New_Product_Development_Process, A_seminar_by_Mohan_Kumar_G_Lecturer

1. A Seminar by
Mohan Kumar G.
1st Sem., M.Tech. (M.E.M.),
S.J.C.E., Mysore.
05-01-2016

2. Plan of Presentation
 Introduction to New Product Development
 Why? When? & How?
 8 Stages in N.P.D.
 N.P.D. Decision Process
 Stages from Idea to real Product
 What Next?
 Consumer Adoption Process
 References
2

3. Introduction to ‘New Product
Development’ Process
‘New Product Development’ (N.P.D.) is the
development of original products, product
improvements, product modifications, and new
brands through the firm’s own R & D efforts.
Why New Product Development (N.P.D.) ?
To maintain and build sales through replacement
products
To shape the company’s future
To fulfil the ever changing customer preferences
3

4. When N.P.D.?
Once a company has
 Segmented market carefully.
 Chosen its target customer group.
 Identified their needs / preferences / requirements.
 Determined the appropriate mix of 4P’s for that
market.
Then, it is ready to develop / launch suitable new
product.
Marketing actively interacts with other departments
(such as R & D) for product development.
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5. How N.P.D.?
New products range from new-to-the-world products
that create an entirely new market to minor
improvements or revisions of existing products. New
Products can be added through:
1. Acquisition : Company acquisition, Patent
acquisition, License / Franchisee
2. New Product Development : By way of In-house
R&D or Outsourced.
3. New-to-the-World Product: Creates essentially new
market. Example: Sony walkman, Apple I-Pod.
4. New Product Lines: New product that allows a
company to enter an established market for first
time. Example: HUL entering Toothpaste segment
with Close-Up.
5

6. 5. Addition to Existing Product Lines : New product
that supplement a company’s established product
lines (Pack sizes, Flavours). Example: HUL adding
Pepsodent to its toothpaste segment.
6. Improvements/Revisions of Existing Product
Lines : New product gives increased performance &
replaces existing products. Example: Hero Honda,
from Splendor to Splendor +.
7. Repositioning: Existing products targeted to new
market / market segment. Example: Bajaj Caliber –
Caliber Chrome – Hoodibaba.
8. Cost Reduction: New product that provide similar
performance at lower cost. Example: Cadbury’s Five
Star – from ₹ 5 pack to ₹ 2 pack by using flavours
instead of pure cocoa.
6

7. 8 Stages in N.P.D.
To minimize risk of new product failure, new product
development follows a structured process.
1. Idea Generation.
2. Idea Screening.
3. Concept Development & Testing.
4. Marketing Strategy Development.
5. Business Analysis.
6. Product Development.
7. Market Testing.
8. Commercialization.
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8. N.P.D. Decision Process
8

9. Stage 1: Idea Generation
Searching for product ideas that meet company objectives.
1. Internal idea sources: R & D
2. External idea sources: Customers, competitors,
distributors, suppliers
 R & D / Employees: Employees could be encouraged to
give new product ideas & rewarded suitably.
 Senior/Top Management: Product innovators could be
senior management.
 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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10.  Competition: Through study/analysis of competitive
products.
 Marketing Channel & Their Staff: Dealers,
distributors, employees of distributors & dealers.
 Crowd Sourcing: Many companies are now
developing crowd sourcing or open-innovation new-
product idea programs.
10

11. Inventor Sir James Dyson is willing to endure many failed
prototypes as long as he comes up with a winner, like the
Air Multiplier bladeless table fan. 11

12. Idea Generation Techniques :
Ideas may be generated using creative techniques as
Attribute Listing:
• List out major attributes 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.
Example: Fax + Telephone + Table Display.
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13. Morphological Analysis:
• Identify structural dimension of a problem & examine
relationships among them.
• Example: Moped: Motorised/Stronger/Cycle.
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.
• Example: Dettol used to burn, hence came Savlon.
13

14. Brainstorming :
This is a Technique developed by Alex Osborn, which
involves around 6-10 people discussing a specific
problem. They are 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.
Around 75-80 new ideas are required for a company to
develop a new product. 14

15. Forces fighting new Ideas. 15

16. Stage 2: Idea Screening
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 committee.
Surviving promising ideas are screened through a
process.
Objective of screening is to drop poor ideas at the
earliest. Ideas are screened using Product Idea Rating
process.
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17. Product Idea Rating Process:
New product ideas are described in details like
Product idea.
Who is target market?
Who is/are competitor?
Estimate of:
 Market size.
 Product price.
 Development time/cost.
 Manufacturing cost.
 Rate of returns.
17

18. Ideas are evaluated against a set of criteria. Base
criteria could be :
Does product meet a need?
Would it offer superior Value / Price performance?
Can it be distinctly positioned / advertised.
Fit with company’s objective / strategies & resources
seen.
Company's objective / strategies fitment include :
Profit objective.
Sales objective.
Sales growth objectives.
Customer goodwill objectives.
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19. Fit with company resources include :
Does company have required capital or can it acquire it?
Does company have / acquire required
production/marketing know how?
Does company have / acquire required distribution
ability?
If answer to any of the above question is nominal /
insignificant / No, then the idea is rejected.
Surviving ideas are then rated using Weighted Index
Method.
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20. Weighted Index Method :
Weighted Index Method is used to give rational rating for
the screened ideas. Weighted Index method tries to
quantify the success probability of an idea. Ex : Dove Soap
Hence, Only those product / ideas with a score of 0.61 or
greater than 0.61 are taken ahead to the next stage.
20

21. Stage 3: Concept Development and Testing
Attractive ideas should be refined into listable 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.
21

22. Concept Development
Let us illustrate concept development with the
following situation: A food-processing company gets
an idea of producing a food powder which is nutritious
and tasty.
Here, the Product Idea of "producing a food powder
which is both nutritious and tasty" is converted into
concept. To convert to concept answer the following
questions:
 Who will use this product?
Children / Young working Professionals / Elderly.
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23.  What primary benefit should product provide?
Taste / Nutrition / Refreshment / Energy.
 When will consumers consume product?
Breakfast / Snacks / Dinner.
Based on the answers from the above, concepts could be
C1 : Instant breakfast for working professionals who
want quick/convenient/nutritious breakfast.
C2 : Tasty snack for children.
C3 : Lunch/dinner item for elderly customer staying on
their own.
23

24. Each concept represent a category concept, i.e., each
concept positions the idea within a category.
Category defines the products competition. For ex:
Competition for C1: Paranthas/ Idlis/ Toast/
Cornflakes.
Competition for C2: Maggi noodles/ Grilled
Sandwiches/ Indian Snacks/ Potato Chips.
Competition for C3: Normal food items/ Dial up food
Next task is to determine where each concept would
stand in relation to its concept. For this, we can use
Product Positioning Map and Brand Positioning Map.
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25. Product Positioning Map
TASTE
PRICE
25

26. Brand Positioning Map
Finally, there may be 2 to 3 ideas resulting in 6 to 7
concepts.
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27. Concept Testing
Concept Testing means presenting the product concept to
target consumers, physically or symbolically, and getting
their reactions.
Concepts are presented to target consumers in verbal /
visual form. After receiving this information, researchers
measure product dimensions by having consumers
respond to questions like these:
1. Communicability and believability—“Are the benefits
clear to you and believable?” If the scores are low, the
concept must be refined or revised.
2. Need level—“Do you see this product solving a problem
or filling a need for you?” The stronger the need, the
higher the expected consumer interest.
27

28. 3. Gap level—“Do other products currently meet this need
and satisfy you?” The greater the gap, the higher the
expected consumer interest.
4. Perceived value—“Is the price reasonable in
relationship to value?” The higher the perceived value,
the higher is expected consumer interest.
5. Purchase intention—“Would you (definitely, probably,
probably not, definitely not) buy the product?”
Consumers who answered the first three questions
positively should answer “Definitely” here.
6. User targets, purchase occasions, purchasing
frequency—“Who would use this product, when, and
how often?”
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29. Stage 4: Marketing Strategy Development
After concept testing, for concepts that qualify a
preliminary marketing strategy is created to introduce
new product into market.
The marketing strategy statement consists of three
parts.
Part ‘A’:
Target market size/structure/behaviour.
Planned product positioning.
Sales/Market share/Profit objective in 2/3 years.
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30. Part ‘B’:
Product’s price planned.
Product form/shape/size of packs.
Distribution strategy.
Marketing budget for first year.
Part ‘C’:
Long term sales/profit goals.
Marketing mix strategy over time.
After product concept / marketing strategy is
developed, company can evaluate proposal’s business
attractiveness in the next stages.
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31. Stage 5: Business Analysis
After management develops the product concept and
marketing strategy, the company will not evaluate the
proposal’s business attractiveness. This is known as
‘Business Analysis’.
For this, Management needs to prepare "Sales, Costs
and Profits" projections for next 5 years period, to
determine whether they satisfy company's objectives.
If indeed they match with the company's objectives,
then the new product concept moves to product
development stage.
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32. Estimating Total Sales: Total estimated sales is the
sum of estimated first-time sales, replacement sales, and
repeat sales. Sales-estimation methods varies with the
product type.
If the product is,
a) One Time Purchasing Product
 First time sale is adequate.
 Ex:- House, Honeymoon.
b) Infrequently Purchasing Product
 First time sales + Replacement sales need to be
calculated.
 Ex:- Automobiles, Toaster.
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33. c) Frequently Purchasing Product
 First time sales + Repeat sales need to be estimated.
 Ex:- Soap, Toothpaste.
Each sales category is estimated using market research
techniques with demand forecasting methods.
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34. Estimating Costs And Profits: Costs are estimated for
the next 5 years, jointly by the R&D, manufacturing,
marketing, and finance departments.
Costs elements include:
i. Cost of goods sold.
ii. Development costs.
iii. Marketing costs.
iv. Allocated overhead.
v. Supplementary contribution.
Supplementary contribution is made up of:
i) Drag Along Income
ii) Cannibalized Income
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35. i) 'Drag Along Income': It is an additional income on
own company products due to new product. Example:
Maruti launching Maruti finance, which resulted in
increase in sales of Maruti 800 cars.
ii) 'Cannibalized Income': It is the reduction in income
on own company products due to new product.
35

36. The Costs are calculated using concepts of discounted cash
flow (DCF) / Net Present Value of Money.
Based on the above, following data is analysed.
a) Maximum Investment Exposure:
 Highest loss that a project can create.
b) Pay Back Period:
 Time taken by company to uncover all investment in new
product.
c) Break Even Point:
 Number of units that a company have to sell of a new
product to break even.
 Give price (cost structure).
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37. d) Risk Analysis:
 Uncertainties in projection analysis.
 To come up with 3 estimates.
• Optimistic.
• Pessimistic.
• Realistic (Most Likely).
Based on the above calculations, profit/profitability is
determined/projected for next 5 years.
If a product concept passes this kind of business analysis
test, it is taken forward to the product development
stage.
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38. Stage 6: Product Development
Up to now, the product has existed only as a word
description, a drawing, or a prototype.
The next step represents a jump in investment that
dwarfs the costs incurred so far. The company will now
determine whether the product idea can translate into
a technically and commercially feasible product.
In product development, concept is provided in detail
to R & D to make physical product.
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39. Stages in product development are:
1. Prototype development.
2. Prototype Lab Testing.
 Test for Functionality.
 Test for Psychological aspects such as colour.
 Test for Looks/Styles.
 Test for Price Fitment.
3. Functional Testing.
 Test for Safety/Effectiveness.
4. Consumer Testing.
 Test samples with consumers in lab.
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40. Physical Prototypes : The goal of the R&D department
is to find a prototype that embodies the key attributes in
the product-concept statement, performs safely under
normal use and conditions, and can be produced within
budgeted manufacturing costs.
Prototype Lab Testing: R&D must also decide how
consumers will react to different colours, sizes, and
weights. Historically, a yellow mouthwash supported an
“antiseptic” claim (Listerine), red a “refreshing” claim
(Lavoris), and green or blue a “cool” claim (Scope).
Alpha testing tests the product within the firm to see how it
performs in different applications.
40

41. After refining the prototype further, the company moves
to beta testing with customers.
Consumer Testing : Consumer testing can bring
consumers into a laboratory or give them samples to use
at home.
Procter & Gamble has on-site labs such as a diaper-
testing centre where dozens of mothers bring their
babies to be studied. In-home placement tests are
common for products from ice cream flavours to new
appliances.
Once management is satisfied with new product,
functional / psychological performance, product is ready
for market.
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42. Stage 7: Market Testing
Now the product is ready to be branded with a name,
logo, and packaging and go into a preliminary market
testing.
Objectives of market testing could be:
a) Test product in actual market setting.
b) Learn about actual market size.
c) Learn about how consumers/dealers handle, use,
repurchase new product.
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43. The Extent of market testing depends on:
a) Investment Cost & Risk: Higher investment
cost/risk needs, market testing more thoroughly.
b) Time Pressure: May reduce testing time.
c) Newness of Product: More newness of product
leads to more testing.
Methods for market testing:
1. Sales wave research.
2. Simulated test marketing.
3. Controlled testing marketing.
4. Test markets.
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44. 1. Sales wave research
The brief procedure to conduct the 'Sales wave
research' testing is as follows:
i. Consumers are offered free samples.
ii. Same consumers are then offered product at prices
slightly lower than actual prices.
iii. This is repeated with product at small discounts 3 to
5 times.
iv. 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 discounted price for a week.
44

45. 2. Simulated Test Marketing
i. Certain numbers of qualified shoppers are
researched on familiarity/preference in specific
product category.
ii. Consumers invited to see advertisements. These
advertisements are for mixed products.
iii. Consumers rewarded for their time with shopping
coupons/money for shopping & invited to a store
where they can buy anything.
iv. Consumers who buy new product or competitor
product is noted. This helps to understand trial
rates.
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46. v. Consumers who don’t but new product are given free
samples.
vi. 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 did follow up of them
and asked for their review.
46

47. 3. Controlled Test Marketing
i. Panel of stores identified who would carry new
product for a fee (normally done by market research)
ii. At the store,
 Shelf Facing.
 Display.
 Point of Purchase promotions are used.
iii. May include local advertising.
iv. Retail sales monitored over specific period of time.
47

48. 4. Test Markets
Test Markets is the best way to test a product before
commercialization. Normally all automobile
companies do this.
i. Few cities identified to sell product.
ii. All marketing mix elements are as per normal
marketing program.
iii. Typically, 3-9 cities selected All- India.
iv. Cities represent A/B/C category cities.
v. Duration of test should permit product repurchase if
applicable.
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49. vi. Test information monitored through:
 Stock off take from ware house/godowns.
 Retail stores audit.
 Consumers panel surveys.
 Buyer research.
vii. Effectiveness of all marketing mix elements tested out.
viii. If results are negative, new product may need to be
redesigned / dropped.
Example: Tata Indica to Indica V2.
Not all companies undertake market testing. The main
issues are: How much market testing should be done, and
what kind(s)?
The amount is influenced by the investment cost and risk
on the one hand, and the time pressure and research cost
on the other.
49

50. Stage 8: Commercialization
After successful market testing, new product comes to
commercialisation stage. During this stage,
production of new product on a commercial basis is
rapidly built up. For new food products, marketing
expenditures typically represent 57 percent of first-
year sales.
For formally launching a New Product, the following
decisions to be taken:
A) When to launch (Timing)
B) Where to launch (Geographic Strategy)
C) To Whom (Target-Market Prospects)
D) How to launch (Introductory Market Strategy)
50

51. A) When to launch (Timing)
i) First entry : for first mover advantage
• Example: Nokia, Intel.
ii) Parallel entry : to coincide with competitor
• Example: NIIT and APTECH, Flipkart's Big
Billion Day 2015 v/s Amazon's Great Indian Festive
Sale
iii) Late entry : to learn from competitor experience.
Used only by market leaders.
• Example: Colgate waited for Meswak to sell its
product in market. After seeing the response, colgate
came up with Colgate Herbal.
51

52. B) Where to launch (Geographic Strategy)
All India
Regional roll out.
State by state.
Urban/Rural (city categorization).
C) To Whom (Target-Market Prospects)
The company must target initial distribution and
promotion to the best prospect groups, to aim at:
• Early adopters.
• Heavy users.
• Opinion leaders.
• Reachable at low costs.
52

53. D) How to Launch (Introductory Market Strategy)
 Decisions encapsulated initial marketing strategy.
 To coordinate the many tasks in launching a new
product, management can use network-planning
techniques such as critical path scheduling (CPS)
 Introductory offers may be involved.
53

54. What Next???
Now we have come all the way from initial stage of Idea
Generation to real Product in Market. Now What?
For early market penetration of new product,
marketers need to understand the consumer
adaptation process.
Adoption is an individual’s decision to become a
regular user of a product and is followed by the
consumer-loyalty process. i.e., How do potential
customers learn about new product & try them/adopt
them/reject them?
54

55. Consumer Adoption Process
The consumer-adoption process is the mental steps
through which an individual passes from first hearing
about an innovation to final adoption. They are:
1. Awareness—The consumer becomes aware of the
innovation but lacks information about it.
2. Interest—The consumer is stimulated to seek information
about the innovation.
3. Evaluation—The consumer considers whether to try the
innovation.
4. Trial—The consumer tries the innovation to improve his
or her estimate of its value.
5. Adoption—The consumer decides to make full and regular
use of the innovation.
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56. References
1. www.google.com
2. www.wikipedia.org
3. "Marketing Management“ text book, 14th Edition, by
Philip Kotler & Kevin Lane Keller
4. "Principles of Marketing", text book, 15th Edition, by
Philip Kotler & Gary Armstrong
5. "Marketing Management", text book, 4th Edition, by
V.S. Ramaswamy & S. Namakumari
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57. Thank You
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