New Product Development Process
Idea generation and screening for new product development
The new product development (NPD) process starts with a systematic search for new product ideas. As new product development is crucial for companies to stay competitive, new ideas are gained from many different sources, for instance distributors, customers and internal brainstorming sessions. However, an increasing number of companies are adopting a marketing approach centered on the customer, its main focus being to understand customer demands and customer needs. A great number of market research techniques are used to find new gaps or niches in the market.
In order to create original products marketing specialists work closely with research and development (R&D). But new product development can also concentrate on an existing product to achieve higher sales numbers by modifying or improving it. Examples of product modifications are limited or special editions of certain popular products, such as Vanilla Coke. The goal of product innovation may be the targeting of a new market. It can be aimed at a mass market or a niche market.
Given the high cost of new product launches, new product ideas have to be carefully screened to detect and select the potentially successful items only. In a competitive market, only a fraction of the ideas is usually viable (will survive in the long run), technically feasible (can be produced using the skill and resources available to the company) and profitable (will make money) at the same time. The overall demand is also an important consideration. The product development team has to understand how much of the product they can expect to sell.
Concept development and testing
In the next phase of the new product development process, the best ideas are taken and developed into a number of clear product concepts. Throughout the concept testing, the company tries to measure customer response to the new product or service and determine the level of its consumer acceptance. What do customers think of the concept? How ready are they to start using the product?
The objective is two-fold. The company has succeed in introducing the product to the market and at the same time minimize the costs of research and development.
Marketing strategy and business analysis
The marketing strategy describes how the company will attempt to introduce the product or service into the market. There are basically three different routes the company can take to market the new product:
- produce it yourself,
- sell the idea to another company,
- license the product to another company to produce and market.
The marketing strategy describes how the company will position the product it sells or service it provides in the competitive market. The strategy includes a clear marketing mix discussing target markets, pricing policies, promotional initiatives etc.
By estimating the sales volume (amount of product sold), the selling price (what consumers will pay) and the revenue expectations (total income generated by the product), the company can assess the overall financial attractiveness of the new product or service. Once this has been done the product development phase begins.
Workflow for new product development
New product development provides a competitive edge for the company only if the workflow is efficient enough to beat the competitors to market. Getting the market first through a quick product launch is the key to success. The expression 'time to market' refers to the amount of time a new product spent in the development pipeline before reaching the market.
The project team, led by a project leader, carries out a sequence of key activities that ensures the product will be successful. Businesses don't like to take unnecessary risks, therefore every decision they make has to be backed up with hard data gathered more often than not by thoroughly researching the market. Prioritization is used to identify the most important tasks to do defining a clear action plan and resources are allocated accordingly.
Product development and optimization
At this stage of the new product development process, product concepts exist only in the form of a description, drawing or a basic model known as a mock-up.
For instance, car manufacturers create clay models of new car designs. Computer aided design (CAD) is used by product modelling to make ideas into 3D representations of the product. Then the research and development team creates a prototype to test product functionality and to detect and correct flaws in the product concept. Prototypes cut costs and allow for efficient market testing.
For software, the first phase of testing is called alpha test, when the program is tested by company employees to detect and correct errors or bugs. The second phase is called beta test, when the program is tested externally by a selected group of users.
Throughout the product development, optimization studies are performed to improve the product while still under development. This can be sensory research to evaluate how the product smells, tastes, feels.
Test marketing and commercialization
Test marketing the product means a collection of information to gain insight into how the proposed product will eventually perform in the market. Before the full launch the company tests the product and its marketing plan (a written document detailing the marketing methods selected, specific marketing actions and activities, and the resources needed to achieve specific objectives) on a small test market. This allows for an estimate on sales volume. Test marketing helps uncover problems with the proposed product and fine-tune the marketing plan. The planned costs and possible risks of introducing the product or service strongly influence the amount of time it spends in test marketing.
The new product development process ends when the product is commercialized by being introduced in the market. By the date of commercialization a well-prepared distribution and marketing communication action plan is created. The company may decide to launch the product or service in all markets or it may perform a step-by-step market rollout in different locations.