Unit 3‫ ׃‬Product Mix and Pricing

Product Mix

New product development

By Dr. Ibha Rani

 New Product Development (NPD)
New product development (NPD) is the process of bringing a new
product to the marketplace.
(NPD) is a comprehensive set of multi-disciplinary processes that
transform a market opportunity into a marketable new product to
satisfy customer requirements.
According to Wheelwright and Clark (1992), NPD is defined as
effective activity organisation and management to bring products to
market with low development costs and short development times.
 Why is New Product Development necessary?
NPD is the driving force of companies and vital for their organic growth.
The importance of introducing new products can be summarised in these
“Seven reasons why new product development is necessary”
• Changing consumer
• Increasing competition
• Technological advancement
• New opportunities (growth and development)
• Risk diversification
• To increase company & brand reputation
• To utilise excess capacity
Customer Need analysis
 Information is required as to the expectation of the customer and
to what extent the existing products meet that expectation. Then
the gap between the two could be observed
Expectation


 GAP


Level met by the product

If the gap is understood well, one could find
opportunities to
Introduce new products
Make improvements in existing products
Make improvements in production
process
Make improvements in supporting
services.
Stages of New Product Development

 1. Idea Generation
 2. Idea Screening
 3. Concept Development & testing
 4. Marketing Strategy Development
 5. Business Analysis
 6. Product Development
 7. Test Marketing
 8. Commercialization ( Launch)
 Stage 1: Idea Generation
Finding promising new ideas is the starting point in the new-product
development process.
Idea generation ranges from incremental improvements to existing products
to new to the world products
 Sources of new ideas
 Internal
 Customers
 Competitors
 Outside inventors
 Channel members
 Consultants
 Methods of generating new ideas
 Search

Searching new product idea publications, research publications, the

internet, exhibitions, conventions
 Marketing Research

Meet product end users and find out what kind of products that can be used
to satisfy their needs. Meet focus groups of consumers- retailers to discuss
new products.
 Technical research
 Firm’s internal research laboratories and other external laboratories
could generate new idea for you.
 Stage 2: Idea Screening
 There should be a very clear cut screening policy that would reject
the unpromising product ideas and further the promising ideas.

 Two basic questions need to be answered at the screening stage.

 Is the idea could be practically developed into a product with

development, production, marketing and financial capabilities of the
company?
 Is the venture commercially feasible? ( market attractiveness,
profitability, social and environmental concerns)
Stage 3: Concept development & testing
Idea has to be developed into a concept
A concept is a detailed version of the idea stated in a meaningful
consumer terms.
The developed concept will be tested among a sample of consumers.
This will be presented to the target market in words or pictures.
Few questions can be asked to check whether the target market will buy the
product.
A response from a sample of buyers potential buyers could be a very good
criteria to find out the ultimate demand for the product.( This is also called
proposed product concept testing) However, the actual product is not in
existence and it could not be able to get results as in a test marketing
process.
 Stage 4: Marketing Strategy Development
It identifies the strategy of how to optimally market and sell your
product or service. It is comprised of four P's, which are
product, price, promotion and placement.
Product
 Brand name selection and registration
 Government regulations as to pricing, packaging and labeling
etc
 Determine packaging, sizes, shapes, colours, other properties
 Guarantee period
Price
Finalize pricing strategy- Premium/ skimming, penetrative, mark up etc
Dealer/distributor margins
Bulk selling discounts
Credit periods

Promotion
Selection and briefing an advertising agency
Finalize segmentation and target markets
Finalize the positioning strategy
Have a theme
Communication budgets
 Finalise advertising plan/promotion plan
Place
 Select channels of distribution
 Transportation
 Point of Sales Materials ( POSM)
 Display racks, stand etc.
 Stage 5: Business Analysis
Business analysis estimates the commercial performance of the
proposed product.
 Revenue forecast
 Cost Estimation
 Profit Projections-
 Acceptable level of profit for a given product development-
 Assess the amount of risk involve
 Stage 6: Product Development
 Thisstage consists of turning that prototype or concept into a
workable market offering;
 ironing out the technicalities of the product; and alerting and
organizing the departments involved with the product
launch, such as research and development, finance,
marketing, production or operations.
 Stage 7: Test Marketing
The goal of this stage is to validate the entire concept -- from
marketing angle and message to packaging to advertising to
distribution.
Test marketing is often performed by offering your product to a
random sample of your target market.
 Ideally the test market should reflect the target market for the
product. The marketers evaluate not only the customers reaction
but all the elements of the marketing mix.
 Based on the results of test marketing, marketers determines how
the marketing mix should be adjusted before a full scale launch.
 Stage 7: Test Marketing

 Depending on the nature of the product and the sample size,

cost and time of test marketing may vary. E.g. test marketing
a car could be more expensive than test marketing a new
cell phone.

 Iftest marketing welcomes competition and gives ideas for

competitors and the product could be copied easily one can
avoid the test marketing.
 Stage 8: Commercialization ( Launch)
It is the stage in which the product is introduced to the target
market.
All the data obtained throughout the previous seven stages of
this approach are used to produce, market and distribute the final
product to and through the appropriate channels.
The product is now available to everyone and the "
product lifecycle" begins.

 Stage 8: Commercialization ( Launch)
First let the company wide employees know about the
product and its features and marketing objectives of the firm
 Determine method of launch
 Selection of venue for launch
 Selection of media for launch
 Brief distributors about the product
 Press conference
 Distribute promotional material
 Execution of advertising strategy
 Importance of New Product Development strategy
Research shows some of the NPD failures can be attributed
to the lack of a structured NPD process. 
• Only 4 in 7 product ideas enter the product development stage
• Only 3 products get launched from 14 product ideas
• Only 1 in 7 product ideas will yield a successful product
• Launched products have a failure rate of 25% to 45%
 Why do New Product Fails ??
 Market factors
 Product factors
 Institutional factors
 Why do New Product Fails ??
 Market factors
 Poor demand management
 Changes in consumer taste and preferences
 Changes in environmental factors
 Low profitability on account of higher than the
anticipated costs
 Why do New Product Fails ??
Product factors
 Unattractive features
 No uniqueness
 Flawed product
 Why do New Product Fails ??
Institutional factors
 Wrong segmentation and targeting
 Weak positioning strategy
 Distribution related problems
 Questionable pricing strategy