New Product Development

NEW PRODUCT DEVELOPMENT
What is a New Product ?

New Product means the Product new to the company
Three Most Important Questions

1. How often should company launch ? 2. Percentage of New Products to Old Products ? 3. Who should be involved in development team ?
MARKETING MANAGEMENT - I

What is a New Product ?
Original Products : Original to company as well as the market Modified Products : Existing products with alterations Me Too Products : Copying one of the successful product in the market Product Line Acquisition : Products available from some subsidiary company

In a New Product the company will always have something NEW into the Product Mix. It could be a New Experience or New Products Why New Product ? Risky not to innovate considering the competition Consumer Expectations : Consumers expectation for steady stream of New & improved products with changes in Needs & Wants Continuous innovation is the only way to avoid Product Line Obsolescence

Why Does A New Product Fail ?
A senior level executive pushes a favorite idea in spite of negative market research findings. The idea is good, but market size is overestimated The product is not well designed The product is incorrectly positioned in the market, not advertised properly, overpriced. The development costs are higher than expected. Competitors fight back harder than expected

Difficulties in New Product Development
Shortage of important new Product ideas Fragmented Market Growing social & Government constraints Cost of New Product Development Capital shortages Faster required development time Short life span of successful products

New Product Development Organisation
Product Managers New Product Managers (recruited exclusively for new product lines - Product Planners) New Product Committees (handle new portfolio with existing responsibilities) Venture Team (gather knowledge pool within organisation and allow them to work on new product for next 2 - 3 years)

New Product Development Stages
Idea Generation Idea Screening Concept Development Business Analysis Product Development Test Marketing New Product Launch

New Product Development Stages
The process starts with lot of ideas but only one of them gets selected for the Product Launch
1.Idea Generation :
Every New Product starts off as an Idea Most Ideas never become Products Large no. of ideas needed to locate good idea Greater the no. of ideas, better the best ones are likely to be.

New Product Planning Group Responsibilities
Search - Active search in an environment Stimulation - Motivate company personnel to develop more ideas Enhancement - Reroute ideas to other functional areas in the company for feedback and idea enhancement
ORGANISATION OF IDEA FLOW

Customer
New Product Cell
Top management
Technology
R&D
Competition
Sales

Scientific Method for Idea Generation :
Attribute Listing - Modification of different attributes in search of a new product Forced Relationship - List all the ideas & consider each one in relation to the others Brain Storming with Customers Survey your customers

2.Screening :
The purpose of Screening is to eliminate those ideas which are dissonant with either company objective or resources Typical Company Objectives are Profit, Sales growth, company image etc. Generally considered Company Resources are Capital, Know How, Physical facilities etc

2.Screening (cont.) :
In other words Screening is Quantitative evaluation of ideas against companys objectives, compatibility with existing production & distribution facilities together with gross economic factors such as potential competition etc.

2.Screening (cont.) : Few Basic Questions : Can the existing production facilities be utilized Can the present raw material be utilized ? Can we use existing distribution channels ? Can we use the existing know how ? Can we produce economically smaller batches ? Can it be priced competitively ? Is there an existing demand ? What are the chances of stability of demand ?

Product Marketability Index (P.M.I.)
Excellent quantitative technique for evaluation of a new product. 1. Marketability Factors :
Relationship with present distribution channel Competitive Price - Quality relationship Effect on Sales of Existing Products
2. Market Durability Factors :

Size of potential market Resistance to economic fluctuation Product Life Cycle

Product Marketability Index (P.M.I.)
3. Production Capability Factors :
Equipment Needs Personnel necessary Raw Material need
Each of the above factor is rated on a scale of 1 to 10 with 1 as Very Poor and 10 as Excellent The weights of each of above factors could be decided on what is the product, which is the industry and how are you placed.

Product Marketability Index (P.M.I.) I. Marketability Factor Weights(%) Rating Total Score
1. Rela. to prese. Distr. Channel
2. Compet. Price/quality rela. 3. Effect in selling exi. Prod. 5 10 15 4 7 5 20 70 75
II. Durability Factor

1. Size of Potential market
2. Resistance to eco. Fluctu. 3. Product Life Cycle
Weights(%) Rating Total Score

20 10 20 8 7 9 160 70 180

Product Marketability Index (P.M.I.) (cont.) III. Prod. Capability Factor Weights Rating Total Score
1. Equipment Need
2. Personnel Need 3. Raw Material Need P.M.I = 655 / 1000 = 0.655 5 10 5 2 5 4 10 50 20
If PMI < 0.5 then drop the product, dont market If PMI > 0.5 then the Product can be considered If PMI > 0.6 then it is a preferred product

3.Concept Development : Ideas which pass through screening undergo further development into fully mature Product Concept
Product Idea Product Concept Product Image

3.Concept Development (cont.):
Product Idea :- It is a possible product described in the objective functional terms that the company can see itself offering to the market. Product Concept :- It is the particular subjective concept that the company is trying to build into the product. Product Image :- It is the particular subjective picture that the consumer actually acquires of the product.

If Product Concept and Product Image of your company is mirror image then your product would be the most successful one in market. Consumers never buys a Product Idea, but only the Product Concept which fits with their preferences A product Idea can be turned into a large number of Product Concepts. One needs to know who is the real user. e.g. Infants, Children, Family or Adults.

Check the Core Product Concept against criteria for selection of Product Concepts. Market Research to check the Consumer preference for our core product concept.

4. Business Analysis
Demand Analysis Profitability Analysis Cost Analysis A. Demand Analysis Evaluate the demand in terms of Past, Current and Future trends. For the Entire industry or for a Particular company or Specific Market or Substitutes

A. Demand Analysis (cont.)
To check the durability of demand against economic factors affecting demand for a product.
B. Cost Analysis Past Current
Future
Production Cost :- Capital Equipment Plant Maintenance Cost Marketing Costs :- Distribution Costs, Packaging Costs, Advertising Costs, Field Selling Costs Overheads Costs

C. Profitability Analysis The various tools used to measure the Profitability Analysis in the industry are as under : Break Even Analysis Return On Investment Discounted Cash Flow Pay Back Period

5. Product Development
First stage in developing the product in physical / concrete form Normally involves a large investment as compared to cost in earlier stage. Steps :1. Engineering 2. Consumer Preference Testing 3. Packaging & Branding

5. Product Development (cont.)
Consumer Testing can be done in following methods : Paired Comparison Test : using 2 unmarked containers. Generally a blind test and used for FMCG products like Tea, Soft drink, Food items etc Multiple Choice Test : give several choices to consumers and let consumer choose which one they would prefer. Ranking Procedure : Request customer to rank the various products they have tested and make our decision from there.

Branding : A brand is a name, term, symbol or design or a combination of those which intended to identify goods or services of one seller from those of a competitor Importance of Branding to Customers :
To identify the Products or services Identifies firm behind the product Allows comparison with the competitors Branded Products tend to improve in quality over period

Reasons for Non - Branding
Inability to advertise Inability to maintain quality Company considerations Nature of Product
Characteristics of Good Brand

Brand name is a good reflection of Product benefits e.g. Walkman Name is easy to pronounce, spell & remember e.g. Lux Distinctive brand names e.g. Vicks Can be versatile to include new products e.g. TATA

Importance of Branding
Importance to Manufacturers Facilities advertising & display Reduce Price comparisons Facilitates expansion of Product Mix Helps to increase and control market shares

Packaging - New Dimension
Self Service - Attract buyers when kept on shelves Convenience, Appearance, Prestige Appeal Customers willing to pay a price Innovations in Packaging - Aerosol Spray, Thermocole packaging
Packaging - Evaluations
Production Tests Visual Tests Dealer Acceptance Test Consumer Acceptance Survey

6. Test Marketing : Objectives :1. To improve the knowledge of Potential Product Sales 2. Pre-Test alternate marketing plans
Issues : Number of Test Market Centers - It depends upon the number of alternate marketing plans company has. Selection of Cities - It should be representation of entire market. e.g. Pune, Bangalore etc. Duration of Test Marketing - up to 2 repurchases Information Collection Test Marketing Data Analysis

Without Attributes Plan 1 Plan 2 any mktg plan Product Very Good Average Average Price High Low Low Promotion High High Low Personal Selling Low High High Distribution Low High High

6. Test Marketing (cont.): Problems in Test Marketing :1. Obtaining a Set of Test Market which represents the entire market 2. Problems of translating National media into the local equivalent 3. Close follow up of Test Marketing results by Competition 4. Change of economic factors during post test marketing periods

6. Test Marketing (cont.):
Test Marketing Information Sources:1. Product Sales Data 2. Retail Audits 3. Consumer Panels 4. Buyer Surveys
Test Marketing Data Analysis :-
Trial Repurchase Actions to be Taken Rate Rate High High Commercialise Redesign Product or Advertising High Low Message Increase Advertising & Sales Low High Promotion Low Low Drop the Product

7. Product Launch :
Activities : Outline of tasks to be performed Time Schedule of all activities Budget of resources for plan & schedule
Typical Tasks : Scaling up of Production facilities Inventory build up Training of Sales Personnel Designing of Advertising Campaign Launch Conference Designing of packaging & POP materials

Sr. No. 1 2 3 4 5 Stage Idea Screening Concept Testing Product Development Test Marketing National Launch No. Pass Cost per Total Cost of Ratio Idea (Rs.) (Rs.) Ideas 64 16 8 4 2 1:4 5,000 320,000 1:2 100,000 1,600,000 1 : 2 1,000,000 8,000,000 1 : 2 5,000,000 20,000,000 1 : 2 50,000,000 100,000,000 129,920,000
Cost of finding ONE successful product from 64 Ideas


New Product Development

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New Product Development

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NEW PRODUCT DEVELOPMENT

What is a New Product ?

Three Most Important Questions