Everything you need to know about the process of new product development. The term new product includes an original product, an improved product with new features and quality, a modified product and a new brand.
The companies need to make continues endeavour towards product development to cope up with rapid changes in consumer tastes, technology and competition. The first step towards product development understands the nature of market, the competitors and needs and wants of the consumer.
A new product is the result of a series of steps taken by a company, beginning with the conception of a new idea to its successful commercial exploitation. If the idea is commercially viable, the production and marketing of the product on a full scale are undertaken.
The new product development process starts from idea generation and ends with product development and commercialization.
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The steps involved in the new product development process are as follows:-
1. Idea Generation 2. Idea Screening 3. Concept Development and Testing 4. Marketing Strategy Development
5. Business Analysis 6. Product Development 7. Test Marketing 8. Commercialisation/Launching of Products.
New Product Development Process: Steps, Procedure and Stages
Process of New Product Development – 8 Step Process
Major Steps in New Product Development:
Step # 1. Idea Generation:
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The systematic search for new product idea.
Major sources of new product ideas include:
i. External sources which consists of –
a. Customers
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b. Competitors
c. Distributors
d. Suppliers
ii. Internal Sources – R&D
a. Scientists
b. Engineers
c. Marketing people
d. Managers
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e. Salesmen
Step # 2. Idea Screening:
i. Screening new product ideas in order to spot good ideas and drop poor ones as soon as possible.
ii. The purpose of idea generation is to create a large number of ideas.
iii. The purpose of the succeeding stages is to reduce that number.
Step # 3. Concept Development and Testing:
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Product Concept:
A detailed version of new product idea stated in meaningful consumer terms. It is important to distinguish between a –
i. Product idea
ii. Product concept
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iii. Product image
i. Product idea is an idea for a possible product that the company can see itself offering to the market.
ii. Product concept is a detailed version of the idea stated in meaningful consumer terms.
iii. Product image is the way consumers perceive an actual or potential product.
Concept development is development of product concept.
Concept Testing:
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Testing new product concepts with a group of target consumers to find out if the concepts have strong consumer appeal. Concept can be presented symbolically or physically.
Some people use pictures, words, virtual reality etc. for concept testing.
Step # 4. Marketing Strategy Development:
i. Designing an initial marketing strategy for a new product based on the product concept.
ii. The marketing strategy statement consists of three parts –
a. The first part describes the target market, the planned product positioning and the sales, market share and profit goals for the first few years.
b. The second part of the marketing strategy statement outlines the product’s planned price, distribution, and marketing budget for the first years.
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c. The third part of the marketing strategy statement describes the planned long run sales, profit goals and marketing mix strategy.
Step # 5. Business Analysis:
A review of sales, costs and profit projections for a new product to find out whether these factors satisfy the companies objectives –
i. It is evaluation of business attractiveness of the proposal.
ii. The company uses the sales and costs figures to analyse the new products financial attractiveness.
Step # 6. Product Development:
Developing the product concept into a physical product in order to assure that the product idea can be turned into a workable product.
i. This stage involves large investments.
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ii. The R&D department will develop and test one or more physical versions of the product concept (prototype).
iii. The prototype must have the required functional features and also convey the intended psychological characteristics.
Step # 7. Test Marketing:
i. The stage of new product development in which the product and marketing program are tested in more realistic marketing settings.
ii. Test marketing gives the marketer experience with marketing the product before going to the great expense of full introduction.
iii. When using test marketing consumer products companies usually choose one of three approaches:
(a) Standard Test Marketing:
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Using standard test marketing the company finds a small number of representative test cities, conducts a full marketing campaign in these cities and use store audits, consumer and distribution surveys and other measures to gauge product performance.
Drawbacks of standard test marketing are:
a. Can be very costly
b. Can be very time consuming
c. Competitors can monitor test market results or even interfere with them by cutting their prices in test cities, increase their promotion or even buy up the product being tested.
d. Test market gives competitors a look at the company’s new product well before it is nationally introduced hence they get time to develop defensive strategies.
(b) Controlled Test Marketing:
a. Research firms keep controlled panels of stores that have agreed to carry new product for a fee.
b. Controlled test marketing usually costs less than standard test marketing and takes less time.
Drawbacks of this Strategy are:
a. Small size of sample may not be representative of their products’ markets or target consumers.
b. As in standard test marketing, controlled test marketing allows competitors to get a look at the company’s new product.
(c) Simulated Test Marketing:
a. The company shows advertisements and promotions for a variety of products including the new product being tested to a sample of consumers.
b. They invite consumers to a real or lab store where they may buy items and researchers note how many people buy the new product and competing brands.
c. The researcher may also ask consumers some questions.
d. Simulated test markets overcome some of the disadvantages of standard and controlled test market.
e. They cost much less
f. Take less time.
g. Keep the new product out of competitors view.
h. But they take small samples and simulated environments make them less accurate and reliable.
i. This can be used before using controlled or standard test marketing if required.
Step # 8. Commercialisation:
Introduction of the new product into the market:
i. This implies commitment of high investments in manufacturing facilities, sales promotion and other marketing efforts in the first year.
ii. The company launching a new product must first decide on introduction timing.
iii. Next the company must decide where to launch i.e. in a single location or a region or national market or international market.
iv. They may develop a planned market rollout time.
Process of New Product Development – 8 Main Steps Involved: From Idea Generation to Commercialisation/Launching of the Product
Process # 1. Idea Generation:
Idea generation is the first step of new product development. This process of new product development requires gathering ideas to be evaluated as potential product options. Upto a large extent the idea generation is an ongoing process with contributions from inside and outside the organisation for certain companies.
Many market research techniques are used to encourage ideas including: running focus groups with consumers, channel members, and the company’s sales force; encouraging customer comments and suggestions via. toll-free telephone numbers and website forms; and gaining insight on competitive product developments through secondary data sources.
One important research technique used to generate ideas is brainstorming where open-minded, creative thinkers from inside and outside the company gather and share ideas. The dynamic nature of group members loose ideas, where one idea often sparks another idea, can yield a wide range of possible products that can be further pursued.
Process # 2. Screening:
After gathering many ideas from various sources, the marketer goes through all the ideas, analyse them and select the most feasible and workable idea. If a company adopts a non-feasible idea, it may get into a wasteful expenditure. In Step 2 the ideas generated in Step 1 are critically evaluated by company personnel to isolate the most attractive options.
Depending on the number of ideas, screening may be done in rounds with the first round involving company executives judging the feasibility of ideas while successive rounds may utilise more advanced research techniques.
As the ideas are jotted down to a few attractive options, rough estimates are made of an idea’s potential in terms of sales, production costs, profit potential, and competitor’s response if the product is introduced. Acceptable ideas move on to the next step.
Process # 3. Concept Development and Testing:
After gathering and screening ideas, the concept of development and testing starts with a few ideas in hand the marketer now attempts to obtain initial feedback from customers, distributors and its own employees. Usually, focus groups are convened where the ideas are presented to a group, often in the form of concept board presentations (i.e., storyboards) and not in actual working form.
For instance, customers may be shown a concept board displaying drawings of a product idea or even an advertisement featuring the product. In some cases focus groups are exposed to a mock-up of the ideas, which is a physical but generally non-functional version of product idea.
The organisation may have come across what they believe to be a feasible idea; although, the idea needs to be taken to the target audience. What do they think about the idea? Will it be practical and feasible? Will it offer the benefit that the organisation hopes it will? Or have they overlooked certain issues? Note the idea and concept is taken to the target audience not a working prototype at this stage.
Process # 4. Marketing Strategy and Development:
After testing, the new-product manager must develop a preliminary marketing-strategy plan for introducing the new product into the market. How will the product/service idea be launched within the market? A proposed marketing strategy will be written laying out the marketing mix strategy of the product, the segmentation, targeting and positioning strategy sales and profits that are expected.
The plan is inclusive of three parts:
(i) First Part – It shows the target market’s size, structure, and behaviour; the planned product positioning; and the sales, market share, and profit goals sought in the first few years.
(ii) Second Part – It reveals the planned price, distribution strategy, and marketing budget for the first year.
(iii) Third Part – It describes the long run sales and profit goals and marketing-mix strategy overtime.
Process # 5. Business Analysis:
On this stage, in the new product development process the marketer has reduced a potentially large number of ideas down to one or two options. The key objective at this stage is to obtain useful forecasts of market size (e.g., overall demand), operational costs (e.g., production costs) and financial projections (e.g., sales and profits). Additionally, the organisation must determine if the product will fit within the company’s overall mission and strategy.
Now, in this step the process becomes very dependent on market research as efforts are made to analyse the viability of the product ideas. (Note, in many cases the product has not been produced and still remains only an idea.) Much effort is directed at both internal research, such as discussions with production and purchasing personnel, and external marketing research, such as customer and distributor surveys, secondary research, and competitor analysis.
The company has a great idea, the marketing strategy seems feasible, but the question is will the product be financially worthwhile in the long run? The business analysis stage looks more deeply into the cash flow the product could generate, what the cost will be, how much market shares the product may achieve and the expected life of the product.
Process # 6. Product and Marketing Mix Development:
At this stage a prototype is finally produced. The prototype will clearly run through all the desired tests, and be presented to the target audience to see if changes need to be made. Ideas passing through business analysis are given serious consideration for development.
Companies direct their research and development teams to construct an initial design or prototype of the idea. Marketers also begin to construct a marketing plan for the product. Once the prototype is ready the marketer seeks customer input.
Although, unlike the concept testing stage where customers were only exposed to the idea, in this step the customer gets to experience the real product as well as other aspects of the marketing mix, such as advertising, pricing, and distribution options for instance, retail store, direct from company, etc.
Favourable customer reaction helps solidify the marketer’s decision to introduce the product and also provides other valuable information such as estimated purchase rates and understanding how the product will be used by the customer.
Process # 7. Test Marketing:
After designing, the next step is testing the product in the market. The term ‘test marketing’ is also sometimes called ‘field-testing’. The word ‘test’ means examination or trial. Test marketing means testing the product within a specific area. The product will be launched within a particular region so the marketing mix strategy can be monitored and if needed, be modified before national launch.
Test marketing, thus, implies testing the product in the market before the product is commercialised on a large scale. This is done with a view to understand the market and the marketing considerations like nature of competition, nature of demand, and the consumer’s needs, etc.
Philip Kotler says, “Test marketing is the stage at which the product and marketing programs are introduced into more realistic market settings.”
Products surviving to Step 6 are ready to be tested as real products. Under some cases the marketer accepts what was learned from concept testing and skips over market testing to launch the idea as a fully marketed product. But other companies may look for more input from a larger group before moving to commercialisation.
The most common type of market testing makes the product easily available to a selective small segment of the target market (e.g., one city), which is exposed to the full marketing effort as they would be to any product they could purchase.
Process # 8. Commercialisation-Launching the Product:
Decision regarding launch of the product on a nationwide scale is taken only when the results of test marketing stage are successful and promising, along with a number of factors considered before-hand. Important aspects of commercial launch of the product are the timing of launch, how the product will be launched, where will it be launched i.e., on a nationwide basis or region by region basis etc.
Certain firms introduce or roll-out the product in waves with parts of the market receiving the product on different schedules. This allows the company to ramp up production in a more controlled way and to fine tune the marketing mix as the product is distributed to new areas.
Process of New Product Development – Step by Step Process
Product development process is an essential process for any business which desires success and survival in the market. Today, businesses are operating in a highly dynamic and competitive environment. Therefore business organizations have to continuously update their products in order to conform to current as well as upcoming trends. The product development process starts from idea generation and ends with product development and commercialization.
Following are the steps in the process of product development:
1. Idea Generation:
The first step of product development is Idea Generation. The basic need for the business is to grow by identifying new products required which are to be developed considering consumer needs and demands. It is done through research from market sources like consumer’s attitudes, changing trends, and competitor policies. Various methods are available for idea generation like – Brain Storming, Delphi Method, or Focus Group.
2. Idea Screening:
The second step is Idea Screening. This stage is concerned with selecting the best and most feasible idea among the ideas generated at the first step. As the resources are limited, it is not possible to convert all the ideas into products. Most promising ideas are shortlisted for the next stage.
3. Concept Development:
At this step, the selected idea is moved into development process. For the selected idea, different product concepts are developed. Out of several product concepts the most suitable concept is selected and introduced to a focus group of customers to understand their reaction.
Example- In Auto Expos, cars of different concepts are presented. Though these models are not the actual product, they are just to describe the concept say electric, hybrid, sport, fuel efficient, environment friendly, etc. Today, with 3D printing, concept development can be seen not on paper or on computer simulation, but the concept can be seen in the physical form. (3D printing itself is an innovation in its own!!)
4. Business Analysis:
During this step, the market strategies are developed to evaluate market size, product demand, growth potential, and profit estimation for initial years. Further, it includes proper promotion of product, selection of distribution channel, budgetary requirements, etc. Business analysis includes-estimation of sales, frequency of purchases, nature of business, production and distribution related costs and expenses, and estimation of profit.
5. Product Development:
The concept, further, moves to production of finalised product. From operational point of view, decisions have to be taken whether the product is technically and commercially feasible to produce. Here the research and development department plays a key role in developing a physical product for commercial production.
6. Test Marketing:
Now the product is ready to be launched in the market with a brand name, packaging, and pricing. Before full scale launching, the product is exposed to a carefully chosen sample of the population, called test market. If the product is found acceptable in the test market, the product is ready to be launched in the desired target market.
7. Commercialisation:
During this phase the product is produced in bulk on a continuous basis and launched across the target market with a proper marketing strategy and plan. This is the stage from which the product diffusion phase begins.
Process of New Product Development – 6 Main Stages: Idea Generation, Idea Screening, Business Analysis, Product Development, Test Marketing and Commercialization
New product development being a complex process cannot be done haphazardly.
It has to go through several stages as follows:
1. Idea generation
2. Idea screening
3. Business analysis
4. Product development
5. Test marketing
6. Commercialization
Every company has to take its new product development scheme through all the above stages and it should also be noted that the stages are logically arranged-a company can go through a particular stage only after the immediate previous stage has been satisfied.
Stage # 1. Idea Generation:
A new product itself is an idea. Therefore the new product should be based on a sound idea. This idea should relate to the consumers’ needs and preferences. Any idea even if it sounds theoretically workable, will not be viable unless it addresses the genuine needs and preferences of the consumers.
A company has to search for various ideas and generate a long list of ideas. Even though a company is going to finally chose one or a very few ideas, it should generate a large number of ideas. The best idea chosen out of hundred ideas is more likely to be better than the best idea chosen of fifty ideas.
A company should firstly identify the sources of new ideas and tap all the ideas from these sources.
Stage # 2. Idea Screening:
Any company which is successful in the previous stage will generate a large number of ideas. A company has to however realize that all the ideas cannot be implemented. One or at best a few ideas only can be implemented.
This poses a different type of a problem to the company. If the challenge of the previous stage is to generate a large number of ideas, the challenge of this stage is to prune down the ideas to just one or two and thereby eliminating all other ideas.
Stage # 3. Business Analysis:
A new product idea to be adopted as a good idea has to make sense from a business point of view. It should have sufficient sales and yield sufficient profit. It should also remain good for a sufficiently long time to justify a certain amount of investment. Such factors form the business analysis.
After the development of the product concept and marketing strategy, a company has to evaluate the potential of the product idea from a business view point.
The following factors must be looked into as a part of the business analysis:
a. Sales estimates – Management has to estimate the amount of expected sales. The sales must be high enough to yield a satisfactory profit. There are several methods of estimating sales. Sales estimation must be done separately for different types of products such as -infrequently purchased products (automobiles, home gadgets etc.), frequently purchased products (consumer and industrial non-durables).
b. Estimating first time sales – The company has to estimate the number of units that can be sold to people who are purchasing the products for the first time.
c. Estimating replacement sales – These are the goods purchased by the consumers not for the first time but for a subsequent time. All consumer durables will be discarded by the consumers and they purchase new goods as replacements for the discarded ones. Example – A person purchases a two wheeler for the first time (first time sales) and uses it for 10 years, after which he discards the two wheeler and buys another two wheeler to replace that (replacement sales).
d. Estimating repeat sales – There are certain goods (for example FMCG) which are purchased very frequently by the consumers. In such a case a company has to estimate both-first time sales and repeat sales.
e. Estimating costs and profits – A company has to prepare cost and profit estimates based on the sales estimates. There are several techniques to calculate estimated profits such as-marginal costing, budgets etc.
Stage # 4. Product Development:
A product which successfully passes through the business process stage is ready for product development. Product development means building or erecting or manufacturing the first few prototypes of the actual product. These prototypes are manufactured either the manufacturing department or in the R&D department. This is the stage where the product is developed physically and till this stage the product is only an idea in the minds of the executives and on paper.
This stage involves large amounts of expenditure in the form of raw material costs, equipment, drawings, technology, wages, trial runs etc. Development of a successful prototype may take a long time. Throughout the state of such development the company should keep the customer requirements in mind.
After these units are developed they should be subjected to functional tests and consumer tests. Functional tests refers to testing the product within the industry to check its quality, durability, performance, efficiency etc., however all these tests are done under ideal test conditions within the industry.
Consumer testing means giving the first units of the product to consumers, asking them to use the products in actual usage conditions and seeking their opinion about the product. In certain cases the consumers may be invited to the industry and in certain cases the products are sent to the places of the consumers.
Stage # 5. Test Marketing:
Test marketing or market testing is done to understand the response of the consumers, dealers etc. to the product, specifically in terms of handling, using etc. It involves the product offer being completed by giving it a brand name, packaging and marketing programme. The product with the entire package is offered to the market and the market response to the-same is studied. Any negative response to the product at this stage must be taken seriously. The actual problem should be identified and immediately set right.
“Test marketing is a stage where the product and its marketing plan are exposed to a carefully chosen sample of the population for deciding if to reject it before its full scale launch”. – Business Dictionary
Test marketing is an experiment conducted in which the market itself is the laboratory. The test market comprises of actual stores and real-life buying situations, without the buyers knowing they are participating in an evaluation exercise. It simulates the eventual market-mix to ascertain consumer reaction.
This gives valuable information about the responses of the buyers, dealers and the entire market, to the product. Test marketing is done only after getting a positive response in the previous stages namely functional tests and consumer tests. This is the first stage during which the product is showcased to the market under actual conditions. Therefore this is the acid test of a product’s acceptance by the market.
The test marketing aims to duplicate everything related to marketing such as pricing, distribution, promotion as well as product-on a smaller scale. This technique replicates, typically in one area, what is planned to occur in a national launch; and the results are very carefully monitored, so that they can be extrapolated to projected national results.
The main objective of test marketing is to check whether the market will accept the product. Thus a huge amount of loss can be saved in the form of avoiding the launching of an unacceptable product.
The amount, duration and extent of test marketing depend on factors like the total investment, risk, the time available and the cost of test marketing. High investment /risk products require more of test marketing as even a small mistake at a later stage will cause a huge amount of loss. If a company is under great time pressure to launch the product, the duration of test marketing is reduced. If the cost of test marketing, in the form, of establishing a distribution network, advertising etc. is very high, a company has to proceed very cautiously.
Stage # 6. Commercialization:
Commercialization is the large scale launch of a product which has emerged successful through all the previous five stages. Any product which does not pass any of the previous five stages will not be commercialized. This requires setting up the manufacturing facility, establishing a full-fledged marketing programme and making all the arrangements for the full scale distribution of goods throughout the market.
By the time the product successfully reaches the commercialization stage, its manufacturer would have gained sufficient experience and knowledge about all the aspects of the product. He will now also understand the defects in the product and would have set them right. Therefore the manufacturer will have the confidence of commercially launching the product. This stage also requires large amounts of expenses in the form of establishing manufacturing facilities, marketing programmes and distribution networks.
A company has to decide about four important factors during the stage of commercialization:
a. When (timing),
b. Where (geographical strategy),
c. To whom (target market prospects) and
d. How (introductory market strategy).
a. When (Timing):
The timing of the product launch is one important factor, especially in relation to competition. A company may choose from three options regarding the timing of the launch of the product as regards the competition-first entry, parallel entry and late entry.
First entry refers to a company launching its product even before a competitor does. Such a company enjoys all the benefits of the ‘first mover’. It can lock up all the distributors and important customers and also gain strong reputation in the minds of the consumers.
Parallel entry refers to a company launching its product along with the competition. This strategy has the advantage of sharing of promotional expenses of the product.
Late entry refers to a company launching its products sometime after the competitor does. There are certain advantages of this strategy-first, the competitor would have already educated the market about the product, second, the competitor’s product would have already revealed the defects and faults, third, the company will have the advantage of learning about the size of the market.
b. Where (Geographically Strategy):
The company has to decide the exact place or location of the launch of the product. There are two strategies-crash and rollout.
In a crash launch, the company launches its product in all the segments simultaneously. However a company for such a strategy requires huge amount of capital to be spent on all the market segments. A rollout launch involves a company launching the product in one or a few segments and from there, gradually spreading to all the other market segments to cover the entire market. This strategy enables the company to spend gradually and also learn gradually from each market segment.
c. To whom (Target Market Prospects):
The company has to decide about the exact target customers towards whom the product must be launched. The marketing strategy, the pricing strategy, the distribution network etc. have to be decided based on the target customers.
d. How (Introductory Market Strategy):
This refers to the exact method of launching the product. This involves planning the techniques of launch and arranging them sequentially.
Process of New Product Development – 7 Main Stages Involved
The product development process involves seven stages —
i. Idea generation,
ii. Preparation,
iii. Incubation,
iv. Illumination (implementation), and
v. Verification.
vi. The Diffusion Stage
vii. Product Planning and Development Process
These are explained below:
i. Idea Generation State:
The idea generation stage is the conscious identification of a product idea that indicates an opportunity. An opportunity is defined as the identification of a gap in “need” and the likelihood that if the product is developed to fill that need, it would also be wanted; i.e., there would be effective consumer demand. This idea may be born of entrepreneurial insight, creative mind-mapping or accidentally stumbling on an idea through a corridor of related activity.
When an entrepreneur is searching for an idea worthy of his commitment, he should not pursue one idea at a time. He should develop five or six simultaneously until one emerges so appropriate that it begins to dominate his thoughts and fantasies. To develop one idea at a time has several disadvantages. Choosing an idea is quite difficult and the entrepreneur has to weigh his intrinsic capabilities objectively in finalizing an idea.
In the idea stage suggestions for new products are also obtained from all possible sources — customers, competitors, distributors, employees and R&D. The idea generated or suggested has to be carefully screened to determine which one is good enough to qualify for a more detailed investigation.
ii. Preparation Stage or Giving the Idea Form:
Once an idea has taken root in the mind of the entrepreneur he must sit down and prepare a ‘bench model’ or ideal blue print. At this stage the entrepreneur is concerned with identifying a particular product that he hopes to market successfully at a reasonable profit.
Therefore identification and development of the right product is very essential for being successful in the business venture. The right product here means that which can be marketed at a reasonable profit. Various factors influence the entrepreneur in selecting the right product.
Verification of hypothesis means which is accepted from the alternatives.
The decisive factors in the Indian context are:
(a) Whether import restrictions or the items selected are banned items and would be considered favourably because in the case of banned items the domestic market offers considerable scope for selling as the demand for such a product would not be met by import.
(b) If the entrepreneur has gathered substantial amount of experience in the manufacturing and marketing of certain products, then the selection of such a product would be to his advantage. Therefore, most often the items selected are those products in which the entrepreneur has gathered enough experience. The product line in which he is not experienced obviously would not be favoured much as it would involve uncertain situations very often.
(c) The selection of the product will also be based upon the degree of profitability that generally rules the market. Such information can be collected from the banks or the market itself.
(d) Many concessions are available from the Government, for manufacturing a product which serves as an import substitute or even essential item. Hence if a particular product enjoys a substantial amount of incentives, concessions and liberal taxation policies, obviously the entrepreneur will select that item to enjoy these advantages conferred on the production of this particular type of product.
(e) Many products belong to priority industries or small scale sector also. Certain products are listed by the government for purchasing exclusively from the small scale sector. As a result, if a particular product belongs to this category, the selection of such a product would be advantageous for the entrepreneur; therefore, these factors also must receive due consideration before the selection of a product.
(f) The market for the product also plays an important role in the selection of the product. If the product also has an export market, it enlarges the scope for marketing, hence such a product has its own advantage in the success of the enterprise.
(g) Certain products are permitted for production only if the license is obtained from the appropriate authority while others belong to the de-licensed category. Obtaining license is not too easy. A product belonging to licensed category or de-licensed category is considered before selecting the product.
(h) Many products enjoy specific advantages or carry locational advantages for example, if produced in the backward areas special concessions are made available for manufacturing such a product.
(i) If the product belongs to an ancillary unit and serves as a major component for the parent industry, it provides a ready demand; hence selection of this type of product assures easy marketability.
(j) Last but not least, the selection of product would also be weighed in favour or against depending upon whether or not the machinery and raw materials required would be imported or indigenous. Moreover, the selection would be based upon the technical know-how which is indigenously available or would require foreign collaboration.
iii. The Incubation Stage:
If the product proposal is accepted, the innovator must implement the first stage of actual product development. The product must be devised and a prototype developed. The entrepreneurs should submit the prototype to testing. This stage of development may be quite lengthy and include having several prototypes field-tested under Government supervision to comply with Government regulations. For example, a new dental instrument may have to be tested by an approved investigator, and a qualified dental researcher.
The critical activity at this point is to write a formal business plan. The entrepreneur may have written an initial business plan at the proposal stage, but the product has probably undergone substantial changes that require a revised plan.
Corporate managers or investors and lenders involved with an independent entrepreneur are unlikely to approve more funding without having a well-developed business plan, market projections and detailed financial requirements. The decision to pursue commercialization rests on the innovator’s ability to pass this point.
iv. The Illumination (Implementation) Stage:
The third stage in product development involves limited manufacturing and is called the limited implementation stage. This is a preliminary effort to put actual products into the field to gather market feed-back. This stage represents a transition from prototype to limited manufacturing. This stage does not mean actual market introduction but to ‘test’ the market and gather realistic information from selected consumers on product performance under real-world circumstances.
v. Market Testing (Verification):
Even a simple product will have to be tested with actual consumers. The entrepreneur is eager to get feedback from individuals who are most likely to be future consumers. Results from market tests constitute another critical point in product development. Now the entrepreneur has to decide whether to go into full scale production or drop the product.
vi. The Diffusion Stage:
Diffusion is the process of expanding into full production and into the consumer target markets while continuing to improve the product to meet consumers’ expectations. Assuming that a product has come to the market stage, the process is not complete-until the product can prove that it can profitably penetrate the target market.
The product must be sold through a diffused cross section of the market, showing a pattern of growth in demand. With the introduction of the product in the market, the formal product development process has been completed, but the new product needs careful guidance and support during the formative years.
While we have identified four stages that take a product from imagination to market introduction, the life cycle process requires continuous product attention well beyond this early period.
If the product is successful, it will enjoy early growth, enter a rapid growth stage, mature as competitors enter the market and eventually reach a high position in the markets. Beyond that point, new products will be introduced, rendering the existing products obsolete and indicating a period of decline.
vii. Product Planning and Development Process:
The entrepreneur now enters into the market. As a marketer he has four alternative ways of bringing about an increase in sales and profits –
(a) Market penetration
(b) Market development,
(c) Product development
(d) Test marketing
(e) Commercialization, and
(f) Diversification.
(a) Market Penetration:
It involves the expansion of sales of the existing products in the existing markets by selling more to present customers or gaining new customers in the existing markets. The firm can sell more of its products in the existing market by adopting a more aggressive marketing strategy. Customers from rivals or potential buyers can also be attracted. Again, the marketer may respond to a temporary price cut to raise the volume of sales and penetrate the market in a big way.
(b) Market Development:
In market development, a present product is introduced to a new market. Market development is the creation of new markets by discovering new uses for existing goods. The firm can offer its existing products to new markets.
(c) Product Development:
Product development takes place when a firm introduces new products into a market in which it is well established. In other words, product development is the introduction of new products in the present market. The firm by offering new or improved products to present markets can satisfy the present customers better.
(d) Test Marketing:
The entire product marketing programme is tried out for the first in a small number of test markets. Test marketing is necessary to find out the viability of a full marketing programme for national distribution. Customer reactions can be tested under normal market conditions. It helps the firm to learn through trial and error and to get additional valuable clues for product improvement.
(e) Commercialization:
Once the test marketing gives the green signal for the product the company can proceed ahead and can launch a full-fledged advertising campaign for mass distribution. The product is now born and will start its life cycle in due course.
(f) Diversification:
Diversification occurs when a firm tries to enter a new market with a new product. Such a firm has neither market expertise, nor product knowledge. The firm adopts an aggressive strategy by creating new products for entirely new markets. The strategy is risky but the innovator can have spectacular results. In 1960 TV was in this category in many countries.
Process of New Product Development – Step-Wise Procedure: From New Product Ideas to Commercialisation
There are seven steps in the planning and development of a new product:
1. New Product Ideas:
We visualise the detailed features of a model product. Ideas may be contributed by scientists, professional designers, rivals, customers, sales force, top management, dealers etc. We may need sixty new ideas to get one commercially viable product.
We have three types of new products:
(i) Innovative New Products- Xerox was a new product,
(ii) Emulative new product- existing product is copied with some modifications,
(iii) Adaptive new product- the adaptation of the wet plate camera to the handheld (with flash) camera, adaptation in function, features or form becoming necessary to give better consumer service or satisfaction.
Both innovative/ emulative products are new to the company. Adaptive product is new to the consumer. Of course any new product must be welcome by the environment. Social costs of a new product should now be incorporated in the cost-benefit analysis e.g., pollution removal costs.
2. Idea Screening:
We have to evaluate all ideas and inventions. Poor or bad ideas are dropped and through the process of elimination only most promising and profitable ideas are picked up for further detailed investigation and research. Screening should avoid two errors- (i) Rejecting an idea that could become a very successful product, (ii) Accepting an idea that later fails.
3. Concept Development and Testing:
All ideas that survive the process of screening (Preliminary investigation) will be studied in details. They will be developed into mature product concepts. We will have precise description for the ideas and features of the proposed product. At this stage we can incorporate consumer meaning into our product ideas.
Concept testing helps the company to choose the best among the alternative product concepts. Consumers are called upon to offer their comments on the precise written description of the product concept viz., the attributes and expected benefits.
4. Business Analysis:
Once the best product concept is picked up, it will be subjected to rigorous scrutiny to evaluate its market potential, capital investment, rate of return on capital, etc. Business analysis is a combination of marketing research, cost benefit analysis and assessment of competition.
We have demand analysis, cost analysis (including social costs) and profitability analysis. Business analysis will prove the economic prospects of the new product concept. It will also prove soundness and viability of the selected product concept from business viewpoint. Now we can proceed to concentrate on product development programme. The proposed product must offer a realistic profit objective. Profitability can be determined by Break-even Analysis or Discounted Cash Flow method.
5. Product Development Programme:
We have three steps in this stage, when a paper idea is duly converted into a physical product- (i) prototype development giving visual image of the product, (ii) consumer testing of the model or prototype, and (iii) branding, packaging and labelling. Consumer testing of the model products will provide the ground for final selection of the most promising model for mass production and mass distribution.
6. Test Marketing:
Entire product marketing programme is tried out for the first time in a small number of well-selected test markets, i.e., test cities or areas. Test marketing is necessary to find out the viability of full marketing programme for national distribution. Customer reactions can be tested under normal market conditions.
It helps the company to learn through trial and error and get additional valuable clues for product improvement and for modifications in our marketing-mix. We can use test markets for testing effectiveness of all ingredients of our marketing mix. Test marketing can answer such questions as- Is the new product labelled and packaged properly?
Is the new product liked by the consumer? Is the firm justified in spending large sums on productive capacity? Has the communication (promotion) programme been right? Positive answers will reassure marketers.
7. Commercialisation:
Once the test marketing gives green signal for the product with or without expected modifications, the company can proceed to finalise all features of the product. Now marketing management can launch full-fledged advertising and promotional campaign for mass distribution. Mass production will start and all distribution channels will be duly organised. The product is now born and it will start its life-cycle in due course.
Marketing Management will have to undertake constant checking of a new product throughout its life-cycle. Product improvement search will be a continuous affair to introduce necessary improvements, modifications, innovations, etc., in the existing product on the basis of changing consumer preferences as well as on account of development of science and technology.
Your product must be up-to-date and then only it can prolong its life cycle against keen competition. Your product must serve consumer needs in a better way before your rivals do so. Improvements may be in the size, shape; package, taste, flavour, colour combination, etc. First four stages refer to product selection. Then, we have product development, test marketing and finally, commercialisation.
Product Planning and Enhancing the Value Offered by a Product:
A clear distinction is to be made between the value of the offer (attributable to the actual product, its positioning in the market and communication message) and the value added by marketing (an outcome of product availability and consumer awareness). This will enable the marketer to better analyse and make due allocations towards marketing activities, i.e., channel management and physical distribution, the other half of marketing.
Innovations to existing products must be incorporated on an ongoing basis. The new product must be based on what consumer desires and the price he is willing to pay to secure the satisfaction. Planning and timely decisions alone can assure success in product innovation.
Process of New Product Development – Beginning with Generation of New Product Idea till Commercialization of Products
The term new product includes an original product, an improved product with new features and quality, a modified product and a new brand. The companies need to make continues endeavour towards product development to cope up with rapid changes in consumer tastes, technology and competition. The first step towards product development understands the nature of market, the competitors and needs and wants of the consumer.
The new product development process begins with:
1. Generation of new product idea,
2. Idea screening i.e., selecting the best idea among the alternatives,
3. Concept development and testing,
4. Developing the marketing strategy,
5. Business analysis,
6. Product development,
7. Test marketing and
8. Commercialization.
1. Generation of New Product Idea:
New product development process begins with generation of new product ideas. The new product ideas may originate from different sources like analyzing consumer’s need and wants, their grievances and complaints regarding the existing product, competitor’s new product.
Ideas about new product may also come from research work by researchers at university and commercial laboratories, companies own research and development teams comprising of scientists, engineers and researchers. The ideas must be collected, reviewed and evaluated systematically through an organised system to find a good idea.
2. Idea Screening i.e., Selecting the Best Idea among the Alternatives:
Product development process entails huge cost so the company cannot go ahead and test all product ideas. The different alternative ideas are evaluated on the basis of criteria like targeted market, market size, estimated product price, development cost and time, manufacturing cost and probable-return from the product. The idea that will turn into profitable product is selected from the alternatives.
3. Concept Development and Testing:
The product idea is given a shape and image. The new product concept may be in the form of physical product, a picture or word description is presented before the targeted consumers for their comments and suggestions and to assess the extent of consumer’s acceptance of the product idea.
4. Developing Marketing Strategy:
The marketer must develop the marketing strategy that relates to identifying the target market, planning the product positioning, anticipating the sales and market share and setting up desired profit margin.
After selecting the best alternative the marketer must evaluate the market potential, capital investment and profit projection for new product. The company needs to find that whether it will be profitable to develop the product and will it satisfy the company objectives.
At this stage the product concept is developed into physical product. This stage involves product positioning, branding, packaging and labeling of the product.
At this stage the product and the marketing programme- positioning strategy, distribution, pricing are introduced and tested in real market settings. The products are tested in selected markets to find the commercial viability of more extensive distribution. It helps to know the customer’s reaction which will help in product improvement.
Test marketing may not be feasible for all products as it can cost high to the firm and if it takes time that will allow competitors to gain advantage. If the cost of developing and introducing the new product is low and if the company is confident about the new product it may not do test marketing.
After test marketing when the marketer is assured about the viability and profitability of the product, it is finally introduced in the market. The marketer decides the timing of introduction, where to launch – whether it will be launched in single or multiple location, and undertake extensive advertising and promotion campaign.
Process of New Product Development – Stages and Steps: With Reasons for Product Failure
It should be remembered that there is always a risk of failure in the marketing of new products. It is common knowledge that a large number of products fail to make the grade and have to be withdrawn from the market. Even well- known established companies have to withdraw their products because they often fail to click with the consumers.
For example, even such an internationally reputed company like the IBM, quietly dropped the production of its microfilm equipment even though it had the requisite technical expertise because it went into production without a proper marketing plan.
Stages in Development of New Product:
A new product is the result of a series of steps taken by a company, beginning with the conception of a new idea to its successful commercial exploitation. If the idea is commercially viable, the production and marketing of the product on a full scale are undertaken.
The idea of a new product or the product innovation may come from different sources. In the first place, many big companies have their own research and development departments which continuously undertake experiments and research to develop new products or to substantially improve the existing ones. Second, competitors are often sources of significant new product ideas.
Third, customer suggestions and complaints may be a fertile source of new ideas. Many companies form consumer panels, who are invited to discuss the merits and demerits of the products. From such discussion, useful suggestions or ideas may emerge, which the company can exploit later on.
Fourth, some companies wait and watch till the competitors develop new ideas by taking the initial risks. Once the product has succeeded, they enter the market with a similar product or a slightly modified version of the same product.
After hitting upon a group of ideas, the company should select those which fit in with its production facilities, marketing structure, and manpower availability. It should take into account the nature and degree of competition, its sales potential and profitability. After analyzing carefully and properly weighing all the factors involved, it should proceed with the production and marketing of the product.
The steps in new product development may be depicted as under:
i. Screening of ideas
ii. Business Analysis
iii. Product development
iv. Test marketing
v. Commercialization.
Prof. Robert F. Hertley says in his book Marketing Fundamentals, that in developing a new product idea, the following factors may be deemed important-
“Demand—extent of existing or latent demand.
Marketing compatibility—how well the proposed product fits in the existing products, promotional techniques, and distribution channels.
Durability—probable life cycle of the product and the likelihood of severe competitive intrusion.
Production Capability—how well product fits in with the existing production capabilities.
Growth Potential— long-term sales growth prospects.
Some firms will assign different weights to these factors, assuming, therefore, that some are more important than others.’
However, product development may take a very long time, which may vary from a year to ten years, or even more. But some firms are always in a hurry to introduce new products in the market. They want to pre-empty the other competitors. Such a hurry often results in the failure of the product, particularly when it is introduced without a proper analysis of all the factors involved in it.
Many products fail to achieve their targets of sales and profits.
There are several reasons for the failure of these products, which may be enumerated as under:
(i) The basic concept, idea, proposition or specification of the product may be faulty.
(ii) The concept and design of the product may not be in accordance with the production facilities or technological capabilities of the company.
(iii) The company might have failed to correctly gauge or anticipate the nature of demand or customer needs.
(iv) The standard and size of the product may be out of tune with market requirements.
(v) The price of the product may be too high to suit the pocket of the average buyer, or the quality may not be commensurate with the price charged.
(vi) The performance of the article may not be satisfactory.
(vii) The durability of the article may be short or its life cycle limited.
(viii) The company might have underestimated the strength of the competition and may not be able to face up to it.
(ix) The entire product planning programme may be badly conceived and improperly executed.
(x) There may have been no proper control and direction of the whole operation.
(xi) Technical and production problems may have been underestimated or may have been ignored.
(xii) There might have been a considerable time lag between conception and implementation. In the meanwhile, the competitors may have been able to take a decisive lead in the market with their new products.
(xiii) The products were ivory tower ones, that is, they satisfied the company’s ideas of high quality and technical excellence but were too expensive for potential buyers.
(xiv) International competition and marketing implications may have been overlooked.
Process of New Product Development – With Diagrammatic Illustration
While the gestation period for different products will doubtless vary according to technological complexity, resourcing issues, corporate priorities and the like, an attempt will be made to present a generalised sequence of the development process. Figure 20.1 illustrates a simple ‘funnel’ model of the process, in which new product ideas are initiated, screened, commercially assessed and progressed further, rejected or set aside for later reworking. The product development stages outlined in the model are examined in some detail below.
1. Idea Generation:
This stage, the logical beginning of product development, represents for most companies an ongoing effort of accumulating and generating development ideas, rather than a discrete once-and-for-all step or process. As worthwhile ideas are at a premium, a continuous effort is necessary to tap creativity from a number of sources.
The number of ideas necessary to support successful product development has been illustrated by research studies conducted by the US consulting firm Booz, Allen and Hamilton. In a landmark 1968 survey among American manufacturers it was estimated that 58 ideas were necessary to sustain a successful new product launch.
This figure had been reduced to seven when the consultants conducted a duplicate survey in 1981, indicating that manufacturers had improved their development performance through stricter management and investment procedures. Even so, the research indicates that most product ideas fail to ‘run the gauntlet’ of successive stages and filters within the development process.
Moreover, as no company can claim any monopoly on creativity, it would make sense to consider potential product ideas from a variety of sources.
Figure 20.2 presents a summary of idea sources available to a typical company. In most companies product ideas will come from both internal and external sources, though certainly in technology or science-led fields such as pharmaceuticals or electronics there will at any time be a feedstock of ideas and formula alternatives that stem directly from ongoing research programmes.
Even in these cases, though, there is a strong case for drawing on problem ‘cues’ from users and customers, trade channels, competitor intelligence and sales force feedback. Without such market direction there is a danger that development efforts lose their focus and become directed solely by the forces of ‘technology push’.
Whatever the product field, ideas for new products, and product improvements, can come from anywhere within the value chain, inside or outside the company. Within the company, multidisciplinary efforts, drawing on specialists from a number of departments, may prove especially effective.
The logic of these approaches is that a more balanced spread of ideas may be generated, and that political or interdepartmental rivalry is reduced by eliminating the NIH (‘not invented here’) syndrome. Such teamwork efforts may take many forms, from the regular employment of creative techniques such as brainstorming, group problem solving and discussion sessions, to more permanent organisational mechanisms such as venture teams, ‘think tanks’ and new product committees.
2. Idea Screening:
Given a number of development ideas, it is necessary to put them through a standard screening method to select only those with apparent business and development prospects. This first-level screening will usually rate and compare ideas across a number of key factors held to be important in terms of company /product fit, such as compatibility with company technology and manufacturing capability, marketing resources, distribution channels, research/ design capability and the like.
Figure 20.3 presents a simplified example of a rating sheet that might be used for comparing development ideas across such a screen of weighted factors. The score profile illustrated in the table is quite encouraging, though in practice most development ideas would score quite modestly, while still others would be rejected as too middle-of-the- road to justify retention – too high a ‘pass-rate’ might dilute development resources and prejudice the real potential winners.
While the shortlist criteria and their weightings will vary from company to company, and over time, the important consideration is that a consistent and agreed set of benchmarks is used from the outset.
3. Business and Market Analysis:
The development ideas that survive the initial screening illustrated in Fig 20.3 will effectively enter a more rigorous series of checks and analysis within the next filter, as it is after this stage that ‘green light’ decisions will be made to authorise and commit costly resources to development projects.
The business and market analysis stage is concerned with establishing a viable commercial rationale for development products, as both a guide for development work and a first-level business planning statement. The assessments made will involve market and marketing investigations, financial projections and costing/scheduling estimates.
These investigations are likely to be carried out by separate departmental specialists, though the final business assessment will depend on some information interchange between parties, e.g., sales estimates will be required to assess revenue/profit calculations.
The marketing information required within the business analysis will likely come from a combination of existing market data and previous research findings, frequently supplemented by specific qualitative research exercises designed to validate the market attractiveness of shortlisted product ideas.
Usually the ideas will need to be translated into alternative product concepts, i.e., succinct statements of the essential dimensions, attributes and rationale of the proposed product, expressed in customer language.
The most common means of concept testing is via group discussions, where a small number of potential customers are exposed to alternative concepts, sometimes supported by pack mock-ups or models, asked questions and led in discussion on issues such as concept acceptability, apparent uses and benefits, advantages over existing products and the like.
The findings of such research, though highly tentative, give some early insight into customer reactions and perceptions, and usually a means of selecting the more viable concepts, together with the benefits to incorporate into their further development. Alongside existing market data, and information on matters such as buying and switching behaviour, it should be possible to estimate preliminary market and sales forecasts, as an input to financial assessment work.
The marketing assessment of a successful product concept is commonly summarised in an outline marketing rationale, which will include overall comment on market volume, target segments and product positioning, together with specific guidelines on product attributes and qualities, indicative price-bands, and performance targets versus likely competition. These latter details will serve as an early product specification and a development brief to be followed by R&D.
Business analysis of product ideas is likely to be expressed through financial reports, which will combine aggregates such as sales forecasts, investment requirements, functional outlays and costings, and profit projections. These broad indicators in turn may break down into detailed components such as investment appraisal/payback summaries over an assumed product life or depreciation period, direct-indirect cost structures and departmental estimates, pricing and break-even calculations, and other financial arithmetic necessary to compare the viability of alternative product proposals.
4. Development:
The development stage proper is really a succession of overlapping activities, orchestrated as a teamwork effort. While in most companies the responsibility for development work will be located within the R&D department, or an equivalent function such as Design or Product Engineering, in practice a variety of inputs are needed from other functions in order to ensure that the final product or service is both marketable and commercially viable.
In scientific sectors such as medicines, the development stage will be lengthy, and usually divided into sub-phases, starting with pure research in pursuit of chemical/ physiological reactions, leading to a development stage proper, itself divided into laboratory and clinical phases.
In other science-led or high-technology fields such as aerospace and electronics, development may be equally complex, speculative and costly. The scale of resourcing and effort at risk within the development stage therefore makes clear the case for coordinated teamwork, planning and controls.
In the interests of coordination many companies have adopted particular forms of organisation for product development. Marketers have a particular guidance role to play in product development, if only to ensure that customer realities remain a focus of the development task.
The experience of many marketers is that R&D personnel, unsupported by market guidance, fall prey to a ‘technology myopia’, an interest in the (research) chase itself rather than the (marketplace) end product. During the development stage, therefore, marketers need to stay close to development staff, by ensuring for instance that prototypes are developed to market guidelines and assessed through customer research, and by generally advising on the maintenance of deadlines, cost, quality and design guidelines.
During the development period a succession of product tests will be made, on a number of product formulations or prototypes in order to develop and ‘fine-tune’ a finished product ready for ultimate production and launch. For manufacturing planning purposes alone, varying tests will be made among alternatives in terms of materials specifications, design-performance configurations, production-assembly approaches and cost estimates, quality and safety assessments, supplier sourcing and the like.
Logically, marketing specialists will need to stay abreast of these activities, and where necessary offer comment and advice on commercial and marketplace aspects of the decisions to be made.
Parallel to these ‘internal’ tests, there will usually be the need to subject successive product designs to customer tests, in order to check on market acceptability, decide on yet unresolved issues of product attributes (e.g., colour, materials, user controls, design aesthetics, minor design changes), or to make performance comparisons through in-use tests or trial placements.
A marketing-centred approach to development is therefore an iterative process, involving a dialogue with outside parties, primarily potential customers, and internally with various functional specialists within the organisation. It is worth stressing that both external and internal sides of the dialogue are critical.
Furthermore, in today’s competitive climate they are also interdependent. The increased zeal with which companies now embrace initiatives centred on Total Quality Improvement, just-in-time (JIT), design for assembly (DFA), and Simultaneous Engineering – to name but a few ‘new wave’ approaches that have gained a deserved respect within manufacturing and engineering – demonstrates that real market advantages can be won through internal improvements in production efficiency, quality and accelerated development.
5. Market Testing:
After the various product performance, functional and customer preference tests of the development phase, most companies will subject the, by now market-ready, product to a final assessment under market conditions, prior to full-scale launch. The objectives of doing this will be to reduce commercial risk by uncovering unforeseen product problems, fine-tuning the marketing and distribution programme, and making more accurate projections of sales, market performance and profitability.
The ultimate form of market test will be to conduct a formal test-marketing operation, usually in some test-market area(s) or town(s) chosen as representative of the total market area. Tests in TV regions, urban areas (e.g., London) and provincial cities are quite common for consumer goods.
Test marketing would be undertaken as a scaled-down version of the intended national launch, involving similar advertising media and campaigns, distribution and sales cover, promotion and pricing elements of the marketing mix.
Sometimes variations (e.g. in price, advertising intensity) may be tested in different test locations, in order to optimise the launch marketing mix, and to more accurately project sales volumes, purchaser profiles, buying volumes, first-time and repeat purchases. While marketing activity ‘on the ground’ will be most obvious in sales and advertising terms, the value of the test market will rest as firmly on the research conducted at trade and household level, through retail consumer audits, sales-force feedback and other sources.
It may, for instance, prove necessary to buy in research in a control area outside the test market, in order to compare sales effects on competitor products, and to eliminate market wide variations. Of particular interest to the marketer will be the recorded incidence of initial sales (penetration) and repeat sales (repurchase), which, together with purchase size, will indicate the likely success of the eventual full launch. Though generalised, the trial-repeat patterns set out in Table 20.1 would indicate varying degrees of success.
Limited market testing may be conducted instead of a full test-marketing operation, perhaps where:
i. Product and production variables have to be finalised well in advance, e.g., with cars and other durable manufactures
ii. The product does not represent a major launch or commercial risk, e.g., as with a range addition or minor variation on a trusted formula; or where extensive previous in- development research assures confidence
iii. Competitive urgency may drive for an accelerated launch, or there may be the real risk of competitors spoiling test-market results (e.g., by underpricing, intensified sales and promotion), or the loss of competitive surprise, or even copycat products appearing
iv. There are other factors involved, such as budget constraints, or a need for marketing information limited to restricted areas, e.g., brand-switching patterns, promotional effectiveness.
Limited marketing testing might take various forms, for example ‘mini’ test markets involving selected stores or a regional chain, where test products are ‘placed’ by the company for a period of time. In other cases, commercial market and research test services will be used, perhaps involving panels of households that are recruits to a shopping circle involving catalogue choice or home delivery. Comparable, though less strictly commercial, are the simulated ‘shopping laboratories’ operated by a number of research companies.
Market testing industrial products is usually conducted on a more controlled basis, for example through trial installation with selected customers, or through invitation to demonstration events, company showroom and test facilities and the like. Arguably, heavy investment industrial products are more likely to be developed through continuing contact with prospective customers, so that many of the ‘grey areas’ covered by test marketing may be already resolved.
Finally, it is worth noting that, with growing internationalisation, large global companies are increasingly conducting test-market operations in selected countries, prior to regional and international market launch operations.
6. Launch and Commercialisation:
This represents the end of the development process, and the full-scale introduction of the finished product to the marketplace. The resource costs and risks attending this stage are significant, as shown in the simple development-expenditure relationship outlined in Fig 20.5.
The commercial risks riding on any major launch justify the careful analyses, tests and preparations involved in the development process, and also the marketing professionalism required to support market entry. Competitive realities should ensure that the company makes objective decisions based on test-market results – even if the decision is to abort or delay product launch.
Given a ‘green light’ decision to proceed, however, the company will still need to maximise the lessons of the test market, and ensure that launch activity proceeds methodically to the marketing plan developed. Given that production volumes will require scaling-up from the pilot plant levels of the test market, many companies will decide on a gradual ‘rolling’ launch region by region, or compromise by stock build-up to shorten the release period and increase launch impact.
Critical to the success of the launch will be the monitoring of market research indicators, and generally the quality of managerial decisions taken on the basis of the controls built into the launch marketing plan.
