PRODUCT-DEVELOPMENT PROCESS
The specific process used in implementing product-development programmes varies among organisations. However, it is important that they employ logical, sequential processes with full recognition of the role that product is expected to play in corporate and marketing strategy. The advantage of having such a structured approach is to provide some mechanism for evaluating a new product idea at several points in time as additional information is developed. Hence in each stage, management must decide whether:
(i) to move to the next stage; (ii)to abandon the product; or (iii)to seek additional information
Product-development process
We next describe the following eight stages in the product-development process:
1 .Idea generation
2 . Screening
2 .Marketing strategy
3 . Business analysis
4 Product development
5 M ark et t es t i n g an d
6 Commercialisation.
Table of Contents
New-product development starts with an idea. Generally, ideas can come from a variety of sources, it is however desirable to establish a formalised approach to generating new-product alternatives. This entails incorporating the firm’s product development objectives. In other words, a systematic approach should be established to search for ideas that will meet current primary objectives. In addition, top management should define the product and markets to emphasise. Furthermore, it should state how much effort should be devoted to developing original products, modifying existing ones, and imitating competitors’ products.
New-product ideas often come from many sources including the following:
The purpose of this stage is to reduce the large number of ideas generated from the previous stage (i.e idea generation)”. Basically, idea screening rates the general desirability of the new product concept to the firm. For instance, even when a concept is being viewed as marketable, the same concept may be seen as inappropriate for a firm that lacks the specific resources needed to produce and market it successful y.
The following aspects are usual y given proper considerations in the rating scheme for evaluating new product ideas: marketability, durability, productive ability and growth potential (See Table 10.1)
Table : Major considerations in Idea Screening
| Aspect | Considerations |
| 1. Marketability | (a) Relation to present distribution(b) channels Relation to present ) product lines(c) Quality-price relationship(d) Number of sizes and grades |
| 2. Durability | (f) Stability(g) Breadth of market(h) Resistance to cyclical(i) fluctuations to Resistance |
| 3.Productive | (k) Equipment necessary(l) Production knowledge and personnel |
| 4.Growth Potential | (m) Place in the market(n) Expected competitive situation-value(o) added Expected availability of end |
It should be clear from Table 1 that a variety of market-based internal and external factors are often considered. Therefore, screening must generally be carried out by a multifunctional group such that relevant inputs might be collected from production, finance, R&D, and marketing.
Apart from the four general aspects contained in Table 10.1, it is also important to check whether the product idea is consistent with the current productdevelopment objectives. In this regard, a good idea that has scaled all the hurdles of the screening factors may be rejected or stepped down, if it will absorb resources needed to achieve the top priority objectives.
In this screening stage, the firm must avoid two types of errors: a DROP-error or a GO–error.
A DROP–error occurs when the company dismisses an otherwise good idea.
It is often said that if a firm markets too many DROP-errors, its standards are too conservative.
A GO-error occurs when the company permits a poor idea to move into development and commercialisation. There are three types of product failures that can arise from this error:
(i) An absolute product failure. This loses money, and its sales do not cover variable costs.
(ii) A partial product failure This also loses money. However, its sales cover all the variable costs and some of the fixed costs.
(i i) A relative product failure: This yields a profit that is less than the firm’s normal rate of return.
In summary, the major objective of the idea screening stage is to spot and drop poor ideas as early as possible. The justification for this is premised on the fact that product development costs rise substantial y at each stage. It is thus, a case of “a stitch in time saves nine”.
The purpose of concept development and testing is to ensure that the proposed product is devoid of all kinds of problems when it eventually gets to the market.
After the elimination of all the poor product ideas at the screening stage, the surviving ideas must now be developed into product concepts. It will be necessary to distinguish between a product idea, a product concept, and a product image: A product idea is just an idea for a product that the firm can think of offering to the market. A product concept is an elaborated version of the idea expressed in meaningful consumer terms. A product image is the particular picture that consumers acquire of an actual or potential product.
Concept development can be illustrated with the case of a food processor, who has an idea of producing a powder to be added to milk for the purposes of increasing its nutritional level and taste. At this point, this is merely a product idea. However, customers do not buy product ideas, but product concepts.
General y speaking, any product idea can be turned into several product concepts. Firstly, we start with the persons or group(s) of persons who are likely to benefit from the use of the product. For instance, the proposed powder can be aimed at infants, children, teenagers, middleaged adults, or the elderly.
Secondly, the primary benefits to be derived from the consumption of the powder are considered. This could be taste, nutrition, refreshment or energy.
Thirdly, the primary occasion for the drink is next considered. For instance, should it be for breakfast, mid-morning, lunch, mid-afternoon, dinner or late evening?. By properly given adequate considerations to the issues raised above,a firm can develop several product concepts. For example, the following three concepts can be generated from the issues already raised:
Concept 1: An instant breakfast drink for working-class adults who want a quick nutritional breakfast without preparing a breakfast.
Concept 2: A tasty snack drink for school children to drink as a midday refreshment
Concept 3: A health supplement for the elderly to drink in the late evening before going to bed.
The purpose of concept testing is to develop a more refined estimate of market acceptance for the new product concept, or to compare competing concepts in order to determine the most appealing one (or two), or both.
Concept testing is particularly designed to obtain the reaction of potential consumers or buyers to one or more hypothetical product concepts. What is usually done is to present the product features and benefits in verbal form or explained through visual aids. Potential users are then interviewed to obtain comments about the advantages and shortcomings of each concept. Alternatively they may be asked to rate the products in various ways.
What goes on at this stage, is the development of a preliminary marketing strategy. This is refined appropriately in subsequent stages.
The marketing-strategy statement often consists of three parts: In the first part, the description of the size, structure, and behaviour of the target market are given. Furthermore, the planned product positioning and the sales, market share, and profit goals sought in the first few years are similarly stated.
In the second part of the marketing-strategy statement, the proposed product’s planned prices, distribution strategy, as well as the marketing budget for the first year are outlined.
The descriptions of the planned long-run sales and profit goals and the marketing-mix strategy over time are presented in the third part of the marketing-strategy statement.
The business attractiveness of the new-product proposal is evaluated here.
Essentially, the proposal is expanded into a concrete business proposal in which management
(a) estimates sales;
(b) estimates costs and profit projections.
These are done in order to determine whether such projections satisfy the firm’s objectives.
One major purpose of estimating sales is to check if it will be high enough to return a satisfactory profit to the firm. The best approach for the sales estimation is to examine the sales history of similar products. Additional y, a survey of market opinion should also be undertaken. From these, management should then prepare estimates of minimum and maximum sales to learn the range of risk.
After the preparation of sales forecast, management goes on to estimate the expected costs and profits of the proposal. The costs are estimated by the R&D, manufacturing, marketing and finance departments. Several techniques are then used to determine whether the proposed project meets the firm’s minimum profitability standards. Among the most widely used methods are the net present-value and the payback approaches.
If the business analysis for the proposal turns out to be favourable, the product concept moves to R&D and/or engineering, where it is developed into a physical product. It is at this stage that the “idea-on-paper” is converted into a physical product.
As would be expected, this stage calls for huge investment which is far beyond what was spent in earlier stages. This stage often determines whether the product idea can be translated into a technical y and commercial y feasible product. Otherwise, the firm’s accumulated investment will be lost, safe for any useful information gained in the process.
While developing one or more physical versions of the product concept, the R&D department strives to find a proto-type that satisfies the fol owing criteria:
(1) consumers views it as possessing the key attributes described in the product-concept statement;
(2) the prototype performs safely under normal use and conditions;
(3) the prototype can be produced for the budgeted manufacturing costs.
It usually takes considerable length of time to develop a successful prototype. There is the need for lab scientists to design the required functional characteristics. They should also know how to communicate the psychological aspects through physical cues. For example, in order to support the claim that a lawnmower is powerful, the lab people have to design a heavy frame and a fairly noisy engine!. It will also be necessary for the marketing team to work closely with the lab people so as to let them understand how consumers judge product qualities they have in mind.
When a prototype has been developed, it must be put through rigorous functional and consumer tests. The functional tests are conducted under laboratory and field conditions to make sure that the product performs safely and effectively. The functional tests are essentially technical. They are meant to provide information on:
(i) Product shelf life
(ii) Product wear-out rates
(iii) Problems resulting from improper usage or consumption
(iv) Potential defects that will require replacement
(v) Appropriate maintenance schedules.
As earlier pointed out, it is also necessary to examine the product performance from the buyers’ perspective. Such consumer testing can take a variety of forms, ranging from bringing consumers into a lab to test the product versions to giving them samples to use in their homes. The degree to which the new product is likely to acquire new customers rather than simply “cannibalizing” the sales of any existing products can be established. In addition, consumer product testing can provide a check on whether or not the concept has been implemented. If consumer descriptions of the product do not match the intended concept, then reformulation may be necessary.
If the product’s functional performance is satisfactory, the product is deemed fit to be dressed up with a brand name, packaging and a preliminary marketing programme, to test it in more real-life consumer settings. The purpose of market testing is to learn how consumers and dealers react to handling, using, and repurchasing the actual product and how large the market is.
Market testing can yield valuable information about buyers, dealers, marketing programme effectiveness, market potential etc.
The amount of market testing is influenced by the investment cost and risk on one hand, and the time pressure and research cost on the other hand. Normally, high investment/risk products deserve to be market-tested so as not to make costly mistakes. Here then, the cost of the market tests will be an insignificant percentage of the cost of the project itself.
In addition, high-risk products i.e those that create new-product categories or have novel features, require more market testing than modified products. However, the amount of market testing may be seriously limited if the firm is under intense pressure to introduce its brand probably because the season is just starting, or competitors are about to launch their brands. In some instances, the firm may prefer the risk of a product failure to the risk of losing distribution or market penetration on a highly successful product. Finally, the cost of market testing will affect how much is done and what kind.
There are differences in the market-testing methods between consumer and industrial products.
The main purpose of testing consumers is to estimate the main determinants of sales i.e trial, first repeat, adoption, and purchase frequency. Ordinarily, most firms want to find all of these at a high level. However, a firm might find many consumers trying the product but not re-purchasing it, thus indicating a lack of product satisfaction. Yet, another firm might find high first-time repurchases but only experience a rapid wear-out effect. In another instance, a firm might find high permanent adoption but low frequency of purchase because the buyers use the product only on special occasions.
Furthermore, the firm wants to understand how many and what types of dealers will handle the product, under what terms, and with what shelf-position commitments.
There are four main methods of consumer-goods market testing. These are (a) sales-wave research (b) simulated store technique (c) control ed test marketing (d) test marketing.
(a) Sales-wave research
This is an extension of the ordinary home-use testing in which consumers who initially try the product at no cost are re-offered the product, or a competitor’s products, at slightly reduced prices. These consumers may be re-offered the product as many as three to five times. During these periods of offer, the firm records how many consumers selected its own product again, together with their reported level of satisfaction.
Apart from under-studying the repeat purchase of products, sales-wave research can also be used to monitor the impact of advertising exposure on repeat purchase. This is done by exposing consumers to one or more advertising concepts in rough form and then recording the effect.
Sales-wave research has been found to possess some advantages. Firstly, it enables the firm to estimate the repeat-purchase rate under conditions where consumers spend their own money and choose among competing brands. Secondly, the firm can also measure the impact of alternative advertising concepts on producing repeat purchases. Thirdly, sales-wave research can be implemented quickly, conducted under relative competitive security, and carried out without needing to develop final packaging and advertising.
This method however has two limitations: It does not indicate the trial rates that would be achieved with different sales promotion incentives, since the consumers are pre-selected to try the product. Neither does it indicate the brand’s power to gain distribution and favourable shelf position from the trade.
(b) Simulated store technique
This is also variously known as “laboratory-test-markets”; “purchase laboratories” or “accelerated test-marketing”. Here, about thirty to forty shoppers at a shopping centre or elsewhere are invited to a brief screening of some television commercials.
What is shown to this audience contains a number of well-known commercials and some new ones, and they usually cover a range of products. Within the period of screening, one commercial advertises the new product, but this is not singled out for attention.
The consumers are later given some small amount of money, as well as invited to a store, where they may use the money to buy any item or keep the money. The researchers record how many consumers buy the new product and competing brands. This definitely provides a measure of the trial of the commercial effectiveness against competing brands. The consumers are made to reconvene in order to know the reasons for their purchases or non-purchases.
Some weeks later, the same sets of consumers are re-interviewed by telephone to determine product attitudes, usage, satisfaction, and re-purchase intention and are offered another opportunity to repurchase any products.
The simulated store technique has several advantages. These include the measuring of trial rates, as well as repeat rates, advertising effectiveness, speedy results, and competitive security. The results of the exercise are often incorporated into mathematical models in order to project ultimate sales levels. The outcomes of such prediction have been found to be very accurate.
(c) Control ed test marketing
This is also cal ed “mini-market testing”. The method often requires the marketing research firm conducting the test to make some arrangement with a controlled panel of stores. Such stores must have agreed to carry new products for a given amount of money. The firm with the new product specifies the number of stores and geographical locations it wants. The marketing research firm then delivers the product to the participating stores and subsequently controls shelf location, number of facings, displays and point-of-purchase promotions, as well as pricing according to pre-specified plans. Sales that result from this arrangement can be audited both from shelf movement and from consumer diaries. In addition, the firm can test small-scale advertising in local newspapers during controlled test marketing.
This method has a special advantage since it allows the firm to test the impact of in-store factors and limited advertising on consumers’ buying behaviour without involving consumers directly. A sample of consumers can be interviewed later in order to obtain their impressions of the product. Another advantage inherent in the control ed test marketing method is that the firm does not have to use its own sales force, give trade allowances, or take the time to buy into distribution.
However, this method does not provide experience in trying to sel the trade on carrying the new product. In addition, the technique also exposes the product to competitors.
(d) Test marketing
This is the costliest and the best way of testing a new consumer product. Under the method, a firm offers a product for sale in a limited geographic area that is as representative as possible of the total market in which the product will eventually be sold. Test marketing has several distinguishing features relative to other approaches:
(i) Test marketing lowers the risk of national failure, which could endanger channel relationships, reduce confidence, and morale of employees, and have a negative impact upon present customers’ images of other products.
(i ) No special benefits are offered to induce purchasing other than those that would later
be available on a national basis.
(iii) The product competes with other competitive products in a real sales environment.
Any firm using test marketing usually works with an outside research firm to locate a small number of representative test cities in which the company’s sales force will try to sell the trade on carrying the product and exposing it effectively on the shelves. Moreover, the firm needs to put on a frill advertising and promotions campaign in these markets as would be done in frill national marketing.
As would be expected, test marketing costs money. The actual amount to be spent however depends on the consideration given to the fol owing:
(a) The number of cities:
It has been found that most tests use between two and six cities, with an average of four. Again, it has been further suggested that a larger number of cities should be employed if:
(i) there is the probability of loss from going national or the maximum possible loss is very great;
(i ) there is substantial number of contending/marketing strategies or the level of uncertainty is very high;
(iii) there are wide regional differences; and
(iv) there is high chance of calculated test-market interference by competitors.
(b) Type of cities:
Though no one city is a perfect replica of the nation as a whole, some cities often typify aggregate national or regional characteristics bet er than others. Such cities may be included in the study. Firms are of course, free to develop their own test-selection criteria.
(c) Length of test:
General y, the length of test markets ranges from a few months to several years. The longer the product’s average re-purchase period, the longer the test period necessary to observe repeat-purchase rates. However, if competitors are rushing to the market, the period should be shortened.
(d) Nature and amount of information:
The type of information to be collected has a bearing on its value and cost. The following can be used to illustrate the variations in the amount of details contained in different types of information:
(i) Warehouse shipment data shows gross inventory buying, but fails to
indicate weekly sales at retail
(ii) store audits will give actual retail sales and competitors’ market
shares but will not indicate the characteristics of the buyers of the different brands.
(i i) Consumer panels will show which people are buying which brands together with their loyalty and switching rates
(iv) Buyer surveys give in-depth information about consumer attitudes, usage, and satisfaction.
Other things that can be re-searched here include trade attitudes, retail distribution, and the effectiveness of advertising, promotion, and point-of-sale material.
Many benefits are derivable from test marketing. Firstly, it yields a more reliable forecast of future sales. For instance, if product sales fall below target levels in the test market, the firm may have to drop or modify the product.
Secondly, the method allows the pre-testing of alternative marketing plans. A different marketing mix can be employed in each of the test cities. From these, the optimum mix that results in the best profit level can be detected.
Thirdly, a firm may discover a product fault that escaped its attention in the product-development stage. In addition, the firm may discover important clues to distribution-level problems, and through this, it may gain better insight into the behaviour of different market segments. It has been observed that the main value of test marketing’s does not lie in sales forecasting, but in learning about unsuspected problems and opportunities connected with the new product.
Though test marketing has lots of advantages, a number of problems have been identified as limiting its effective application. These concern the problems of:
(i) obtaining a set of markets that is reasonably representative of the country as a whole
(ii) translating national media plans into local equivalents
(iii) estimating what is going to happen in the coming year, based on what has happened in this year’s competitive environment
(iv) competitive knowledge of appropriate test(s) and of deciding whether any local counter activities are representative of what competition will do national y in the future.
(v) extraneous and uncontrollable factors such as economic conditions and weather
In the past, it is usual for new industrial goods to undergo extensive product testing in the laboratories in order to measure performance, reliability, design and operating cost.
With satisfactory results, many firms will commercialise the product by listing it in the catalogue and turning it over to the sales force. In modern-day business however, a large number of firms are changing to market testing as an intermediate step. Firms stand to gain substantial benefits in the process, since market testing can indicate:
(i) the product’s performance under actual operating conditions;
(ii) the key buying influences;
(iii) how different buying influences react to alternative prices and sales approaches;
(iv) the market potential; and
( v ) the best market segment
Due to certain reasons, test marketing is not typically used for industrial products. Firstly, it is too expensive to produce their samples, not to talk of putting them up for sale in a select market, just to see how well they sell . Secondly, industrial buyers will want to be sure of the availability of spare parts and after-sales services before buying durable goods. Thirdly, marketing research firms are yet to develop the test-market systems that are found in consumer markets. Hence, industrial-goods manufacturers have to use other methods that can be employed in researching the market’s interest in new industrial products. Four of such methods are in use. These are (a) product-use test (b) trade shows (c) distributor and dealer displays and (d) controlled or test marketing.
(a) Product-use test
This is the most common method, and it is similar to the in-house use test for consumer products. Here, the manufacturer selects some potential customers who must have agreed to use the product for a limited period. The technical team from the firm monitors how these customers use the product. The outcome of this exercise often exposes unanticipated problems of safety and servicing. It also gives the manufacturer clues about customer training and service requirements. At the end of the test, the customer is asked to express purchase intent and other reactions.
(b) Trade shows
Another common market-test method is to introduce the new industrial product at trade shows. Trade shows usually draw a large number of buyers, who view new products in a few concentrated days. During the exposure, the manufacturer wil be able to see how much interest buyers indicate in the new product, how they react to various features and terms, and how many of them actually express purchase intentions or place orders. One major disadvantage inherent in this method is that it reveals the product to competitors. Hence, the manufacturer should be ready to launch the product once it has been displayed at trade shows.
(c) Distributor and dealer display rooms
Manufacturers can also market-test new products in distributor and dealer display rooms, where such products may be placed next to the manufacturer’s other products and possibly competitors’ products. This method makes it possible to obtain preference and pricing information in the normal selling atmosphere for the product. It however has some shortcomings. For instance, the customers may want to place order that cannot be met. In addition, the customers who come in might not be representative of the target market.
(d) Controlled or test marketing
Although it was mentioned earlier that test marketing is not typically used for industrial products, some manufacturers have been found to make use of it. In this case, they produce a limited supply of the product and give it to the sales force to sell in limited geographical areas with adequate promotional support, printed catalogue sheets etc. Through this process, the firm can have a fore knowledge of what might happen under full-scale marketing and thus get wel prepared for the launching.
Stage 8: Commercialisation
At this stage, full-scale production and marketing programmes are planned, and then the product is launched. There are a number of important decisions to make before the product is finally launched.
First, the timing of the introduction should be careful y evaluated. In general, it Is more appropriate to introduce the new product during peak periods if demand is seasonal. This wil allow the firm to obtain a high rate of trial and early sales, helping to offset the high costs of introduction. It is also necessary to time the introduction appropriately, so that distributors will have adequate levels of inventory by the time the introductory promotional campaign starts. If the new product is being proposed to replace another product, it might be necessary to delay its introduction until the old product’s stock is drawn down, through the normal sales.
Second, the firm should properly consider its geographical strategy. In particular, it should decide whether to launch the new product in a single locality, a region, several regions, the national market, or the international market. It has been observed that only a few firms have the confidence, capital, and capacity to launch new products into full national distribution. They therefore tend to develop a planned market rollout over time. For smaller companies, this approach entails the selection of an attractive city with an aggressive promotional campaign to enter the market. Larger companies on their part often introduce their new products into a whole region and then enter others, one at a time.
Under rollout marketing, firms have to assess the alternative markets for their new products, using such criteria as market potential, firm’s local reputation, cost of filling the pipeline, quality of research data available in the particular area, influence of area on other areas, and competitive penetration. The outcome of the assessment will allow the firm to determine the prime markets and develop a geographical rollout plan.
Third, with respect to the rollout markets, the firm must target its distribution and promotion to the best prospect groups. It is expected that prime prospects should have been identified during the market testing stage. Ideal y, prime prospects for new consumer products have been found to be:
(i )early adopters
( ii ) heavy users
(iii) opinion leaders who talk favourably about the product
(iv) reached at a low cost .
We should note that very few groups of prospective customers possess all of the above characteristics. The best thing is for the firm to rate the various prospect groups on these features, and then target the best one. The purpose of doing this is to generate high sales as soon as possible to motivate the sales force and attract other new prospects.
Fourth, other programme decisions, with respect to price, advertising, sales promotion, and sales and distribution activities need to be developed and coordinated. These programmes are very important since they influence the sales and profit results of any new products.
You have learned in this unit that every company needs to develop new products. This is because new-product development shapes the company’s future. Replacement products must be created to maintain or build sales. Customers want new products, and competitors will do their best to supply them. Therefore companies that fail to develop new products are putting themselves at great risk.
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