NEW PRODUCT DEVELOPMENT AND MANAGEMENT

Introduction

One key way of determining how long an organization will stay on top of the competition in an industry is the rate at which the organization comes out with new and innovative products and services. A company that is constantly innovating and bringing new products and services to the market could be viewed as being dynamic and profitable.

The purpose of this article is to explain how companies find and develop new product/service ideas. The article will also list and define the steps in the new product development process and the major considerations in managing this process

Presentation Outline

A. New Product Development Strategy

B. New Product Development Process

C. Managing New Product Development

A. New Product Development Strategy

A firm can obtain new products through:

Acquisition

New-product development

Acquisition refers to the buying of a whole company, a patent, or a license to produce someone else’s product.

New product development refers to original products, product improvements, product modifications, and new brands developed from the firm’s own research and development.

Reasons for New Product Failure

The following are some of the reasons why new products and services fail:

1. Overestimation of market size

2. Poor design

3. Incorrect positioning

4. Wrong timing

5. Priced too high

6. Ineffective promotion

7. Management influence

8. High development costs

9. Competition

B. New Product Development Process

The process of new product/service development follows the logical sequence below:

a. Idea generation

b. Idea screening

c. Concept development and testing

d. Marketing strategy development

e. Business analysis

f. Product development

g. Test marketing

h. Commercialization

a. New Idea Generation

New Idea Generation is the systematic search for new product/service ideas.

Finding a good idea is the first step in the process of converting an entrepreneur’s creativity into an opportunity. The new business that simply bursts from a flash of brilliance is rare. Usually a series of trial-and-error iterations is necessary before a promising product or service fits what the customer is willing to pay for. When is an Idea Opportunity?

Sources of New product Ideas

New product ideas can be generated from both internal and external sources.

Internal sources refer to the company’s own formal research and development, management and staff, and intrapreneurial programs.

External sources refer to sources outside the company such as customers, competitors, distributors, suppliers, and outside design firms.

b. Idea Screening

Idea screening refers to reviewing new-product ideas in order to drop poor ones as soon as possible.

Criteria for evaluating venture opportunity include the following:

1. Industry and market

2. Economics

3. Competitive advantage issues

4. Management team issues

5. Personal criteria

6. Strategic differentiation

c. Concept Development and Testing

Product idea is an idea for a possible product that the company can see itself offering to the market. Product concept is a detailed version of the idea stated in meaningful consumer terms. Product image is the way consumers perceive an actual or potential product and Concept testing refers to new-product concepts with groups of target consumers.

d. Marketing Strategy Development

Marketing strategy development refers to the initial marketing strategy for introducing the product to the market. This strategy considers four vital areas namely:

1. Description of the target market

2. Product positioning, sales, market share, and profit goals

3. Price, distribution, and budget

4. Long-term sales, profit goals, and marketing mix strategy

e. Business Analysis

Business analysis involves a review of the sales, costs, and profit projections to find out whether they satisfy the company’s objectives.

f. Product Development

Product development involves the creation and testing of one or more physical versions by the R&D or engineering departments

Requires an increase in investment

g. Test Marketing

Test marketing is the stage at which the product and marketing program are introduced into more realistic marketing settings. Test marketing provides the marketer with experience in testing the product and entire marketing program before full introduction.

When firms test market, it means the new product involves large investment and there is uncertainty about product or marketing program

When firms do not test market, it implies that the new product is either a simple line extension, copy of competitor product, low cost one or else the product has management confidence.

Approaches to Test Marketing

• Standard Test Markets
• Controlled Test Markets
• Simulated Test Markets

Standard Test Markets are small representative markets where the firm conducts a full marketing campaign and uses store audits, consumer and distributor surveys, and other measures to estimate product performance. Results are used to forecast national sales and profits, discover product problems, and fine-tune the marketing program.

Challenges of Standard Test Markets

• Cost

• Time

• Competitors can monitor the test

• Competitor interference

• Competitors gain access to the new product before introduction

Controlled Test Markets are panels of stores that have agreed to carry new products for a fee

• Less expensive than standard test markets

• Faster than standard test markets

• Competitors gain access to the new product

Simulated Test Markets are events where the firm will create a shopping environment and note how many consumers buy the new product and competing products. It provides a measure of trial and the effectiveness of promotion because researchers can interview consumers.

Advantages of Simulated Test Markets

• Less expensive than other test methods

• Faster

• Restricts access by competitors

Disadvantages of Simulated Test Markets

• Not considered as reliable and accurate due to the controlled setting

h. Commercialization

Commercialization is the introduction of the new product into the real market. It involves question like when to launch, where to launch and also a planned market roll out

Managing New Product Development

Successful new product development should be Customer-centered, Team-centered and Systematic

Customer-centered new product development focuses on finding new ways to solve customer problems and create more customer-satisfying experiences. It begins and ends with solving customer problems.

Sequential new product development is a development approach where company departments work closely together individually to complete each stage of the process before passing along to the next department or stage. It is used for increased control in risky or complex projects, though usually slow.

Team-based new product development is a development approach where company departments work closely together in cross-functional teams, overlapping in the product-development process to save time and increase effectiveness. Compare against the sequential new product development, Team-based product-development approach can increase tension and confusion. On the other hand, the Team-based product-development approach is faster and more flexible

Systematic new-product development is an innovative development approach that collects, reviews, evaluates, and manages new-product ideas. It creates an innovation-oriented culture and yields a large number of new-product ideas