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The New Product Development Process

Because introducing new products on a consistent basis is important to the future success of many organizations, marketers in charge of product decisions often follow set procedures for bringing products to market. In the scientific area that may mean the establishment of ongoing laboratory research programs for discovering new products (e.g., medicines) while less scientific companies may pull together resources for product development on a less structured timetable.

In this PowerPoint slide show, we present a process comprising the key elements of new product development. While some companies may not follow a deliberate step-by-step approach, the steps are useful in showing the information input and decision making that must be done in order to successfully develop new products. The process also shows the importance market research plays in developing products. We should note that while this process works for most industries, it is less effective in developing radically new products. The main reason lies in the inability of the target market to provide sufficient feedback on advanced product concepts since they often find it difficult to understand radically different ideas. So while many of these steps are used to research breakthrough ideas, the marketer should exercise caution when interpreting the results.

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New Products are vital

As the cartoon highlights, in this era of rapid changes in our external environment, innovation is imperative. A firm cannot rest on their laurels (and current products). Furthermore, the time it takes firms to bring new products to market has accelerated. Firms that fail to develop new products put themselves at risk as their existing products are vulnerable to changing customer needs and tastes, new technologies, shortened product-life-cycles, and increased competition. In this PowerPoint slideshow, we highlight the 8 step new product development process as described by Kotler and Keller (2016).

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8 Step New-Product Development Process

  • 1. Idea Generation
  • 2. Idea Screening
  • 3. Concept Development and Testing
  • 4. Marketing Strategy Development
  • 5. Business Analysis
  • 6. Product Development
  • 7. Market Testing
  • 8. Commercialization

How Kotler and Keller (2016) describes the New Product Development Process is as an eight stage process in which the new product can be dropped at any time. Other sources will condense some of the steps so you may see others refer to fewer steps. If you look at these closely though, they are not deleting any of the activities, but instead are combining some of them.

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Step 1: Idea Generation

  • At this stage marketers need to ask:
  • Is the idea worth considering?
  • If yes, proceed to idea screening.
  • If no, drop.
  • Ideas for new products can come from:
  • Customers and channel members
  • Scientists and engineers
  • By examining competitors
  • Top management

The first step of new product development requires gathering ideas to be evaluated as potential product options. For many companies idea generation is an ongoing process with contributions from inside and outside the organization. Many market research techniques are used to encourage ideas including: running focus groups with consumers, channel members, and the company’s sales force; encouraging customer comments and suggestions via toll-free telephone numbers and website forms; and gaining insight on competitive product development through secondary data sources. One important research technique used to generate ideas is brainstorming where open-minded, creative thinkers from inside and outside the company gather and share ideas. The dynamic nature of group members floating ideas, where one idea often sparks another idea, can yield a wide range of possible products that can be further pursued.

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Step 2: Idea Screening

  • At this stage marketers need to ask:
  • Is the product idea compatible with company objectives, strategies, and resources?
  • If yes, proceed to Concept Development and Testing.
  • If no, drop.

In Step 2, the ideas generated in Step 1 are critically evaluated by company personnel to isolate the most attractive options. Depending on the number of ideas, screening may be done in rounds with the first round involving company executives judging the feasibility of ideas while successive rounds may utilize more advanced research techniques. As the ideas are whittled down to a few attractive options, rough estimates are made of an idea’s potential in terms of sales, production costs, profit potential, and competitors’ response if the product is introduced. Acceptable ideas move on to the next step.

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Step 3: Concept Development and Testing

  • At this stage marketers need to ask:
  • Can we find a good concept consumers say they would try it?
  • If yes, proceed to Marketing Strategy Development.
  • If no, drop.
  • Example of Concept Development/Testing
  • Regarding a concept of new shower enclosures coated with Teflon, a marketer asks consumers:
  • Would this type of shower enclosure solve a cleaning problem for you?

With a few ideas in hand the marketer now attempts to obtain initial feedback from customers, distributors and its own employees. Generally, focus groups are convened where the ideas are presented to a group, often in the form of concept board presentations (i.e., storyboards) and not in actual working form. For instance, customers may be shown a concept board displaying drawings of a product idea or even an advertisement featuring the product. In some cases focus groups are exposed to a mock-up of the ideas, which is a physical but generally non-functional version of product idea. During focus groups with customers the marketer seeks information that may include: likes and dislike of the concept; level of interest in purchasing the product; frequency of purchase (used to help forecast demand); and price points to determine how much customers are willing to spend to acquire the product.

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Step 4: Marketing Strategy Development

  • At this stage marketers need to ask:
  • Can we find a cost-effective, affordable marketing strategy?
  • If yes, proceed to Business Analysis.
  • If no, drop.

Marketing strategy development involves describing the target market’s size, structure and behavior; the planned product positioning; and the sales, market share, and profit goals sought in the first few years. Then marketers would outline the planned price, distribution strategy, and marketing budget for the first year. Finally, marketers would describe the long-run sales and profit goals and marketing-mix strategy over time.

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Step 5: Business Analysis

  • At this stage marketers need to ask:
  • Will this product meet our profit goal?
  • If yes, proceed to Product Development.
  • If no, drop

At this point in the new product development process the marketer has reduced a potentially large number of ideas down to one or two options. Now the process becomes very dependent on market research as efforts are made to analyze the viability of the product ideas. The key objective at this stage is to obtain useful forecasts of market size (e.g., overall demand), operational costs (e.g., production costs) and financial projections (e.g., sales and profits). Additionally, the organization must determine if the product will fit within the company’s overall mission and strategy. Much effort is directed at both internal research, such as discussions with production and purchasing personnel, and external marketing research, such as customer and distributor surveys, secondary research, and competitor analysis. This stage involves preparing sales, cost, and profit projections in more detail than in the previous stage to determine whether they satisfy company objectives.

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Step 6: Product Development

  • At this stage marketers need to ask:
  • Have we got a technically and commercially sound product?
  • If yes, proceed to Market Testing.
  • If no, drop.
  • Example of Product Development Stage
  • A new-product development department is excited about a new product idea for a suntan lotion that goes on blue, but fades away as the ability of the lotion to protect skin disappears.
  • Projected sales, growth, and profit looks promising.
  • The idea has been passed to R&D to determine if the product could be feasibly made.

Ideas passing through business analysis are now given serious consideration for development. Companies direct their research and development teams to construct an initial design or prototype of the idea. Marketers also begin to construct a marketing plan for the product. Once the prototype is ready the marketer seeks customer input. However, unlike the concept testing stage where customers were only exposed to the idea, in this step the customer gets to experience the real product as well as other aspects of the marketing mix, such as advertising, pricing, and distribution options (e.g., retail store, direct from company, etc.). Favorable customer reaction helps solidify the marketer’s decision to introduce the product and also provides other valuable information such as estimated purchase rates and understanding how the product will be used by the customer. Reaction that is less favorable may suggest the need for adjustments to elements of the marketing mix. Once these are made the marketer may again have the customer test the product. In addition to gaining customer feedback, this step is used to gauge the feasibility of large-scale, cost effective production for manufactured products.

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Step 7: Market Testing

  • At this stage marketers need to ask:
  • Have product sales met expectations?
  • If yes, proceed to Commercialization
  • If no, send the idea back for product development.
  • Examples of Consumer-Goods Market Testing
  • Sales-Wave Research
  • Consumers initially try the product at no cost then are reoffered the product, or a competitors’ product at a slightly reduced price.
  • Simulated Test Marketing – lab store
  • Controlled Test Marketing
  • Panel of stores carry new product for a fee.

Products still surviving are ready to be tested as real products. In some cases the marketer accepts what was learned from concept testing and skips over market testing to launch the idea as a fully marketed product. But other companies may seek more input from a larger group before moving to commercialization. The most common type of market testing makes the product available to a selective small segment of the target market (e.g., one city), which is exposed to the full marketing effort as they would be to any product they could purchase. In some cases, especially with consumer products sold at retail stores, the marketer must work hard to get the product into the test market by convincing distributors to agree to purchase and place the product on their store shelves. In more controlled test markets distributors may be paid a fee if they agree to place the product on their shelves to allow for testing. Another form of market testing found with consumer products is even more controlled with customers recruited to a “laboratory” store where they are given shopping instructions (simulated test marketing). Product interest can then be measured based on customer’s shopping response. Finally, there are several high-tech approaches to market testing including virtual reality and computer simulations. With virtual reality testing customers are exposed to a computer-projected environment, such as a store, and are asked to locate and select products. With computer simulations customers may not be directly involved at all. Instead certain variables are entered into a sophisticated computer program and estimates of a target market’s response are calculated.

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Step 8: Commercialization

  • At this stage marketers need to ask:
  • Are product sales meeting expectations?
  • If yes, make future plans.
  • If no, modify the product or marketing program or drop.
  • This is the most expensive step of the new product development process.

If market testing displays promising results the product is ready to be introduced to a wider market. Some firms introduce or roll-out the product in waves with parts of the market receiving the product on different schedules. This allows the company to ramp up production in a more controlled way and to fine tune the marketing mix as the product is distributed to new areas.

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Sources

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