New-Product Development process
Idea Generation (Most Important)
New-product development starts with idea generation – the systematic search for new-product ideas. A company typically has to generate many ideas in order to find a few good ones.
The search of new-product ideas should be systematic rather than haphazard. Otherwise, although the company may find many ideas, most will not be good ones for its type of business. Top management can avoid this error by carefully defining its new-product development strategy. Major sources of new-product ideas include internal sources, customers, competitors, distributors and suppliers, and others.
The purpose of idea generation is to create a large number of ideas. The purpose of the succeeding stages in to reduce that number. The first idea-reducing stage is idea screening, which helps spot good ideas and drop poor ones as soon as possible. Product-development costs rise greatly in later stages, so the company wants to go ahead only with the product ideas that are most likely to turn into profitable products.
Concept Development and Testing
An attractive idea must be developed into a product concept. It is important to distinguish between a product idea, a product concept, and a product image. A product idea is an idea for a possible product that the company can see itself offering to the market. A product concept is a detailed version of the idea stated in meaningful consumer terms. A product image is the way consumers perceive an actual or potential product.
For some concept tests, a word or picture description might be sufficient. However, a more concrete and physical presentation of the concept will increase the reliability of the concept test. Today, some marketers are finding innovative ways to make product concepts more real to consumer subjects. For example, some are using virtual reality to test product concepts. Virtual reality programs use computers and sensory devices (such as gloves or goggles) to simulate reality. For example, a designer of kitchen cabinets can use a virtual reality program to help a customer “see” how his or her kitchen would look and work if remodeled with the company’s products. Although virtual reality is still in its infancy, its applications are increasing daily.
Marketing Strategy Development
The marketing strategy statement consists of three parts. The first part describes the target market; the planned product positioning; and the sales, market share, and profit goals for the first few years.
The second part of the marketing strategy statement outlines the product’s planned price, distribution, and marketing budget for the first year:
The third part of the marketing strategy statement describes the planned long run sales, profit goals, and marketing mix strategy:
Business analysis involves a review of the sales, costs, and profit projections for a new product to find out whether they satisfy the company’s objectives. If they do, the product can move to the product-development stage.
If the product concept passes the business test, it moves into product development. Here, R&D or engineering develops the product concept into a physical product. The product-development step, however, now calls for a large jump in investment. It will show whether the product idea can be turned into a workable product.
The R&D department will develop and test one or more physical versions of the product concept. R&D hopes to design a prototype that will satisfy and excite consumers and that can be produced quickly and at budgeted costs.
If the product passes functional and consumer tests, the next step is test marketing, the stage at which the product and marketing program are introduced into more realistic market settings. Test marketing gives the marketer experience with marketing the product before going to the great expense of full introduction. It lets the company test the product and its entire marketing program – positioning strategy, advertising, distribution, pricing, branding and packaging, and budget levels.
Standard Test Markets
Using standard test markets, the company finds a small number of representative test cities, conducts a full marketing campaign in these cities, and uses store audits, consumer and distributor surveys, and other measures to gauge product performance. The results are used to forecast national sales and profits, discover potential product problems, and fine-tune the marketing program.
Controlled Test Markets
Several research firms keep controlled panels of stores that have agreed to carry new products for a fee.
Controlled test markets usually cost less than standard test markets and take less time (six months to a year). However, some companies are concerned that the limited number of small cities and panel consumers used by the research services may not be representative of their products’ markets or target consumers.
Simulated Test Markets
Companies can also test new products in a simulated shopping environment. The company or research firm shows ads and promotions for a variety of products, including the new product being tested, to a sample of consumers. It gives consumers a small amount of money and invites them to a real or laboratory store where they may keep the money or use it to buy items. The researchers note how many consumers buy the new product and competing brands. This simulation provides a measure of trial and the commercial’s effectiveness against competing commercials.
Test marketing gives management the information needed to make a final decision about whether to launch the new product. If the company goes ahead with commercialization – introducing the new product into the market.