THE NEW PRODUCT DEVELOPMENT PROCESS (NPD) –

OBTAIN NEW PRODUCTS

In order to stay successful in the face of maturing products, companies have to obtain new ones by a carefully
executed new product development process. But they face a problem: although they must develop new
products, the odds weigh heavily against success. Of thousands of products entering the process, only a
handful reach the market. Therefore, it is of crucial importance to understand consumers, markets, and
competitors in order to develop products that deliver superior value to customers. In other words, there is no
way around a systematic, customer-driven new product development process for finding and growing new
products. We will go into the eight major steps in the new product development process.

The 8 steps in the New Product Development Process

1. Idea generation – The New Product Development Process

The new product development process starts with idea generation. Idea generation refers to the systematic
search for new-product ideas. Typically, a company generates hundreds of ideas, maybe even thousands, to
find a handful of good ones in the end. Two sources of new ideas can be identified:
 Internal idea sources: the company finds new ideas internally. That means R&D, but also contributions from
employees.
 External idea sources: the company finds new ideas externally. This refers to all kinds of external sources,
e.g. distributors and suppliers, but also competitors. The most important external source are customers,
because the new product development process should focus on creating customer value.
2. Idea screening – The New Product Development Process
The next step in the new product development process is idea screening. Idea screening means nothing else
than filtering the ideas to pick out good ones. In other words, all ideas generated are screened to spot good
ones and drop poor ones as soon as possible. While the purpose of idea generation was to create a large
number of ideas, the purpose of the succeeding stages is to reduce that number. The reason is that product
development costs rise greatly in later stages. Therefore, the company would like to go ahead only with those
product ideas that will turn into profitable products. Dropping the poor ideas as soon as possible is,
consequently, of crucial importance.

3. Concept development and Testing – The New Product Development

Process
To go on in the new product development process, attractive ideas must be developed into a product concept.
A product concept is a detailed version of the new-product idea stated in meaningful consumer terms. You
should distinguish

 A product idea à an idea for a possible product

 A product concept à a detailed version of the idea stated in meaningful consumer terms
 A product image à the way consumers perceive an actual or potential product.
Let’s investigate the two parts of this stage in more detail.

Concept development
Imagine a car manufacturer that has developed an all-electric car. The idea has passed the idea screening and
must now be developed into a concept. The marketer’s task is to develop this new product into alternative
product concepts. Then, the company can find out how attractive each concept is to customers and choose the
best one. Possible product concepts for this electric car could be:

 Concept 1: an affordably priced mid-size car designed as a second family car to be used around town
for visiting friends and doing shopping.
 Concept 2: a mid-priced sporty compact car appealing to young singles and couples.
 Concept 3: a high-end midsize utility vehicle appealing to those who like the space SUVs provide but
also want an economical car.
As you can see, these concepts need to be quite precise in order to be meaningful. In the next sub-stage, each
concept is tested.

Concept testing
New product concepts, such as those given above, need to be tested with groups of target consumers. The
concepts can be presented to consumers either symbolically or physically. The question is always: does the
particular concept have strong consumer appeal? For some concept tests, a word or picture description might
be sufficient. However, to increase the reliability of the test, a more concrete and physical presentation of the
product concept may be needed. After exposing the concept to the group of target consumers, they will be
asked to answer questions in order to find out the consumer appeal and customer value of each concept.

4. Marketing strategy development – The New Product Development

Process
The next step in the new product development process is the marketing strategy development. When a
promising concept has been developed and tested, it is time to design an initial marketing strategy for the new
product based on the product concept for introducing this new product to the market.

The marketing strategy statement consists of three parts and should be formulated carefully:
 A description of the target market, the planned value proposition, and the sales, market share and profit
goals for the first few years
 An outline of the product’s planned price, distribution and marketing budget for the first year
 The planned long-term sales, profit goals and the marketing mix strategy.

5. Business analysis – The New Product Development Process

Once decided upon a product concept and marketing strategy, management can evaluate the business
attractiveness of the proposed new product. The fifth step in the new product development process involves a
review of the sales, costs and profit projections for the new product to find out whether these factors satisfy the
company’s objectives. If they do, the product can be moved on to the product development stage.

In order to estimate sales, the company could look at the sales history of similar products and conduct market
surveys. Then, it should be able to estimate minimum and maximum sales to assess the range of risk. When
the sales forecast is prepared, the firm can estimate the expected costs and profits for a product, including
marketing, R&D, operations etc. All the sales and costs figures together can eventually be used to analyse the
new product’s financial attractiveness.

6. Product development – The New Product Development Process

The new product development process goes on with the actual product development. Up to this point, for many
new product concepts, there may exist only a word description, a drawing or perhaps a rough prototype. But if
the product concept passes the business test, it must be developed into a physical product to ensure that the
product idea can be turned into a workable market offering. The problem is, though, that at this stage, R&D and
engineering costs cause a huge jump in investment.

The R&D department will develop and test one or more physical versions of the product concept. Developing a
successful prototype, however, can take days, weeks, months or even years, depending on the product and
prototype methods.

Also, products often undergo tests to make sure they perform safely and effectively. This can be done by the
firm itself or outsourced.

In many cases, marketers involve actual customers in product testing. Consumers can evaluate prototypes and
work with pre-release products. Their experiences may be very useful in the product development stage.

7. Test marketing – The New Product Development Process

The last stage before commercialisation in the new product development process is test marketing. In this stage
of the new product development process, the product and its proposed marketing programme are tested in
realistic market settings. Therefore, test marketing gives the marketer experience with marketing the product
before going to the great expense of full introduction. In fact, it allows the company to test the product and its
entire marketing programme, including targeting and positioning strategy, advertising, distributions, packaging
etc. before the full investment is made.

The amount of test marketing necessary varies with each new product. Especially when introducing a new
product requiring a large investment, when the risks are high, or when the firm is not sure of the product or its
marketing programme, a lot of test marketing may be carried out.

8. Commercialisation
Test marketing has given management the information needed to make the final decision: launch or do not
launch the new product. The final stage in the new product development process is commercialisation.
Commercialisation means nothing else than introducing a new product into the market. At this point, the highest
costs are incurred: the company may need to build or rent a manufacturing facility. Large amounts may be
spent on advertising, sales promotion and other marketing efforts in the first year.

Some factors should be considered before the product is commercialized:

 Introduction timing. For instance, if the economy is down, it might be wise to wait until the following year to
launch the product. However, if competitors are ready to introduce their own products, the company should
push to introduce the new product sooner.
 Introduction place. Where to launch the new product? Should it be launched in a single location, a region, the
national market, or the international market? Normally, companies don’t have the confidence, capital and
capacity to launch new products into full national or international distribution from the start. Instead, they usually
develop a planned market rollout over time.
In all of these steps of the new product development process, the most important focus is on creating superior
customer value. Only then, the product can become a success in the market. Only very few products actually
get the chance to become a success. The risks and costs are simply too high to allow every product to pass
every stage of the new product development process
New Product Introduction (NPI) Processes
New product introduction (NPI) and new product development (NPD) are often referred to in the same way or
confused by many. Both are required to get products to market, but each focuses on different aspects of the
product realization process. NPD focuses more on early development to finalize the product design and
requires a lot of iteration to get the product ready for handoff to operations. NPI overlaps with NPD, but
focuses more on getting operations teams and supply chain partners aligned around the final released product
design to effectively plan, produce, and ramp to volume production. While NPI and NPD vary in focus, they are
very complementary and require a comprehensive, unified plan to bring product and teams together from
concept through volume production.

NPI Requires Control, Connection, and Collaboration

Once your NPD team has completed the released design comprised of the full product record, operations
teams jump into high gear to begin planning to realize that design and move into full production mode. To do
this well, consider these three key recommendations for success:

1. Control. You need a single unified solution with a single source of truth during the NPI and NPD
stages. This ensures that engineering, operations, and supplier partners will leverage the right
information at the right time. Part of this control includes maintaining not only the latest release
revision of your product record, but historical information should issues arise later. Securing access by
each team should be done based on role-based privileges that guarantee teams only see what they
need, when they need it. Giving manufacturing teams access to earlier revisions and designs would
create confusion, scrap and rework, and costly delays when leveraged incorrectly.
2. Connection. Not only do NPD and NPI processes need to be connected as you progress from early
design to production planning, but all related processes should be connected to the product record.
This includes engineering changes (ECOs), project plans and tasks, quality and CAPA records, and
training record management for related standard operating procedures (SOPs). Connecting processes
and records ensures visibility and full context to the product record foundation, unlike disconnected
tools such as spreadsheets, emails, and other stand-alone documents like MS Word.
3. Collaboration. Once all information, processes, and teams are connected in a single system, you can
enable fast collaboration. Collaboration should support formal gated collaboration and approval
processes like automated engineering change order reviews that are connected to the product record.
In addition, informal collaboration should allow for shared discussion threads in between the spaces of
formal collaboration to share insights and potential concerns with the product design. Having a simple,
web-based cloud solution enables even the least technical of teams around the world to easily access
and collaborate around the product. Systems should be easy to set up, configure, and use. Having a
 cloud-based application removes not only infrastructure hurdles, but it provides a simpler and more
intuitive way for teams to share information without intensive system training.

Growth Strategies:
Businessescanfollowmanygrowthstrategieswhenthey
wishtoexpand.Thesestrategiestypicallyfocusonnew
productsand/ornewmarkets.(Inthisdiscussion,services
arereferredtoastheproductsofaservicebusiness.)Three
broadcategoriesofgrowthstrategiesare:

• Intensive growthstrategies
• Integrative growthstrategies
• Diversification growthstrategies

Intensive Growth Strategies

Anintensivegrowthstrategyisagrowthstrategythatfocusesoncultivatingnewproductsornewmarkets,
andsometimesboth.Businessesuseanintensivegrowthstrategywhentheybelievetheyhaven'tfully
realizedtheirstrengthsortheirmarkets.Thisstrategyisbestdescribedas"doingmoreofwhatyouaregood
atdoing."Thethreemostcommontypesofintensivegrowthstrategiesare:

• Marketpenetration
• Marketdevelopment
• Productdevelopment

Marketpenetrationisanintensivegrowthstrategythatemphasizesmoreintensivemarketingofexisting
products.Thisstrategyhastwogoals:sellmoretoexistingcustomersandselltonewcustomersinexisting markets.
Both goals require extensive, and expensive, marketing (advertising, promotions, and so on).
However,marketpenetrationisawayforabusinesstoincreaseitsprofitsbytakingadvantageofitsexisting
skills,experience,andknowledgeaboutitstargetmarkets.Itisapopulargrowthstrategyforsmall businesses.
 Existingcustomersmaybeconvincedtobuymoreofaproductifthebusinessadvertisesnewusesforthat
product.Themakersofdrysoupmixescould,forexample,publishrecipesforpartydipsmadefromtheir
products.Businessescanalsotrytoconvinceexistingcustomerstobuyaproductmoreoften.Toothbrush
manufacturers advertise that dentists recommend replacing a toothbrush every three months. Existing
customersmayalsobuymoreandbuymoreofteniftheyareofferedincentives,suchasfrequent‐buyer
programs.
Marketpenetrationcanalsoinvolvepursuingnewcustomersincurrenttargetmarkets.Basically,the
businessusesmarketingtacticstotrytogaincustomersfromitscompetitors.Thisincreasesabusiness's
marketshare.Marketshareisthepercentageofthetotalsalescapturedbyaproductorabusinessina
particularmarket.Inotherwords:

(Sales by Business ÷ Total Sales in Market) x 100 = Market Share

Ifacompanysells$1,000worthoftennisracketsinatownwheretotalsalesoftennisracketsare$5,000,the
companyhasaone‐fifth,or20%,marketshare.

($1,000 ÷ $5,000) x 100 = 20%

Onceabusinesshasthelargestmarketshareitbelievesitcancapture,the
nextstepisusuallytofindnewmarkets.

Marketdevelopmentisanintensivegrowthstrategythatfocuseson
reachingnewtargetmarkets,suchascustomersinanothergeographic area or
customers who have different demographics from current
customers.Aretailstoremightopenabranchinanewcityordevelopa
Websitetosellitsproductsonline.
Product developmentis an intensive growth strategy in which businesses develop
new products or enhance their existing products. Enhancements may
includebonusfeaturesornewpackagingforproducts.Forexample,theycould
addsmalltoysasextrastocerealboxes.Productdevelopmentistypicallycostlyforabusinessbutcanbea
successfulmeansofgrowthiftheneworenhancedofferingispopularwithcustomers.

Integrative Growth Strategies

Anintegrativegrowthstrategyisagrowthstrategythatemphasizesblendingbusinessestogetherthrough
acquisitionsandmergersIntegrativegrowthstrategiesaretypicallymoreexpensivethanintensivegrowth
strategiesandareusuallypracticedbymaturebusinesseswithlargecashflows.Therearetwotypesof
integrative growthstrategies:

• VerticalIntegration.Anintegrativegrowthstrategyinwhichonebusinessacquiresanotherbusinessinits
ownsupplychain,butnotatthesamesupplychainlevel)isaverticalintegrationstrategy.Anexampleof
thistypeofgrowthstrategyiswhenaretailstorebuysawholesaler.Anotherexampleiswhena
manufacturingbusinessbuysaretailstoreinwhichitsproductsaresold.

• HorizontalIntegration.Anintegrativegrowthstrategyinwhichonebusinessacquiresanotherbusiness
atthesamesupplychainlevelasitselfisahorizontalintegrationstrategy.Whenonemanufacturing
companybuysanothermanufacturingcompany,that'sahorizontalintegrationstrategy.Theacquired
businessmaybeacompetitororabusinessinacompletelydifferentindustry.
Diversification Growth Strategies

Everybusinesshasacorebusiness,whichisthemostimportantfocusofthebusiness.Forexample,thecore
businessofMcDonald'sissellingfastfood.Adiversificationgrowthstrategyisagrowthstrategyinwhicha
businessgrowsbyofferingproductsorservicesthataredifferentfromitscorebusiness.Therearetwotypes
ofdiversificationgrowthstrategies:
• SynergisticDiversification.Agrowthstrategyinwhichabusinessaddsnewproductsorservicesthatare
relatedtoitsexistingproductsorservicesisasynergisticdiversification.Aclothingstorethatbegins
sellingshoespracticesthistypeofgrowth.Sodoesanevent‐planningbusinessthatbeginstooffer
cateringservices.
• HorizontalDiversification.Agrowthstrategyinwhichabusinessaddsnewproductsorservicesthatare
notrelatedtoitsexistingproductsorservicesbutappealtoitsexistingtargetmarketiscalledhorizontal
diversification.Recentlysomelargegrocerystoreshavebegunofferingcreditcardstotheircustomers.
Thisisanexampleofhorizontaldiversification.Anotherexamplewouldbeagasstationthatsellsfood.

What is the GE McKinsey Matrix?

In the 1970s, General Electric (GE) commissioned McKinsey & Company to develop a portfolio analysis matrix for
screening its business units. The GE McKinsey Matrix or GE Matrix is a variant of the Boston Consulting Group (BCG)
portfolio analysis.

Portfolio

The GE McKinsey Matrix has also many points in common with the MABA analysis. MABA is an acronym that stands for
Market, Attractiveness, Business position and Assessment.

The GE McKinsey Matrix also compares product groups with respect to market attractiveness and competitive power.
Another name for this type of analysis is Portfolio analysis. The portfolios of businesses consist of all combinations of
products and/ or services that are offered to the market/ target groups. Originally, the GE McKinsey Matrix made an
analysis of the composition of the portfolio of GE business units. Later, the GE McKinsey matrix proved to be very useful
in other companies as well.

The GE McKinsey Matrix

The GE McKinsey Matrix comprises two axes. The attractiveness of the market is represented on the y-axis and the
competitiveness and competence of the business unit are plotted on the x-axis. Both axes are divided into three categories
(high, medium, low) thus creating nine cells. The business unit is placed within the matrix using circles. The size of the
circle represents the volume of the turnover.

The percentage of the market share is entered in the circle. An arrow represents the future course for the business unit.
GE McKinsey Matrix factors

It is possible to determine in advance whether a market is attractive enough to enter.

This can be done by using the following factors:

 Market size
 Historical and expected market growth rate
 Price development
 Threats and opportunities (component of SWOT Analysis)
 Technological developments
 Degree of competitive advantage

Other factors are used to determine competitiveness:

 Value of core competences

 Available assets
 Brand recognition and brand strength
 Quality and distribution
 Access to internal and external finance resources

GE McKinsey Matrix vs BCG Matrix

The GE McKinsey Matrix bears a strong resemblance to the BCG Matrix.

However, there are some differences:

1. The GE McKinsey Matrix does not only consider growth, it mainly considers market attractiveness.
2. In addition to market share the GE McKinsey Matrix also considers the strength of a business unit.
3. Instead of the four cells that are created in the BCG Matrix, the GE McKinsey Matrix creates nine cells.
Application

Three different strategies can be distinguished and adopted using the GE McKinsey Matrix:

Invest/ grow

Growth is facilitated by expanding the market or making investments.

Hold

By making careful investments, the current market is consolidated.

Harvest / sell

No extra investments but mainly focusing on maximizing returns. By assigning a weight to each factor, the GE McKinsey
Matrix can be used more effectively. Based on these weights, the scores for competitiveness and market attractiveness
can be calculated more accurately for each business unit.

How to set up a GE McKinsey Matrix

This analysis is characterized by seven steps that must be followed:

1. Define the Product Market Combinations (PMC’s). Who are the customers of an organization and what are its
products and/or services?
2. Define the aspects that determine the attractiveness of the market. Certain weight factors can be assigned to
certain aspects. Market attractiveness is a critical factor that has to be considered carefully.
3. Define the aspects that determine the competitive power of the organizations.
4. Assign scores to the different PMC’s. Have this done by several people within and outside of the organization.
This will ensure a fair representation.
5. Calculate the final scores. By comparing the final scores for market attractiveness and competitive power with
the maximum score, it is possible to determine their position on the matrix.
6. Draw the matrix and plot market attractiveness on the x-axis and competitive power on the y-axis. The higher the
volume in turnover of a PMC, the larger the circle.
7. Evaluate and discuss. The matrix can serve as the basis for a discussion about strategic decisions.

What is the BCG Matrix?

The Boston Consulting group’s product portfolio matrix (BCG matrix) is designed to help with long-term
strategic planning, to help a business consider growth opportunities by reviewing its portfolio of products to
decide where to invest, to discontinue or develop products. It's also known as the Growth/Share Matrix.

The Matrix is divided into 4 quadrants based on an analysis of market growth and relative market share, as
shown in the diagram below.
 . Dogs: These are products with low growth or market share.
 2. Question marks or Problem Child: Products in high growth markets with low market share.
 3. Stars: Products in high growth markets with high market share.
 4. Cash cows: Products in low growth markets with high market share

How to use the BCG Matrix?

To apply the BCG Matrix you can think of it as showing a portfolio of products or services, so it tends to be
more relevant to larger businesses with multiple services and markets. However, marketers in smaller
businesses can use similar portfolio thinking to their products or services to boost leads and sales as we'll
show at the end of this article.

Considering each of these quadrants, here are some recommendations on actions for each:

 Dog products: The usual marketing advice here is to aim to remove any dogs from your product
portfolio as they are a drain on resources.

 Question mark products: As the name suggests, it’s not known if they will become a star or drop
into the dog quadrant. These products often require significant investment to push them into the star
quadrant. The challenge is that a lot of investment may be required to get a return. For example,
Rovio, creators of the very successful Angry Birds game has developed many other games you may
not have heard of. Computer games companies often develop hundreds of games before gaining one
successful game. It’s not always easy to spot the future star and this can result in potentially wasted
funds.
 Star products: Can be the market leader though require ongoing investment to sustain. They
generate more ROI than other product categories.
  Cash cow products: The simple rule here is to ‘Milk these products as much as possible without
killing the cow! Often mature, well-established products. The company Procter & Gamble which
manufactures Pampers nappies to Lynx deodorants has often been described as a ‘cash cow
company’.

What is the ADL Matrix?

To gain more insight into the competitive position of organizations, Arthur D. Little developed the
strategic condition matrix, which is also known as the ADL Matrix. The ADL Matrix consists of two
important dimensions: the competitive position and industry maturity (maturity of the product).

ADL Matrix, two questions

Industry maturity is similar to the Product Life Cycle (PLC) and is translated into an Industry life cycle of a
product in the ADL Matrix.

When investigating the concepts of the competitive position it is important to answer the following two
questions:

 How strong is the organization’s strategic position?

 At what stage of its lifecycle is the industry/segment?

In the model below, Arthur D. Little ‘s ADL matrix is highlighted, in which the combination of various
stages in the competitive position and in the industry maturity are decisive for an organization’s strategy:

Industrial maturity

There are four categories of industry maturity:

Embryonic stage

The introduction of the product is characterized by a rapid growth market, very little competition and (still)
high sales prices.

Growth stage

The market continues to strengthen and sales increase, there are few (if any) competitors.
Maturity stage

The market and market shares are stable, there is an established customer base and the price is lowered
because of the growing competition.

Ageing stage

The demand for the product decreases and companies are abandoning the market. Companies stop
consolidating or leave the market.

Competitive position

Arthur D. Little formulated five categories for the competitive position within the ADL matrix:

Dominant

At this stage there is little or no competition because a brand-new or unknown product is brought to market.

Strong

The market share is strong and stable, regardless of what the competition is doing.

Favourable

The organization enjoys competitive advantages in certain segments of the market. There are many
competitors.

Tenable

The position of the organization in the overall market is small and market share is based, among other
things, on a niche or some other form of product differentiation.

Weak

The organization experiences continual loss of market share and it business line is too small to maintain
profitability.
Shell Directional Policy Matrix
A Nine Celled directional Policy Matrix

The Shell Directional Policy Matrix is another refinement upon the Boston Matrix. Along the horizontal
axis are prospects for sector profitability, and along the vertical axis is a company’s competitive capability.
As with the GE Business Screen the location of a Strategic Business Unit (SBU) in any cell of the matrix
implies different strategic decisions.

 Double or quit – gamble on potential major SBU’s for the future.

 Growth – grow the market by focusing just enough resources here.
 Custodial – just like a cash cow, milk it and do not commit any more resources.
 Cash Generator – Even more like a cash cow, milk here for expansion elsewhere.
 Phased withdrawal – move cash to SBU’s with greater potential.
 Divest – liquidate or move these assets on a fast as you can.

However decisions often span options and in practice the zones are an irregular shape and do not tend to be
accommodated by box shapes. Instead they blend into each other.

 Leader – major resources are focused upon the SBU.

 Try harder – could be vulnerable over a longer period of time, but fine for now.
The horizontal axis: prospects for sector profitability

This includes criteria of market growth rate, market quality, industry situation and environmental
considerations. On each of these factors an SBU or product is given from one to five stars. For instance, the
factor of ‘market quality’ might be judged on the basis of several criteria such as pricing behaviour, past
stability or profitability of that sector. The qualitative or quantitative evaluation of market quality is then
converted into a rating from nought to four. The same procedure is followed for each of the other three
factors, so the overall score on sector profitability is the total of the ratings on all four factors.

The vertical axis: company’s competitive capability

The same approach is used here, except that the company’s capabilities are assessed on the basis of market
position, product research and development and production capability. These are further divided into sub-
factors applicable to any particular industry.

Shell emphasize that whatever strategy is eventually selected, the aim is that is should be ‘resilient’, i.e.
viable in a diverse range of potential futures. Hence, each strategy ideally should be evaluated against all
future possible scenarios.

Limitations of the Shell directional policy matrix

The Shell directional policy matrix has been criticized on the grounds that, like the BCG approach, it
assumes that the same set of factors is universally applicable for assessing the prospects of any product or
business. Critics believe that the relevant factors and their relative importance will vary both according to
the firm’s products and the individual characteristics of each company. In addition, the matrix does not
provide any guidelines on how to implement the strategies suggested in each cell of the matrix.