New Product Development Strategy

Because of the rapid changes in consumer tastes, technology, and competition, companies must d l new t h l d titi i t develop products and services. A firm can obtain new products in two ways; Acquisition; buying a whole company, a patent, or a license. N New-product d l d t development; d l i original t developing i i l products, product improvements, product modification, and new brands

New Product Introduction

Why are New Products Introduced? To sustain the growth of the organization To utilize surplus production capacity Long term profit growth 80 to 90% of the new products fail shortly after their introduction! Why do these failures occur? 1. 1 Failure to identify the Right Product Right Product 2. Several Me too products 3. Test Marketing Ignored 4. Lack of market research expertise 5. Use of available market research expertise lacking

Generic NPD Strategies

Market Driven Modifier High
Youre good at innovation but it can easily be copied stream of product modifications incremental changes first to market

Next Generation Innovator

Youre good at innovation and others cant follow easily new product categories high internal investment first to market

Leadership in Innovation

Moderate Investment Fast Follower

Youre not so good at innovation, but the types of innovation can be copied p standby research flexible staff fast second market

High Investment Acquirer

Youre not so good at innovation and its tough to copy acquire capabilities leapfrog existing leader build on acquired capabilities

Low L

High Investment Moderate Investment Low High Barriers to Followership

Key Skills Required

Market Driven Modifier
High
Vigilance regarding improvements Rapid innovation Tweaking Consumer knowledge

Next Generation Innovator

Technological prowess Out of the box thinking Rapid innovation Consumer knowledge

Leadership in Innovation

Fast Follower
Market intelligence Reverse engineering Rapid response Flexible manufacturing

Acquirer
Commercial intelligence Financial analysis Efficient implementation of commercial synergies

Low

Low Barriers to Followership

High

Industry Types
Market Driven Modifier High
Food companies eg Amul Consumer Goods eg P&G Consumer Durables eg Samsung Automobiles eg Suzuki, Hyundai

Next Generation Innovator

Electronics eg Sony Software eg Microsoft Mobile Phones eg Apple, Nokia Web T h l W b Technology eg G l Google

Leadership in Innovation Fast Follower Low L

Fashion eg Titan, Tanishq Electronics eg LG, Samsung L t Laptops eg A Acer

Acquirer
Electronics eg Philips Web Technology eg Microsoft

Low Barriers to Followership

High

New Product Development Process

In order to find and develop successful products, the marketers must go through the following stages; Idea generation Idea screening Concept development and testing Marketing strategy Business analysis Product development p Test marketing Commercialization

System for New Product Introduction

Cost
Screening
Quantitative Qualitative

Concept Test Concept Use Test Marketing Strategy Business Analysis

Product De evelopment

33%

Test Marketing
67%

Commercialization

Idea Generation
New product development starts with idea generation - the systematic search for new-product ideas. Major sources of new-product ideas include: (1) Internal sources - research & development department, executives, salespeople (2) Customers (3) Competitors (4) Distributors and Suppliers i i S i (5) Others - trade magazines, seminars, government agencies, new-product consultants, marketing research firms, universities, inventors.

Idea Screening
Idea screening reduces the number of new ideas by screening new product ideas in order to spot good ideas and drop poor ones as soon as possible. In idea screening, market size, product price, development time and costs, production costs, rate of return and type of customers are put into consideration.

Idea Screening
A. Quantitative Screening
Computing Product Marketability Index: Factors that have a bearing on product success are: 1. Marketability Factors y 2. Durability Factors 3. Productive Ability Factors

Quantitative Screening
Marketability Factors:
1. Present Distribution System 2. Competitive Quality and Price 3. Effect on Sales of Existing Products

Durability Factors:
1. Size of the Potential Market and Growth Rate 2. Resistance to Economic Fluctuations 3. Life Cycle of the Product y

Productive Ability Factors:

1. Adequacy of Plant and Equipment 2. Adequacy of Personnel. 3. Availability of Raw Material.

Product Marketability Index

Factors Marketability Marketability Marketability Durability Durability Durability Productive Ability Productive Ability y Productive Ability Criteria 1. Present Distribution System 2. Competitive Quality 3. Effect on Existing Products 1. Size of the Potential Market 2. Resistance to Economic Fluctuations 3. Life Cycle of the Product 1. Adequacy of Plant and Equipment 2. Adequacy of Personnel q y 3. Availability of Raw Material Weights 10
10 10 10 10 10 20 10 10 10 100 100 Total Weighted Score 200 80 60 80 80 60 100 60

Scores 8 6 4 2

Total
100 60 80 60 80 200 80 60 100 820

Product Marketability Index: 0.82

Idea Screening
B. Qualitative Screening
a. Moti ational a Motivational Research through: thro gh: Group Discussions In-depth Interviews b. Behavioral Science Techniques Here we get the reaction of actual consumers who will accept or reject the product

Concept Development and Testing

An attractive idea must be developed into a product concept. Concept Development; is a detailed version of the newproduct idea stated in meaningful consumer terms. Several concepts can be developed for a product idea e.g. the idea of developing an electric car may be created in the following product concepts: (1) Inexpensive family car ( ) (2) Medium cost sporty car for young people; p y y gp p ; (3) Inexpensive car for conscious people who look for basic transportation, low fuel cost, and low pollution. The marketer must test these alternatives.

Concept Testing
Concept Testing; involves testing new-product concepts with target consumers before turning the new ideas into actual new products. The concepts may be presented to consumers symbolically or physically. After being exposed to the concept, consumers may be asked to tell their opinions. The answers will help the company decide which concept has the strongest appeal appeal.

Concept Test
Concept Test is used to measure: Uniqueness rating of the concept. Attitude rating towards the concept. C Comparison of concept with the product currently used. i f ih h d l d Future purchase intent of the consumer. The acceptability of the idea with consumer.
Unique Selling Proposition

Implementation of Concept Test: 1. Develop the idea that passes through screening process into a Concept Advertisement. Emotional appeals are Concept Advertisement avoided in this advertisement. 2. Boldly display your Unique Selling Proposition in the concept advertisement headline. 3. Carry out the test as follows.

Product Illustration Picture

Product Usage Direction

Justify Claims given in the Headline

Name of the Company

Concept Test
Pre-exposure Interview: The purpose of this interview is to find out:
1. Whether the interviewee is a User of the type of product being tested. If he is the user then proceed to find out --What Brand used and when last What used? Interview people who have used the product during past one year. 2. Attitude towards various characteristics of the product used in the past e.g. Taste, Colour, Shape, Size, Odour etc. To understand this Word Association Test is carried out. List out how many people would say something common. 3. How the Brand presently used by the interviewee compare with the product being tested.

Exposure Interview: Concept advertisement is given to the consumer

and he is given as much time as he requires to study it. Thereafter the advertisement is taken back and it is not shown to the consumer again.

Concept Test
Post-Exposure Interview: This interview will review the uniqueness
of the concept. This when compared with the characteristics rated earlier will reveal the weak areas in the concept and highlight: 1. 1 How does the product compare with the Brand presently being used? 2. What are the Future Purchase Intentions of the interviewee? The following factors are assessed on a five point semantic differential scale Uniqueness Rating Attitude Rating Comparison with Brand presently used. Future Purchase intentions
Excellent Very Good Good Somewhat Bad Bad

Concept Use Test

After the product has passed the Concept Test stage the product is produced in laboratory scale. The product is manufactured as per Concept Test and same people are interviewed within a week. Measurement of Concept Use Test is taken with reference to the same four factors listed in concept test. The scores are then compared and up to 10 to 15% fall in score of Concept Use Test is accepted. Beyond this the product is rejected and the areas of product improvement are identified and suitable changes in the product are made.

Marketing Strategy Development

After all the concepts are tested, the company must develop the initial marketing strategy to introduce the best concept to th t the market. k t At this stage, the marketing strategy consists of three parts; the first part; describes the (1) target market, (2) the planned product positioning, and (3) the sales, market share and profit goals for the first year. the second part; outlines the products planned (1) price, (2) distribution, and (3) marketing budget for the first year. the third part; describes the planned long-run (1) sales, (2) profit goals, and (3) marketing mix strategy.

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Business Analysis
Once the product concept and the marketing strategy is decided, the marketer should evaluate the business attractiveness of the proposal. Business analysis involves the projections for the sales (by looking at the sales history of similar products and getting the market opinion), costs (by looking at the forecasted sales figures), and profit for the new product to fi d t h th th t find out whether they satisfy the companys ti f th objectives. If they do, the product can move to the product-development stage.

Product Development
Here, the product concept is developed into a physical product (prototype) to understand whether the product idea can be turned into a workable product. Prototypes are tested under laboratory and field conditions to make sure that the product performs safely and effectively. effectively

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Test Marketing
After the prototype is tested under the laboratory and field conditions, the next stage is testing the product under more realistic market settings. Test marketing allows the company to test the product and its marketing program (e.g. positioning strategy, advertising, pricing, distribution, branding, packaging, budget) before going into the full introduction. When introducing a new product requires a big investment, or when management is not sure of the p g product or marketing program, the companies do a lot of test marketing.

Test Marketing
Products that pass the concept use test are then introduced in select markets that are representative of the national market. Purpose of Test Marketing 1. Because the product is marketed on a limited scale in the event of the product gets rejected by the market the company can avoid huge losses. 2. The company can experiment with
Media Combination Types of Positioning Spending Levels

3. It is easier to control the marketing mix strategies. 4. It is economical and feasible to operate in the limited markets.

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Commercialization
Commercialization is the introduction of a new product into the market. At this stage, the company may need to spend between Rs. 50 lakhs and Rs.500 lakhs for advertising and sales promotion in the first year. Here, the company should decide when and where the product will be introduced.

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