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Ch-6 New Product Development
Ch-6 New Product Development
Chapter - 6.
New Product Development
Cost Reduction:
New product that provide similar performance at lower cost.
Example: Cadburys Five Star from 5Rs pack to 2Rs pack by
using flavors instead of pure cocoa.
(8 STEPS)(GST-SADTC)
Stages in New Product development Process:
- To minimize risk of new product failure, new product development follows a structured
process.
- Stages in new product development are:
Idea Generation.
Idea Screening.
Concept Development & Testing.
Marketing Strategy Development.
Business Analysis.
Product Development.
Market Testing.
Commercialization.
Idea Generation:
- New product development process starts with search for ideas.
- Sources of new product ideas could be
Customers:
Market research could be done with recent customer/lead users
(customer who make advance use of product & recognize
improvement needs).
Market research determines product improvement required.
R & D / Employees:
Employees could be encouraged to give new product ideas &
rewarded suitably.
Competition:
Through study/analysis of competitive products.
Marketing Channel & Their Staff:
Dealers, distributors, employees of distributors & dealers.
Senior/Top Management:
Product innovators could be senior management.
Idea Generation Techniques:
- Ideas may be generated using creative techniques such as
Attribute Listing:
List out major attribute of a product.
Modify each attribute in search of an improved product.
Forced Relationship:
Several objectives are considered in relations to one another to
create a new product.
Example:
Fax + Telephone + Table Display.
Morphological Analysis:
Identify structural dimension of a problem & examine
relationships among them.
Example:
Moped: Motorised/Stronger/Cycle.
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Chapter - 6.
New Product Development
Hence, convenient/economical/effortless.
Customer Need / Problem Identification:
Do market research on customer to determine their needs.
Wherever customer is dissatisfied, the reason for dissatisfaction
could lead to a new product.
Example:
Dettol used to burn, hence came Savlon.
Brainstorming (Technique developed by Alex Osborn):
6-10 people discuss a specific problem.
Asked to come up with ideas for some time.
Guidelines could be
No criticism/evaluation of ideas.
Free flow of thought is encouraged.
Quantity is encouraged.
Combining/better/improved ideas is encouraged.
75-80 new ideas are required for a company to develop a new product.
HLL came with 84 new products.
Ranbaxy came up with 46 new product in the last year.
Idea Screening:
- Ideas generated need to be screened for action.
- To start with, ideas are sorted into
Promising ideas.
Marginal ideas.
Rejects.
- Promising ideas are evaluated by a committee.
- Surviving promising ideas are screened through a process.
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Chapter - 6.
New Product Development
Product Idea Rating Process:
- New product ideas are described in details.
- Details include:
Product idea.
Who is target market?
Who is/are competition?
Estimate of:
Market size.
Product price.
Development time/cost.
Manufacturing cost.
Rate of returns.
- Ideas are evaluated against a set of criteria
- Base criteria could be:
Does product meet a need?
Would it offer superior CDV / Price performance?
Can it be distinctly positioned / advertised/
-
Requirements for
product success.
Unique/Superior Product
High Performance
High marketing support
Lack
of
strong
competition
-
Relative
Weight
0.40
0.30
0.2
0.1
Product
/Idea
Score
0.6
0.5
0.7
0.8
Rating
0.24
0.15
0.14
0.08
Ratings Overall
1.0
0.61
Only those product ideas with a score of 0.61+ are taken ahead to the next stage.
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Chapter - 6.
New Product Development
Concept Development & Testing:
- Attractive ideas should be refined into list able product concepts.
Product Ideas:
Possible product that company may offer to the market.
Product Concept:
Elaborated version of the idea expressed in meaningful consumer
terms.
Product Image:
Picture that consumer acquire of an actual/potential product.
Concept Development:
- A product idea is converted into concepts.
Example: Product Idea (Food Processing Company).
Desires to produce a powder which is nutritious & tasty.
- To convert to concept answer following questions:
Who will use this product?
Children / Young working Professionals / Elderly.
What primary benefit should product provide?
Taste / Nutrition / Refreshment / Energy.
When will consumers consume product?
Breakfast / Snacks / Dinner.
-
Each concept represent a category concept, i.e., each concept positions the idea within a
category.
Category defines the products competition.
Example:
Competition for C1: Paranthas/ Idlis/ Toast/ Cornflakes.
Competition for C2: Maggi noodles/ Grilled Sandwiches/ Indian
Snacks/ Burgers/ Potato Chips.
Competition C3: Normal food items/ Dial up food
Next task is to determine where each concept would stand in relation to its concept.
For this, we can use:
Product Positioning Map.
= Idlis.
= Paranthas.
= Cornflakes.
= Space for C1.
Price
Speed
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Chapter - 6.
New Product Development
Price
.
Nutrition/Calories
Concept Testing:
- Involves testing product concepts with appropriate customer group to obtain customer
reaction.
- Concepts presented in verbal / visual / form (Computer visualization may be used).
- Dimensions of concept tested out includes:
o Communicability / Believability:
Are the benefits clear / believable?
o Need Level:
Do you see a product filling a need?
To what extent?
o Gap Level:
Do other products currently meet this need and satisfy you?
o Perceived Value:
Is the price reasonable with respect to the value?
o Purchase Intention (Juster Scale):
Minimum 30% - 40% top box score.
Would you buy the product?
o User Targets/Purchase Occasion/Purchase Frequency:
Who would / when / how / often use this product?
-
Consumer preferences for alternative product concepts tested out through Conjoint
Analysis.
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Chapter - 6.
New Product Development
o Part B:
Products price planned.
Product form/shape/size of packs.
Distribution strategy.
Marketing budget for first year.
o Part C:
Long term sales/profit goals.
Marketing mix strategy over time.
Business Analysis:
- After product concept/marketing strategy is developed, company can evaluate proposals
business attractiveness.
- For this,
Sales.
Cost.
Profits.
Are projected for 5 years period.
- These are matched with companys objectives. If there is a match, the new product
concept moves to product development stage.
Estimating Total Sales:
- Total sales is made up of:
First time sales.
Replacement sales.
Repeat sales.
- Sales estimation process varies with product type.
- If product is:
o One Time Purchasing Product:
First time sale is adequate.
Example: House, Honeymoon
o Infrequently Purchasing Product:
First time sales + Replacement sales need to be calculated.
Example: Automobiles, Toaster.
o Frequently Purchasing Product:
First time sales + Repeat sales needs to be estimated.
Example: Soap, Toothpaste.
-
Each sales category is estimated using market research techniques with demand
forecasting methods.
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Chapter - 6.
New Product Development
Allocated overhead.
Supplementary contribution.
- Supplementary contribution is made up of:
o Drag Along Income:
Additional income on own company products due to new product.
Example: Maruti launching Maruti finance, which resulted in increase in
sales of M800.
o Cannibalized Income:
Reduction in income on own company products due to new product.
Example:
Sales went up by 15 units due to
HLL(Soaps)
Before Dove
After Dove
introduction of new product(Dove).
Dove(N.P.)
30
But due to this, sales of existing
Lux
100
90
product
came down by 15 units.
Lifebuoy
200
200
This is cannibalized income.
Liril
50
50
Pears
60
55
410
425
-
Costs calculated using concepts of discounted cash flow (DCF) / Net Present Value of
Money.
Based on above following data is analysed.
o Maximum Investment Exposure:
Highest loss that a project can create.
o Pay Back Period:
Time taken by company to uncover all investment in new product.
o Break Even Point:
Number of units that a company have to sell of a new product to break
even.
Give price (cost structure).
o Risk Analysis:
Uncertainties in projection analysis.
To come up with 3 estimates.
Optimistic.
Pessimistic.
Realistic (Most Likely).
Based on above, profit/profitability determined/projected for next 5 years.
Product Development:
- If a product concept passes the business analysis test, it is taken forward to the product
development stage.
- So far, the concept exists on paper.
- In product development, concept is provided in detail to R & D to make physical
product.
- Stages in product development could be:
o Prototype development.
o Prototype Lab Testing.
Test for Functionality.
Test for Psychological aspects such as color.
Test for Looks/Styles.
Test for Price Fitment.
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Chapter - 6.
New Product Development
o Functional Testing.
Test for Safety/Effectiveness.
o Consumer Testing.
Test samples with consumers in lab.
-
Market Testing:
- At this stage, new product is ready for:
Brand Name.
Packaging.
Preliminary Marketing Program.
- Objective of market testing could be:
Test product in actual market setting.
Learn about actual market size.
Learn about how consumers/dealers handle, use, repurchase new product.
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Chapter - 6.
New Product Development
Simulated Test Marketing:
(Procedure)
- Certain numbers of qualified shoppers are researched on familiarity/preference in
specific product category.
- Consumers invited to see advertisements. These advertisements are for mixed products.
- Consumers rewarded for their time with shopping coupons/money for shopping &
invited to a store where they can buy anything.
- Consumers who buy new product or competitor product is noted. This helps to
understand trial rates.
- Consumers who dont but new product are given free samples.
- After suitable time, consumers researched for satisfaction levels/ repurchase intent.
Example: ITC (Kitchens of India): Launched ready meals for working
young professionals in mind. They invited them for a seminar and then
presented them with a free sample. Then they followed them and asked
for their review.
Controlled Test Marketing:
(Procedure)
- Panel of stores identified who would carry new product far a fee (normally done by
market research)
- At the store,
Shelf Facing.
Display.
Point of Purchase promotions are used.
- May include local advertising.
- Retail sales monitored over specific period of time.
Test Markets: (Best way to test product)
(Procedure)
Normally all automobile companies do this.
- Few cities identified to sell product.
- All marketing mix elements are as per normal marketing program.
- Typically, 3-9 cities selected All- India.
- Cities represent A/B/C category cities.
- Duration of test should permit product repurchase if applicable.
- Test information monitored through:
Stock off take from ware house/godowns.
Retail stores audit.
Consumers panel surveys.
Buyer research.
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Chapter - 6.
New Product Development
Commercialisation:
- After successful market testing, new product moves to commercialisation stage.
- During this stage, production of new product on a commercial basis is rapidly built up.
- New product is formally launched. For this, decision to be taken could be:
o When to Launch:
First entry for first mover advantage.
Example: Nokia, Intel.
Parallel entry to coincide with competitor.
Example: NIIT and APTECH (GNIIT and ESSACP).
Late entry to learn from competitor experience (Used apple approach).
Example: Used only by market leaders.
Colgate waited for Meswak to sell its product in market. After
seeing the response, colgate came up with Colgate Herbal.
o Where to Launch:
All India.
Regional roll out.
State by state.
Urban/Rural (city categorization).
o To Whom:
Distributors/ Promotion needs to be aimed at:
Early adopters.
Heavy users.
Opinion leaders.
Reachable at low costs.
o How to Launch:
Decisions encapsulated initial marketing strategy.
Introductory offers may be involved.
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Chapter - 6.
New Product Development
Stages in Adoption Process:
- Adopters of new product typically go through the four stages:
o Awareness:
Consumer becomes aware, but lacks information.
o Interest:
Customer stimulated to seek information about new product.
o Evaluation:
Customer considers whether to try new product.
o Trial:
Customers tries product to improve estimate of its value to
himself/herself.
o Adoption:
Customer decides to make full/regular use of new product.
-
New product marketers should aim to facilitate consumer movement through these
stages.
Number
Of
Adopters
I
2.5%
EA
13.5%
EM
34%
LM
34%
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L
16%
Chapter - 6.
New Product Development
Characteristics of New Products:
- Some new product catch on immediately, others may take some time.
- This depends on new product characteristic, such as:
Relative Advantage of New Product.
Dove.
Compatibility of New Product to Individual Values & Experience.
Livon.
Complexity of New Product Use.
Sony Handy cam.
Divisibility of New Product.
Chick in rural market sold on basis of sachet.
Communicability of Benefits of New Product:
If benefits are visible & communicable, they are easier to adopt.
Fair & Lovely.
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