New Product Development
New Product Development
New Product Development
Internal idea sources: the company finds new ideas internally. That means R&D,
but also contributions from employees.
External idea sources: the company finds new ideas externally. This refers to all
kinds of external sources, e.g. distributors and suppliers, but also competitors.
The most important external source are customers, because the new product
development process should focus on creating customer value.
Concept development
Imagine a car manufacturer that has developed an all-electric car. The idea has
passed the idea screening and must now be developed into a concept. The
marketer’s task is to develop this new product into alternative product concepts.
Then, the company can find out how attractive each concept is to customers and
choose the best one. Possible product concepts for this electric car could be:
Concept testing
New product concepts, such as those given above, need to be tested with groups
of target consumers. The concepts can be presented to consumers either
symbolically or physically. The question is always: does the particular concept
have strong consumer appeal? For some concept tests, a word or picture
description might be sufficient. However, to increase the reliability of the test, a
more concrete and physical presentation of the product concept may be needed.
After exposing the concept to the group of target consumers, they will be asked
to answer questions in order to find out the consumer appeal and customer value
of each concept.
A description of the target market, the planned value proposition, and the sales,
market share and profit goals for the first few years
An outline of the product’s planned price, distribution and marketing budget for
the first year
The planned long-term sales, profit goals and the marketing mix strategy
In order to estimate sales, the company could look at the sales history of similar
products and conduct market surveys. Then, it should be able to estimate
minimum and maximum sales to assess the range of risk. When the sales
forecast is prepared, the firm can estimate the expected costs and profits for a
product, including marketing, R&D, operations etc. All the sales and costs figures
together can eventually be used to analyse the new product’s financial
attractiveness.
The R&D department will develop and test one or more physical versions of the
product concept. Developing a successful prototype, however, can take days,
weeks, months or even years, depending on the product and prototype methods.
Also, products often undergo tests to make sure they perform safely and
effectively. This can be done by the firm itself or outsourced.
8. Commercialisation
Test marketing has given management the information needed to make the final
decision: launch or do not launch the new product. The final stage in the new
product development process is commercialisation. Commercialisation means
nothing else than introducing a new product into the market. At this point, the
highest costs are incurred: the company may need to build or rent a
manufacturing facility. Large amounts may be spent on advertising, sales
promotion and other marketing efforts in the first year.
Introduction timing. For instance, if the economy is down, it might be wise to wait
until the following year to launch the product. However, if competitors are ready
to introduce their own products, the company should push to introduce the new
product sooner.
Introduction place. Where to launch the new product? Should it be launched in a
single location, a region, the national market, or the international market?
Normally, companies don’t have the confidence, capital and capacity to launch
new products into full national or international distribution from the start. Instead,
they usually develop a planned market rollout over time.
In all of these steps of the new product development process, the most important
focus is on creating superior customer value. Only then, the product can become
a success in the market. Only very few products actually get the chance to
become a success. The risks and costs are simply too high to allow every
product to pass every stage of the new product development process.