NEW PRODUCT DEVELOPMENT

The design, creation and marketing of new goods and services

 Markets are fast changing hence the need for new product development
 It is important for a business to consider new product development:-
 Existing products get into decline
 New technologies appear e.g. robots, microchips
 Market gaps are identified
 As a way of expanding into different markets
 As a way to maintain their competitive advantage over their rivals

For a new product to succeed it must:-

 Have desirable features that consumers are prepared to pay for

 Be sufficiently different from other products to make it stand out and offer a USP.
 Be marketed effectively to consumers – they need to be informed about it

Categories of new product:

 Completely novel ideas

 Some products that are new for the company launching them e.g. Sony enters the game
market
 Some are new to a particular market e.g. lap tops from business to consumer markets

Stages In the process of new product development

 Generating the ideas through R and D department, adaptation of competitors’ ideas,

market research, employees, sales personnel, brainstorming in groups
 Idea screening those ideas with a reasonable chance of success are proceeded with
 Concept development and testing discusses the following issues:-
 Who are the most likely consumers of the product?
 What product features should be incorporated?
 What specific benefits will the product provide
 How will the consumers react to it?
 What are the most cost effective methods to manufacture?
 What will be the cost to produce
 Business analysis
 Considers the likely impact of the new product on the company’s costs, sales and profits
 Expected sales volume and market share can be estimated and the expected BEP.
 Product testing
 Is concerned with technical performance and whether it will meet consumers’
expectations. It includes
 Developing a prototype
 Testing the product in typical use conditions
 Focus groups are used
 Final version takes into account input from testing and focus group opinions
 Benefits of test marketing:
 Actual consumer behaviour can be observed and measured
 Feedback from consumers enable final decision to be make about investing capital in a
full-scale launch.
 Risk associated with a product failing after full launch are reduced
 Any weaknesses in the product can be identified by consumer feedback
 Draw backs are:-
 It can be expensive
 Competitors are able to observe a firm’s intentions and react – perhaps rushing out a
copy before a full-scale launch of the product is put into effect.
 Commercialisation
 Refers to full scale launch and corresponds with introduction stage of the product life
cycle
 Promotion strategy, distribution channel and pricing strategy is decided and marketing
managers await the newest sales results.

Importance of Research and development and possible business Strategies

Research and development: is the scientific research and technical development of new
products and processes.

 Inventions generate new products – some of which become successful and

profitable.
 New products innovations allow businesses to survive and grow in rapidly changing
market places.
 Innovative products may give businesses considerable USP over their rivals so that
the business can charge premium prices thus earning higher profit margins.
 Expenditure of R and D can be a risky investment, as the success of such scientific
enquiry can never be foreseen with great accuracy.
 Cost of R and D can run into millions of pounds and success cannot be guaranteed.
 Research can be done by Pharmaceuticals on new drugs that may not be ready for
sale to the general public for another 10 years
 Some businesses as a result adopt a no R and D strategy. They are then forced to
licence other businesses new ideas or to make similar “lookalike” products to follow
the market leaders.
 This can be a safer strategy to adopt, but one that can lead to legal battles if the
copy is too close to the original concept. It will generally, fail to capture the
consumers’ imaginations and allow market leaders to continue to dominate the
market.
 Other strategies include:
 Offensive strategy
 Defensive strategy
 An offensive R and D strategy is to lead the rest of the industry with innovative
products.
 The aim of such businesses is to gain market share and possible market dominance
 Success can lead to further successes as the profits made are lucrative e.g. Apple
 A defensive strategy attempts to learn from the initial innovators mistakes and
weaknesses
 Approach does not lead the field but suggests that the business does not want to be
left behind.
 A defensive tries to improve the original product or develop slightly different types
of goods that might appeal to other market segments