New Product Development

Reasons for development of a new product:

¾ When sales of its current range of products have been declining over the past
few years or

¾ When it receives complaints about its products from customers, distributors,

retailers, it may have to find the possible reasons for the same.

¾ When a company finds that some of its products have entered the declining
stage, it may have to take concrete measures to replace them.

New product development can be carried out in one of the following ways:

¾ New products features can be developed by adapting, modifying, magnifying,

minimizing, substituting, rearranging or combining the existing features of a
product.

¾ Different quality versions of the existing product can be developed so that the
needs of different markets can be met.

¾ Additional models and size of the existing product can be brought out.

¾ If the company purses the policy of internal innovation, it implies that it has its
own research and development department which is engaged in the
development of new products including modifications and improvements in the
existing ones.

¾ If, on the other hand, the company pursues contract innovation it implies that it
has engaged the services of outside researchers or new-product-development
agencies for introducing new products for the company.

¾ Sometimes the company may prefer acquisition while at other times it may follow
the strategy of innovation.

New Product Development Process:

The development of new products involves the following stages:
(i) idea generation,
(ii) concept development and testing,
(iii) product evaluation and development,
(iv) business analysis,
(v) commercialization.
Stage – I: Idea Generation

The objective of this stage is to obtain

(a) New ideas for products,
(b) New attributes for the existing products, and
(c) New uses of the existing products.

There are several sources of new- product ideas such as customers, company
salesmen, dealers, scientists, competitors, top management, industrial consultants,
advertising agencies, marketing research firms, industrial publications, universities and
commercial laboratories.

Stage-II: Concept Development and Testing

Those which survive this screening are then pursued further through concept testing:
¾ To get the reaction of consumers’ view of the new product idea.
¾ To give direction regarding the development of the project.
¾ To choose the most promising concepts for development.
¾ To ascertain whether the product in question has adequate potential for its
commercialization.

The concept test can take three different forms.

¾ First, it can be entirely verbal—a statement about what it does.
¾ Second, it can be visual—in form of a photograph or drawing.
¾ Third, a mockup of the product may be used. This is merely a dummy product to
get across the idea.

Stage-III: Product Evaluation and Development

¾ Product testing involves almost the same process used in concept development
and testing.

¾ The objective of product testing is to ascertain the market response to the

proposed product so that the management can decide whether or not the product
should be carried forward.

¾ Product testing, being a subsequent step to concept development and testing is

expected to yield more reliable results which involve a more realistic plan for the
product exposure.
Stage-IV: Business Analysis and Commercialisation

¾ For understanding business attractiveness it is necessary to project the future

sales, costs and profit, and if such estimates are reasonably good, the product in
question is commercialized.

¾ In order to carry out business analysis and commercialization of the new product,
two important techniques- test marketing and simulated test marketing – are
used.

¾ When a new product concept has scored high in a business analysis, it is passed
on to the R and D department which develops one or more physical versions of
the accepted product concept. It develops a prototype that satisfies the
predetermined criteria.

Stage-V: Test Marketing

¾ The main objective of test marketing a new product is to reduce the commercial
risk when it is brought in the market.

¾ “Test marketing is a controlled experiment, done in a limited but carefully

selected part of the market place, whose aim is to predict the sales or profit
consequences, either in absolute or in relative terms, of one or more proposed
marketing actions. It is essentially the use of the marketplace as a laboratory and
of a direct sales measurement which differentiates this test from other types of
market research.”

¾ Test marketing is essentially an exercise in experimentation, where the

marketplace is a laboratory.

¾ It also brings out that the predictability of sales or profit is the objective of test
marketing.