Chapter Three

Product Development Cycle

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Stages in New Product development Process:

 To minimize risk of new product failure, new product

development follows a structured process.

 Stages in new product development are:

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New-Product Development Reasons for new product failure
Overestimation of market size

Poor design

Incorrect positioning

Wrong timing

Priced too high

Ineffective promotion

Management influence

High development costs

Competition
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 Improving New-Product Success
New-product success depends
To create successful new
on having :
 Unique superior product (one products, the company must:

with higher quality, features,  Understand its consumers,

and value in use),
markets, and competitors,
 Well-defined product concept
(a defined target market,  develop products that deliver
product requirements, and superior value to customers.
benefits).
04/24/2021 4
Cont.

1. Idea Generation:

 New product development process starts with search for ideas.

 It is the systematic search for new-product ideas.

Chief sources of new-product ideas Customers Competitors Distributors Suppliers

 Customers:
 Market research could be done with recent customer/lead users
(customer who make advance use of product & recognize improvement
needs).
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 Market research determines product improvement required.

R & D / Employees:

 Employees could be encouraged to give new product ideas & rewarded

suitably.
trade magazines, shows and
Competition: seminars; government
 Through study/analysis of competitive products.
agencies; new-product
consultants; advertising
Marketing Channel & Their Staff: agencies; marketing
 Dealers, distributors,
research firms; university,
commercial laboratories and
Senior/Top Management: science parks; and inventors.
 Product innovators could be senior management. 04/24/2021 6
 Cont.

Idea Generation Techniques:

 Ideas may be generated using creative techniques such as:

Attribute Listing:

 List out major attribute of a product.

 Modify each attribute in search of an improved product.

Forced Relationship:

 Several objectives are considered in relations to one another to create a new

product.
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 Example: Fax + Telephone + Table Display.
Cont.
Morphological Analysis:
 Identify structural dimension of a problem & examine relationships among them.

 Hence, convenient/economical/effortless.

Customer Need / Problem Identification:

 Do market research on customer to determine their needs.

 Wherever customer is dissatisfied, the reason for dissatisfaction could lead to a

new product.
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 Cont.

Brainstorming (Technique developed by Alex Osborn):

 6-10 people discuss a specific problem.

 Asked to come up with ideas for some time.

Guidelines could be:-

 No criticism/evaluation of ideas.

 Free flow of thought is encouraged.

 Quantity is encouraged.

 Combining/better/improved ideas is encouraged.

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2. Idea Screening:
The purpose of this stage is to reduce the number of new product idea in to a manageable
few which deserve further attention.

 Ideas generated need to be screened for action.

 To start with, ideas are sorted into:

 Promising ideas.

 Marginal ideas.

 Rejects.

 Promising ideas are evaluated by a group.

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 Surviving promising ideas are screened through a process.

 Cont.
 While screening, company needs to avoid:

 Drop Error:

Company rejects a good idea.

 forward Error:

Company allows a poor idea to move into a product development and

commercialization.

 As product development costs rise greatly in later stages, it is

important for the company to go ahead only with those product
ideas that will turn into profitable products.
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 Criteria for idea screening may include:-

 Fit within existing product mix  Acceptable payback period

 Patentability
 Risk of competitive entry
 Ability to sell through existing
distribution
 Compatibility with strategic plan
 Growth potential
 Cost of tooling and machinery
 Compatibility with core
technologies

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04/24/2021 13
 Cont.
Product failures are three types:

Absolute Product Failure:

 Loses money, sales do not cover variable costs.

Partial Product Failure:

 Loses money, variable cost is covered.

Relative Product Failure:

 Makes profit that is less than company’s target rate of return.

 Objective of screening is to drop poor ideas at the earliest.

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 Ideas are screened using product idea rating process.

Product Idea Rating Process:

New product ideas are described in details. Details include:-

 Product idea.

 Who is target market?

 Who is/are competition?

Many companies have systems for rating and screening ideas which estimate:
 Market size.

 Product price.

 Development time/cost.

 Manufacturing cost.
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 Rate of returns.
Ideas are evaluated against a set of criteria

 Does product meet a need?

 Would it offer superior CDV / Price performance?

 Can it be distinctly positioned / advertised/

Fit with company’s objective / strategies & resources seen

It include:

 Profit objective.

 Sales objective.

 Sales growth objectives.

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 Customer goodwill objectives.

Fit with company resources include:

 Does company have required capital or can it acquire it?

 Does company have / acquire required production/marketing

information?

 Does company have / acquire required distribution ability?

If answer to any question is Nominal Office, then the idea is rejected.

Surviving ideas are rated using weighted index method.

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3. Concept Development & Testing:

Attractive ideas should be refined into list able product concepts.

Product Ideas:

 Possible product that company may offer to the market.

Product Concept:

 Elaborated version of the idea expressed in meaningful consumer terms.

Product Image:

 Picture that consumer acquire of an actual/potential product.

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 3.
3. Choose
Choosethe
theBest
BestOne
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2.
2. Concept
ConceptTesting
Testing--Test
Testthe
theProduct
ProductConcepts
Conceptswith
withGroups
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of
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11.. Develop
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ProductConcepts
Concepts
9-19
Development &
Concept Development
Concept Testing
& Testing
9-19
Concept Development:

A product idea is converted into concepts.

 Example: Product Idea (cloth manufacturing Company).

 Desires to produce a jacket which is protection & fashion.

To convert to concept answer following questions:

 Who will use this product?

 Children / Young working Professionals / Elderly.

 What primary benefit should product provide?

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 protection / fashion / enjoyment / hot condition.

 When will consumers consume product?

 Morning / evening / night work.

Based on answers, concepts could be:

C1 : Instant night for working professionals who want very hot jacket .

C2 : fashion for children.

C3 : at evening climate condition for elderly customer staying on their

own.

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Each concept represent a category concept, i.e., each concept
positions the idea within a category.

Category defines the products competition.

Example:
Competition for C1: wool/ cotton/jacket.
Competition for C2: acrylic / blend / suit/ jacket.
Competition C3: normal jacket

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Concept Testing:

 Involves testing product concepts with appropriate customer group to obtain

customer reaction.

 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?

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 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.

 Would you buy the product?

 User Targets/Purchase Occasion/Purchase Frequency:

 Who would / when / how / often use this product?

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Cont.……

during the technical feasibility stage at least the

following activities must be completed:-
 Test for technical feasibility;

 Examine the operational requirements;

 Identify potential safety or environmental hazards;

 Make a preliminary production feasibility

assessment.
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4. Marketing Strategy Development:
 After concept testing, for concepts that qualify a preliminary marketing strategy
is created to introduce new product into market.

 Marketing strategy may be refined in later stages.

 A suit targeted at the young graduating
Marketing strategy plan made up of: and/or marrying, having or/and (are
Part One - Overall: from) moderate and higher income
 Target market size/structure/behaviour.  smart looking, dust repelling and having
 Planned product positioning. well drape ability. The garment company
 Sales/Market share/Profit objective in 2/3 years. plans to sell 500,000 suits at year 1 and
reach 1, 500,000 at year 2.
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 Part Two - Short-Term:
 Product’s price planned.
 Product form/shape/size of packs.
 Distribution strategy.
 Marketing budget for first year.
• The suit will be offered in 7 selected different
colors and two designs ( smooth and striped)
starting at 1000 birr price. Garment shops will
be opened tracing university and college sites.
In the first production year 100,000 birr will be
allocated for market research to identify who
buys the product, and how satisfied is the
buyer? what should be improved to delight
consumers?
Part Three - Long-Term:
 Long term sales/profit goals.
 Marketing mix strategy over time.
 The garment company intends to capture
30% market share in the long run, enjoy 15%
after tax return on investment, price will be
increased depending on the competition,
advertising budget will be raised by 10%,
market research budget lowered by 25%
each year,
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 5. Business Analysis:

 After product concept/marketing strategy is developed, company can

evaluate proposal’s business attractiveness.
 Sales.

 Cost.

 Profits, Are projected for 5 years period.

 These are matched with company’s objectives. If there is a match,

the new product concept moves to product development stage.
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Cont.
Estimating Total Sales:

Total sales is made up of:

 First time sales.

 Replacement sales.

 Repeat sales.

Sales estimation process varies with product type. If product is:-

One Time Purchasing Product:

• First time sale is adequate.

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• Example: House
Cont.

Infrequently Purchasing Product:

 First time sales + Replacement sales need to be calculated.

 Example: Automobiles, Toaster.

Frequently Purchasing Product:

 First time sales + Repeat sales needs to be estimated.

 Example: Soap, Toothpaste.

 Each sales category is estimated using market research techniques with

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demand forecasting methods.

Cont.
Costs element includes:-
Estimating Costs & Profits:  Cost of goods sold.

Costs estimated for 5 year period  Development costs.

jointly by:-
 Marketing costs.
 Research & Development.
Allocated overhead
 Manufacturing.
Supplementary
 Marketing.
contribution.
 Finance. Supplementary contribution
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is made up of:
Cont.
 Example:

 Costs calculated using concepts of discounted cash flow (DCF) / Net Present
Value of Money.
 Based on above following data is analysed.
 Maximum Investment Exposure:
 Highest loss that a project can create.
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 Cont.
 Pay Back Period:
 Time taken by company to uncover all investment in new product.

 Break Even Point:

 Number of units that a company have to sell of a new product to break even.

 Give price (cost structure).

 Risk Analysis:
 Uncertainties in projection analysis.

 To come up with 3 estimates.

• Optimistic.

• Pessimistic.

• Realistic (Most Likely).

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 Based on above, profit/profitability determined/projected for next 5 years.

7. Product Development:

 If a product concept passes the business analysis test, it is

taken forward to the product development stage.
 So far, the concept exists on paper.
 In product development, concept is provided in detail to R & D
to make physical product.

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Cont.
Stages in product development could be:
 Prototype development.

 Prototype Lab Testing.

 Test for Functionality.

 Test for Psychological aspects such as color.

 Test for Looks/Styles.

 Test for Price Fitment.

 Functional Testing.

 Test for Safety/Effectiveness.

 Consumer Testing.
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 Test samples with consumers in lab.

 Once management is satisfied with new product, functional/psychological
performance the product is ready for market.

8. Market Testing:
At this stage, new product is ready for:
 Brand Name.

 Packaging.

 Preliminary Marketing Program.

Objective of market testing could be:

 Test product in actual market setting.

 Learn about actual market size. 04/24/2021 36

 Learn about how consumers/dealers handle, use, repurchase new product.

Extent of market testing depends on:

 Investment Cost & Risk:

 Higher investment cost/risk needs, market testing more thoroughly.

Time Pressure:
 May reduce testing time.

Newness of Product:
o More newness of product leads to more testing.

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Cont.
For consumer goods, market testing helps to estimate:

 Adoption.  Trial.

 The purchasing Frequency of consumers.  First Repeat.

Methods for market testing.

 Sales wave research.

 Simulated test marketing.

 Controlled testing marketing.

 Test markets.
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Cont.
Sales Wave Research: (Procedure)

 Consumers offered free samples.

 Same consumers are then offered product at prices slightly lower than actual
prices.

 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
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discounted price for a week.

Simulated Test Marketing: (Procedure)

 Certain numbers of qualified shoppers are researched on

familiarity/preference in specific product category.

 Consumers invited to see advertisements. These advertisements are for

mixed products.

 Consumers rewarded for their time with shopping coupons/money for

shopping & invited to a store where they can buy anything.

 Consumers who buy new product or competitor product is noted. This

helps to understand trial rates. 04/24/2021 40
 Consumers who don’t but new product are given free samples.
 After suitable time, consumers researched for satisfaction levels/
repurchase intent.
 Example: ITC (Kitchens of India): Launched ready meals for
working young professionals in mind. They invited them for a
seminar and then presented them with a free sample. Then they
followed them and asked for their review.
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Cont.

Controlled Test Marketing: (Procedure)

 Several research firms keep controlled panels of stores which have agreed to
carry new products for a fee.

 The company with the new product specifies the number of stores and
geographical locations it wants.

 The research firm delivers the product to the participating stores and controls
shelf location, amount of shelf space, displays and point-of-purchase
promotions, and pricing according to specified plans.
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 Sales results are tracked to determine the impact of these factors on demand.
Test Markets: (Best way to test product):-(Procedure)

 Normally all automobile companies do this.

 Few cities identified to sell product.

 All marketing mix elements are as per normal marketing program.

 Typically, 3-9 cities selected.

 Cities represent A/B/C category cities.

 Duration of test should permit product repurchase if applicable.

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 Test information monitored through:

 Stock off take from ware house/go downs.

 Retail stores audit.

 Consumers panel surveys.

 Buyer research.

 Effectiveness of all marketing mix elements tested out.

 If results are negative, new product may need to be redesigned / dropped.

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 9. Commercialisation:

 After successful market testing, new product moves to commercialisation stage.

 During this stage, production of new product on a commercial basis is rapidly

built up.

 New product is formally launched. For this, decision to be taken could be:

 When to Launch:

First entry for first mover advantage.

 Example: Nokia, Intel.

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 Parallel entry to coincide with competitor.
 Example: NIIT and APTECH (GNIIT and ESSACP).

 Late entry to learn from competitor experience (Used apple

approach).

Example: Used only by market leaders.

 Colgate waited for Meswak to sell its product in market. After seeing the
response, Colgate came up with Colgate Herbal.

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 Where to Launch:

o All countries in the world.

o Regional roll out.

o State by state.

o Urban/Rural (city categorization).

 To Whom:

Distributors/ Promotion needs to be aimed at:

 Early adopters.

 Heavy users.

 Opinion leaders.
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 Reachable at low costs.

Analysis

 Solution
 Process
 Objectives
 Team works
 Vision
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 Sales
Thank you
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