6 Stages of New Product Development

Sat, 07/23/2011 - 08:37 -- Umar Farooq

A company can develop a new product by two ways:

  • Acquisition
  • New Product Development

ACQUISITION

To buy a patent or license to produce other’s product.

NEW PRODUCT DEVELOPMENT

A new product means original products, product improvements and modification and new brand that a firm develops through his own efforts and research.

There are six stages of new product development

  1. Idea Generation
  2. Idea Screening
  3. Business Analysis
  4. Product Development
  5. Testing Market
  6. Commercialization

1.  Idea Generation

To start a new product it is needed to make a system, search for new product ideas. To develop a new product the company has to generate so many ideas.  For example, Pharmaceutical companies may require about 8000 starting ideas for a successful new product.

Resources to Generate Ideas

  • Ideas for new product development includes internal sources. Successful companies have developed a system, which encourage every employee to contribute his part to seek new ways of improving production, product and services. Kodak claims that it gives monetary, holidays, or recognition award for those employees who submit the best ideas.
  • Researching competitor’s products and services is a good source of generating new ideas.
  • Distributors and suppliers can well contribute in developing a new product idea, because they are very close to the market and know about the problems and possibilities of new product. Suppliers can also give help, concepts and materials that can help in the new product development.
  • Top management is another source of new ideas generation. Former CEO of Poland,  Edwin H. Land took responsibilities for technology innovation in their companies.
  • Other sources of generation ideas include investors, marketing research firms, industrial publication, and advertising agencies.

2.  Idea Screening

When the company collect ideas from different resources the stage come to screen the entire ideas. In screening company must avoid two types of errors:

  • Drop Error It means that when a company drop a good idea, if a company dismiss many drop errors it standards are too conservative.
  • Go Error It occurs when company allow a poor idea to move in development and commercialization.

The screening purpose is to drop poor ideas, as soon it is possible. Most companies require new product ideas to be described on the standard form that can be reviewed by the standard committee. This description states product idea the target market size, product price, development time and cost, manufacturing cost and rate of return. Under a set of certainty the executive committee reviews the idea.

3.  Business Analysis

After management develops the product concept and marketing strategy, it can evaluate the proposal’s business attractiveness. Management needs to prepare sales, costs, and profit projections to determine business objectives. To estimate sales, the company might look at sales history and conduct surveys of market opinion. It can then estimate minimum and maximum sales to assess the range of sale. After preparing the expected cost and profit for the product, including marketing R&D manufacturing accounting, and finance cost.

4.  Product Development

If the production concept passes the business test, it moves to R&D or engineering to be developed into a physical production. This stage is also called large jump investment.

The R&D department will develop one or more physical versions of the product concept.  It will be hopeful to design a prototype that will satisfy consumers, and can be produced quickly over at budgeted cost. It may take a week, a month, or a year. The prototype must have required functional features, and also convey the intended psychological characteristics.

5.  Testing Market

After the satisfaction of the management with functional and physical performance the product is ready to dress up with a brand name and packing and put into market test. The cost of marketing test may be enormous, and take time that may allow competitors to gain advantages. If management is confident about new product, then company may do little or not test marketing.

Company usually select three ways for using test marketing

  • Standard Marketing. A company finds a small number of representative test cities and conduct marketing campaign and uses different ways (consumers & distributors surveys etc) to find the performance of new product.
  • Controlled Marketing. Under this method a research firm manages a panel of stores that will carry new products for fee.  The research firm deliver the product to specific stores and controls shelf position. Sales result can be measured through electronic scanner at checkout. 
  • Simulated Cost Marketing. In this marketing a research firm shows ads and promotion form a variety of products including new product promotion.  Company gives some amount to customers and invites them at selected stores.  The researchers observe how many consumers buy new product. Then they ask the reason of buy or not new product.  The company keeps in touch with customers through phone and other resources and asks them about the use and qualities of new product.

6.  Commercialization

It is the next stage when the company introduce new product into market. Company will face its largest costs. In this stage the company must arrange full scale manufacturing facility. The company may spend in millions on advertising, sales promotion of new product in the first year.

Timing. To launch a new product market entry time is very important. If another company is near to launch the product, company has three choices:

  • First enter his product
  • Parallel entry of the product
  • Late entry of the product.

Where (Geographic Strategy).  The company must decide to launch a new product in  a single locality, a region, in a nation or launched it internationally.

To whom (Target Market Prospect). Within the rollout markets, the company must target its initial distribution and promotion to the best prospects.

How (Introduce Market Strength). The company should develop an action plan for introduction the new product into the rollout markets.