s products. They can find out what customers like and dislike about competitor’s products by buying them and building better ones. Company sales representatives are also a good source of ideas as they have first-hand exposure to customers and are the first to learn about competitive developments.
  • Suppliers and Intermediaries: Suppliers provide information about new concepts, techniques, and materials for developing new products. Intermediaries like distributors and retailers are close to the market, they are always in an advantageous position to gauge the market and provide information about consumer problems, needs, and complaints. An increasing number of companies, therefore, invest in training and reward programs for their sales representatives, intermediaries, and suppliers to keep them motivated and also to provide better insights into the market.

2.2 Idea-Generation Techniques:

Several creative idea-generating techniques can help individuals and groups to generate ideas by stimulating creativity⁵.

• • Attribute listing: technique calls for listing on existing product’s major attributes and then modifying each attribute in the search for an improved product. For example, replacing the wooden handle of a screwdriver with plastic and adding different screw heads.
  • Forced relationships: in this technique, several objects are considered in relation to one another to create a new product. For example, fit bit watches combines watch, calorie burnt in a day, and mobile phones into one unit.
  • Morphological analysis: this method calls for identifying the structural dimensions of a problem and examining the relationships among them with the hope to generate many new solutions.
  • Reverse assumption analysis: in this technique, the company lists all the normal assumptions about its entity and then reverses them. For example, instead of assuming that a restaurant has a menu, charges for food, serves food, the new restaurant may reverse each assumption and decide to serve only what chef has cooked, charge only for how long guest sits at the table and rent out the space to people to bring their own food.
  • New contexts: this technique calls for taking familiar processes and put them into a new context. For example, helping dogs and cats instead of babies with daycare service.
  • Brainstorming: Group creativity can be stimulated through brainstorming techniques. The usual brainstorming group consists of six to ten people discussing a specific problem. If done correctly, such sessions can create insights, ideas, and solutions that would have been impossible without everyone’s participation. To ensure success, brainstorming requires a trained facilitator to guide the session, participants must feel free to express themselves, and participants must see themselves as collaborators. Rules need to be set up so conversations don’t get off track. Brainstorming sessions must lead to a clear plan of action and implementation and can do more than just generate ideas.
  • Mind Mapping: this technique starts with a thought and writes it on a piece of paper, then thinks of the next thought that comes up, links it to the previous thought, then thinks of the next association, and does this with all associations that came up with each new word. A whole new idea will materialize. For example, cafeterias and the internet lead to cybercafés.

2.3 Screening of Ideas:

Companies are able to attract good ideas provided they are organized to do properly. The ideas being written down and reviewed by the idea committee sort ideas into three groups, viz., promising ideas, marginal ideas and rejected ideas. The surviving promising ideas then are subjected to a full-scale screening process.

The purpose of idea screening is to spot good ideas and drop poor at the initial stage only since product development costs rise greatly in later stages. In screening the ideas, the company avoids two types of errors-a drop-error occurs when the company dismisses a good idea and a go-error occurs when the company permits a poor idea to move into the development and commercialization.

New-product ideas are generally described on a standard form for a new-product committee’s review, where the committee reviews each new-product idea against a set of criteria. The criteria could be whether the product meets a need, whether a product is consistent with the companies objectives, strategies, and resources, will the new product delivers the expected sales volume and profit or not⁶? The company decides about the criteria and chooses to apply them in the desired manner that they may either prioritize them or may seek fulfillment together.

2.4 Concept Development and Testing:

An attractive idea must be developed into a product concept. A product idea while is a possible product the company might offer to the market, product concept is an elaborated version of the idea which is expressed in meaningful terms addressing consumer needs. A product idea can be turned into several concepts which represent a category concept, i.e. each position the idea within a category. This concept defines the product’s competition. For example, a large food-processing company if gets the idea of producing instant oats, this idea can be turned into several concepts depending upon who will use this product? The possible consumers could be teenagers, young or middle-aged adults or older adults. Another concept would be what primary benefit should this product provide? Taste or nutrition, When will people consume this? Breakfast, lunch or dinner, Answer of all these questions would lead to several concepts. The next task is to position the product by communicating and promoting the concept to the market. In case of oats, the product offers low cost and quick preparation and competes with cornflakes, toast, eggs, panrathas. Finally, the product concept in turned into a brand concept and the brand is positioned in the market.

2.4.1 Concept Testing

Concept testing calls testing product concepts with the group of consumers. The more the tested concepts resemble the final product or experience, the more dependable concept testing is. Companies now a days, design alternative physical products on a computer and view consumer’s reactions. Some companies also use virtual reality to test product concept through sensory devices to stimulate reality. Concept testing has special importance in case of introduction of totally new product in contrast to a ‘me-too’ product.

Consumers are generally asked to respond to the following types of questions:

• • Whether the benefits of the product are clear to them and believable? Does the product solve a problem or fill a need?
  • Do the other existing products currently meet this need and satisfy them? Is the price reasonable in its relationship to value?
  • Whether the consumer intends to buy definitely, probably, probably not, or definitely not?

Who would be the user of this product, and when and how often product will be used? The researcher summarizes the respondent’s answers to judge whether the concept has a broad and strong consumer appeal. The information so collected also enables the company to identify the competitors and target customers.

2.5 Developing a Tentative Marketing Plan:

After testing, the new product manager develops a preliminary marketing strategy plan for introducing the new product into the market. The marketing strategy plan consists of three parts that describe in its first part target market size, structure and behaviour, the planned product positioning and the sales, market share and profit goals. Second part outlines the product price, distribution strategy and the marketing budget required for the initial years. Last part describes the sales and profit goals and marketing mix strategy over longer period of time.

2.6 Business Analysis:

Business analysis stage is of special importance as it will decide whether from the financial and market point of view, the new product development is worth pursuing or not. Projections are made with regard to sales, cost and profit to determine whether they satisfy the company’s objective or not. The demand is estimated at different price levels, sales are forecasted on the basis of demand estimation and competitive analysis. Costs estimations are made taking into account cost of transportation, warehousing, promotion expenses, etc. Based on cost and anticipated sales revenue, breakeven price is calculated and the estimates about sales volume are made. Once the product concept is found to be feasible it can move to the development stage.

2.7 Product Development:

Once the product concept passes the business test, it moves to R & D and manufacturing for physical development of the product which existed only as a word description or a prototype. This stage since calls for large jump in investments, company determines whether the product idea can be translated into a technically and commercially feasible product. It must be ensured by the manufacturing department that the product is easy and safe to use by the customer.

The R&D department generally develops one or more physical versions of the product concept and the prototypes so developed embody the key attributes as described in the product concept statement and also within the budgeted manufacturing costs. A successful prototype could take days, weeks, months or at times years in development. Ready prototypes must be put through rigorous functional and consumer tests. Functional tests are performed under laboratory and field conditions so as to deliver the promised product to the consumer. Pharmaceutical companies conduct clinical trials to test the side effects of their drugs before providing the final product to medical representatives.

Consumer testing could be done by offering samples to target customer groups and then following it. Pharmaceutical companies’ sales representatives leave samples of new drugs with doctors and seek their feedback. Product management team take inputs from the feedback received through functional and consumer testing and take corrective decisions as and when required.

2.8 Market Testing:

At this stage the product is ready for a preliminary marketing program in case the product management team is satisfied with the products functional and psychological performance. Market testing involves the new product testing in a more authentic consumer settings and tallows marketer to learn how large the market is and how consumers and intermediaries respond to handling of the product, using and repurchasing of the actual product.

Not all companies choose the route of market testing. Market test is a risk control tool. When firms decide on full scale marketing of the product on the basis of the results of the experiment, it helps avoid costly business errors. The amount of market testing that the product requires varies with each new product and is done with utmost care as market testing is a costly and time consuming process that may allow competitors to gain advantages. There is investment cost and risk on one hand and on the other hand marketer has to deal with time pressure and research cost.

The products involving high investment and high risks where the chance of failure is high, market testing must be done, however, with low costs of developing and introducing the product, low company may do little or no test marketing. Although market testing costs can be high, they are often small when compared with the costs of making a major mistake. Management, thus, learns what might happen under full-scale marketing and is able to make a more informed decision about commercializing the product.

2.9 Commercialization:

Favourable results of market testing helps management in deciding to go in for launching the new product. The launch plan must consider the correct timing, place and strategy decision. The company launching a new product first need to decide on product introduction timing, and then make choice about either a first entrant in the market and enjoying first mover advantages or parallel⁷ or late entrant and thereby saving cost of educating the customers.

About where to launch the new product, the company may decide to select whether – in a single locality, region, several regions, national market or international marked. Most companies design their new products to sell primarily in domestic market and then expand their operation in neighbouring countries. There is always a need to develop an action plan for introducing new product into the rollout markets.

3. Product Life Cycle (PLC)

The product life cycle defines the stages that new products move through as they enter the market, get established and ultimately leave the marketplace and thereby offers marketers scope for their strategic punning. To say that a product has a life cycle involves four things: (i) product has limited life; (ii) product sales pass through four distinct stages, introduction, growth, maturity and decline during its period of existence, each posting different challenges, opportunities and problems to the seller; (iii) profits rise and fall at different stages of the PLC; and product requires different marketing, financial, manufacturing, purchasing and human resource strategies in each stage of their life cycle.

The PLC is an important concept as it provides insights into a product’s competitive dynamics. A companies’ marketing success can be affected considerably by its ability to understand and manage the life cycle of its products. The length of the life cycle varies among products, ranging from a few weeks or a short season to several decades. The shape of the sales and profit curves may vary somewhat among products.

Even duration of each stage may be different among products. Some products take years to pass through the introductory stage, while others are accepted in few works. Some products, particularly related to fads and fashion, show a sharp growth and then a sharp decline, others like steel, cement remain in the maturity stage for a long time, and may never face a decline due to inelastic demand. Even products like washing machine, refrigerator, television sets, remain is maturity stage for a very long time until a superior product comes along to replace them. In virtually all cases decline is inevitable as the need for the product disappear or a superior and less expensive product is developed to fill the same need, or a competitor does a superior marketing job.

Most product life cycle curves are portrayed as bell shaped which are divided into four stages viz., introduction, growth, maturity and decline⁸ (Fig.6.1). It is quite important that management recognize what part of the life cycle its product is in at any given time. The competitive environment and the resultant marketing program will differ depending upon the stage.

Various stages of PLC and their appropriate marketing strategies are as follows:

3.1 Introduction Stage

The introduction stage starts when the new product is launched. As making product available in several markets so as to fill the dealer’s pipelines takes time, sales growth is apt to be slow at this stage⁹. In Indian market Frozen foods took many years before they entered a stage of rapid growth. The concept of frozen foods was mainly not in sync with Indian food habits of cooking fresh and therefore it required a change in the mind set of Indian consumers to adopt frozen food as a new category of food products. Expensive products like high definition television sets had retarded sales growth due to small number of buyers who can afford the product.

This phase is characterized by high operational costs, mainly due to inefficient production levels, high learning time, unwillingness of middlemen to deal in new products, extended credit terms. Due to low sales and heavy distribution and promotion expenses the profits at this stage tend to be negative or low. Promotional expenditures are at their highest ratio to sales as high level of promotional effort is required to create awareness about new product, induce trial of the product and secure distribution in retail outlets¹⁰. Prices tend to be high due to low costs and high margins required to support heavy promotional expenditures.

Marketing strategies during introduction stage requires consideration of each marketing variable. Since the objective of the marketer at the introduction stage is to create product awareness and trial for the new product, initially firm offers limited version of the product. It offers tangible benefits to the customers so that they can switch from existing products to try the new one. One of the most crucial decisions taken in this stage is pricing strategy for the new product. The firm opts for either market skimming or market penetration. With the skimming pricing strategy, firm enters the market with high price, taking advantage of early entry and relative novelty of the product. High prices help the firm to recover as much profit per unit as possible. With the penetration pricing strategy, firm goes for low prices aimed at securing larger market share. Low price encourage rapid product acceptance especially if the market is highly price sensitive. Distribution strategy during introduction stage should be selective one. Another crucial area demanding attention at this stage is promotion. Firm spends heavily on advertising so as to build awareness among early adopters and dealers. Firms also spend heavily on sales promotion so as to induce trials.

3.2 Growth Stage

The growth stage is a stage marked by increasing sales as early adopters like the product is followed by other consumers who also start buying the product. As sales and profits go up, competitors enter the market with new and improved versions of the product. More intermediaries are willing to help the product thereby expanding the distribution chain. Firms now operate at economical levels as there are lesser production bottlenecks resulting in lower costs. Price of the product at this stage either remain same or fall slightly depending on the increase in demand. Profit increases due to growth in sales and fall in unit manufacturing costs. The rate of growth eventually changes from an accelerated rate to a decelerated rate making firms to prepare new strategies.

During this stage firms uses several marketing strategies to maximize market share and sustain rapid market growth to the extent possible. Firm further improves product quality, adds new product features and also tends to offer product extensions, service and warranty. Prices fall slightly to penetrate the market. Distribution coverage is increased by entering new channels. There is a shift from product awareness advertising to product preference advertising. The firm that pursues these strategies will strengthen its competitive position. By spending money on product improvement, promotion and distribution, firm are thus able to capture a dominant position.

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