New Product Development an

Overview for Agricultural Products

Lecture 6. Agricultural Marketing Course

Department of Agricultural Socio-Economics, Faculty of Agriculture,
Universitas Gadjah Mada
 Brief Outline
1. Definition of New Product Development

2. Major Stages New Product Development

3. Life Cycle Perspective in New Product

Development

4. Success and Failure in New Product Development

 Definition of New Product Development (NPD)

Major innovations. Major innovations are absolutely new in the market. They are created by new
technological developments and provide new experiences to the customers.

Product improvements. Contrary to the ‘major innovation’ group, products in ‘product improvement’
group are not produced with the aim of creating new market.

Product additions. These are imitation products which use the market created by the producers of
original products. Even though these products may claim new features, benefits (which are what
customers experience differently to the original product) will be limited.

Repositioned products. Repositioned products are promoted in a new way to attract different kinds of
customers.
 Cont.

New product is categorized under the six groups by Booz, Allen and Hamilton.

1. Technological breakthroughs: This group of new products is one-of-a-kind product such as anticancer or AIDS
vaccines or new technologic products such as flying cars. These products are new experiences for customers at the
time of their release to the market.

2. Significant improvements: These products are made by considerable improvement of existing products in the
market.

3. Modified products: These products are created by making insignificant improvements in the existing products
such as adding new smell to the detergent or increasing/decreasing.

4. Products new to the business: These are imitated products which are already sold in the market, but business
produces them for the first time.

5. Repositioning: These products are produced currently by the business in a given market, and this business starts
to produce it for new markets.

6. Cost reductions: Business releases the same products but with less prices to the market.
Cont.

One study estimated that as many as 80% of new consumer

packaged products fail.
Only about 40% of new consumer products are around 5 years after
introduction.
Why?
Overestimation of market size,
Product design problems,
Product incorrectly positioned, priced, or advertised,
Product may have been pushed despite poor marketing research findings,
Costs of product development, or
Competitive actions.
Cont.

Discussion Question

Why do products fail?

Ben-Gay Asprin Buttermilk Shampoo Fruit of the Loom

Laundry Detergent
 Major Stages in
New-Product Development
 Cont.

Step 1. Generation of New Product Ideas

A lot of ideas are generated till the business finds the most suitable
ones. Businesses use internal sources like R&D department

• External idea sources:

Customers Competitors Distributors Suppliers

 Cont.

The Kano model: The Kano model categorizes attributes

of new product into various groups according to effects of
attributes on customer satisfaction.

(M) Must-be: This kind of attributes meets the basic

needs
(O) One-dimensional: If these attributes are included
in the product, customers will notice satisfaction. If
not met, customers will be dissatisfied.
(A) Attractive: These attributes are defined as ‘bonus’
which increase satisfaction
(I) Indifferent: These attributes have no effect on
customer satisfaction.
(R) Reverse: These attributes affect customer
satisfaction negatively;
 Cont.
Step 2. Idea Screening
These questions are defined in a sum as R-W-W (‘real,
All ideas are screened to distinguish more useful ideas
win, worth doing’),and business must give all these
from less useful ones. Many companies have systems for
questions ‘yes’ answers:
rating and screening ideas which estimate:

• Market Size • Is it real? Is there a need that will force customers to

• Product Price buy it?

• Development Time & Costs

• Can we win? Does it provide a considerable benefit
• Manufacturing Costs
for the business? Are there enough resources to make
• Rate of Return
new product successful?

Then, the idea is evaluated against a set of general

• Is it worth doing? Is this product compatible with the
company criteria. •
business’s growth strategy?
Cont.
Step 3. Concept Development
1. Develop New Product Ideas
into Alternative Detailed
Product Concepts
Product Image is the Way
Consumers Perceive an
Actual or Potential Product

2. Concept Testing - Test the

New-Product Concepts with
Groups of Target Customers

3. Choose the One That Has the

Strongest Appeal to Target
Customers
9-11
 Cont.

An Example Concept Development 9-12

Cont.

9-13
Cont.
Step 4. Marketing Strategy
Part One Describes Overall:
Target Market
Planned Product Positioning
Sales, Market Share, & Profit Goals

Part Two Describes First-Year:

Product’s Planned Price
Distribution
Marketing Budget

Part Three Describes Long-Run:

Sales & Profit Goals
Marketing Mix Strategy
9-14
9-14
Cont.
Step 5. Business Analysis
Business Analysis Metrics/measurements:
Financial Evaluation as
Review of Product Sales, Costs, and Profits
• Net Present Value (NPV)
Projections to See if They Satisfy Company Objectives • Internal Rate of Return (IRR)
• Profitability Index (PI)
• Payback Period (PBP)

If No, Eliminate
Product Concept

If Yes, Move to
The next stages
 Cont.
Step 6. Product Development
Prototype development
and testing

A sample of new product will be created by the R&D department of the business.
Then, samples will be tested to assess new product concept whether it is attractive
for customers. Several tests are made to samples to ensure the safety, attractiveness
and effectiveness until selecting the most suitable sample.
Cont.
Step 7. Test Marketing

Product and marketing program • Test the following:

• Positioning strategy,
are introduced into more realistic
• Advertising,
market settings. • Distribution,
• Pricing,
Can be very expensive and time • Branding,
• Packaging,
consuming.
• Budget levels.
Cont.
Step 8. Commercialization
Introducing the New Product into the in which scale new product
Market concept will be introduced to
the market, Small (city), Medium
(region) or big scale (national or
When is the international market.
Right Time to Where to
Introduce Launch a
Product? New
Product?

9-18
Life Cycle Perspective in New Product Development

Sales and
Profits ($) Sales

Profits

Time
Product Introduction Growth Maturity Decline
Develop-
ment
Losses/
Investments ($)

Sales and Profits Over the Product’s Life From Inception to Demise
 Cont.

Introduction Stage of the PLC

Summary of Characteristics, Objectives, & Strategies
Sales Low sales
Costs High cost per customer
Profits Negative or low
Marketing Objectives Create product awareness and trial
Product Offer a basic product
Price Usually is high
Distribution High distribution expenses
Advertising Spending is high to inform consumers
 Cont.

Growth Stage of the PLC

Summary of Characteristics, Objectives, & Strategies
Sales Rapidly rising sales
Costs Average cost per customer
Profits Rising profits
Marketing Objectives Maximize market share
Product Offer new product features and models
Price Remain where they are or fall slightly
Distribution Increase number of distribution outlets
Advertising Educating consumers and meeting
competition
 Cont.

Maturity Stage of the PLC

Summary of Characteristics, Objectives, & Strategies
Sales Begin to slow
Costs Low cost per customer
Profits High profits, then lower profits
Maximize profits while defending
Marketing Objectives
market share
Product May modify product
Price May decline
Distribution Build more intensive distribution
Advertising Stress brand differences and benefits
 Cont.

Maturity Stage of the PLC

Company tries to increase consumption of

the current product

Changing characteristics such as quality,

features, or styles to attract new users

Company tries to improve sales by changing

one or more marketing mix elements
 Cont.

Decline Stage of the PLC

Summary of Characteristics, Objectives, & Strategies
Sales Declining sales
Costs Low cost per customer
Profits Declining profits
Reduce expenditure and maintain,
Marketing Objectives harvest, or drop the product
Product Phase out weak items
Price Cut price
Distribution Selective: phase out unprofitable outlets
Advertising Reduce to level needed to retain
hard-core loyal customers
Cont.

Companies want their

products to enjoy a long life
cycle. Hershey’s actively
promotes the fact that it has
been “unchanged since
1899”
 Success and Failure in New Product Development

• The need for interdisciplinary inputs. It was shown in the literature that an interdisciplinary
teamwork is necessary for the success of a new product.

• The need for quality inputs to the process. In addition to having both technical and marketing
information accurately and timely, updating of this information is also crucial for the success of a new
product to be coherent to the changes in conditions.

• The need for speed in the process. The new product needs to be released to the market and
produced quickly to collect a significant share of profit from a new product before competitors enter to
the market
Discussion :
https://www.youtube.com/watch?v=jsLVL6VHY
1o
https://www.youtube.com/watch?v=fzoYXccm
8cY&t=240s
https://www.youtube.com/watch?v=Qmla9NLF
BvU

After watching those videos, you may

contemplate for a while then think what you
have in mind for proposing an idea of new
product development in agriculture!