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New Product Development

• Once a company has
• • • • • Segmented market carefully. Chosen its target customer group. Identified their needs. Determined desired market positioning. Then, It is ready to develop / launch suitable new product.

• New product’s can be added through:
• Acquisition:
– Company Acquisition. – Patent Acquisition. – License / Franchisee Acquisition.

• New Product Development:
– In House. – Outsourced.

• Tata Group Acquired Corus, October 2006 Deal size: $12.98 billion, Country: United Kingdom • Bharti Airtel acquired Zain Africa, February 2010 Deal size: $10.7 billion, Country: Kenya • Hindalco Industires acquired Novelis , February 2007 Deal size: $5.73 billion, Country: Canada •

– Example: HLL entering Toothpaste segment with Close-Up. Apple – i-pod. • Cost Reduction: New product that provide similar performance at lower cost. . • Improvements/Revisions of Existing Product Lines: New product gives increased performance/increased CDV & replaces existing products. • Repositioning: Existing products targeted to new market/market segment. – Example: Hero Honda. – Example: Cadbury’s Five Star – from 5Rs pack to 2Rs pack by using flavors instead of pure coco. Flavors). • New Product Lines: New product that allows a company to enter an established market for first time. from Splendor to Splendor+. – Example: Bajaj Caliber – Caliber Chrome – Hoodibaba. • Addition to Existing Product Lines: New product that supplement a company’s established product lines (Pack sizes. – Example: HLL adding Pepsodent to its toothpaste segment. – Example: Sony walkman.New Product Could Be: • New To The World: New product that creates essentially new market.

Product Development. Market Testing. . new product development follows a structured process. Business Analysis.Stages in New Product development Process: • To minimize risk of new product failure. Marketing Strategy Development. Commercialization. • Stages in new product development are: • • • • • • • • Idea Generation. Idea Screening. Concept Development & Testing.

• 1) Idea Generation: • New product development process starts with search for ideas. distributors. Commercialization . • 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). Product Development • Competition: – Through study/analysis of competitive products. Market Testing • Senior/Top Management: – Product innovators could be senior management. Generation Idea Screening Concept Development & Testing Marketing Strategy Development Business analysis • R & D / Employees: – Employees could be encouraged to give new product ideas & rewarded suitably. employees of distributors & dealers. • Marketing Channel & Their Staff: – Dealers. – Market research determines product improvement required.

• Morphological Analysis: – Identify structural dimension of a problem & examine relationships among them. • Forced Relationship: – Several objectives are considered in relations to one another to create a new product. – Modify each attribute in search of an improved product.Idea Generation Techniques: • Ideas may be generated using creative techniques such as • Attribute Listing: – List out major attribute of a product. – Example: Moped: Motorised/Stronger/Cycle. . convenient/economical/effortless. – Hence. – Example: Fax + Telephone + Table Display.

• Combining/better/improved ideas is encouraged. – Example: Dettol used to burn. • Brainstorming (Technique developed by Alex Osborn): – 6-10 people discuss a specific problem. • Quantity is encouraged. hence came Savlon.• Customer Need / Problem Identification: – Do market research on customer to determine their needs. . – Wherever customer is dissatisfied. – Guidelines could be • No criticism/evaluation of ideas. the reason for dissatisfaction could lead to a new product. • Free flow of thought is encouraged. – Asked to come up with ideas for some time.

• HLL came with 84 new products.• 75-80 new ideas are required for a company to develop a new product. • Ranbaxy came up with 46 new product in the last year. .

• Rejects. • Marginal ideas. Generation Idea Screening Concept Development & Testing Marketing Strategy Development Business analysis Product Development Market Testing Commercialization . company needs to avoid: • Drop Error: – Company rejects a good idea.2) Idea Screening: • Ideas generated need to be screened for action. • Surviving promising ideas are screened through a process. ideas are sorted into • Promising ideas. • Go Error: – Company allows a poor idea to move into a product development and commercialization. • To start with. • Promising ideas are evaluated by a committee. • While screening.

• Relative Product Failure: – Makes profit that is less than company’s target rate of return. variable cost is covered. • Objective of screening is to drop poor ideas at the earliest.• Product failures are of three types: • Absolute Product Failure: – Loses money. . sales do not cover variable costs. • Partial Product Failure: – Loses money. • Ideas are screened using product idea rating process.

– Rate of returns. – Manufacturing cost. – Development time/cost. Who is target market? Who is/are competition? Estimate of: – Market size. • Details include: • • • • Product idea.Product Idea Rating Process: New product ideas are described in details. • Ideas are evaluated against a set of criteria • Base criteria could be: • Does product meet a need? • Would it offer superior Price performance? • Can it be distinctly positioned / advertised/ . – Product price.

• Customer goodwill objectives.• Fit with company’s objective / strategies & resources seen – Company objective / strategies fitment include: • Profit objective. • Sales objective. • Sales growth objectives. then the idea is rejected. • Example :Dove Soap and now dove shampoo and hair oil . • Weighted Index method tries to quantify the success probability of an idea. – Fit with company resources include: • Does company have required capital or can it acquire it? • Does company have / acquire required production/marketing know how? • Does company have / acquire required distribution ability? • If answer to any question is Nominal. Surviving ideas are rated using weighted index method.

• To convert to concept answer following questions: • Who will use this product? – Children / Young working Professionals / Elderly. • Product Ideas: Possible product that company may offer to the market. • When will consumers consume product? – Breakfast / Snacks / Dinner. • Desires to produce a powder which is nutritious & tasty. • What primary benefit should product provide? – Taste / Nutrition / Refreshment / Energy. • Product Image: Picture that consumer acquire of an actual/potential product. • Product Concept: Elaborated version of the idea expressed in meaningful consumer terms. • Example: Product Idea (Food Processing Company). Generation Idea Screening Concept Development & Testing Marketing Strategy Development Business analysis Product Development Market Testing Commercialization .3) Development & Testing: • Attractive ideas should be refined into list able product concepts. Concept Development: • A product idea is converted into concepts.

e. – 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 category would stand in relation to its concept. • Each concept represent a category concept.. we can use: • Product Positioning map • Brand Positioning Map .• Based on answers. For this. • Example: – Competition for C1: Paranthas/ Idlis / Toast / Cornflakes. i. concepts could be: • C1 : Instant breakfast for working professionals who want quick/ convenient/ nutritious breakfast. • C3 : Lunch/dinner item for elderly customer staying on their own. each concept positions the idea within a category. • C2 : Tasty snack for children. • Category defines the products competition.

• Would you buy the product? – 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. Concepts presented in verbal / visual / form (Computer visualization may be used). Dimensions of concept tested out includes: – Communicability / Believability: • Are the benefits clear / believable? – Need Level: • Do you see a product filling a need? • To what extent? – Gap Level: • Do other products currently meet this need and satisfy you? – Perceived Value: • Is the price reasonable with respect to the value? – Purchase Intention (Juster Scale): • Minimum 30% . .40% top box score.Concept Testing: • • • Involves testing product concepts with appropriate customer group to obtain customer reaction.

• 10 Certain. like the one shown below. practically certain (99 in 100) 9 Almost sure (9 in 10) 8 Very probable (8 in 10) 7 Probable (7 in 10) 6 Good possibility (6 in 10) 5 Fairly good possibility (5 in 10) 4 Fair possibility (4 in 10) 3 Some possibility (3 in 10) 2 Slight possibility (2 in 10) 1 Very slight possibility (1 in 10) 0 No chance. almost no chance (1 in 100) .• Juster Scale • The standard Juster scale is an 11 point scale.

• Marketing mix strategy over time.4) Marketing Strategy Development: • After concept testing. • Marketing strategy plan made up of: – Part ‘A’: • Target market size/structure/behaviour. Distribution strategy. for concepts that qualify a preliminary marketing strategy is created to introduce new product into market. • Sales/Market share/Profit objective in 2/3 years. Marketing budget for first year. Market Testing Commercialization . Product form/shape/size of packs. Generation Idea Screening Concept Development & Testing Marketing Strategy Development – Part ‘B’: • • • • Product’s price planned. • Marketing strategy may be refined in later stages. Business analysis Product Development – Part ‘C’: • Long term sales/profit goals. • Planned product positioning.

If there is a match. • These are matched with company’s objectives. • Replacement sales. – Are projected for 5 years period. • Cost. • Sales estimation process varies with product type. company can evaluate proposal’s business attractiveness. • For this.5) Business Analysis: • After product concept/marketing strategy is developed. • Repeat sales. • Estimating Total Sales: • Total sales is made up of: • First time sales. • Sales. Generation Idea Screening Concept Development & Testing Marketing Strategy Development Business Analysis Product Development Market Testing Commercialization . the new product concept moves to product development stage. • Profits.

.• If product is: – One Time Purchasing Product: • First time sale is adequate. – Frequently Purchasing Product: • First time sales + Repeat sales needs to be estimated. • Example: House. • Each sales category is estimated using market research techniques with demand forecasting methods. • Example: Automobiles. • Example: Soap. Toothpaste. Toaster. Honeymoon – Infrequently Purchasing Product: • First time sales + Replacement sales need to be calculated.

Allocated overhead. Manufacturing. . Marketing. Supplementary contribution. Marketing costs.Estimating Costs & Profits: • Costs estimated for 5 year period jointly by • • • • Research & Development. Development costs. • Costs element includes • • • • • Cost of goods sold. Finance.

• Example: Maruti launching Maruti finance.) Lux Lifebuoy Before Dove 100 200 After Dove 30 90 200 Liril Pears 50 60 50 55 Sales went up by 15 units due to introduction of new product (Dove). This is cannibalized income. sales of existing product came down by 15 units.P. – Cannibalized Income: • Reduction in income on own company products due to new product. HLL(Soaps) Dove(N.• Supplementary contribution is made up of: – Drag Along Income: • Additional income on own company products due to new product. which resulted in increase in sales of M800. . But due to this.

– Pessimistic. • To come up with 3 estimates. profit /profitability determined /projected for next 5 years. – Optimistic. – Realistic (Most Likely). – Break Even Point: • Number of units that a company have to sell of a new product to break even. .• Based on above following data is analysed. • Based on above. • Give price (cost structure). – Pay Back Period: • Time taken by company to uncover all investment in new product. – Maximum Investment Exposure: • Highest loss that a project can create. – Risk Analysis: • Uncertainties in projection analysis.

• Test for Price Fitment. concept is provided in detail to R & D to make physical product. – Prototype Lab Testing. – Consumer Testing. functional/psychological performance. • Test samples with consumers in lab. – Functional Testing. it is taken forward to the product development stage. • Test for Safety/Effectiveness. • Test for Functionality. • Stages in product development could be: – Prototype development. product is ready for market.6) Product Development: • If a product concept passes the business analysis test. • Test for Looks/Styles. • In product development. Generation Idea Screening Concept Development & Testing Marketing Strategy Development Business analysis Product Development Market Testing • Once management is satisfied with new product. the concept exists on paper. • So far. • Test for Psychological aspects such as color. Commercialization .

– Newness of Product: More newness of product leads to more testing. • Packaging. – Time Pressure: May reduce testing time.7) Market Testing: • At this stage. use. repurchase new product. new product is ready for: • Brand Name. Generation Idea Screening • Objective of market testing could be: • Test product in actual market setting. Concept Development & Testing Marketing Strategy Development • Business analysis Product Development Market Testing Commercialization . market testing more thoroughly. • Preliminary Marketing Program. • Learn about actual market size. • Learn about how consumers/dealers handle. Extent of market testing depends on: – Investment Cost & Risk: Higher investment cost/risk needs.

• For consumer goods. Test markets. Adoption. Controlled testing marketing. First Repeat. Simulated test marketing. market testing helps to estimate: • • • • Trial. • Methods for market testing. Purchasing Frequency of consumers. • • • • Sales wave research. • .

• This is repeated with product at small discounts 3-5 times. . • Number of consumers buying again is noted & their satisfaction level studied through market research. • Example: • Amul milk : It gave free samples of milk at first and then at discounted price for a week.Sales Wave Research: • Consumers offered free samples. • Same consumers are then offered product at prices slightly lower than actual prices.

• Consumers who buy new product or competitor product is noted. • Consumers invited to see advertisements. These advertisements are for mixed products. They invited them for a seminar and then presented them with a free sample. • After suitable time. consumers researched for satisfaction levels/ repurchase intent. . • Consumers who don’t but new product are given free samples. • Example: ITC (Kitchens of India): Launched ready meals for working young professionals in mind. • Consumers rewarded for their time with shopping coupons/money for shopping & invited to a store where they can buy anything. This helps to understand trial rates.Simulated Test Marketing: • Certain numbers of qualified shoppers are researched on familiarity / preference in specific product category. Then they followed them and asked for their review.

• Point of Purchase promotions are used. • May include local advertising. • Shelf Facing.Controlled Test Marketing: • Panel of stores identified who would carry new product far a fee (normally done by market research) • At the store. . • Retail sales monitored over specific period of time. • Display.

• Consumers panel surveys. All marketing mix elements are as per normal marketing program. new product may need to be redesigned / dropped. Duration of test should permit product repurchase if applicable. • Retail stores audit. • Effectiveness of all marketing mix elements tested out. • If results are negative. Typically. • Example: Indica to Indica V2.India. 3-9 cities selected All. Cities represent A/B/C category cities. . • Buyer research. Few cities identified to sell product.Test Markets: (Best way to test product): • • • • • • • Normally all automobile companies do this. Test information monitored through: • Stock off take from ware house/godowns.

• Parallel entry to coincide with competitor.Commercialisation: • After successful market testing. Intel. For this. • New product is formally launched. – Example: Used only by market leaders. production of new product on a commercial basis is rapidly built up. colgate came up with Colgate Herbal. – Example: Nokia. Generation Idea Screening Concept Development & Testing Marketing Strategy Development Business analysis Product Development Market Testing Commercialization . – Colgate waited for Meswak to sell its product in market. • During this stage. • Late entry to learn from competitor experience (Used apple approach). After seeing the response. – Example: NIIT & APTECH (GNIIT & ESSACP). new product moves to commercialisation stage. decision to be taken could be: – When to Launch: • First entry for first mover advantage.

– Reachable at low costs. • Regional roll out. – To Whom: • Distributors/ Promotion needs to be aimed at: – Early adopters. – How to Launch: • Decisions encapsulated initial marketing strategy. . – Opinion leaders. – Heavy users. • Introductory offers may be involved. • Urban/Rural (city categorization). • State by state.– Where to Launch: • All India.

• Early adopters are similar to each other and different from late adopters. • Early adopters tend to be opinion leaders & help in advertising product to other product customers. • According to early adopters concept: • Persons within a target market/segment differ in the time elapsed exposure to new product and trying it. • Efficient media exist to reach out to early adopters. . • New product marketers aim at those customers who are early adopters.Adoption of a product: • Individual’s decision to become a regular user of a product. • Adoption when sustained leads to loyalty.

. – Trial: • Customers tries product to improve estimate of its value to himself/herself. – Evaluation: • Customer considers whether to try new product. – Interest: • Customer stimulated to seek information about new product. – Adoption: • Customer decides to make full/regular use of new product. but lacks information.Stages in Adoption Process: • Adopters of new product typically go through the four stages: – Awareness: • Consumer becomes aware. • New product marketers should aim to facilitate consumer movement through these stages.

Early Majority. • Factors Influencing Adoption Process are: – Customers readiness to try new product: • For each new product. Late Majority. • Based on the relative time taken for new product adoption. customer/adopters categorized as: – – – – – Innovators. Laggards.Factors Influencing Adoption Process: • Adoption process varies from customer to customer. . Early Adopters. some customer try out new product early while some others try out late. • Personal influence of others/peer groups – More active in evaluation stage of the adoption process.

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– Dove. • Communicability of Benefits of New Product: – If benefits are visible & communicable. • Divisibility of New Product. • Complexity of New Product Use.Characteristics of New Products: • Some new product catch on immediately. • This depends on new product characteristic. – Sony Handy cam. others may take some time. – Fair & Lovely. such as: • Relative Advantage of New Product. – Livon. . – Chick in rural market sold on basis of sachet. they are easier to adopt. • Compatibility of New Product to Individual Values & Experience.