Concept of NPD
Factors contributing to NPD
Stages of NPD
New product means
• Original products,
• product improvements,
• product modifications,
• new brands (R & D)
Factors contributing to new product development
• Surplus capacity
• Changing customer preferences
• Technological factors
• Government policy
• Fighting Competitors
New Products offer new avenues of
growth and secure the viability and
sustainability of the firm.
The risk gets spread over a large number
of products – old one and new ones
COMPANY CAN ADD NEW
2.New product development –
development of products within the
1.Company can buy other companies
2.Can acquire patents from other companies
3.Buy license or franchise from another
NEW PRODUCT DEVELOPMENT
NPD can take 2 routes:
1.Develop new products on its own
2.Contact independent researchers or new
product development firms to develop
specific new products.
NEW PRODUCT DEVELOPMENT
• Most new product development is an
improvement on existing products
• Less than 10% of new products are totally
SUCCESS RATE OF NEW
• The success rate of new products is very
low – less than 5%. ‘You have to kiss a lot
of frogs to find a prince.”
• Product obsolescence is rapid with
improvements in technology
• Shorter PLCs
FACTORS THAT HINDER NPD
• Shortage of ideas in certain areas
• Fragmented markets, so less profits
• Social and government constraints
• Cost of development, generate 1 worth idea
• Capital shortages
• Faster required development time
• Shorter PLC, rivals are quick to copy
WHY NEW PRODUCTS FAIL?
• Product Failure can be:
1. Absolute product failure: financial loss
2. Relative product failure: does not reach profit goals
Reasons for failure:
• Lack of strong enough differential advantage
• Poor planning
• Poor timing.
• Excessive enthusiasm
WHY NEW PRODUCTS FAIL?
Reasons for failure: Marketing Failures: small size of the
potential market. No clear product differentiation, poor
Financial failure: Low return on investment
Timing Failure: Late or too early in the market
Technical Failure: Product did not work, bad design
Organizational failure: Lack of organizational support
Environmental failure: Government
regulations, macroeconomic factors
ORGANIZING FOR NPD
1. Sequential product development:
- A NPD approach in which one company dept. works to
complete its stage of the process before passing the new
product along to the next dept. and stage.
2. Simultaneous (team based) product development:
- An approach to developing NPD in which various company
depts.Work closely together, overlapping the steps in the
product development process to save time and increase
• Idea generation
• Idea screening
• Concept development and testing
• Marketing Strategy
• Business Analyst
• Product development
• Test Marketing
I IDEA GENERATION
- Systematic search for new product ideas
“ For every 1000 ideas, only100 will have enough commercial promise to
merit small scale experiment, only 10 of those will warrant substantial
financial commitment, only couple will turn out be a success.”
- Common sources of NPD ideas-
1. Changing customer needs & trends in consumer markets.
3. R & D scientists
5. Foreign markets & media
7. Trade channels
8. Top management
1. Internal sources:
• Formal R&D
• Technical experts, marketing
executives, scientists, engineers, manufacturing staff, sales
people can form informal groups to discuss and brainstorm NPD
• Intrapreneurial programs ( encourage employees to think and
develop ideas) Have contests, prizes and incentives.
External idea sources:
• Watching & listening to customers - questions, complaints
• Focus groups
• Observation techniques
• New products & uses (created ) by consumers
Watching their ads (unfulfilled gaps)
Buying products, understand competitors
strategies, analyze sales
3. Distributors & suppliers:
Resellers – close to the market( problems & possibilities)
Suppliers – new sources, trade magazines, shows &
seminars, govt. agencies, consultants, advertising
agencies, marketing research firms, university &
commercial laboratories, inventors.
• Search for NPD ideas should be systematic/else few new ideas
surface and many new sputter and die.
Idea management system:-
1. Appoint a senior person to be company’s idea manager
2. Create cross- functional idea management committee (from all
3. Set up a toll free no./ website
4. Encourage all company stake holders
5. Set up formal recognition programs
(Innovation oriented company culture, large no. of ideas yielded)
II. IDEA SCREENINGIdentifying prospects & defining target markets
• Screening NPD ideas in order to spot good ideas & drop
poor ones as soon as possible
• Idea generation – large no. of ideas
• Idea screening – reduce that no. of ideas to feasible ideas
• Select only those which turn into profitable products
• Detailing on describing product, target
• Rough estimates of market
size, product, price, development, manufacturing, time
• Idea evaluation against a set of criteria( use of
product, best fit with company
objective, resources, value, advertising, distribution)
III. CONCEPT DEVELOPMENT
Ideas must be refined into testable product
A product idea is a possible product the company
might offer to the market.
A product concept is an elaborate version of the idea
expressed in consumer terms.
An image of the way the product is perceived.
1. Concept Development:
-To develop a product into alternative product concepts
- Find attractiveness of each concept
- Choose best one.
e.g. i. Daimler Chrysler-Fuel cell powered electric car
Concept I: Moderately priced, subcompact designed, second
family car, ideal for running errands & visiting friends
Concept II: Medium cost sporty, appealing to young people.
Concept III: In expensive, subcompact ‘green’ car for practical
transportation & low pollution.
Concept IV: High end SUV appealing to those loving space despite
(lament) poor gas mileage.
e.g. ii Leading soft drink manufacturer
Concept I: Fresh fruit juice for children and adolescents as
a health supplement at breakfast
Concept II: Fresh bottled fruit juice for the young as a fun
thirst quenching, refreshing, nutritious, health drink any
Concept III: Fresh bottled mango juice for young & grown
ups as fun, thirst quencher beverage.
Concept IV: Fresh bottled mango juice for the adults as a
All of these help define product category, segment for
b. Concept testing:
-Testing new product concepts with a group of target customers
to find out if the concept has strong customer appeal.
- For some, a word/picture description may be sufficient.
- But a more concrete physical presentation increases reliability of
- “Virtual Reality”
- After exposure to concept asking for reaction by answering a
- Projection of figures to full population in target group to
estimate sales volume
i. By polls, ii.Web testing.
IV MARKETING STRATEGY DEVELOPMENT
- Designing an initial marketing strategy for a new product
based on product concept
( Daimler Concept III)
1. Describe target market; plan product positioning; sales;
market share; profit goals for first few years.
[Younger, well educated, moderate to high income
individuals, couples, small families, more economical to
operate, fun to drive, less polluting, recharged regularly,aim-
1,00,000 cars in 1st year; loss$15 mn; 2nd year-sales1,20,000
cars, profit $ 25 mn]
b. Outline product’s planned
price, distribution, marketing budget for 1st year.
[ 3 colors-red, white, blue, optional a/c n power-drive
features; retail price-$ 20,000, 15%list price to
dealers, dealers selling more than 10 cars per
month, discount of 5% on each car sold; advertising
budget of $50mn split 50-50 between national media
campaign & local advertising-fun spirit & low
emissions, 1st year-$1,00,000 on market research]
c. Describe planned long – run sales, profit
goals, marketing mix strategy.
[ 3% long run share of total auto market, after tax ROI
of 15% high product quality in
beginning, improved, improved over time, price raising
in 2nd & 3rd years, advertising budget-10% increase each
year, market research reduced to $ 60,000/yr.]
V. BUSINESS ANALYSIS
- Reviewing sales, costs, profit projections to find out
satisfaction of company objectives.
- Business attractiveness of the proposal.
- Sales estimation-sales history of similar products, surveys
of market opinion (minimum and maximum to assess level
- Expected costs and profits.
- Estimation of demand in target market at different price
- Sales forecast based on demand estimation and
- Costs, break even price, sales volume.
VI PRODUCT DEVELOPMENT
: - Developing the product concept into a physical product in
order to ensure that a product idea can be turned into a
- R&D & engineering develop product concept into a
- Large jump in investment.
- Shows whether idea can be turned into a workable
- R&D tests & develops 1 or more physical versions of
- Required functional features, intended psychological
VII. TEST MARKETING
- Testing product and marketing program in more realistic
- Gives marketer experience with marketing product before
going to great expense of full introduction.
- Allows testing entire marketing program (
positioning, advertising, distribution, pricing
, branding, packaging, budgeting value)
- Costs can be high.
-Takes time giving scope to competition.
- If the costs are low and the company is confident about
new product there may be no test marketing.
- Lot of test marketing – when introducing a new
product, when big investment is involved, when
management is not sure of product/marketing program.
MAJOR METHODS OF MARKET
• Sales-Wave Research
• SimulatedTest Marketing
• ControlledTest Marketing
• Test Markets
SALES- WAVE RESEARCH
• Consumers who try the product initially
are re offered the product – couple of
• Can be implemented quickly, with no
advertising and packaging support.
SIMULATED TEST MARKETS
- Showing promotions to a sample of consumers
- Giving consumers small amount of
money, invitation, real/laboratory store – where
money can be kept/items can be bought.
- Noting new product/competing brands bought.
- Provide a measure of trial and commercial
- Reasons for purchase/non-purchase may be asked
- Keep new product out of competitors view.
CONTROLLED TEST MARKETS
Company manages a panel of stores by paying a fee.
Research team arranges the product to be available
in participating stores.
- Direct mail promotions can even be tested.
- Detailed scanner information on each consumer
purchase (combined with consumer demographic
andTV viewing information)
- Behavior scanner, in store behaviour can be tested.
• Exposes product to competitor’s scrutiny.
- Small no. of representative test cities
- Conduct full marketing campaigns
- Use store audits, consumer and distributor surveys to
gauge product performance.
- Results will help forecast national sales and
profits, potential problems, fine tune a market program.
ii long time,
iii competitors can monitor test market results by lowering
prices, increasing promotion
STANDARD TEST MARKETS
• How many test cities
• Which test cities
• Length of test
• What information to collect
• What action to take
- Introducing a new product into the market.
- test marketing-final decision.
- highest costs.
- build/rent manufacturing facility.
- deciding ‘introduction timing’.
- where to launch the NPD.