What is New Product Development (NPD)?

By new product we mean original products, product improvements, product modification and new brands that the firm develops through its own research and development efforts.

A new product will be considered anything which is perceived by the consumer or with which the firm has no previous experience.

From a firm’s point of view, a product is new when existing products are improvised, capacity or life is enlarged or more satisfying ingredients are added to the existing products. A firm in order to deliver a new product faces the problems as that of releasing totally new product to the market.

A firm in order to deliver a new product faces the problems as that of releasing totally new product to the market. It could also be that a product is new to the firm but not new to customers or the product may be new to customers but not new to the company.

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Classification of the New Products : by BAH (Booz, Allen & Hamilton)

Continuous Innovations

Continuous innovation is adding / removing features in the products to suit changing consumer needs.

Here, the following types are involved

Cost Reductions

These new products are developed by reducing the production cost by applying new technology. E.g. changing over to plastic moulded parts in automobiles has considerably reduced the cost of manufacturing and raw materials. This has also helped reduce the weight of the automobiles, increasing fuel efficiency.

Repositioning (also called Re–Launching, Re–Staging or Re– Marketing)

This happens whenever a product is re–positioned to include different segments of consumers, or is re-launched for a different use, or is being re–marketed after its temporary withdrawal.

E.g. Tata’s Ace (Chhota– Haathi) was launched as mini truck and with its success, it was re– positioned and launched as a new product, Ace – Magic, a passenger version.

New and Improved Products (Next Generation Products)

Whenever a company launches a product with improvements in its features and benefits, it is also called a new product. E.g. Tata Indica was launched as a new product with improvements as Indica Vista.

Additions to Existing Product Lines

Additions to existing product lines are derivatives or variations of existing products.

E.g. Coke – Diet Coke, Horlicks – Elaichi Horlicks, Chocolate Horlicks, Junior Horlicks etc. If these variations are launched with another brand name, they are called flankers.

New Product Lines (New to the Company)

When products new the company are launched but brand exists in the market through other products it is called new product lines. E.g. Cadbury’s launching cookies (existing line chocolates and Bournvita),

Horlicks launching biscuits and oats (existing line health foods), HUL launching water purifiers (existing lines cosmetics, personal products, soaps/detergents) When new product lines are launched under the same brand name it is called brand extension.

Dynamically Continuous Innovations

Major Additions to Existing Product Lines

When the company makes major additions to an existing product line that is affecting the total behaviour of the customer towards the company, it is major additions to existing product line. E.g. Banks going in for ATM machines, online and mobile banks etc.

New to the World Product Lines

When a company comes up with a completely revolutionized version of an existing product that is new to the world or comes up with a totally new concept, it is a new to the world product. E.g. Electric car.

Discontinuous Innovations

Discontinuous Innovations are products perceived by customers to be radically new, causing buyers to significantly alter their behavioural patterns, and also usually entailing extensive technological breakthroughs. OTT (Over–The–Top) are purchased differently than DVDs were bought or rented. Electric cars requiring battery recharge.

Product Failure

There are number of reasons that change consumer preferences on the products. Lifestyle, age, and preferences seldom remain constant. Shorter product life cycles, increasing costs, government policies, threat from rival organisations, technological changes – all affect the success of a new product in the market.

Factors that pose Major Risk

• Long time duration between research on new product and its introduction in the market. By the time it reaches the market, consumer preferences get changed to more advanced product which is already in the market.
  
  

• Research data from the market has defects or is inadequate.
  
  

• Product defects also result in negative perception of the product. For E.g., new software in car results in withdrawal from the market.
  
  

• Different features of a new product appeal to different markets. The same product cannot be launched in a different market unless the preferences of the consumers are the same. For E.g., McDonald’s modify their offerings on the basis the local culture.
  
  

• The new product is incorrectly positioned in the market.
  
  

• Products also fail if the management fails to create a proper balance among the 4Ps of marketing. For E.g., keeping the price too high or too low.
  
  

• Insufficient distribution channels to support the promotion activities.
  
  
• New technology that reduces the total cost of production. If organisations don’t tap this opportunity, the competition will.
  
  

• Lack of coordination between different departments within the organisation hampers the flow of ideas and proper feedback received from the market.
  
  

• Products also fail if the new product does not offer a USP as compared to other brands.
  
  

• Customers should be aware about the benefits of the new product, ie. Failure if not supported by effective communication strategy.

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Significance of New Product Development

Whatever may be nature of operation of a concern, product planning and development is necessary for its survival and growth in the long run. Every product has a life cycle and become obsolete after the completion of its life cycle.

Therefore, it is essential to develop new products and alter or improve the existing ones to meet the requirements of customers. One of the most common products planning problems relates to the addition of new products to the existing product line.

Addition of new products involves generation of new product ideas, appraisal of various possibilities, economic analysis, product development, product testing, test marketing and developing markets. Another important problem of product planning is modification or elimination of existing products. The need for continuous of the product is great because society’s needs are always changing and improved products must be introduced to fulfill them.

All products have certain deficiencies, as they are the result of great many compromises. The perfect product has yet to be made. Research makes possible the reduction of these deficiencies and brings about improved products.

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New Product Development Proces

Developing a new product is a key to organisations’ survival in the ever changing marketing environment. Some organisations set a price limit while others focus on adding value, and making the existing product better than before.

They do this with price factor coming at later stage. Depending on the organisations size and past experience, the new product development process may vary.

We will look at the commonly accepted process :

• New Product Strategy
  
  
• Idea Generation
  
  
• Idea Screening
  
  
• Concept Development and Testing
  
  
• Business Analysis
  
  
• Product Development
  
  
• Market Testing
  
  
• Commercialization
  

New Product Strategy

The corporate strategy and objectives give guidelines for new product development by assessing organisational expertise and external opportunities. SWOT analysis gives inputs for emerging markets and emphasis is given to the threats and opportunities.

The same are aligned with the strengths and weaknesses of the organisation. This gives direction as well as boundaries to the top management for new product development.

Idea Generation

Sources for idea generation include employees, customers, competitors, distributors, entrepreneurs and suppliers. R & D team members too can be source of ideas. The organisation should encourage ideas by rewarding employees.

Customer surveys are important when developing a new product. By direct observation or conducting a brainstorming session with potential customers, organisations get an insight into the buying behaviour, needs, and wants of the target market.

Besides this, inputs from the suppliers, sales representatives, distributors, and retailers who serve the competitor also contribute largely to idea generation. Entrepreneurs, University students and Inventors are also source of ideas of new inventions outside organisation.The organisation should have a designated Manager or Idea Committee to compile ideas from different sources.

Idea Screening

The process relies mostly on the experience of the members in the top management and their judgement. Not all the ideas are good ones, and this process is to ensure mistakes are avoided at the early stage. Key factors to be considered are new product’s value to the customer, expertise available within the organisation, stipulated time for manufacturing the product.

Scope for promotion activities, financial feasibility (cost and profit margin), sustainability in the market and customer service if needed (after sales service). The basis the new product strategy or SWOT analysis is done and the best idea is selected. Most of the organisations are more successful with products for which they have the expertise.

Concept Development and Testing

Some organisations conduct concept testing by discussing the concept of the new product with few potential buyers through discussion in focus groups or individual interviews and their reaction is recorded.

For E.g.,virtual reality programs use computers and system by which customers can experience driving an automobile or wear an attire via simulation. The inputs from consumers help organisations assess the customer appeal, customer expectations, target customers etc.

Business Analysis

It refers to the detailed study of economic feasibility of the new product ideas. The management prepares the sales, costs and profit projections to assess if the new product should be introduced. It gives a clear picture on whether to continue with the development and evaluation process or drop the idea.

The costs include promotion activities, R & D, distribution, production, and associated services like consulting, accounting, legal, etc. The organisation then arrives at the attractiveness of the new product in relation to the target market.

Product Development

The product in the form of concept word description, drawing takes the form of a prototype. Few physical versions of the product are made. This stage provides information on the costs of manufacturing, distribution, and packaging.

If the estimates are not feasible to the organisation technically, or more modifications need to be done that are undesirable, the product idea may be dropped. If the firm wishes to go ahead with the production, supporting strategies are also developed at the same time like packaging, labelling, brand names, etc.

Market Testing

This stage thoroughly evaluates the market acceptance through market research before complete product introduction in the market. The product is introduced in a small section of the market, which represents the whole market to test products acceptability.

The test results from market testing help organisations to estimate the projections. The most serious problem of conducing market testing is a competitor discovering the same and monitoring the results. If the product has not been patented, the competitor may launch identical product much earlier.

Commercialization

The new product after successfully passing the test marketing stage is launched in the entire market with all the related decisions like distribution, packaging, after sales service, etc. Contracts with suppliers are signed, channels of distribution are selected, and manufacturing facility and supporting services are set into operation on full scale.

Timing of product introduction is critical to firms. If the organisation learns that a competitor is on the verge of developing a similar product, the organisation has to make a decision like Early entry (enables a firm to have a strong distribution network and gain a reputation), Parallel entry , or Late entry (firm saves the cost of educating the consumer about the market – promotion activities).

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Consumer Adoption Process

Customers learn about new products, try them, buy or reject them. Adoption is the decision of an individual to use the product; while, diffusion / distribution / circulation is the collective spread of individual adoption decisions throughout a market.

• Thus, adoption process is concerned with the individual whereas the diffusion process is concerned with the aggregate behaviour.
  
  

• The fundamental reason for studying the diffusion and adoption processes is to increase the level of understanding of how ? When ? And why ? New products are accepted or rejected.

Five Stages to the Consumer Adoption Process

• Product awareness
  
• Product interest
  
• Product evaluation
  
• Product trial
  
• Product adoption.

Product Awareness

• This first stage is about creating awareness that your product is in the market. It is important that your company develops a successful avenue for your consumers to become aware of your product.
  
  

• If consumers do not know your product exists, than it might as well not exist! Create marketing material. These can be one–sheets, video teasers, images, and landing pages. Make these marketing materials easily accessible.
  
  

• In the era of social media, many tools are available in the market that provide companies with the techniques and methods to increase product awareness through social channels – enabling them to reach a large number of customers at a low cost.

Example

Movie Teasers. Movie teasers are designed to inform the audience without providing them in–depth information about the movie.

Product Interest

• In this stage consumers are ready to learn more about your company’s product and / or service.
  
  

• Organization must guide the consumer through the interest stage by providing easily accessible information on your product.
  
  

• Among the methods used in the today’s business landscape include a website describing the product, blog posts, tutorial or instructional videos, white papers, and other sources of info that the potential consumer can discover and review.

Example

Apple utilizes its product launch to provide information and insight into its latest product. With well–designed and organized speech, scripted presentation, and balanced use of technical and non–technical vocabulary, Apple delivers information eloquently and successfully to broad range of customers.

Product Evaluation

• Prior to purchasing, consumers examine, compare and evaluate the product. Such behavior increases in intensity and need once the item in question is more expensive, sophisticated and complex, or critical.
  
  

• Consumers go online and utilize social media channels to ask other individuals about your product or service. In addition, they find online reviews and recommendations.
  
  

• It is advisable in creating information that outlines the difference between your product and competitive products, on features and services.
  
  

• It is advisable in creating information that outlines the difference between your product and competitive products, on features and services.
  
  

• Another great system to utilize is the webinar. This platform allows you to communicate with potential customer in depth information about your product and provides time for Q&A.

Example

PCMag is a world–renowned website for comparing gadgets and computers. They are notable for their reliable reporting, comprehensive evaluation editorials, and categorization of different gadgets based on their qualities.

Product Trial

• This is the stage where the consumer “kicks the tries”.
  
  
• Nothing helps a consumer make a decision about your product more than actually trying your product out! There are many ways this is accomplished.
  
  
• A free trial or a proof of concept campaign. In this stage it is very important to set the customer expectations correctly and deliver on said expectations.

Example

Lux shampoo. HLL often gives free samples with the morning newspapers in a small sachets.

Product Adoption

• When the consumer enters the product adoption phase, he/she is ready to purchase your companies product. This is the critical stage that businesses need to get their consumers to.
  
  

• When the customer is here, you need to make the payment process simple, intuitive, and pain free. In addition, you need to ensure that the consumer can easily obtain the product. If you make it to and through this last phase successfully, than you can take money to the bank.
  
  

Whether you have a new business or an existing business, a product built for the enterprise or a product built for a consumer; the consumer adoption process is the same. Some customers buy products more quickly than others and vice versa. An individual can be categorised into different groups depending on how quickly they adopt a new product.

Adopter groups are

Innovators – they are willing to try new ideas. They help to get the product exposure.

Early adopters – these people adopt new ideas early but cautiously. They serve as the opinion leaders.

Early majority – these adopt a new product earlier than an average consumer.

Late majority – these people buy the product only after majority of the market has bought the product. They do not want to take risk.

Laggards – these are the people who mostly resist change and adopt a product only once it is not considered an innovation. They are tradition bound and buy the product as a tradition.

Advantages of Market Testing

• Data provided is from actual customer spending.
  

• Reduces the risk of a full–scale launch – if the product fails a test then significant costs may be saved.
  
  
• Provides a way to tweak the marketing mix before full launch
  
  
• Can create a promotional “buzz” which supports the main launch
  
  
• Easy and less risky to do variations to the marketing mix elements.
  
  
• Helps define target group and buyer behavior
  
  
• Realistic market response obtained
  
  
• Limited investment needed
  
  
• Forecast of Sales, Costs and profits of the total market is possible.

Disadvantages of Test Marketing

• Danger of the competition learning about the product and coming up with a response before the full launch.
  

• Test market may not be representative of the full target market, leading to inappropriate decisions.
  
  
• Delays in full launch may limit the revenue opportunity in markets subject to rapid change.
  
  
• Costly and time consuming to administer.

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FAQ