New Product Development Process
Overview
Provided by: Lumen Learning. License: CC BY: Attribution
Outcome: New Product Development Process
What you’ll learn to do: describe the new-product development process
We have considered the role of new products throughout this module. It is important to introduce new products in order to have a balanced portfolio containing products at the various stages of the product life cycle. We have not yet focused on ways of creating successful new products.
In this module we will discuss a standard, somewhat fixed new-product development process. The logic behind this rather rigid process is that it requires a great deal of discipline to create new products. It’s expensive to launch a successful new product—but it’s far more expensive to launch an unsuccessful products. For these reasons, organizations invest a lot in the creation and refinement of their new-product development processes. It helps them raise the odds that they’ll be successful.
Consider the following dramatic product failures that, in hindsight, should have been screened out much earlier in the product development process.
In 1998 Frito-Lay introduced WOW! chips. These snack chips contained significantly less fat and fewer calories than other snack foods thanks to the fat substitute Olestra. Initially, the product performed well, generating $347 million in 1998 and making WOW! the best-selling potato chip brand that year. The success was short lived, though. Olestra had an unpleasant side-effect: soon customers complained of cramping, incontinence, and diarrhea—in some cases requiring hospitalization—after eating the chips. Frito-Lay’s parent company, PepsiCo, spent $35 million on an advertising campaign to turn things around, but sales plummeted nonetheless.[1]
In 2011 Hewlett Packard launched a product designed to go head-to-head with Apple’s iPad. The product boasted a higher number of performance features than the iPad, but it had none of the “cool factor” that drew customers to Apple. MarketWatch reported, “Despite large-scale press events and promotions, the HP TouchPad was a colossal failure and was discontinued almost immediately. As a result of the TouchPad’s failure, the company wrote off $885 million in assets and incurred an additional $755 million in costs to wind down its webOS operations, ending all work on the TouchPad’s failed operating system.”
To repeat: developing new products creates opportunity and risk.
The specific things you’ll learn in this section include:
- Explain how new products are planned
- Identify approaches to generate new product ideas
- Identify methods to evaluate new product ideas
- Explain the process to create and commercialize new products
Learning Activities
The learning activities for this section include the following:
- Reading: Generating and Screening Ideas
- Reading: Developing New Products
- Reading: Commercializing New Products
- Video: Target Product Design
Licenses and Attributions
CC licensed content, Original
- Outcome: New Product Development Process. Provided by: Lumen Learning. License: CC BY: Attribution
Reading: Overview of the New-Product Development Process
Process
Introduction
There are probably as many varieties of new-product development systems as there are types of companies, but most of them share the same basic steps or stages—they are just executed in different ways. Below, we have divided the process into eight stages, grouped into three phases; subsequent readings will discuss these phases in greater detail. Many of the activities are performed repeatedly throughout the process, but they become more concrete as the product idea is refined and additional data are gathered. For example, at each stage of the process the product team is asking, “Is this a viable product concept?” but the answers change as the product is refined and more market perspectives can be added to the evaluation.
| Phase I: Generating and Screening Ideas | Phase II: Developing New Products | Phase III: Commercializing New Products |
|---|---|---|
| Stage 1: Generating New Product Ideas | Stage 4: Business Case Analysis | Stage 6: Test Marketing |
| Stage 2: Screening Product Ideas | Stage 5: Technical and Marketing Development | Stage 7: Launch |
| Stage 3: Concept Development and Testing | Stage 8: Evaluation |
Stage 1: Generating New Product Ideas
Generating new product ideas is a creative task that requires a particular way of thinking. Coming up with ideas is easy, but generating good ideas is another story. Companies use a range of internal and external sources to identify new product ideas. A SWOT analysis might suggest strengths in existing products that could be the basis for new products or market opportunities. Research might identify market and customer trends. A competitive analysis might expose a hole in the company’s product portfolio. Customer focus groups or the sales team might identify unmet customer needs. Many amazing products are also the result of lucky mistakes—product experiments that don’t meet the intended goal but have an unintended and interesting application. For example, 3M scientist Dr. Spencer Silver invented Post-It Notes in a failed experiment to create a super-strong adhesive.[1]
The key to the idea generation stage is to explore possibilities, knowing that most will not result in products that go to market.
Stage 2: Screening Product Ideas
The second stage of the product development process is idea screening. This is the first of many screening points. At this early stage much is not known about the product and its market opportunity. Still, product ideas that do not meet the organization’s objectives should be rejected at this stage. If a poor product idea is allowed to pass the screening stage, it wastes effort and money in later stages until it is abandoned. Even more serious is the possibility of screening out a worthwhile idea and missing a significant market opportunity. For this reason, this early screening stage allows many ideas to move forward that may not eventually go to market.
At this early stage, product ideas may simply be screened through some sort of internal rating process. Employees might rate the product ideas according to a set of criteria, for example; those with low scores are dropped and only the highest ranked products move forward.
Stage 3: Concept Development and Testing
Today, it is increasingly common for companies to run some small concept test in a real marketing setting. The product concept is a synthesis or a description of a product idea that reflects the core element of the proposed product. Marketing tries to have the most accurate and detailed product concept possible in order to get accurate reactions from target buyers. Those reactions can then be used to inform the final product, the marketing mix, and the business analysis.
New tools for technology and product development are available that support the rapid development of prototypes which can be tested with potential buyers. When concept testing can include an actual product prototype, the early test results are much more reliable. Concept testing helps companies avoid investing in bad ideas and at the same time helps them catch and keep outstanding product ideas.
Stage 4: Business Case Analysis
Before companies make a significant investment in a product’s development, they need to be sure that it will bring a sufficient return.
The company seeks to answer such questions as the following:
- What is the market opportunity for this product?
- What are the costs to bring the product to market?
- What are the costs through the stages of the product life cycle?
- Where does the product fit in the product portfolio and how will it impact existing product sales?
- How does this product impact the brand?
- How does this product impact other corporate objectives such as social responsibility?
The marketing budget and costs are one element of the business analysis, but the full scope of the analysis includes all revenues, costs, and other business impacts of the product.
Stage 5: Technical and Marketing Development
A product that has passed the screening and business analysis stages is ready for technical and marketing development. Technical development processes vary greatly according to the type of product. For a product with a complex manufacturing process, there is a lab phase to create specifications and an equally complex phase to develop the manufacturing process. For a service offering, there may be new processes requiring new employee skills or the delivery of new equipment. These are only two of many possible examples, but in every case the company must define both what the product is and how it will be delivered to many buyers.
While the technical development is under way, the marketing department is testing the early product with target customers to find the best possible marketing mix. Ideally, marketing uses product prototypes or early production models to understand and capture customer responses and to identify how best to present the product to the market. Through this process, product marketing must prepare a complete marketing plan—one that starts with a statement of objectives and ends with a coherent picture of product distribution, promotion, and pricing integrated into a plan of marketing action.
Stage 6: Test Marketing and Validation
Test marketing is the final stage before commercialization; the objective is to test all the variables in the marketing plan including elements of the product. Test marketing represents an actual launching of the total marketing program. However, it is done on a limited basis.
Initial product testing and test marketing are not the same. Product testing is totally initiated by the producer: he or she selects the sample of people, provides the consumer with the test product, and offers the consumer some sort of incentive to participate.
Test marketing, on the other hand, is distinguished by the fact that the test group represents the full market, the consumer must make a purchase decision and pay for the product, and the test product must compete with the existing products in the actual marketing environment. For these and other reasons, a market test is an accurate simulation of the broader market and serves as a method for reducing risk. It should enhance the new product’s probability of success and allow for final adjustment in the marketing mix before the product is introduced on a large scale.
Stage 7: Launch
Finally, the product arrives at the commercial launch stage. The marketing mix comes together to introduce the product to the market. This stage marks the beginning of the product life cycle.
Stage 8: Evaluation
The launch does not in any way signal the end of the marketing role for the product. To the contrary, after launch the marketer finally has real market data about how the product performs in the wild, outside the test environment. These market data initiate a new cycle of idea generation about improvements and adjustments that can be made to all elements of the marketing mix.
Licenses and Attributions
CC licensed content, Original
- Revision and Adaptation. Provided by: Lumen Learning. License: CC BY: Attribution
CC licensed content, Shared previously
- Chapter 7: Introducing and Managing the Product, from Introducing Marketing. Authored by: John Burnett. Provided by: Global Text. Located at: http://solr.bccampus.ca:8001/bcc/file/ddbe3343-9796-4801-a0cb-7af7b02e3191/1/Core%20Concepts%20of%20Marketing.pdf. License: CC BY: Attribution
- Design Sketching. Authored by: Jordanhill School D&T Dept. Located at: https://www.flickr.com/photos/designandtechnologydepartment/3968172841/. License: CC BY: Attribution
- Circuit Sticker Prototypes. Authored by: Jie Qi. Located at: https://www.flickr.com/photos/jieq/9002249677/. License: CC BY: Attribution
- Open Ideas. Provided by: opensource.com. Located at: https://www.flickr.com/photos/opensourceway/7496802920/. License: CC BY-NC: Attribution-NonCommercial
- Science!. Authored by: Quinn Dombrowski. Located at: https://www.flickr.com/photos/quinnanya/8042323280/. License: CC BY-SA: Attribution-ShareAlike
Reading: Generating and Screening Ideas
Introduction
The first phase of the new product development process is creating a viable product concept that can move through the development phase. This phase includes the following:
- Stage 1: Generating New Product Ideas
- Stage 2: Screening Product Ideas
- Stage 3: Concept Development and Testing
This early phase of the process differs from later phases in several ways. First, it requires immense creativity. Each of the later phases focuses on screening out ideas, but this is a generative stage whose goal is the production of new ideas. Second, the early phase of the process is difficult to plan and manage. On what day will the innovative product idea emerge? That can’t be planned or scheduled.
The Fuzzy Front End
Researcher Peter Koen refers to this first phase as the Fuzzy Front End (FFE) of the product development process. In his work he has identified a number of characteristics that differentiate the FFE from later phases of product development. These are shown in the table below.
Difference Between the Fuzzy Front End and the New-Product Development Process1
| Fuzzy Front End (FFE) | New-Product Development (NPD) | |
|---|---|---|
| Nature of Work | Experimental, often chaotic. “Eureka” moments. | Can schedule work—but not invention. Disciplined and goal oriented with a project plan. |
| Commercialization Date | Unpredictable or uncertain. | High degree of certainty. |
| Funding | Variable—in the beginning phases many projects may be “bootlegged,” while others will need funding to proceed. | Budgeted. |
| Revenue Expectations | Often uncertain, with a great deal of speculation. | Predictable, with increasing certainty, analysis, and documentation as the product release date gets closer. |
| Activity | Individuals and team conducting research to minimize risk and optimize potential. | Multifunction product and/or process development team. |
| Measures of Progress | Strengthened concepts. | Milestone achievement. |
As the product concept moves through the stages of the product development process, everything will become more refined and more certain. The time line, the budget, and the performance expectations will all become more concrete, but in the early phase it is important to allow for the ambiguity that supports creativity.
Creating Successful Product Concepts
How can businesses influence the success of the new business idea? Koen suggests a number of factors that play a role: the corporation’s organizational capabilities, customer and competitor influences, the outside world’s influences, and the depth and strength of enabling sciences and technology.2
Organizational Capabilities
You may have noticed that some companies are able to launch one dominant product after another. Other companies struggle to create any products that compete well or have one amazing product and then disappear. Companies develop processes to manage new products, hire leaders to manage new-product development, and develop a culture based on their institutional values and norms around new products. All of these factors tip the scale toward success or failure. If leaders ask employees to take risks with cutting-edge product ideas but fire those whose ideas are not successful, they will not draw out risky ideas that might lead to the greatest success. Also, the best ideas are often refinements of and enhancements to other ideas. If individual performance is rewarded over team success, there is less likelihood of idea sharing and collaboration.
Customer and Competitor Influences
Innovation by a competitor can spur new ideas and possibilities across the industry. Similarly, customers seeking innovation who are willing to share ideas with their vendors can accelerate the generation of new product ideas and bring a voice of reality that increases the chance of success.
Outside World Influences
There are a range of influences outside of the company that affect the ease with which new ideas can be developed. Government regulations can positively or negatively influence new-product and idea generation. Society, culture, and the economic environment can create a rich environment for new ideas.
Enabling Sciences and Technologies
Enabling technologies refer to those technologies that can be used to develop new products. When employees have access to technologies that expose them to new ideas, or technologies that allow rapid development and iteration of new ideas, this can be instrumental in sparking the development of new products. Often companies invest in technology components that can be reused across multiple products. Such technology has the effect of both speeding the new-product development process and facilitating the addition of refinements and enhancements to existing products.
Evaluating Product Concepts
The goal of the initial product development process is to generate ideas, actively evaluate the ideas, and create a viable product concept. In the past it was difficult to get a clear reading on how products might perform until late in the product development process. That is less true today. Consider the following examples of innovations that accelerate market feedback on new products:
Kickstarter is a crowd-funding platform that allows entrepreneurs to pitch a new product concept to potential funders. The entrepreneur receives immediate feedback on the idea from a broad market and, if it generates enough support, funding to bring the product to market.
Etsy offers an e-commerce platform from which entrepreneurs can sell products on the Internet without having to develop their own e-commerce Web sites to present products or process payments.
3-D printers create physical products from digital files. These products can be tested and refined with users much more quickly and economically than traditionally manufactured prototypes and products. The video below demonstrates a number of interesting examples.
You can view the transcript for “7 Shocking 3D Printed Things” here (opens in new window).
On a larger scale, there are a number of Web application frameworks that allow programmers to quickly develop Internet applications, significantly speeding the pace at which software companies can prototype and develop new features.
Once a product concept has been successfully evaluated, it moves to the next phase of development.
- Fuzzy Front End: Effective Methods, Tools, and Techniques Peter A.Koen, Greg M.Ajamian, Scott Boyce, Allen Clamen, Eden Fisher, Stavros Fountoulakis, Albert Johnson, Pushpinder Puri, and Rebecca Seibert
- Ibid.
Licenses and Attributions
CC licensed content, Original
- Reading: Generating and Screening Ideas. Provided by: Lumen Learning. License: CC BY: Attribution
CC licensed content, Shared previously
- Big Ideas Need Big Spaces. Authored by: Mikey. Located at: https://www.flickr.com/photos/raver_mikey/2916351853/. License: CC BY: Attribution
- Authored by: Pixabay. Provided by: Pexels. Located at: https://www.pexels.com/photo/black-and-silver-solar-panels-159397/. License: CC0: No Rights Reserved
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- 7 Shocking 3D Printed Things. Authored by: Freeze HD. Located at: https://youtu.be/xVU4FLrsPXs?t=1s. License: All Rights Reserved. License Terms: Standard YouTube License
Reading: Developing New Products
Introduction
The second phase of the new-product development process focuses on the actual development of the new product. This phase includes the following:
- Stage 4: Business Case Analysis
- Stage 5: Development
Making the Business Case
The business case is often the most challenging screening process in the new-product development process. It is not uncommon for a product team to get excited about an idea, get positive feedback on the concept from target buyers, and then fail to make the numbers work in the business case. Usually the business case review results in a “go, no-go” decision for the product concept.
The business case doesn’t only need to answer the question “Can this product make money?” It’s also trying to answer a more complicated question: “Will the product provide the greatest total return out of all the potential strategies we could pursue?” In addition, the business case is looking at the expected performance of the product—financial and otherwise—over the entire product life cycle. For these reasons, the business case takes into account a broad range of factors.
One common tool for presenting a summary of the business case is called the “business model canvas” (see Figure 1, below). The canvas doesn’t cover all of the analysis that must be done, but it does provide a nice structure for identifying the different components that are important to the success of the product or business.
You will notice that the center of the canvas focuses on the value proposition of the product, whereas the lower segments specify the costs to create value and the revenue earned by delivering the value. In the analysis of the business case, the key questions are the following:
- Does the product provide sufficient unique value to the target customer?
- Can that be achieved at a cost that supports the value?
- Does that value appeal to a large enough target market to generate sufficient revenue?
If the product development team can demonstrate satisfactory answers to these questions, without introducing other objections, then the product will move into development.
Developing the Product
Regardless of the type of product—a tangible good, a service, a business-to-business product—someone needs to define the marketing requirements for the product. This is the role of a product marketing manager. Product marketing isn’t usually tasked with the technical specifications for the product but is focused on specifying the needs of the target buyer. Product marketing addresses the following question: “What problem does this product solve for the target buyer?” The answers to this question are typically presented in a marketing-requirements document, which also includes a full buyer persona. (Recall that a buyer persona describes the needs, experiences, feelings, and preferences of a specific buyer.)
Defining Market Requirements
Let’s say your new product is a packaged meal item, and you’re the product marketer. Your marketing-requirements document would explain who the buyer is, what she needs, and which particular features of the product will best address her needs. Your buyer persona is a woman named Aleisha. She has three kids and works part time as a nurse. She feels stretched between her job and her kids’ busy schedule and the demands of keeping up the house. She needs to be able to come home from work and get dinner on the table in twenty minutes, yet not feel like she’s cutting corners. It’s important to her to provide her family with a healthy home-cooked meal.
This description of target-buyer Aleisha suggests and guides a set of product requirements that will inform the design and development of the product. Whether the product is a food item, a fashion accessory, a software program, or a banking service, defining the marketing requirements based on the buyer persona will increase the chances that the final product meets the market need.
Defining Product Requirements
The marketing requirements become an input to the product team to define the technical product requirements for the product. In the packaged meal example, someone will need to decide whether there are visible solids in Aleisha’s sauce and how much ground oregano should be added. Those will become product requirements that drive the production process.
With more technical products or products that include a complex manufacturing process, the translation from marketing requirements to technical requirements can be a daunting task. For example, in the manufacturing of semiconductors that power computers and electronics, there is significant interplay between the marketing requirements, the technical requirements, and the manufacturing process. The factory cannot deliver products that exceed their technical capabilities regardless of the market desires. In that case, the limits of the manufacturing process are set, and the role of product marketing is to identify the most attractive products given a fixed manufacturing capability.
In all cases, the product team seeks a tight match between the market need and the product that is designed, developed, and delivered.
Creating the Go-to-Market Plan
The marketing requirements drive the technical product requirements that will be used to develop the product, but they have a second purpose, too. The market requirements are the major input to the marketing plan that will be used during the product launch.
In answering what problem a product solves for the target buyer, we gain information about the messaging and promotion strategy. By understanding the alternatives that the target buyer might select and the unique value that our product provides, we can begin to understand the pricing dynamics. In knowing how she wants to buy the product we have options to analyze for the distribution strategy. The initial marketing mix for the product launch is driven from the information in the marketing requirements document.
Licenses and Attributions
CC licensed content, Original
- Developing New Products. Provided by: Lumen Learning. License: CC BY: Attribution
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- Yes and No. Authored by: Abhi. Located at: https://www.flickr.com/photos/abhi_ryan/2476059942/. License: CC BY: Attribution
- Business Model Canvas. Authored by: Business Model Alchemist. Provided by: Wikimedia. Located at: https://en.wikipedia.org/wiki/Business_Model_Canvas#/media/File:Business_Model_Canvas.png. License: CC BY-SA: Attribution-ShareAlike
Reading: Commercializing New Products
Introduction
The final phase of the new-product development process focuses on commercializing the new product. This phase includes:
- Stage 6: Test Marketing
- Stage 7: Launch
- Stage 8: Evaluation
At last the product is ready to go. It has survived the development process and is now, you hope, on the way to commercial success. How can it be guided to reach that marketing success?
The different stages in this phase include a common set of activities performed on increasingly larger scale. In all three stages the marketer is implementing, evaluating, and improving the marketing plan, which includes the full marketing mix.
Test Marketing
The goal of test marketing is to improve the success of the product launch. The marketer will launch the marketing plan to a smaller subset of the market, quickly analyze how the plan can be improved, refine the plan, and then launch to the full market.
Test marketing provides a wonderful opportunity to get feedback from buyers in a realistic buying situation in which they experience the full marketing mix—but it’s a challenge to do it right. Because of the special expertise needed to conduct test markets, and the associated expenses, many large manufacturers employ independent marketing research agencies that specialize in test marketing. Among the challenging decisions are the following:
- Duration of testing: the product should be tested long enough to account for market factors to even out, but a long test cycle delays the broad launch and may diminish the impact of the product announcement.
- Selection of test markets: the test market should reflect the norms for the new product in such areas as advertising, competition, distribution system, and product usage.
- Sample size determination: the number of markets and tests must account for the different variables in the market, while allowing for the fact that each test market adds cost to the launch budget and time to the product release cycle.
The test data drives evaluation and refinement of the marketing plan. Even after all the test results are in, adjustments to the product and other elements of the marketing mix may still be made. Additional testing may be required, or the product may be canceled.
The Launch
The product launch is truly the beginning of the implementation of a sustained marketing plan—a plan that will be analyzed, evaluated, and adjusted throughout the product life cycle. That said, there certain marketing techniques that figure more prominently during the launch phase.
Press Strategies
Often companies issue press releases about new products in order to increase visibility through earned media. The press release can be sent to targeted press outlets, posted on the company Web site, sent as an information message to customers, and distributed to industry influencers. The goal of the press strategy is to build broad visibility for the product, backed up by the credibility of the media outlet.
Price Discounts
Companies will sometime offer a price discount during a product launch. When we cover pricing in more detail in the next module, we will discuss when this can be an effective strategy.
Channel Partner Incentives
If the company depends on a partner to sell or distribute the pricing, it might choose to offer pricing discounts and incentives to the distribution partner. A new product carries some risk, and an incentive at launch can encourage channel partners that might be reluctant to add the new product or to sell it aggressively.
Evaluation
Though we are identifying “evaluation” here as the final stage of the development process, it should be clear that product evaluation is a recurring activity that begins with the idea-screening stage. Careful, objective evaluation of the product at every stage leads to better investment decisions and better products. The difference in this final stage of the process is that the marketer has the benefit of significant market data for the evaluation, which can help improve the marketing plan going forward. It is only at this stage—after the product launch—when the marketer can see which buyers purchase the product, how competitors respond, and how the new product interacts with the company’s other products in the marketplace.
Video: Target Product Design
Target’s design products include many of the success factors we’ve discussed in this module. As you watch the following video, see if you can identify which aspects of Target’s approach and design process are key to their success. What role does the corporate culture play?
You can view the transcript for “Target Product Design and Development” (opens in new window).
Licenses and Attributions
CC licensed content, Original
- Target Product Design (Introduction). Provided by: Lumen Learning. License: CC BY: Attribution
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- Target Product Design. Provided by: BBC. Located at: https://youtu.be/3MqEp1ePfbo. License: CC BY-NC-ND: Attribution-NonCommercial-NoDerivatives