A FIRM CAN OBTAIN NEW PRODUCTS IN TWO WAYS - a) by acquisition & b) by new product development.
Booz, Allen & Hamilton - six categories of new products:
1. New-to-the world products : Products that create an entirely new market.
2. New Product Lines : New products which allow a company to hit an established market for the first time.
3. Additions to Existing Product Lines : Those products which add on to the list of already existing products.
4. Improvements to existing products : New products which provide improved product performance.
5. Repositioning : Existing products targeted at new markets or new segments.
6.Cost Reduction: Same performance at lower costs.
NEW PRODUCT DEVELOPMENT- PROCESS
Eight major steps
1. Idea Generation : Systematic search for new product ideas.
2. Idea Screening : to spot good ideas & drop poor ones .
3. Concept Development & Testing : Detailed version of the new product idea in meaningful consumer terms and testing it.
4. Marketing Strategy: Developing an initial marketing strategy for the new product based on the product concept.
5. Business Analysis: Projections of sales, costs & profits for a new product to find whether it matches the company objectives.
6.Product Development: Developing the product concept into a physical product to test the viability of the new product idea.
7. Test marketing: New product & marketing program are tested in more real like conditions .
8. Commercialization: Launching the new product into the market.
NEW PRODUCT DEVELOPMENT
SUCCESS RATE & COST IMPLICATIONS OF N.P.D .
STAGE NO. OF PASS COST PER TOTAL
IDEAS RATIO PRD. IDEA COSTS
Idea 64 1:4 $1000 $64,000 Screening
Concept 16 1:2 20,000 $320,000 testing
Product 8 1:2 200,000 $1,600,000 Development
Test Mktg. 4 1:2 500,000 $2,000,000
National 2 1:2 5,000,000 $10,000,000 Launch
For every 1000 ideas only 100 will have enough commercial promise worth consideration while only 10 will warrant any financial commitment (developmental) and only a couple will materialize as new products.
Major Sources for New Product Ideas.
Internal Idea Sources:
Appoint a senior person as Idea Manager.
Create cross functional idea management committee.
Employee suggestion schemes. Internal web sites to inter-act with product team to discuss ideas from employees.
Encourage stake holders – employees, dealers, suppliers to send their ideas and reward good ideas.
External Idea Sources
Watching and listening to customers.
Set up toll free no/web sites for consumers to call up with new product ideas.
Formal Techniques to Generate Ideas
Brain storming Delphi techniques
Focal Group Discussions Synetics
Projective techniques such as
Attribute Listing : List the attributes and try out different combinations. Screw Driver- replacing wooden handle plastic, providing it with torque power etc.
Forced Relationships : List several ideas and consider each one in relation to another. Bookshelf with TV stand - which are otherwise required separately by an office; Medical shop/ cosmetics.
Morphological Analysis : Listing every possible combinations and analyzing - moving objects from one place to another – Type (cart, bucket, bed); medium (air/water/rail); power (electricity, diesel)
Mind Mapping : story telling, sentence completion.
Reverse Assumption Analysis : List all normal assumptions about an entity and reverse them. Restaurant has menus, serves food and charges for them- no menu, serves only what cook has bought that day, charges for time spend etc.
Also termed as idea reducing (feasibility) stages.
Marketing Executives to create large no. of new product write ups- product, Target market, competition
Rough estimates of market size , product price, development time & costs involved, manufacturing costs and rates of return are developed by the product committee.
Committee then compares it against a set of general criteria
The company mission and objectives.
Is it useful to consumers and society?
Is it good for our company?
Do we have the people skills and resources to make it?
Can we provide more value than competitors?
Is it easy to advertise and distribute?
CONCEPT DEVELOPMENT & TESTING
Consumers do not buy product ideas; they buy product concepts.
A product idea can be turned into several concepts. (product idea of a milk additive to add nutritive values).
1. Who will use this product? (infants, children, teenager, adult, old people).
2. What primary Benefit should this product provide? (Taste, nutrition, energy, refreshment).
3. When will people consume this drink? (early morning, breakfast, midday, mid afternoon, tea, late night).
An instant breakfast for adults who want a quick nutritious break fast or a tasty snack drink for children to drink as a midday refreshment or A health supplement for old people, to drink before they go to bed.
Product positioning map and Brand positioning map.
CONCEPT DEVELOPMENT & TESTING
Each concept represents a Category Concept that defines the product’s competition. An instant breakfast fights against cold cereal and coffee. A refreshing tasty drink competes against soft drinks and fruit juices.
Product positioning map – identifies nearest competitor (cold cereal) and the most distant (traditional break fast) with which it can be built up as a supplementary product.
Brand Positioning map – shows the current position of the existing brands (how much to charge and how nutritious the drink to be) so that a distinctive position is carved out.
Concept Testing : Involves presenting the product concept to appropriate target consumers and getting their reactions.
Concepts can be presented symbolically or physically.
Preliminary Marketing Strategy - plan for introducing the new product into the market.
First part describes the target market’s size, structure and behavior; the planned product positioning; sales, market share and profit projections in the initial few years.
Alcohol free Beer targeted at Urban 18 to 25 group to be sold through super-markets, a refreshment drink during day and evenings. Co. plans to sell 2 million cases in First year; a turnover of Rs.30 million at a loss not exceeding Rs.3 mln.
The second part outlines the planned price, distribution strategy and marketing budget for the first year.
To be offered in 600ml and 300ml bottles and 250 ml cans. Free samples; other promotional efforts - coupons; Ad budgets; geographic locations; channels etc.
The third part of the marketing strategy plan describes the long run sales and profit goals
Company intend to garner 10% market share (2% in first year). Variations in flavor to be offered. Lower end versions for penetration. Geographic spread etc .
Product concept and marketing strategy are evaluated for evaluating business attractiveness. Next step is to estimate sales cost and profit projections.
Estimating Total sales :
First time Sales, Replacement Sales & Repeat Purchase sales
One time purchased products – sales will rise at the beginning, peak and later approach zero. If new buyers keep entering then the curve will not go down.
Infrequently purchased products (cars, fridges), exhibit replacement cycles dictated by wear out or obsolescence.
Frequently purchased products (FMCG & Indl. Raw Mtl.) – estimates of first time sales, repeat sales and continued repeat/adoption sales figs have to be estimated.
Estimating Costs & Profits
Projected cash flow and profitability statements.
Break Even Analysis.
Risk Analysis (optimistic, pessimistic & most likely are collected for each uncertain variable and profitability estimations are made).
Managing The development process
Till now product existed as a word description, a drawing or a prototype. This is the stage where the co. decides that the product idea can be translated into a technically and commercially feasible product.
Translating T. Customer requirements into a working proto type QFD (Quality Function Deployment)---- Converts list of ‘customer attributes’ to ‘engineering attributes’ (specifications)
QFD ensures communication between Marketers (Product Mgmt.), Engineers (Product Development) & Manufacturing is enabled. Also trade-offs and costs.
Design aspects to take care of product’s functional characteristics but also should communicate its psychological aspects through physical cues --- colours, shapes, finish etc.
Prototypes are put through rigorous functional tests.
Alpha Testing – when testing the product (applications) within the firm
Beta Testing – it enlists a set of customers who tests the product and gives a feed back. (Ideal when consumer base is heterogeneous).
Can yield valuable information about buyers, dealers, effectiveness of marketing programs & market potential .
Consumer-Goods Test Marketing
The company seeks to estimate four purchase variables: trial, first repeat, adoption and purchase frequency.
1. Sales wave Research : consumers try the product initially at no cost are re-offered the product or a competitors product at slightly reduced prices. This can be repeated a number of times to understand the adoption process.
2. Simulated Test Marketing: Simulate supermarket set up. Get 30 to 40 qualified shoppers who are provided with a certain fixed amount of cash to spend in supermarket. Screening of well known and new product ads can be shown and then they are asked to shop. Data on the purchases made are then collected and analyzed.
Controlled Test Marketing
A research firm manages a panel of stores that will carry new products for a fee . The company specifies the no. of stores and the geographic spread. Research firm controls the POP, shelf position and sales are monitored . It enables to test the impact of in-store factor & local advertising .
It helps in getting responses from trade/channel partners. It also exposes the new product to competition.
Ultimate way to test – in full blown test markets.
Chooses few representative cities; full scale advertising and sales activities and the responses are measured.
Different Communication mix or channel mix can be tried out.
Largest cost contributor in the Development phase.
The company will require to have full scale manufacturing facility or contract manufacturing.
When (Timing): market entry timing. A co. completing deve-lopment work and knows of competitor working in similiar lines can have choices like – 1. First Entry; 2. Parallel entry and 3. Late entry.
Where geographic Strategy : Decision on where to launch the product. Company’s generally start with domestic markets before moving out.
To whom (target market prospects): Within the entry markets the company has to decide who are the prime prospects.
How (Introductory Market Strategy). Pricing, Advertising & promotion strategy, Distribution channel decisions etc.