New Product Development

NEW PRODUCT IMPORTANCE

Company . . . • Sales Revenue Increase

• Replace “fading”

products • Spread Risk • Innovate or Die

Societal . . . • Create jobs • Increase standard of

living • Increase competition

Categories of New products

• New to the Market – Entirely new product

• New Product Lines – Entering established market for the first time , Nike-Running shoe to sports market….Athletic shoes,clothing,equipment

• Additions to existing product lines – supplement established product lines ( Package sizes , flavors , and so on )

• Improvements & Revisions of existing products – Greater perceived value & replace existing products (Gillette –M3Power,Swift)

• Repositionings - New Market , new segments

THE NEW-PRODUCT PLANNING PROCESS

2. PRODUCTSCREENING

3. CONCEPT TESTING

4. BUSINESSANALYSIS

5. PRODUCTDEVELOPMENT

1. IDEAGENERATION

7. COMMERCIALIZATION6. TESTMARKETING

I-Idea Generation & Screening Stage

Idea Generation:• NPD starts with Idea Generation --- The

systematic search for New-product Ideas

IBM – ‘Innovation Jam’ – Online suggestion box (Ideas for new products and services )

Generated 46,000 Ideas from 1,50,000 people in more than 160 countries over three days )

IdeasIdeasIdeas

Ideas

Idea

sId

eas

IdeasIdeas Ideas

Ideas

Product ideaProduct idea

SOURCES OF NEW PRODUCT IDEAS

Principle: Set the climate for innovation

– Company: customers, R&D, - sales force, employees

• Channel members• Researching Competitors products &

services• Employees - Toyota claims– 2 million

Ideas every year , 85% are implemented• Launch of BYTES – wafer chocolate from

Cadbury India was from a company Driver• The Kitchen Of India brand by ITC was

based on suggestions by master Chef• Government/Universities

Case: P&G

P&G emphasizes observational techniques with its customers.

• Brand marketers spend 12 hours a month with consumers watching how they wash clothes , cleans Teeth , clean floors , their habits and sources of frustration.

• For Diapers mothers bringing their babies to labs to study.

• To develop Cover Girl – all day lip color it was tested on 30,000 women.

• They were invited to lab each morning , apply lipstick and record their activities.

• Torture tests – eating spaghetti to showering.

This blockbuster product was a market

leader.

Idea Committee

Idea Screening:• minimize risk by

focusing on ideas with the highest probability of success

• Drop error• Go- Error

“I have got a great Idea”

“It won’t work here”

“We have tries it before”

“This isn't the right time”

“It can’t be done”

“Its not the way we do things”

“It will cost too much”

“Lets discuss it at our next meeting”

II-Concept Development &Testing

• Describe a product idea in functional, objective and subjective terms to create a product concept (image).

• The product concept is presented to targeted customers to gain their reaction(s).

• Product ideas are accepted/rejected/modified.

A large processing company gets the Idea of producing a powder to add to milk to increase its nutritional value and Taste

This is a product Idea ; but consumers buy product concepts

Product Idea into several concepts:-

Who will use this product? – it can be aimed at infants , children , teenagers , or middle-aged adults or older adults

What primary benefit should this product provide? – Taste , Nutrition , refreshment , energy

When will people consume this drink? – Breakfast , mid-afternoon , dinner , late-evening

By answering to this company can form several concepts:

Concept – 1 An instant breakfast drink for adults who want a quick nutrition breakfast without preparation

Concept – 2 A tasty snack drink for children as a midday refreshment

Concept – 3 A health supplement for older adults to drink in the late evening before they go to bed

Concept testing

• Elaborated version of test :“ Our product is a powdered mixture that is added to milk

to make an instant breakfast that gives the person all the needed nutrition among with good taste and high convenience. The product will be offered in three flavors ( Chocolate , Vanilla and Strawberry) and would come in Individual packs, ten to a box, at Rs. 110 a box )”

New Product Development ProcessStep III. Marketing Strategy Development

New Product Development ProcessStep III. Marketing Strategy Development

Part Two Describes Short-Term:Product’s Planned Price

DistributionMarketing Budget

Part Two Describes Short-Term:Product’s Planned Price

DistributionMarketing Budget

Part Three Describes Long-Term:Sales & Profit Goals

Marketing Mix Strategy

Part Three Describes Long-Term:Sales & Profit Goals

Marketing Mix Strategy

Marketing Strategy Statement Formulation

Part One Describes Overall:Target Market

Planned Product PositioningSales & Profit Goals

Market Share

Part One Describes Overall:Target Market

Planned Product PositioningSales & Profit Goals

Market Share

For instant breakfast milk is families with children who are receptive to new , convenient , nutritious and inexpensive form of breakfastPositioned at Higher price , higher quality end of the instant-breakfast drink category

Initially 10% of market share with a loss not exceeding Rs. 50 million , next year 14% market share with profit Rs. 110 million

It will be offered in three flavors Vanilla , Chocolate and Strawberry and sold at Rs. 110 a box , Schemes for dealers , Sales promotion budget , Advertising budget of 175 million : Television and print

The company intends to win 25% market share and realize after tax return on investment of 12% Quality to be improved with time Price initially high and then lowered graduallyPromotion budget to be boosted each year by about 20% and so on

New Product Development ProcessStep 5. Business AnalysisStep 6. Product Development

New Product Development ProcessStep 5. Business AnalysisStep 6. Product Development

Business Analysis

Review of Product Sales, Costs, and Profits Projections to See if They Meet Company Objectives

Business Analysis

Review of Product Sales, Costs, and Profits Projections to See if They Meet Company Objectives

If Yes, Move to Product Development

If Yes, Move to Product Development

If No, Eliminate Product Concept

If No, Eliminate Product Concept

Step 6 : Product Development

• Prototype Development Stage• Converts a product idea into a physical form (prototype)

– R&d– Value analysis of components – cost - quality-performance tradeoffs)– Packaging choices– Time consumption– At Gillette almost everyone gets involved in new-product testing-

every working day 200 volunteers from various departments come to work unshaven , troop to the second floor.

“We will bleed so you’ll get a good shave at home.” says a Gillette employee .

Test Marketing

Test Marketing

StandardTest Market

Full marketing campaignin a small number of representative cities.

StandardTest Market

Full marketing campaignin a small number of representative cities.

SimulatedTest Market

Test in a simulated shopping environment

to a sample of consumers.

P&G did in Pakistan to launch

a brand of Ariel

SimulatedTest Market

Test in a simulated shopping environment

to a sample of consumers.

P&G did in Pakistan to launch

a brand of Ariel

Controlled Test Market

A few stores that have agreed to carry newproducts for a fee.

Controlled Test Market

A few stores that have agreed to carry newproducts for a fee.

New Product Development ProcessStep 7. Test Marketing

New Product Development ProcessStep 7. Test Marketing

New Product Development ProcessStep 8. Commercialization

New Product Development ProcessStep 8. Commercialization

When?When? Where?Where? To Whom?

To Whom? How?How?

Commercialization is the Introduction of the New Product into the Marketplace

P&G

• Crest was the product that had taken a long time to develop. It took fifteen years after stannous fluoride had been identified as a potential anti cavity fighter to introduce Crest toothpaste in 1955.

• P&G sometimes took several years to develop a product. In the case of "Pampers", it took more than ten years just to figure out how to develop the product and commercialize production.

AwarenessAwareness

InterestInterest

EvaluationEvaluation

TrialTrial

AdoptionAdoption

New Product Adoption Process

Loyalty?

Influences on the Rate of Adoptionof New Products

Influences on the Rate of Adoptionof New Products

DivisibilityCan the innovation

be used on a trial basis?

CompatibilityDoes the innovation

fit the values and experience of the

target market?Complexity

Is the innovation difficult to

understand or use?

Relative AdvantageIs the innovation superior

to existing products?

Communicability Can results be easily

observed or described to others?

ProductCharacteristics