Stages of New Product Development

Product development does not just happen, it has to be planned. Dynamic firms plan their innovations for five to ten years in advance. They have a definite idea of exactly what product developments they want and what new product they will need to cater to the demands of their customers.

Experience has proved that those firms which are most successful in developing marketable products are the ones which have formally recognised the function of planning product development.

The stages of new product development are as follows:- 1. Idea Generation 2. Idea Screening 3. Concept Development and Testing 4. Business Analysis 5. Product Development and Marketing Strategy 6. Test Marketing 7. Commercialization 8. Commercial Feasibility.

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Stages of New Product Development: Idea Generation, Idea Screening, Concept Development, Test Marketing and More…

New Product Development Stages – Generation of New Product Ideas, Detailed Study of New Product Ideas, Product Development and Many More…

Product development does not just happen, it has to be planned. Dynamic firms plan their innovations for five to ten years in advance. They have a definite idea of exactly what product developments they want and what new product they will need to cater to the demands of their customers. Experience has proved that those firms which are most successful in developing marketable products are the ones which have formally recognised the function of planning product development.

The planning and development of new products involves the following phases:

Stage # 1. Generation of New Product Ideas:

The product planners must visualise new product ideas. Ideas may be contributed by professional designers, scientists, customers, sales force, dealers, competitors, etc. Ideas may also come from brain­storming sessions of management. It may be observed that the source of ideas is not as important as the firm’s system for stimulating new ideas and then acknowledging them and reviewing them promptly.

Stage # 2. Detailed Study of New Product Ideas:

The ideas generated at the first sage are examined to eliminate those which have no potential or which are no capable of making any significant contribution to the marketing objectives. The ideas should be screened properly because any idea passing this stage would cost the firm both money and time.

Sources of New Product Ideas:

Ideas for new products can come from any sources eg.:

(a) From research and development personnel;

(b) From marketing personnel;

(c) From associated companies in other countries;

(d) From customers;

(e) From outside technological or scientific discoveries;

(f) From employee suggestions;

(g) From brainstorming sessions of executives;

(h) From competitors;

(i) From knowledge or government needs;

(j) From individual executives;

(k) From a study of unused patents.

Stage # 3. Commercial Feasibility:

The product planners evaluate the ‘extent and importance of identified markets’ needs and appraise the extent to which present products fulfill them. They evaluate new ideas in the light of the company’s capability with respect to scientific knowledge, technological skills and financial resources. Only the most feasible and profitable ideas are picked up for further detailed investigation. Marketing research is critical during this phase since it can reveal the changing behaviour of buyers, strategies of competitors and availability of new technological ideas.

Stage # 4. Product Development:

This phase relates to actual development of the new product based on the product data evaluation system. A programme is made for the proper development of the product. First of all precise description of the features of the proposed product should be studied. After this, selected consumers may be called upon to offer their comments on the proposed product. Decisions regarding branding, packaging, labelling, etc., are also made during this phase. When the product takes a tangible form, consumer test can be done. Consumer testing will provide the ground for final selection of the product for mass production and distribution.

Stage # 5. Testing Market:

Test marketing is necessary to find out viability of marketing programme for large- scale distribution. Before the product is widely distributed, it is tried in a selected market. Customers’ relation may be observed and product may be improved further, if necessary.

Stage # 6. Commercialisation:

After the test marketing gives green signal for the introduction of the product in the national market, the firm may proceed to finalise all features of the product. The marketing department will launch a full-fledged production promotion campaign for mass distribution. Distribution channels will be chosen to make available the product wherever it is demanded. After this, the life cycle of the product will start.

Each of the above stages becomes progressively more expensive in terms of money and scarce manpower. But once the produce idea passes through these stages and careful analysis has been done at each stage, the chances of product failure will be reduced considerably.

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Standard Stages of New Product Development – Idea Generation, Idea Screening, Concept Development and Screening, Business Analysis, Test Marketing and Few Others

A product goes through a journey, i.e., from inception to consumption. This process has seven phases, from idea generation to commercialization. New product work is a life line for those companies whose market for existing product is saturated. Product life cycle in which we understood that eventually every product will reach decline stages but companies have to be in market. So, new product development is not much of an option in today’s competitive market.

The standard seven stages that a new product development goes through are as follows:

1. Idea Generation:

New product ideas can come from many sources, such as-

a. Research and development department

b. Employees, sales force, top management

c. Competitors

d. Customers

e. Distributors, dealers, supplies and others.

Colgate being the household name in India was once suffering with their sales figure. Senior executives assembled and were brainstorming on different ways to increase the sales. Some suggested that Colgate hire celebrities to promote the brand, some other suggested that the company offer incentives to distributors and retailers. In the same meeting a junior employee suggested to just increase the mouth of the tooth paste.

His idea was powerful enough to increase the sales without investing heavily. This became the reason of increase in sales and market share for Colgate. New product ideas can many times emerge out of the shortcomings of the existing products. Sometimes, new ideas emerge out of unintended mistakes or accidents.

2. Idea Screening:

If idea generation is about brainstorming and coming up with various options then idea screening is about seeing feasibility in those ideas. While screening ideas, many aspects have to be considered. Some of them may not be culturally acceptable, while, some may not have commercial viability. Hence, all the desired factors must be listed in their order of preference and then screened accordingly.

In some situations, product ideas which are not workable in certain markets may have potential in other markets. While, in certain other cases, the same idea may need modification without harming the basic concept to make it workable.

3. Concept Development and Testing:

In this stage, the thought process of few people is tested with prospective customers. There may be an idea that the company would have thought as a feasible idea from all aspect however, the idea needs to be taken to the target audience. At this stage idea is being screened and must be strengthened to further develop a mature product.

The following questions must be answered from the target audiences’ point of view:

a. What do they think about the idea?

b. Will it be practical and feasible?

c. Will it offer the benefit that the organization hopes to obtain?

d. Have they overlooked certain issues?

Note that the idea and concept are taken to the target audience to research upon them, further. It is not a working prototype at this stage. At this stage, all ideas that have passed screening will be subjected to concept development and testing.

4. Business Analysis:

After screening, the company has to see that the product is financially viable in the long run. The business analysis stage looks deeply into the cash flows that the product could generate, what the cost will be, how much market share the product may achieve and the expected life of the product. To ascertain all this, at this stage, marketing research is necessary, allowing the company to define benefit analysis and cost and profit analysis.

In the process many forecasts need to be made. For example, demand analysis. This is useful to project future sales, estimate subsequent developments in the fields related to the proposed product, to know when competitors would enter, etc. Similarly, cost analysis includes in- detail cost ascertainment by describing the different types of costs that will be involved in pursuing the proposed product. This is a difficult task and only estimates can be provided.

Profitability analysis has to be done in terms of break-even analysis, rate of return analysis, discounted cash flow analysis, etc.

If these questions are answered favorably, then the company can proceed with in-detail product development.

5. Product Development and Marketing Strategy:

This is the vital stage as the conception of a product will see the day light. In this stage, a prototype is produced. The prototype will run through all the desired tests. Many visual images are created and the one of them is finalized for consumer testing and packaging requirements. Consumer testing helps in the final selection of the best model for mass production.

If an idea reaches the product development phase from this phase onwards marketing strategies should also be considered such as how to promote the product, how to segment the market, what will be the pricing etc.

It is essential to have the complete concept developed as product development is considered incomplete without a complimentary marketing strategy.

6. Test Marketing:

The concept of “Test Marketing” means testing the new product within a specific geographical area. The objective of this process is that when the product is launched within a particular region, the marketing mix strategy can be monitored and analyzed and, if need be, modified prior to the national launch.

This is an important step and there are products that are rejected even at this stage, if the market acceptance is not achieved. This is determined by conducting survey about the product by collecting responses from consumers who try the product for the first time.

Many times, this helps to clearly discover finer aspects that have been overlooked until this stage by the company. The price decided should be perceived as value for money by the prospective consumer. Otherwise, it can lead to costly failures.

7. Commercialization:

If the test marketing stage has been successful, then the product will go for actual market launch. This involves a huge expenditure, amounting to 60-75% of the sales revenue. There are certain factors that need to be taken into consideration’ before a product is launched. These include when and how the product will be launched, where the product will be launched, will there be a national roll out or will it be region by region? Some companies choose to introduce the product in selected markets and later go in for national launch.

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Top 6 Logical Stages involved in the Process of New Product Development

Basically, there are six logical stages or steps in the process of “New Product Development”.

They are:

1. Idea Generation,

2. Screening of New Products Ideas,

3. Business Analysis,

4. Product Development,

5. Test Marketing,

6. Commercialisation.

Stage # 1. Idea Generation:

The first step in New Product development is the generation of new ideas. For it is new ideas that give us new products. New ideas generally stem from needs. It is said that necessity is the mother of invention. First a partially fulfilled or unfulfilled need is located and then it is matched with an available technology. This is how ideas are generated. This need may be an apparent or latent one, new or old one currently partly fulfilled or unfilled. Thus when an available technology is recognised to satisfy a particular need, a product idea is generated.

Though the basic input for the development of new products is ideas, all ideas are not converted into products. A large number of ideas are generated and then the best ones are chosen to be developed into new products. The larger the number of ideas the better it is as the more the number of ideas the more better the best ones will be.

The Sources of New Ideas:

The sources of generation of new ideas can basically be divided into two:

(a) Internal Sources.

(b) External Sources.

(a) Internal Sources:

These are in-company sources of product idea generation.

They are as follows:

i. Basic Research – Almost all companies engage in some kind of basic or fundamental research. Research and development are often divided between the development of product ideas that have already passed the initial screening stages and research into areas of technology that offer the promise of the development of a totally new product.

ii. Manufacturing – People who manufacture products often have ideas about the modifications and improvements that can be made. It is their constant involvement with and handling of the product that enables them to come up with various ideas for the improvements that can be made in the product.

iii. Sales People – Sales people are the ones that are in constant contact with the customers. They are the ones who know which needs of the customers are being satisfied and which are not being satisfied. Thus, they are definitely in a position to give ideas regarding new products or modifications in existing products.

iv. Top Management – Top executives play an important role in the generation of new ideas. Their ideas ought to be good as they know about the companies’ needs and resources. Further they are keen observers of the technological trends and competitors actions. If nothing else they should set an example. If they expect the rest of the organisation to generate new product ideas they should be doing so as well.

(b) External Sources:

i. Secondary Sources of Information – Ideas for new products can be procured from various business publications that publish lists of new products. Some business magazines devote an entire section to news related to new products. Clues about new product ventures can also be got from the list of available licences.

ii. Competitors – Information about new products can be got by keeping tabs on the new product activities of the competitors. Of course it is not at all an easy job to get information about the new product activity of any organisation. However good inferences can be drawn on the basis of indirect evidence gained from salesmen, suppliers, and even customers.

iii. Customers – Customers are a very good source of new ideas. When customers give information regarding problems in existing products, it usually leads to product improvements. Some educated customers write directly to the manufacturers with suggestions for product changes. Letters of complaints and complements are also the sources for new product ideas.

iv. Inventors – Certain people with a scientific bend of mind are always creating new products. Such inventors approach companies with new ideas for products. To make sure that the ideas received from this source are appropriately screened, and not lost due to early rejection, some companies identify such inventors and support them.

Stage # 2. Screening of New Product Ideas:

The first stage in new product development aims at increasing the number of product ideas. However every subsequent stage aims at reducing the number of ideas that were got in the first stage. Screening is the first stage in which the ideas are short listed. In fact it is the stage in which a majority of the ideas got in the first stage are eliminated.

This is a very crucial stage for if a poor idea is allowed to pass through this stage it will lead to a lot of wasted efforts in terms of time and money till this poor idea is abandoned at a later stage. Hence this process of screening has to be carried out very carefully so as to ensure that only the worthy ideas are selected and all the non-viable ideas are dropped at this stage itself.

Stage # 3. Business Analysis:

This is the third stage in the process of new product development. It involves an in-depth study of the “Economic” feasibility of the idea. An attempt is made to predict the economic consequences of the development, manufacture and marketing of this product on the company as a whole.

In this stage an analysis is done in order to estimate the profitability of the development of the product idea. It is a rigorous and expensive activity that is carried out in order to drop out those ideas that do not conform to the conditions of business analysis.

Business analysis covers projections of future demand, sales, costs, investments and revenues. This is done so as to see whether the profit predictions of the product fit into the overall objectives of the firm or not. If it fits, then further development of the product idea is undertaken. If it does not fit then the idea is abandoned at this stage. The basic emphasis of this stage is on profits and profitability. However other considerations such as social responsibilities of the organisation are also considered. Ideas that satisfy the test of this stage pass on to the next stage.

Stage # 4. Product Development:

Until this stage the existence of the product is purely on paper only. This stage marks the first step of the product coming into actual existence. In this stage a prototype of the product is developed and a marketing campaign for the product is planned. During this stage the design of the product is formulated and a technically and commercially viable method of manufacture is developed.

In this stage a product idea that appears sound from the business point of view is handed over to the research and development department. This stage includes not only the development of the product itself but also the further development of the manufacturing, packing and distribution costs. Product development is a scientific task leading to the designing and development of a prototype working model on the one hand and a testing of the functioning of the product on the other hand.

This stage is very important because of the following:

i. It gives a concrete form – It is in this stage that a concrete form is given to the product. Up to this stage the product was just an idea on paper.

ii. It speaks of investment – This stage points out the technical difficulties that can be faced in the development and manufacture of the new product. It also points out the estimates of costs to be incurred in order to overcome these difficulties.

iii. It provides a definite answer – This stage also points out in very definite terms whether the product idea can be translated into a technically and commercially feasible product. If not the company’s investment up to now is lost.

Stage # 5. Test Marketing:

During the phase of product development the prototype of the product was placed in the hands of the customer for their evaluation, i.e. the customers were asked to comment upon or react to the product, its uses, packaging, advertising appeals etc. They were not asked to buy the product in a real market hence the need for the present stage of test marketing.

Test marketing is the production of the technically viable prototype on a small scale and marketing this product in a small selected market. Test marketing is the actual experiment of actual buying and selling of the product within a limited market, for a period that is hoped to be long enough to indicate its probable success on a large scale and on an indefinite basis.

In this experiment the market place is used as a laboratory. Test marketing is the stage in which the entire product and marketing programme is tried out for the first time in a small number of well-chosen and authentic sales environments.

Test marketing is undertaken for the following reasons:

(i) To improve the knowledge of potential product sales.

(ii) To Pre-test alternative marketing plans.

(iii) To predict product failures.

(iv) To know the reaction of competitors.

Test marketing may not be undertaken by all enterprises for all the products. The enterprises which are confident about their products and marketing strategies may drop test marketing. Test marketing is more commonly carried out for consumer products than for industrial products. However when test marketing is carried out the following procedure is usually carried out.

Procedure for Test Marketing:

a. Selection of the Cities:

The first step in test marketing is to determine the cities or markets in which the test marketing is to be done. While deciding upon this, two factors have to be taken into consideration – (i) Cost of testing (ii) Representa­tiveness. The markets chosen should be such that it represents all types of customers and their behaviour. Further it should be one in which the cost of testing can be within the limits.

An ideal market with representation from all types of customers and fitting with the cost budgets should be chosen.

b. The Length of Test Run:

The duration of the test run basically depends upon three factors – (i) the average repurchase period (ii) competition (iii) cost.

(i) The average repurchase period – Where the average repurchase period is long the duration of the test marketing will be long and where the average repurchase period is short the test marketing will be for a shorter period.

(ii) Competition – The length of the test run depends to a great extent on the existence of competition. If there is severe competition then the length of the test run cannot be too small as enough time has to be given so that the right results are drawn. Similarly too long a test period will give the competition enough time to come out with an improved product.

(iii) Cost – The cost of the test run is one of the deciding factors for test duration. The longer the period of test the higher is the cost and vice versa.

c. Collection of Necessary Information:

The next step in test market is to collect the necessary information so that unbiased results can be procured from this information. Exactly what information is to be collected should be decided in advance. Basically the information to be collected is related to sales and profitability.

d. The Action to be taken:

Depending upon the information got further action is to be taken. If the sales are excellent a decision to go ahead with the commercial production of the product may be taken. If the sales are fair a decision to modify the product and undertake another test run may be taken and if the sales are poor the decision to abandon the product may be the right decision.

Stage # 6. Commercialisation:

Those products that pass the test marketing stage successfully are ripe or commercialisation the last stage. By now the company is quite confident about the future of the product. The products profits look good in relation to the risks and costs involved. Commercialisation is the actual introduction of the product into the market, with all the related decisions and committing of resources. Commercialisation is to implement the decision taken at the earlier stages and committing the resources to implement the launch of the new product into the market.

The product is not generally introduced in all the markets at the same time. It is introduced in the prime markets first and then in the secondary markets.

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