Introducing New

Market offering
Role and Significance of New Product Development.
Why New Products?

 New Products for Larger, Faster and Sustained Growth

 Needed for Filling the Firm’s Strategic Planning Gap

 New Products are Required for Making New Profits

 They are Required for Meeting Consumer Expectations

 New Products are Required for Beating Competition

 Required for Combating Environmental Threats

2
 A company can add new products through
acquisition or development

 Acquisition route can take three forms

1. Buy other companies
2. Acquire patents (exclusive rights) from other
companies
3. Buy license or franchise from another
companies

– Development route can take two forms

1. Develop in own laboratories
2. It can contract with independent researchers
or new product development firms to
develop specific products
Challenges in New-Product
Development
• Ignoring or
misinterpreting market
New products fail due to
research
the following reasons
• Overestimating market
size
• High development cost
• Poor design
• Incorrect positioning
• Ineffective advertising
or wrong price
• Insufficient distribution
support
• Competitors who fight
back
 The NPD Decision Process
Lay
future
plans
Yes Yes Yes Yes Yes
Yes Yes Yes
6. Product
1.Idea 2. Idea 3.Concept 4.Marketing 5. Business
Development 7. Marketing
Generation screening development strategy Analysis 8. Commercialization
Testing
and testing Development Have we
Is the product Will this Are product
Is the idea product meet
got a Have product
idea compatible Can we find Can we find technically sales met sales meeting
worth our profit expectations?
with company a good concept cost-effective, sound expectations?
considering objectives consumers affordable goal?
product?
strategies say they marketing
and resources would try ? Yes
Yes
No No

Send the Modify the

idea back product
for product or marketing
development program

No No No No No No No No

Drop
 1. How can Ideas be generated?
1. One to one interview and focus group discussions can
explore product needs and reactions

2. Observational techniques with customers

3. Technical companies study customers who make most

advanced use of the company’s products

4. Submission of ideas by employees

5. Companies R&D

6. Searching competitors products and services

7. Personal interest by the top management

2. How do you screen a idea?

1. DROP error
Avoid 2 types of errors

2. GO error

Relative
Absolute Partial failure
failure failure

Recovers only Recovers all Recovers profit

Some V. Cost V. Cost and which is less than
some F. cost. Company target
rate of return
 2. Idea screening- Product-idea rating device

Relative wt
(factors
reqd. for
successful Product
Product success requirements launch) score Product rating
Unique or superior product 0.4 0.8 0.32
High performance to cost ratio 0.3 0.6 0.18
High marketing dollar support 0.2 0.7 0.14
Lack of strong competition 0.1 0.5 0.05
      0.69
Rating score: .0-0.3 poor,0.31-0.60 fair, 0.61-0.80 good. Minimum acceptance rate:0.61
 3. Concept Development and
Testing
 Attractive ideas must be refined into
testable product concepts.

A product ideas is a A product concept is a

possible product the elaborated version of the
company might offer to the ideas expressed in
market consumer terms.

presenting the product

concept to target consumer
and getting their reactions
3. Concept development and testing

 Concepts can be presented symbolically or

physically

 The more the tested concepts resemble the

final product or experience, the more
dependable concept testing is.
 Concept development and testing
 Example

 Product idea - Producing a powder to add to milk to

increase its nutritional value and taste.

 Idea can be turned to several concepts based on

 Who will use the product? (children, adult, old people)

 What is the primary benefit they are looking in the product?

(nutritional supplement, taste, energy)

 When will they use the product? (breakfast, mid noon,

evening)
Concept development and testing

 Concept 1: An instant breakfast drink for adults who

want a quick nutritional breakfast without
preparation

 Concept 2: A tasty snack for children to drink as a

midday refreshment

 Concept 3: A health supplement for older adults to

drink in the late evening before they go for bed.
 3. Concept development and testing

 Researchers measure product dimensions by having

consumer respond to the following questions

1. Communicability and believability: Are the benefits clear

and believable?
2. Need level: Do you see this product solving a problem or
filling a need for you?
3. Gap level: Do other products currently meet this interest
and satisfy you?
4. Perceived value: is the price reasonable in relation to
the value?
5. Purchase intention: Would you buy the product?
6. User target, purchase occasions, purchase frequency:
Who will use this product and when and how often will
the product be used?
Conjoint analysis
 Conjoint analysis: Conjoint analysis is a popular
marketing research technique that marketers use to
determine what features a new product should have and
how it should be priced.
 Concept to Strategy
 Conjoint analysis
 Deriving the utility (effective/useful) values that
consumers attach to varying levels of a product’s
attributes

• Three package designs (A, B, C)

• Three brand names (Thanos, Loki, Ultron)
• Three prices (Rs.85, 95, 110)
• A possible Good Housekeeping seal (yes, no)
• A possible money-back guarantee (yes, no)

One can form 108 possible product concepts with these

five elements (3 X 3 X 3 X 2 X 2),

it would be too much to ask consumers to rank them all

from most to least preferred.

The company can choose, for ex, 18 contrasting product

concepts that are feasible.

Ask the respondents to rate the concepts. Run the

 Utility functions based on Conjoint Analysis

Package Design Brand Name Retail Price Good housekeeping seal?

1 1 1
1

utility

utility
utility
utility

0 0 0
0 85 95 110
0 Th Lo Ult No Yes
A B C
1
The consumer’s most desired
offer is package design B, Money back guarantee?
utility

brand name Ultron, priced

at Rs.85, with a Good
Housekeeping seal and a
money-back guarantee. 0
No Yes
 4. Marketing Strategy
 Following a successful concept test, the new product
manager will develop a preliminary strategy plan for
introducing the new product into the market

target Mkt size, structure and

behavior;
planned product positioning;
Sales, MS and profit goals
preliminary strategy plan sought in the first few years

Has 3 parts
planned price, distribution
strategy and marketing budget
for the first year

long-run sales and profit goals

and marketing mix strategy
over time
 5. Business analysis
To determine whether the product
satisfies company objectives
 sales,
 cost and
 profit projections are prepared.

 Ifthey do, the concept can move to the

development stage.

 Asnew information comes in, the

business analysis will undergo revision
and expansion
 6. Product Development
 Till now the product was only in drawing or as
prototype;
 Next step involves a jump in investment that
dwarfs the costs incurred in the earlier stages

Alpha testing- testing the product within the firm

to see how it performs in different applications
Customer tests

beta testing - testing with the customers

Consumers Preferences are measured:

• The rank order
• The paired-comparison
• The monadic rating
6. Product Development
 After alpha testing, the product is refined, the company moves to
beta testing with customers

 It enlists a set of customers to use the prototype and give

feedback

 Consumer preferences can be measured in several ways

 The rank order: method asks the consumer to rank the item in order
of preference
 The paired-comparison: method calls for presenting pairs of items
and asking the consumer which one is preferred in each pair. Then
conclude which is better
 The monadic rating: method asks the consumer to rate liking of each
product on a scale
7. Market Testing

In testing consumer Trial

products, the
First repeat
company seeks to
estimate four Adoption
variable
Purchase frequency

4 major methods of
consumer-goods
market testing

Sales-Waves Simulated Test Controlled Test

Test Markets
Research Marketing Marketing
 7. Market Testing
 4 major methods of consumer-goods market
testing (from least to most costly)

1. Sales-Waves Research:
 Consumers who initially try the product at no cost
are reoffered the product or a competitor’s
product, at slightly reduced prices.

 Consumers might be reoffered the product as

many as 3-5 times with the company noting how
many customers selected that product again and
their reported level of satisfaction.
 7. Market Testing
2. Simulated Test Marketing :

1. Calls for finding 30-40 qualified shoppers and

questioning them about brand familiarity and
preferences in specific product category.

2. These people are then invited to a brief

screening of both well-known and new
commercial or print ads. One ad. advertises
the new product, but it is not singled out for
attention.

3. Consumers receive a small amount of money

and are invited into a store where they may
buy any items. The company notes how many
consumers buy the new brand and competing
brands
 7. Market Testing
2. Simulated Test Marketing :

 This provides ads relative effectiveness against

competing ads in a stimulating trial.
 Consumers are asked for the reasons for their purchases
or non-purchases.
 Those who did not buy the new brand are given a free
sample.
 Some weeks later, they are re-interviewed by phone to
determine product attributes, usage, satisfaction and
repurchase intention and are offered an opportunity to
repurchase any products.
 This method gives fairly accurate results on advertising
effectiveness and trail rates( repeat rates if extended)
in a much shorter time and at a fraction of the cost of
using real test markets.
 The results are incorporated into new product
forecasting models to project ultimate sales levels.
7. Market Testing
3.Test Markets:

 The ultimate way to test a new consumer product

is to put it into full blown test markets.
 The company chooses a few rep. cities, and the
sales force tries to sell the trade on carrying the
product and giving it good shelf exposure.
 The company puts on a full advertising and
promotion campaign similar to the one it would use
in national marketing
 Test marketing also permits testing different
marketing programs in different cities.

 Management faces several decisions: How many test

cities?, Which cities?, Length of test?, What information?, What
action to take?
7. Market Testing
4. Controlled Test Marketing:

 The company with the new products specifies the number of stores and
geographic locations it wants to test.
 A research firm manages a panel of stores that will carry new products
for a fee.
 The research firm delivers the product to the participating stores and
controls shelf position; number of facing, displays and POP promotions
and pricing.

 Sales results can be measured through electronic scanners at the

checkout.
 The company can also evaluate the impact of local advertising and
promotions.
 CTM allows the company to test the impact of in-store factors and
limited advertising on buying behavior.

 A sample of consumers can be interviewed later to give their

impressions of the product
 The controlled test marketing provide no information on how to sell
the trade on carrying the new product
 8. Commercialization

 At this stage it another major cost is marketing

 Decision on contract Manufacture or build/rent a full scale

manufacturing facility are made

1.When (timing)
new product campaign
2.Where ()
rely on sequenced mix of 3.To Whom (early
market communication adopters, heavy users
and opinion leaders ):
4. How (introductory
Market strategy):
 8. Commercialization
When (first entry, parallel entry and late entry: Other additional
considerations:
1. If new product replaces an older product, the company
might delay until the old products stock is drawn down
2. If the product is seasonal, wait it the right season arrives

Where
 Small companies- will select an attractive city; put a blitz
campaign; enter other cities one at a time
 Large companies : introduce their product into a whole region and
move to next region
 National distribution networks will launch their new models in the
national market

Whom (Target-market prospects):

 Target to best prospect groups like early adopters, heavy users
and opinion leaders and they should be reached at a low cost.
 The aim is to generate strong sales as soon as possible to attract
further prospects.
Truearth
 Table 1
  Non-Customers Customers Source
Definitely would buy 15% 26% Exhibit 7
% of "Definites" who actually buy 80% 80% Exhibit 5
"Definite" Purchases 12% 21%

Probably would buy 39% 53% Exhibit 7

% of "Probables" who actually buy 30% 30% Exhibit 5
"Probable" Purchases 12% 16%

Trial Rate ("Definite" + "Probable") 24% 37%

Target households (MM) 58.8 58.8 Table B

Penetration, % of target households 89% 11% Table B
Awareness of pizza product 12% 50% Table B
ACV distribution 40% 40% Table B

Adjusted Trial Households 0.6 0.5

Total trial households (Non-Customers + Customers) 1.1

% of households repurchasing (Excellent) 49% Table B

Repeat purchase occasions 2 Table B

Total purchases (Trial + Repeat) 2.1

Retail selling price $12.38 Table B

Retail sales volume $26.2M
Retailer gross margin 35% Case text
TruEarth sales volume $17.0M    
 Table 2
Product Quality & Repurchasers %

Average Excellent
Mediocre Product
Product Product
Penetration 21% 37% 49%
5% penetration $9.7M $11.9M $13.5M
10% penetration $11.8M $14.5M $16.5M
15% penetration $13.9M $17.0M $19.4M