New Product Development -- From Idea to Market

A look at the product development process

Overview

New product development is a vital part of any business. It doesn't matter whether the product is for consumers or other businesses, whether it is a tangible object or a service. The constant change in markets and technology require that companies take steps to meet new challenges. Developing new products and improving existing products is an important step in meeting this challenge. New product development can be just what it sounds like—the creation of a completely new product that fills a previously unaddressed niche in the economy. Product development also includes re-examining an existing product to maximize its market potential through adding features, a design change or maybe just tweaking the marketing.

Fortunately, product innovation is not a completely hit or miss proposition. There are steps a company can take to improve the likelihood of a successful development process. There is no one "best" method for developing products, and what works for one segment of a particular industry may not work for another industry, or maybe not even for another segment of that industry. The mix of elements will be different for every product development project, but companies can look to a basic framework to help keep all the different elements on track.

The goal of the product development process is to end up with the best possible product. One that is well suited for the intended audience and contains features that are needed and desired. No matter how great the new product may seem, if the market rejects it, it's a failure. Taking the product development process seriously can go a long way toward making the end result a success.

Outline

I. What is New Product Development

II. Categories of Products

III. The Stage-Gate Process

IV. The Importance of Market Research]

V. Types of Research

VI. Choosing the Research Firm

VII. The Customer Experience

VIII. Managing the Process

IX. Portfolio Management

X. Resources

What is New Product Development

The new product begins as an idea or a concept. Maybe even hastily scribbled on a napkin at lunch. Product development is the process that takes that idea through a series of stages until the concept emerges at the end of the process as a completed product ready for the market.

New products drive progress and can be seen as the lifeblood of business. They can create new companies and entirely new industries. The automobile is an example of a product that has spawned a huge industry with constantly changing design of the core product, a wide range of accessories that reflect ongoing innovation and a huge host of industries, like petrochemicals, that were directly affected by the creation of that one product.

New product development can allow companies to reinforce or change their strategic direction, they prevent companies from becoming stagnant and new products can be a rallying point to create excitement and commitment at companies. A strong new product can also help a company's entire product line with a "pull-through" effect.

It is important for companies to remember that product innovation is not a static process. Abbie Griffin, editor of the Journal of Product Innovation Management says that "there's no silver bullet" in product development. There's no perfect process that a company can find and use over and over again. Each project requires its own set of objectives and mix of elements to be successful. What worked with the last project may not work for the next development process.

"Product development goes in cycles at every single company," says Griffin. "It's almost like there's a reversion to the mean. You do well for a while, you get cocky, you forget how to do it and then you lose it."

Companies should remember that the goal of the entire process is to end up with a successful product. A product that improves on the competition or fills a new niche in the marketplace.

"I think that the best products are really for an individual--a clear, real person with real needs, aspirations, goals (and) values. And the more that products can be conceived and designed to address the needs of real people, the more they are going to resonate with, or excite consumers at the end of the day," states Darrel Rhea, principal at Cheskin Research. "So I think that it's incredibly important to have product developers, all the people involved in product development including the technical and engineering side of the equation, to have a deep appreciation for who they are designing for"

Noncontrollable factors in product development:

Market potential, size and growth rate

The availability of resources

How competitive the market is

The external environment surrounding the product

Controllable factors in product development:

The proficiency of marketing and technological activities

Whether the end user is involved in decisions throughout the process

The support of top management

The new product strategy and process

Some questions to ask about the development process:

Are we increasing our research and development effectiveness?

Are we improving the utilization of our manufacturing operations?

How are we leveraging our marketing effectiveness?

Are we effectively utilizing our human resources?

Are we including the consumer in our development process?

Questions to ask about the new product:

Will this new product enhance our corporate image?

Are we reinforcing or changing our strategic direction with this product?

Will this development help us achieve a strategic advantage over a competitor?

How will this product improve our financial return?

Does this new product create excitement at our company?

Categories of Products

New products come in many guises, but almost all of them can fit into one of five categories:

The breakthrough product is something that is entirely new. The first telephone is an example of a breakthrough product. So is the first tennis racket made of a graphite composite and not wood or metal. These are the most dramatic of new products and they are what most people think of when they hear the words product innovation.

The "new to us" product is one that is already on the market, but a company is developing their own version for the first time. There are many reasons a company may want to develop a product that already exists. They may be able to improve upon what is available, or can make a comparable product at a cheaper price. Or possibly they are looking to grab a share of a profitable market segment. A danger of overusing this approach is to be seen as a non-innovative copy cat company within the industry.

The next generation product falls under the new and improved umbrella. That is, taking a successful product and adding some new benefit, reducing the cost or enhancing the overall design to improve the product.

Many companies use a simple line extension product for much of their product development. This approach may not be too exciting, but it can be very profitable by tweaking a good product to meet different segments of the market. Some examples would be the creation of an economy model of a product, or conversely a higher-end model with more features. This approach should be carefully researched to avoid the over-segmentation of the market with a large and confusing assortment of product choices.

The final product category is the three Rs--repackaging, repositioning and recycling. A new package design can invigorate and draw attention to an existing product. By repositioning a product, companies can open new and profitable markets to that product. The recycled product can find new life in a new role.
A good example would be the old, mechanical push lawn mower. Gas and electric power mowers dominate the market, but there is an increasing demand for the simple and environmentally friendly push mower.

The Stage-Gate Process

The traditional product development process is referred to as sequential new product development and consists of five basic steps: idea generation, screening and evaluation, business analysis, development, testing and commercialization. Each step is overseen by a manager who makes the determination whether or not to proceed to the next step.

Robert G. Cooper founded the Stage-Gate ™ product development process that refines the basic framework and provides the development team a blueprint for managing the process. The Stage-Gate process defines the cross-functional and parallel activities that each stage should engage in. Between the stages are gates which control the process and serve as go/kill checkpoints for the project as well as offer quality-control of the process.

This process breaks the development cycle into a number, usually four, five or six, of identifiable stages. Each stage includes the various activities that each functional area undertakes in parallel while working together as a team under the project team leader. The design is set up where each stage gathers information to drive down uncertainty about the success of the project. Each successive stage is also more costly than the previous stage. The idea is to allow an increase in spending on the development of projects as the uncertainty goes down. Another aspect of the Stage-Gate process is a built-in level of flexibility to help accelerate the development process. Stages can overlap each other, or a Go decision can be made on the next stage although the current stage is not completed yet. Stages can even be combined if that is found to be necessary.

A generic example of a five-part Stage-Gate process:

Stage 1: The Preliminary Investigation--This should be undertaken by a basic team from the technical and marketing functions to investigate the scope of the project. Some of the activities include the preliminary market, technical and business assessments.

Stage 2: Detailed Investigation--The activities of this stage should lead to a business case. They include market research studies like user needs and wants, competitive analysis and concept testing. The activities also include in-depth business and financial analyses. This stage should involve the technical, marketing and manufacturing functions and should yield a defined product and a framework for the following stages.

Stage 3: Development: Here is where is the product is designed and prototyped. At this stage some customer research is conducted to refine the design, but much of the testing involves the manufacturing requirements and processes. The marketing plan for the new product is also created. The entire cross-functional team, including the marketing, technical, manufacturing functions as well as the purchasing, sales, quality assurance and finance functions, should be in place by the development stage.

Stage 4: Testing and Validation--This stage is where the proposed new product endures extensive testing of the production, the marketing and the product itself. This stage determines if the product is ready to actually go to the market.

Stage 5: Market Launch and Production: The full commercialization of the new product. The marketing plan is fully engaged and the project team now should take on the role of monitoring and making refining adjustments on the launched product as necessary.

Built into the Stage-Gate process is the gate between each stage. This gate is a go/kill decision point that determines if the project continues. The gate also serves a quality-control checkpoint and helps determine the resource commitment the project receives from the company. The gate meeting should be attended by the senior members of each of the functions represented on the development team. Gates have three aspects that are evaluated during the meeting. The input is what the previous stage delivered to the meeting. The criteria are the questions that the meeting members use to make their go/kill and resource allocation decisions. The criteria involve both quantitative figures, like financial return forecasts, and qualitative data, like market attractiveness. Each of the criteria are judged on mandatory or desirable merits to determine the outcome of the meeting. The output of the gate meeting is the decision that the participants end up with. If the decision is a "go" the participants set a resource allocation level to the next stage and a deadline for the next set of deliverables.

Part of the flexibility of the Stage-Gate process is that decisions can be made with incomplete information--a provisional go decision can be made depending on positive results occurring early in the next stage. The Stage-Gate process is a cross-functional approach that involves many different business function areas throughout the entire product innovation cycle.

The traditional product development cycle does not involve market research until close to the end of the process. This view looks at research as a mean to "market" the new product, not allow market research to drive the actual development decisions. An important aspect of the Stage-Gate process is that the marketing function is involved in every step of the development cycle. Following is breakdown of some specific marketing functions that should be employed at specific stages of the process.

The Preliminary Market Assessment: This study is used at the onset of the development cycle to determine the market attractiveness and acceptance of the concept

User Needs and Wants: These face-to-face interviews and in-depth surveys provide important user information to the design team

Competitive Analysis: Just as it sounds, this study looks at the competition within the targeted marketplace

Concept Testing: This tool uses a prototype or representation of the proposed product to test market acceptance.

Customer Reaction: This should be employed throughout the various steps of development to keep the project team focussed on the end user.

User Tests: This is the final test before the actual onset of marketing where consumers use the product under customer conditions to confirm the market attractiveness and acceptance.

Test Marketing: The new product is launched on a limited basis to test every element of the marketing and product before the full launch.

Market Launch: The full release of the new product, backed up by a sound development process and the resources necessary for market success.

The Importance of Market Research

Traditionally product development has used market research at the end of the process to validate the new design or product. Market research is actually an important aspect of every stage of development. The earlier a company spends market research dollars in development, the more return they will see on those dollars. The problem with utilizing validation research at the end of the process is that the research itself becomes a "disaster check." The best result a disaster check can come back with is that you have a viable product that the market will embrace. More likely the research will uncover areas where the development team made incorrect assumptions about some aspect of the new product, maybe a configuration issue or a tone of the brand, that turns out to be incorrect and created a weaker product than was possible. The worst-case scenario has the research uncovering an actual "disaster", that is, a product that is not suited for the target audience in the least. At that point the development process must start over, losing valuable time and wasting money. A problem that could have been averted by effective research early in the development process.

Rhea explains the value of using research early in the development game, "If you take the time to really do serious planning of the process, if (you) take the time to focus your efforts, to aim before you fire, you're going to have a much more efficient development process." By utilizing research to help conceptualize the direction of the product development, companies can increase the return on their development investment. The best way to accomplish this is to really understand who the user of the new product is and bring that product to life for that user. By doing this the development team has a powerful shared vision and understanding of whom they are solving the problem for.

"Ultimately research should help provide the fundamental material to create a vision for a brand or product," says Rhea. "And that vision should be based on a really deep, intuitive clear understanding of human beings as real people, not as statistics and data."

Market research can also help the development team realize that they are not just creating a product. They are creating a customer experience. A relationship with the customer that goes beyond the product or service created at the end of the development process. This requires a deep understanding of brand and that brand is the promise and relationship that the customer has with the company.

"Ultimately, in the market, it (product development) creates products that people just don’t buy, they buy into," states Rhea. He goes on to cite the Body Shop, Patagonia and Nike as companies whose products consumers buy in part because of the philosophy, values and sensibilities of their brands.

Types of Research

Market research encompasses a wide variety of types of research. The two basic categories are quantitative and qualitative. Quantitative research includes the collection of demographic and psychographic information, like the target age and gender of the product, the hobbies of the target group, how strongly they feel about various issues. Qualitative research goes more deeply into the actual problems that the customer may want solved by the new product.

The trend in product development has been moving toward more qualitative tools. One of these is cultural ethnology which borrows skills from visual anthropology to observe the consumer in various settings and develop deep, contextual insights about the end user from these observations. This process can allow the researcher to learn what is going on in the consumer's life which the consumer may not want to tell the researcher or may not even be aware of themselves. Using this along with other tools allows a skilled researcher to define specific problems that can be solved through the product innovation process.

An important aspect of research is to utilize the entire toolbox of research skills to define the consumer and the problems that need to be solved—using the correct methodology at the right time to solve the right problem. By not doing this, the development team risks ending up with a product that is less than optimal. Most companies will not have this highly specialized skill in-house in the marketing department. The solution is to hire a market research firm that can provide worthwhile market research to the development team.

Choosing the Research Firm

When searching for a market research firm to add to the development team, the company should be aware that not all market research companies will be able to provide the type of results that product development demands. A large portion of the market research field specializes in quantitative data collection, which is very worthwhile for many purposes, but these companies will not provide the skill sets that the development team requires. The company should seek out a research firm with experience with the appropriate skills for product development. This means finding someone who can help you understand your target consumer and understands the product development process. Each area of the development team, like the engineer or the industrial designer or the advertiser, needs something different from the research. The effective market researcher will be able to translate their research into usable insight for each different group and put that insight into each group's language.

Speed of development is often an issue, and good market research can help streamline the process. Christopher Ireland, CEO of Cheskin explains, "We think people can really get things developed faster if they just spend a little time up front listening to their customer. Because more often than not, what happens is they start developing something and halfway through they got to test it, they find that they've made a lot of mistakes and then they have to go back and reinvent for a while. And they lose a lot of time."

Research Firm Checklist

___Does the firm understand the product innovation process?

___Does the firm have experience with market research for product development?

___Can the firm provide usable information for each functional area in the language of that area?

___Is the research firm willing to be integrated into the development process as a member of the project team, or will they just provide reports and information to the team?

The Customer Experience

The current marketplace is a radically changed arena. The needs and concerns of customers from even five years ago may no longer be valid which underscores the importance of understanding what the end user wants today to product development. Companies that rely on the traditional methods of allowing technology or existing products drive development may find themselves left behind. Research is finding that benefits, or perceived benefits, drive consumers to make purchase decisions. Learning what the customer finds beneficial can be a critical element in a new product design. Cheskin Research has developed a the Cheskin Research Design Experience Model to pull together the elements of customer's everyday interactions with products by observing customers as they experienced many hundreds of commercial designs.

Stage one of this model is "life context." This refers to the background of the consumer's life—what the consumer thinks, feels and does. It also includes elements such as beliefs, attitudes and perceptions. Life context does not remain static, as new innovations such as the Internet change the consumer's behavior. As the behavior changes, the needs of the customer changes. This element should be reinvestigated for every new product or idea as it is in a constant state of flux.

Examples of research used to explore life context:

Ethnographic Studies—observing people in their natural context.

Expert Interviews—learning what experts in the field of interest have to say.

Identity Studies—determining how and why people feel a certain way about products and companies.

Customers must make a transition that Cheskin calls "involvement" before entering the second stage of "engagement." Engagement is the customer's first interaction with the new design. What makes this stage important is that the design itself should be interesting enough to engage the customer without the help of a specific brand, company or product category.

The successful design will accomplish three tasks at this stage. The product will have a cognitive presence which triggers one of the five senses and causes customers to make a distinction between the new product and its competitors. The design will grab the customer's interest through attraction, and the customer will receive communication about the product's key attributes. This stage may last only a few seconds, but it is vital that the consumer completes the three tasks of cognitive presence, attraction and communication.

Examples of research used to explore engagement:

Physiological Response Studies—tracking consumer's physical response to the design elements.

Visual Mapping Studies—tracking what design elements attract the consumer's eye. This bridges physiological responses and more emotional responses.

Communications Studies—these explain how the design elements impact consumer's perception of the product.

The third stage is "experience." At this stage the consumer actually uses the new product and continually assesses the quality of their experience with the product. The task is to create a product that "delivers", that is, meets the customer's expectation and then goes a little further to give the customer something extra. You want the customer to go beyond being merely satisfied with the new product to seeing it as something great.

Examples of research used to examine experience:

Attitudes and Usage Studies—track how people interact with products and provide insights about this usage.

Usability Perception Tests—measure how consumers feel about the products functionality.

In-Use Testing—or "beta testing". Allowing a select group of consumers to use prototypes of the product and report on the strengths and limitations that they find.

The final stage is "resolution." This stage occurs when the product is no longer used by the consumer. It is preceded by a transition process that Cheskin calls "disengagement." Marketers and designers have traditionally considered disengagement the end of their products interaction with the customer, but new environmental standards have changed this view. Product disposal has become an issue that companies must enter into the product development process. Companies must become aware of how the product is disposed of whether it is returned to the manufacturer, recycled or just sent to the local landfill.

Examples of research used to explore resolution:

Customer Satisfaction Surveys—track customer's ongoing reactions to products and companies

Point-Use Studies—track the strategies and processes that consumers use to dispose of products.

These studies can tell companies whether their customers can move through the next transition of "integration" which will allow the customer to weave their product perception back into life context and begin the cycle again.

The following questions taken from the Cheskin Research document, "A new perspective on design: focusing on customer experience", can help you think about your company's products in relation to this customer-based model.

1. How deeply does your company seek to understand customers before engaging in design? What might you do to deepen this understanding?

2. How might it benefit your company's design process to start with a focus on customers and their concerns rather than on existing technology or products?

3. Are there any model stages your company is not presently evaluating during the product development process or marketing efforts? If so, how might greater evaluation benefit your customers? Your products? Your company?

4. Think about how customers experience your product—from initial exposure to disposal. Does anything in the design distract customers from addressing their concerns? Are there any unnecessary points of effort, induced awareness, inconvenience, or irritation?

5. How might you improve customer's experience of your product so that they will be favorably predisposed toward repurchasing it? Toward accepting your company's other product offerings?

Managing the Process

The traditional view of product development has a single project team leader overseeing the individual project and each of the functional areas, like technical, marketing, manufacturing, finance and logistics. Many companies are now moving toward a team-based approach with each functional area represented by a leader. These are commonly called cross-function or mulit-functional teams and are a representation of the corporate trend of reducing the hierarchical structure of the firm, or creating a "flat" organization. Although more companies are only paying lip service to the idea of a flat organization than are actually implementing the idea, the use of cross-functional teams can be very effective in product innovation. The Stage-Gate process demands a cross-functional team with players from every function and a team leader to represent them. Although the team structure is dynamic with members entering and leaving the team as necessary, the project retains a core group of members and team leader that are involved and responsible through the entire development process.

With the management and responsibility of the individual projects covered by the project team leader and the core members from the different functional areas involved in product innovation the management issue becomes more one of the entire scope of product development of the company.

Portfolio Management

Portfolio management is defined as a dynamic process which a company uses to regularly review the list of product development projects and allocate resources to the projects in a prioritized manner. The activities involved in portfolio management include reviewing the entire portfolio and comparing the individual projects against each other, making go/kill decisions on individual projects, developing a product strategy for the business and making the strategic resource allocation decisions. This approach is not unlike concept of managing a portfolio of stocks where you constantly evaluate the entire group to maximize your return and weed out the weak links.

Without a good portfolio management system in place a company risks spreading their resources too thinly over a group of weak projects and not making effective go/kill decisions by allowing the weaker projects progress through the development process. Done correctly, the management of the project portfolio should be a funnel that keeps the effective projects in the stream and weeds out the weaker projects on a regular basis. This gives the strong projects more resources to help maximize their effectiveness. The difficulty in portfolio management is the fact that the process is dynamic and focuses on what might be and compares projects at differing stages of completion.

To implement a portfolio management system, a company should approach the process as though they were designing a new product (the new management system) for an end user (the company.) By doing this the process is broken into steps with particular goals in mind to ensure that the result will be successful. The first step is to define the requirements for implementing a portfolio management system. This step involves learning about what portfolio management entails by researching literature on the subject and taking a look at what other firms are doing with portfolio management. This step also includes creating a task force within the company to act as the "project team" that develops the process.

The second step is to design the portfolio management process itself. The first stage should provide a frame of reference to work from and should have defined problem areas that need to be addressed, like having a development process that is easily reviewable such as the Stage-Gate process. This step also involves creating a new product strategy and a portfolio review process. The result of this stage should be a portfolio management process that is down on paper and has been reviewed by the task force, users and top management within the company.

The last step is to implement the process itself. A portfolio process manager should be chosen to cover the day-to-day management of the system and there should be training for the project team members on the new process. All new and existing projects should be put into the new system as quickly as possible and performance measures, or metrics, should be defined to allow for evaluation of the entire process.

The result of the time and resources spent to develop a good portfolio management system is a more effective and accountable process of new product development.

Resources

Robert G. Cooper, Scott J. Edgett and Elko J. Kleinschmidt, Portfolio Management for New Products, Addison-Wesley, 1998

Robert J. Thomas, New Product Development: Managing and Forecasting for Strategic Success, John Wiley & Sons, Inc., 1993

Kim B. Clark and Steven C. Wheelwright, ed., The Product Development Challenge: Competing Through Speed, Quality and Creativity, A Harvard Business Review Book, 1994

John A. Hall, Bringing New Products to Market: The Art and Science of Creating Winners, Amacom, 1991

"A New Perspective on Design: Focusing on Customer Experience", Volume One, Number One, Cheskin Research, 1998

Product Development and Management Association www.pdma.org

Journal of Product Innovation Management www-east.elsevier.com/pim/

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