Discontinuous innovation has the potential to radically shift consumer habits and thus create new demand for a whole category of products and services, but understandably entails more risk for the organization. A good NPDS can help organize research, prioritize customer needs, and reduce cost overruns, to ensure a smooth development process.
A well thought out new product development strategy NPDS helps a company avoid wasting time and resources by helping to organize planning and research, understanding customer expectations, and accurately resourcing the project. By avoiding common errors such as overestimating the target market, incorrectly setting the price, and accruing higher than predicted costs, a NPDS helps the product to be developed and launched as planned.
The nature of the business and the product in question will determine the NPDS, and what steps need to be taken. Certain steps may be iterated as needed, and others may be eliminated. For some more complicated products, a large amount of uncertainty makes it impossible to plan the complete project before starting it, and thus a flexible approach is required.
There are many different ways to approaching NPDS. Some of the more common ways are described below. Here, the needs, wants and limitations of end users of a product are given a great deal of attention at each stage of the design process. The main element in this process is that user-centered design tries to optimize the product around how users can, want, or need to use the product, rather than forcing users to change their behaviors to accomodate the product.
Flexible product development is the ability to make changes in the product being developed or in how it is developed, even relatively late in development, without being too disruptive. Flexibility is important because the development of a new product naturally involves change from what came before it. Change can be expected in what the customer wants and how the customer might use the product, in how competitors might respond, and in the new technologies being applied in the product or in its manufacturing process.
The more innovative a new product is, the more likely it is that the development team will have to make changes during development. Flexible development counteracts the tendencies of many contemporary management approaches to plan a project completely at its outset and discourage change thereafter. These include Six Sigma, which aims to drive variation out of a process; Lean, which acts to drive out waste; and traditional project management and phased development systems including the popular Phase—gate model, discussed next , which encourage upfront planning and following the plan. Although these methodologies have strengths, their side effect is encouraging rigidity in a process that needs flexibility to be effective, especially for truly innovative products.
Flexibility techniques must be used with discretion, for instance, only in the portions of a product likely to undergo change, in order to minimize potential disruptions, delays, and cost overruns. Six Sigma : The symbol for Six Sigma, which is a contemporary management approach. In a phase—gate model, also referred to as a phase—gate process, the process is divided into stages or phases, separated by gates. At each gate, the continuation of the process is decided by typically a manager or a steering committee. The decision is based on the information available at the time, including the business case, risk analysis, and availability of necessary resources e.
The phase—gate model may also be known as stage-limited commitment or creeping commitment. The success of product-driven companies is directly tied to new product development, which is generated through innovative ideas. Ideas for new products can be obtained from basic research using a SWOT analysis.
New product innovations are responsible for employment, economic growth, technological process, and high standards of living. Innovation is crucial for the development of successful new products. Described below are different sources of innovation that lead to the generation of ideas for new products. While innovation is crucially important to any forward-thinking organization, developing and evaluating innovations is a challenge. Where do innovative ideas come from?
Discussed below are five crucial sources of innovation: technical breakthrough, non-technical idea development, environment, serendipity, and purposeful development. These are discussed in turn below see. Different Sources of Innovation : A summary of different sources of innovation, as described in this section.
Being innovative is key to generating new ideas in product development.
Technical breakthroughs refer to product innovations that result from technical developments. New brands that have emerged from this process include MP3 players, GPS navigation devices, and cell phones. This approach involves finding a niche in the market without making radical changes to the basic product category i. For example, a customer can choose a lower-priced paper heart with their wish, or they can invest in a higher-priced electronic heart. After customers make choices, they then observe the production process in the shop. In this way, customers create their own custom-designed toy.
This business model does not rely on developing new technology, but a modified production process and a unique idea that draws the consumer in. Certain ideas developed in one environment or geographical location have the potential to do well when imported into new environments.
Good examples of this style of innovation are Wal-mart in China and IKEA in the United States—ideas that proved a big hit outside of the cultures that they were traditionally employed in. Large-retail stores are now achieving success in Asian nations, through importing the idea of economies of scale, which in turn enable one-stop shopping and lower prices. Serendipity plays a role in product innovation.
The fairy tale, The Three Princes of Serendip , tells the story of three men who continuously discover something that is completely unrelated to what they originally set out to find. For example, penicillin was discovered quite by accident when Alexander Fleming discovered that a mold contaminating one of his experiments possessed powerful antibacterial properties.
While not exactly a strategy that can be purposefully conducted by companies attempting to come up with a specific product, the process of serendipity frequently occurs due to government funding of general and scientific research, causing technological and other spillovers into the commercial realm. Purposeful development occurs when there is a strong need for certain goods or services. As a result, organizations are willing to invest considerable funds to create a successful innovation. Thus, purposeful development occurs when there is a need that requires satisfaction, as opposed to when demand creation is required for a new product for which there is no initial desire in the marketplace.
A good example of purposeful development is the heavy investment that pharmaceutical firms make to discover new prescription drugs. During screening, the company evaluates whether to devote further resources to the development of a product at various stage gates.
It is important for businesses to continually devise new products, as products do not last forever. While there are millions of products available to consumers, many more products do not make it to market at all. As it is expensive to bring a product to market, products go through a product development process where they are evaluated at every stage before they are brought to commercialization. For example, of the 5, drug ideas that go through the screening process of the Federal Drug Administration, only 10 end up getting approved, and of these only 3 become profitable.
Screening : This figure illustrates the long process it takes for a drug to enter the market. The objective of the screening stage is to eliminate unsound concepts prior to devoting resources to them. The screeners should ask several questions: Will the customer in the target market benefit from the product? What is the size and growth forecast of the target market? What is the current or expected competitive pressure for the product idea?
Is it technically feasible to manufacture the product? Will the product be profitable when manufactured and delivered to the customer at the target price? By answering these questions, the company can get a better idea of the likelihood of a product becoming a commercial success. The screening step is a critical part of the new product development process. Two problems that may arise during the screening stage are the acceptance of a poor product idea, and the rejection of a viable product idea.
In the former case, money and effort are wasted in subsequent stages until the product idea is abandoned. In the latter case, a potential winner never sees the market. There are two common techniques for screening new product ideas. Both involve the comparison of a potential product idea against the criteria for acceptable new products. The first technique is a simple checklist.
For example, new product ideas can be rated on a scale ranging from very good to poor, in respect to factors such as value added, sales volume, patent protection, and effect on present products. Unfortunately, it is often very challenging for evaluators to define what is fair or poor in any given category. Also, this system does not address the issue of the time and expense associated with each idea, nor does it provide instructions with regard to the scores.
The second technique goes beyond the first in that the criteria are assigned weights based on their importance. These scores are then multiplied by their respective weights and added to yield a total score for the new product idea. Concept testing is important for evaluating consumer responses to a product before market introduction. Explain concept testing, its disadvantages, and alternative methods used to evaluate consumer behavior toward new concepts. Concept testing is the process of using quantitative and qualitative methods to evaluate consumer response to a product idea prior to the introduction of a product to the market.
It is a vital part of the idea screening stage of new product development. It can also be used to generate communication designed to alter consumer attitudes toward existing products. Focus Group : Using focus groups to generate user feedback is one method used to perform concept testing. The concept generation portions of concept testing are generally qualitative. Advertising professionals create concepts and communications of these concepts for evaluation by consumers, on the basis of consumer surveys and other market research, or on the basis of their own experience as to which concepts they believe represent product ideas that are worthwhile in the consumer market.
The quantitative portions of concept testing procedures have generally been placed in three categories: 1 concept evaluations, where concepts representing product ideas are presented to consumers in verbal or visual form and then quantitatively evaluated by consumers by indicating degrees of purchase intent, likelihood of trial, etc. Traditional systems of concept testing generally failed to provide a systematic, proven way of showing consumer preference of one concept over another. The relative importance of the factors responsible for or governing why consumers, markets and market segments reacted differently to concepts presented to them in the concept tests were not demonstrated.
Thus, communication of the concept was generally left to the creativity of the advertising agency, with no systematic quantitative method known or employed that could identify the criteria on which consumer choices were made at least, not with any real accuracy. Moore and William , in a literature survey and review of concept testing methodology, point out that concept tests have failed to account for changes between the concept tested and the communication describing the benefits of the product which embodies the concept. Nor did the traditional methods quantify the relationships between concepts and existing products offered in the same consumer market.
The ability of a method to ameliorate or overcome the above shortcomings would provide substantial improvement in communication of the concepts identified in testing and offered to the market as a product. One such method is conjoint analysis and another is choice modeling. In addition, with online retailing becoming increasingly prominent, many online respondents are also online consumers. Thus, they are able to easily place themselves in the mindset of a consumer looking to buy goods or services. Since the arrival of these methods, market researchers have been able to make better, more accurate, suggestions to their clients regarding the decision to move forward, revise, or start over with a product concept.
Online choice modeling, for example, can produce detailed econometric models of demand for various attributes of the new product such as feature, packaging and price. The output of the business analysis stage is a prediction about whether the product is likely to be profitable or not if ultimately produced. Demonstrate knowledge of the components included in the business analysis stage of product development.
After the initial screening stage, the number of viable proposals available to progress to the next stage will have decreased significantly. However, before the company begins the development of prototypes, there is one more evaluation process that must take place, and this is the business analysis stage. In this stage, additional information is gathered on the remaining innovations in order to decide whether the significant costs that development will require are justified. Business Analysis : Financial ratio analysis allows an observer to put data provided by a company in context.
The primary focus of the business analysis stage is to determine whether the product idea will ultimately be profitable or not. However, while this is the primary consideration, it is not the only consideration. Social and environmental issues are frequently considered as well, particularly if there are certain regulations that the company must adhere to in these realms.
The first step in the business analysis process is to examine the projected demand for the product. While the major source of revenue would be product sales, another possible significant source of revenue is the licensing of the technology generated as a byproduct of the given product. Clearly this is not applicable to all products, but for certain classes of products, this can be a very significant source of income. A complete cost appraisal is also necessary as part of the business analysis. As you can expect, it is difficult to anticipate all the costs that will be involved in product development.
However, the following cost items are typical:. Based on these costs, the business analysis stage will estimate the likely selling price. This figure will also depend on the level of competition, as well as customer feedback.
Sales volumes must also be estimated based on the size of the market using, for instance, the Fourt-Woodlock equation. Ultimately, profitability and the estimated break-even point can be derived. Customers base buying decisions on a personal value equation where the value is calculated by weighing the cost versus the benefits. This relates to the viability and feasibility of products that companies are considering to add to their line. Development involves setting product specifications as well as testing the product with intended customer groups to gauge their reaction.
Describe the steps involved in the technical and marketing development stages of new product development. Once a potential product has passed the screening and business analysis stages, it goes onto the technical and marketing development stage. This stage includes identifying the target market and the decision maker in the purchasing process, determining what features must be incorporated into the product and the most cost-effective way to produce it, and establishing what the actual cost of production will be. Technical development involves two steps. The first is the applied laboratory research required to develop exact product specifications.
The goal of this research is to construct a prototype model of the product that can be subjected to further study. Once the prototype has been created, manufacturing methods research can be undertaken to plan the best way of making the product in commercial quantities under normal manufacturing conditions.
This is an extremely important step, because there is a significant distinction between what an engineer can assemble in a laboratory and what a worker can produce in a factory. Prototype : A company develops a prototype in order to conduct further testing on a potential product. While the laboratory technicians are working on the prototype, the marketing department is responsible for testing the new product with its intended consumers and developing the other elements of the marketing mix.
The testing process usually begins with the concept test. The product concept is a synthesis or a description of a product idea that reflects the core element of the proposed product. The second aspect of market development involves consumer testing of the product idea. This activity usually follows the construction of the prototype or limited production models. Various kinds of consumer preference can be conducted.
The product itself can be exposed to consumer taste or use tests. Packaging, labeling, and other elements in the mix can be similarly studied. Test marketing is the final stage before commercialization, and is where all the elements of the marketing plan are tested. Discuss the requirements that must be satisfied to conduct successful test marketing of new products and distinguish test marketing from initial product testing.
This is the final step before commercialization. The objective of the this marketing phase is to test all the variables in the marketing plan, including different elements and characteristics of the product. This stage represents the launching of the total marketing program, albeit on a limited basis. In the end, the test market should include an estimate of sales, market share, and financial performance over the life of the product. Initial product testing and test marketing are not the same. Product testing is totally initiated by the producer: he or she selects the sample of people, provides the consumer with the test product, and offers the consumer some sort of incentive to participate.
Test marketing, on the other hand, is distinguished by the fact that the test cities represent the national market. The consumer must make the decision herself, must pay his or her own money, and the test product must compete with the existing products in the actual marketing environment. Generally, it is said to encompass tasks such as strategic planning, generating concepts and pre-technical evaluations.
These activities are not set in any formal framework, but flow in an unpredictable, unstructured and often chaotic manner. Despite this, it can be a valuable and often vital lead into a successful product development activity. Often known as the stage gate process, this 8 stage framework was developed by Robert G. Cooper after extensive research product success and failure. Since product developments often include big or small teams and may require substantial investment, following a structured and formal process may help maximize the probability of a successful product and mitigate the risk of failure.
This process can also help keep everyone on the development team structured and on the same page. At this stage, a product development team will take the concept narrowed down in the fuzzy front end and work on brainstorming this concept into concrete ideas for products. It is necessary to employ strong analyses to identify current market trends and available solutions, understand customer behavior and needs, and identify areas of opportunity. This information will help keep ideas focused and relevant.
Some tools that can help this analysis include a basis internal and external SWOT analysis, study of market and customer trends, competitor analysis, focus groups, sales staff and other employees, and information from trade shows. It is also helpful for the team to keep important aspects of the future product in mind such as how lean it is, how scalable it is and how much return can it generate.
There may be many ideas at this point, which will be analyzed in detail in the next stage. At this stage, the task is to remove ideas that do not make strong business sense. A set criteria should be decided against which each idea will be evaluated and discussed. There should be as little deviation as possible from this criteria so that no extra time is spent debating unsuitable ideas.
Some questions that can be asked at this stage include. At this stage, the legal and practical aspects of developing and launching the new product are studied. It is pertinent to investigate all intellectual property and patent issues to prevent later infringement issues. An understanding of the marketing message and marketing details will also help streamline and focus the process moving forward. Identifying the target market, purchase decision makers, product features, potential benefits and consumer reactions to the product are some important marketing related points.
In addition, design details and their technical requirements as well as cost effective production are also vital considerations. Once marketing and design details are evaluated and understood, it is now time to conduct a business analysis to assess product profitability potential. It is important to estimate as close to reality as possible the likely sale price, based on competitor analysis results and consumer focus group or survey data.
It is also necessary to workup sales volumes based on market size and relevant tools. And based on this, profitability and a break-even point can be identified. At this point, it is now time to manufacture an actual prototype or a close mockup. The product, and ideally the packaging, should now be tested in true to life usage conditions. This can be done through focus groups, interviews, introductions at tradeshows. The feedback that is generated can help identify redundant features or those that create no real value and any hitches in the user experience. Necessary adjustments can now be made.
As further testing, an initial trial market can be identified and a small scale launch conducted to further assess acceptance by the target user group. At this stage, the technical teams will finalize the quality management system. They will also work out the resource requirements, plan engineering operations and create department schedules. Technical communications and requirements can be published to create a record.
Suppliers should be brought on board and logistics worked out. A system for regular reviews of the project as well as contingency and risk mitigation plans should also be drawn up. The product is ready for launch at this stage.
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Necessary advertising and marketing communications strategies are set into motion and the distribution channel is loaded up to ensure consistent product availability. The product should be monitored for usage feedback with consistent technical support available if applicable. In order to help convert undecided consumers into actual buyers, the marketing communications and brand presence need to be strong, relevant, visible and updated.
At this point, a review of the entire process is a good idea to identify best practices and areas of improvement. The impact of this new product on the entire product portfolio should also be evaluated. An external and internal value analysis will help understand the impact of the product.
The product may have been launched at an introductory price and it may now be time to decide upon an actual pricing strategy. This can be done after assessing consumer response, competitor response and product costs. A forecast of unit volumes, revenue and profit will also add value. An ongoing mechanism needs to be put in place to evaluate changing customer needs and market trends to ensure that the product stays relevant and competitive as consumers grow older and change preferences. It is important to note that the product development process is a fluid and evolving one. Some steps may need to be iterated while others may be eliminated altogether.
In the interest of quicker time to market, some companies may run several steps simultaneously. There must be an understanding that ideas may get trashed and some of these may be exciting and innovative but wrong for what is presently required. The company must also be prepared for losses and have a risk mitigation or market exit strategy planned in advance to avoid being caught off guard. The product development process ideally needs both technical or engineering and marketing or business expertise.
The best way to achieve this is to create a specialized cross functional team and give it end to end responsibility for the product. This means that the team will be working on idea generation all the way to commercialization and post launch reviews. In any case, it is vital that the team work in close collaboration to ensure the successful development and launch of the new product.
With clear goals, the team can ensure that the product development process is productive and relevant. New product development is increasingly seen as a proactive process by senior management. There is an effort to identify changes in market trends and seize opportunities for new products before a need for them is explicitly present or before a competitor reaches it. If a more reactive methodology is adopted then, there will always be a rush to catch up which may lead to a substandard product or a poorly planned launch.
New product development should be seen as a form of continuous development where the entire company is alert towards potential opportunities. SCRUM is a simple framework that allows teams to collaborate effectively on complex projects. Through this methodology, product development occurs in small pieces. Each piece builds up on a previously created piece. Working on one small piece at a time encourages the creative process and allows teams to incorporate feedback and make changes as well as to create only what is needed. Through a small set of rules, basic structure is provided to the teams to allow them to focus innovation on finding solutions to what might other be an extremely daunting challenge.
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