List and define the steps in the new-product development process Essay
List and define the steps in the new-product development process
By its very nature, marketing requires companies and organisations to develop new ideas and make adjustments to their marketing efforts. New concepts, designs and products are essential for responding to the ever-changing demands of the target market/s, and are crucial for maintaining customer satisfaction, which ultimately leads to increased revenues and profits for the firm. New-product development dictates the company’s future in the market. Every person’s wants are unlimited; however, a person’s needs are narrowed to a limited amount. A product is something that can satisfy people’s wants and needs. It is one of the variables in the marketing mix (one of the ‘7P’s’). A product can be considered as the most important item in the marketing mix, since ultimately the marketing mix revolves around the Product. It can be offered to the market in the form of goods, services, ideas, events etc, The following are the classification of goods . This is crucial information for marketers as market segmentation exercises are carried out within the company in order to target certain groups of customers with specific use-related and use-situated needs. Below are four main classifications of goods; Convenience Goods – these are those goods which are bought on a daily basis, products of this type are usually considered as needs. These are goods such as milk, bread, detergents etc…
Shopping Goods – these are mostly semi-durable goods which are purchased less frequently then convenience goods. These cost more than convenience goods, thus people tend to choose products over others in a process of choosing the preferred alternative. Clothes and white goods are ordinary examples Specialty Goods – these are goods which are bought infrequently. If a person decides to purchase a specialty good, one will take time on choosing the good, since these goods are much more costly than the two previously mentioned. When this type of good is bought after sales service is usually provided. Example of this type of goods includes property & motor vehicles & a Luxury holiday in a high standard hotel. Impulse Goods – these goods are not actively searched by customers when one is making a purchase. However, a last minute impulse makes a customer purchase goods. Impulse goods usually occur in supermarkets or department stores.
Idea Markets –
The creation and evaluation of new product ideas are important procedures in the new product development process. Idea markets help companies by using virtual stocks to represent product ideas, introducing a virtual marketplace for these ideas to interact and use the forces of the market to generate certain stock prices that will indicate whether a product idea could be successful or not. Thus, the concept of idea markets has been considered as one of the leading methods of creating and evaluating new product ideas. Both the creation and evaluation of ideas require certain things such as creativity and long-range forecasting abilities, but they also suffer from a great deal of uncertainty (Creative Trainer: 2007) . The following three factors show why idea markets have been proposed as the new method of creating and evaluating product idea, mainly because they positively influence the quality of new product ideas: 1.Large Number of Ideas and Idea Creators
It is essential that the quality of product ideas is given importance, as this determines the commercial success of the product. However, it is not quite that easy to determine the people that should be involved in the product creation as well as the main characteristics of the product idea. A wide pool of ideas might give rise to some unexpectedly good concepts that aren’t in demand at the moment but might be the breakthrough product idea sometime in the future. To broaden the scope of the search of the next best product idea, companies consult with several diverse and external sources such as employees, suppliers and researchers . Due to its uncertainty, participants of idea creation should come up with a substantial amount of product ideas. It follows that a high quantity of idea correlates to a high quality of positive product ideas, thus, creativity is an important element that shouldn’t be under-valued or diminished. Activities of idea creation, such as brainstorming, should promote individual creativity.
Companies nowadays are creating and innovation friendly and relaxed office environment so as to enhance the innovative performance and creative thinking. Innovation leads to the development of new ideas in order to sustain present customer needs within the market. This can be achieved with the support of many different processes that help the company to expand into something different instead of building on something that they already have. One of the many methods of innovation is symbiotic ideas, where multiple ideas are combined, adding the pros of all ideas without incurring all the cons, to make a better general idea. The second method, targeted innovation, is highly used in large scale companies and deals with the idea of a direct path that leads to a result that is not only known from the beginning of the process but also expected. Finally, the revolutionary idea is one that portrays a whole new different perspective which sets it apart from traditional school of thought. An example of this ideology is Marxism .
2.Group decisions instead of individual decisions
When companies engage in finding a new product to develop, ideas about a new product can be established from a group of idea creators and by means of a discussion and exchange of opinions. This will result in high quality ideas that can prove useful to the company when deciding what product to produce. Ideas formed through group discussion can be generated through several activities such as idea competitions and ideation games, this will cause the participants to widen their thoughts and observe other participants ideas before acting. It is also ideal that the persons that will evaluate the product work as a group, this will improve the quality of their evaluations due to the fact that one person might see something that the other person missed and even one can also criticise the other until a compromise is found. Interactive and iterative evaluation techniques allow participants to widen their knowledge and continuously learn more and more, thereby improving the quality of the decision taken .
3.Combining the creation of ideas with their evaluation
Most of the ideas generated will support either the creation of the new product or the evaluation of the new product. This will be beneficial due to the fact that participants can focus more towards the creation process. The problem that arises may be the fact that idea creators will not receive immediate feedback regarding their ideas, this may result in the ideas being vague or even out of the range intended for them to be in.
The ideas generated are usually split into three main criteria; mainly being in respect of their quality, commercial success and new to the world. The criteria usually provide skewed results and only few of the ideas turn out to be of a high quality. Another problem that may arise is the fact that companies review a large number of ideas from which only a moderate portion are processed for further development. Participants who have knowledge of the product and are able to create new product ideas are usually even capable of evaluating the product ideas generated. Combing these participants’ together results in a positive and successful evaluation of new product ideas.
Levels of product –
When searching for new product ideas one must also keep in mind that the product is made up of three components; Core product, Actual product and Augmented product. The core product is the part of the product that makes it beneficial to the consumer and answers the question “What is the buyer really buying?” The actual product is the tangible, physical product. The Augmented product on the other hand refers to the non-physical part of the product, the added value one gets from purchasing the product, such as customer service, after sales support, delivery, installation etc .
Product Characteristics –
When finding and developing new product ideas one should incorporate and think about the product attributes, branding, packaging and labelling. One must consider the quality level and quality consistency of the product. This refers to how the product is perceived and how the product will be expected to perform during its life. One should also think about the features that are expected to flow from the product and the characteristics of the product that contribute to the benefits it offers. Substantial thought should also be given regarding the design of the product. Another important aspect of the product that requires rational, especially in new companies, is the brand of the product. This usually incorporates a name to the product, sign, symbol or a combination of the above mentioned. Branding provides a unique attribute to the product therefore it should be attractive and easy to recognise and remember. Many people buy a product solely on the strength of the brand. The packaging of the product is yet another important factor. It includes the wrapper or container for the product. The packaging should protect the product and ensure it reaches the buyer in the condition it is intended to and also incorporated with the packaging should be a set of instructions and safety labels on how to handle the product .
Managing the New-Product Development Process –
The need for new product development may arise due to other external forces such as competition from rival firms. Innovation and new ideas are forced into play within the market as firms compete for a bigger customer base and market share. In addition, new product development may occur due to the actual product becoming obsolete and/or inadequate for present customer’s needs. There are many other reasons why new product development is vital. These may include: -Innovative/unique products earn higher profits than older products. -New products can help reposition the company in customer’s minds and shift their perception about the new product/s -Some firms market seasonal products that reap their highest sales during a certain time of the year (for example, ice-cream vendors). Expanding the firm’s product mix into new areas may help offset these fluctuations.
The development method may take two forms. The company can develop new products in its own laboratories or it may contract independent researchers or firms to develop specific original products. Furthermore, we can identify six categories of new products ; 1.New-to-the-world products. (Such as the first Microsoft tablets were in 2002) 2.New product lines (new products that allow a company to enter an established market) 3.Additions to existing product lines (New product that supplement existing products, eg new flavours, sizes etc) 4.Improvements and revisions of existing products
5.Repositioning ( existing products that are targeted to new markets)
Before we get to the new product development process there are few decisions a company must take. It must decide on how to segment the market, which will be the target customers, identify their needs and determine its market positioning for the new product. Nowadays, companies use customer-driven engineering, which is the process whereby the design of the final (new) product incorporates its target customer’s preferences. These preferences are determined through market research methods, such as the collection of primary and secondary data. Lastly, the company must set a budget for the new product. Management must decide what proportion of investment will be necessary for research and development activities as well as the gathering of market intelligence and market research. Once this is set, the New-Product Development process may begin. There are 8 steps in the New-Product Development process as defined by kotler.
1. Idea Generation
The process starts with the hunt for new ideas. The key to successful ideas, is understanding customer’s present or unmet needs in the market. For example , Procter &Gamble’s efforts in 1985 to create a bold new advertising campaign for Folgers to catapult it into market leadership began by watching consumers make coffee and by listening to their descriptions of their process of waking up in the morning. From these efforts came the insight that people actually wake up to the smell of coffee before they get to the taste And, thus was born “The best part of waking up…” The insight worked so well, it’s still guiding the marketing campaign today – twenty years later. Ideas for new products can be obtained from customers, the company’s R&D department, focus groups, competitors, salespersons, employees, trade shows and events etc…
2. Idea Screening
The second stage is to get rid of unsound ideas prior to dedicating resources to them. The ‘screeners’ must ask at least three questions : Will the customer in the target market benefit from the product? Is it technically feasible to manufacture the product?, Will the product be profitable when manufactured and delivered to the customer at the target price? An important consideration must be made in screening ideas. This stage is crucial for companies as they must avoid two types of errors ; A Drop-error – which occurs when a company dismisses a good concept for the new product A Go- error – occurs when a company goes forward with a poor idea up until the last new-product development stage, commercialization. This can prove to be extremely costly is the idea is not received well in the market. A recent example of this is when in 2010, GAP launched a new logo in an attempt to be more modern
This only lasted two days as GAP received an unbelievable criticism from the public, who expressed felt that GAP was changing their image for the worse. 3. Concept Development and Testing
Having identified the right product idea, a product concept must follow – this is an elaborated version of the screened idea. The notion here is that a product idea can be turned into numerous product concepts. These concepts are developed with marketing and engineering specifics. Before the next step, the product concept must be tested. This follows by ‘giving’ the concept and all information about the product to a group of target customers and obtaining feedback and responses from them. The reactions obtained would indicate whether the customers in the target market would welcome concept or not.
4. Marketing Strategy development
In this stage, the new product formation will begin as a result of the conclusions derived from the concept development and testing stage. A strategy-plan would be drawn up as to how best to introduce the new product into the segmented target market. The plan describes three parts , The first part describes the market’s structure, size and behaviour, as well as the planned positioning of the product and the market share. The second part shapes the expected price, distribution approach and marketing financial plan. The last part of the marketing strategy outlines the sales and profit targets as well as the marketing-mix strategy.
5. Business analysis
This is an important step in new product development. The firm must analyse different aspects of the new product. It should find out whether the product is profitable or not and what the cost of the new product will be. Under this stage, the demand for the new product should be established and whether the demand is seasonal or regular while also gathering information re any competitors of this new product.
Estimations of sales and expenses such as; advertising and sales promotion should be made to provide calculations for the approximate profit which the new product should render. Hence, the new product is studied from a business aspect. If the new product should earn a profit, it will be accepted, otherwise it will be rejected.
6. Product development
In this product development stage, the company takes the necessary steps to produce and distribute this product since the company would have already decided to introduce this new product in the market. The production development department will make strategies to produce one or more physical versions of the product concept, while the marketing department will make plans on how to distribute the product. The financial department will provide all the finances required to introduce the new product. Before the test marketing stage, plans for the advertisements for the new product will be made on a small scale.
7. Test marketing
Test marketing is introducing this new product on a small scale and in a small market, in a more realistic setting. If this product is a success in the small market, then it is later introduced on a larger scale. However, if this new product fails in the small market, then the company will test for reasons for its failure. There are different types of test marketing which include the following; sales-wave research, simulated test marketing, controlled test marketing and test markets .
In sales-wave research, the company gives customers the opportunity to use the product at no cost. At a later stage the company then reoffers the same product or a competitor’s product at a slightly cheaper price and notes the number of times (sales-waves) each customer selects each product. The simulated test market is a cheaper and faster method when compared to the other methods, but it is not considered as the most accurate due to the controlled setting. The company will make necessary amendments in the new product and will then introduce it again in the small market. If the new product fails for the second time, the firm will reject it. Test marketing is a safety device which reduces risk from large-scale marketing. Although this is a very time-consuming stage, it must be done especially for costly products.
If the test marketing performed on the new product is successful, then the company introduces their product on a larger scale, which is known as commercialization. The firm will make a large investment in the new product. It will plan when to launch the product in a larger market and where since the market-entry timing and location are very critical. First entry has its advantage of being on the market before its competitors but might backfire if it is rushed. When a firm coincides its product’s entry with its competitors, known as parallel entry, this will enhance the market’s attention on analysing and comparing products. Whilst a late entry launch will reduce costs while also gathering further knowledge on the size of the market. Companies usually wait for the ‘killer application’ to occur; this may depend on the season or for the older product to be drawn down and to be replaced. The company will produce and distribute the new product on a larger scale where it will advertise the new product on mass media such as; Radio, TV, Magazine and Newspapers.
The Consumer Adoption Process –
This is the process by which potential customers learn about the new product, tests it out and adopts or rejects it. This process begins from when the consumer first hears about the new innovation up until final adoption of the product. Adoption is a decision made by an individual to become a regular user of a product. There are five stages which adopters of new products have been observed to pass through ; 1.Awareness – consumer becomes aware of the new innovation 2.Interest – the consumer seeks more information about the new innovation 3.Evaluation – the consumer considers whether or not to try the product 4.Trial – the consumer actually tries the product so as to enhance his/her evaluation of it. 5.Adoption – the consumer becomes a customer and decides to make regular use of the product. It is the task of the new-product marketer to make this process as easy and swift as possible so as to capture the consumer’s interest and turn it into the action of actually adopting the product.
In conclusion, companies must realise the importance that the product has in the marketing mix. Improved and replaced products will expand and maintain sales and profits for the company. However, when coming to develop a new product, companies must realise the importance and relevance of the steps involved in creating and introducing new products into the market. The key is to develop a product which is innovative, up to standard, meets the customer’s present needs and which ultimately has the ability to penetrate the market and claim a place in the customer’s minds. Thus by following the New Product Development process, as we have discussed in this assignment, companies will be able develop a product which has a high probability of being successful in the market and which will be demanded by its customers.