Lecture 4

STAGES PROCESS STEPS OF NEW PRODUCT DEVELOPMENT

The eight stages or process or steps involved in the development of a new product are listed as
follows:
 Idea generation.
 Idea screening.
 Concept testing.
 Business analysis.
 Product development.
 Test marketing.
 Commercialization.
 Review of market performance.
Now let's discuss each stage in the process of a new-product development.
1. Idea generation
The first step in new-product development is idea generation.
New ideas can be generated by:
1. Conducting marketing research to find out the consumers' needs and wants.
2. Inviting suggestions from consumers.
3. Inviting suggestions from employees.
4. Brainstorming suggestions for new-product ideas.
5. Searching in different markets viz., national and international markets for new-product
ideas.
6. Getting feedback from agents or dealers about services offered by competitors.
7. Studying the new products of the competitors.
2. Idea screening
Most companies have a "Idea Committee." This committee studies all the ideas very carefully.
They select the good ideas and reject the bad ideas.
Before selecting or rejecting an idea, the following questions are considered or asked:
1. Is it necessary to introduce a new product?
2. Can the existing plant and machinery produce the new product?
 3. Can the existing marketing network sell the new product?
4. When can the new product break even?
If the answers to these questions are positive, then the idea of a new-product development is
selected else it is rejected. This step is necessary to avoid product failure.
3. Concept testing

Concept testing is done after idea screening. It is different from test marketing.
In this stage of concept testing, the company finds out:
1. Whether the consumers understand the product idea or not?
2. Whether the consumers need the new product or not?
3. Whether the consumers will accept the product or not?
Here, a small group of consumers is selected. They are given full information about the new
product. Then they are asked what they feel about the new product. They are asked whether they
like the new product or not. So, concept testing is done to find out the consumers' reactions
towards the new product. If most of the consumers like the product, then business analysis is
done.
4. Business analysis
Business analysis is a very important step in new-product development. Here, a detailed business
analysis is done. The company finds out whether the new product is commercially profitable or
not.
Under business analysis, the company finds out...
1. Whether the new product is commercially profitable or not?
2. What will be the cost of the new product?
3. Is there any demand for the new product?
4. Whether this demand is regular or seasonal?
5. Are there any competitors of the new product?
6. How the total sales of the new product be?
7. What will be the expenses on advertising, sales promotion, etc.?
8. How much profit the new product will earn?
So, the company studies the new product from the business point of view. If the new product is
profitable, it will be accepted else it will be rejected.
5. Product development
At this stage, the company has decided to introduce a new product in the market. It will take all
the necessary steps to produce and distribute the new product. The production department will
make plans to produce the product. The marketing department will make plans to distribute the
product. The finance department will provide finance for introducing the new product. The
advertising department will plan the advertisements for the new product. However, all this is
done as a small scale for Test Marketing.
6. Test marketing
Test marketing means to introduce the new product on a very small scale in a very small market.
If the new product is successful in this market, then it is introduced on a large scale. However, if
the product fails in the test market, then the company finds out the reasons for its failure. It
makes necessary changes in the new product and introduces it again in a small market. If the new
product fails again the company will reject it.
Test marketing reduces the risk of large-scale marketing. It is a safety device. It is very time-
consuming. It must be done especially for costly products.
7. Commercialization
If the test marketing is successful, then the company introduces the new product on a large scale,
say all over the country. The company makes a large investment in the new product. It produces
and distributes the new product on a huge scale. It advertises the new product on the mass media
like TV, Radio, Newspapers, and Magazines, etc.
8. Review of market performance
The company must review the marketing performance of the new product.
It must answer the following questions:
1. Is the new product accepted by the consumers?
2. Are the demand, sales and profits high?
3. Are the consumers satisfied with the after-sales-service?
4. Are the middlemen happy with their commission?
5. Are the marketing staffs happy with their income from the new product?
6. Is the Marketing manager changing the marketing mix according to the changes in the
environment?
7. Are the competitors introducing a similar new product in the market?
The company must continuously monitor the performance of the new product. They must make
necessary changes in their marketing plans and strategies else the product will fail.
PRICE AND PRICING

1: PRICE

In the narrowest sense, price is the amount of money charged for a product or a service.

But there must be more than that. What is a price really? Speaking broadly, the price is the sum
of all the values that a customer gives up to gain the benefits of having or using a product
or service. Thus, customers exchange a certain value for having or using the product – a value
we call price.

Historically, price has been the major factor affecting buyer choice. However, in recent decades,
non-price factors have gained increasing importance. Yet, the price is still one of the most
important elements of the marketing mix. It may determine very much of a firm’s market share
and its profitability.

TERMS USED TO DESCRIBE PRICE

Depending on whether they are describing a good or a service and the product’s industry, people
may use terms other than the word price.

We’ve been using the word “price” a lot. There are, however, other terms you may come across
in your studies and daily life that serve as synonyms.

Price Point

The price of an item is also called the price point, especially where it refers to stores that set a
limited number of price points.

Charge
When someone wants to know the price of a service, they may ask, “How much do you charge?
” In this context, the word “charge” is a synonym for price.

Value

From a customer’s point of view, value is the sole justification for price. Many times customers
lack an understanding of the cost of materials and other costs that go into the making of a
product. But those customers can understand what that product does for them in the way of
providing value. It is on this basis that customers make decisions about the purchase of a
product.

Fee

Service providers may present you with a fee list as opposed to a price tag if you ask for the price
of their services.

Fare

You pay a price to fly, ride the bus and take the train. The price in these industries is expressed
as a fare.

2: PRICING

Is the process you need to go through to figure out what price to attach to each unit.
Pricing, therefore, is a strategic process that you must learn, and use, for business success.

According to Prof. K.C. Kite, “Pricing is a managerial task that involves establishing pricing
objectives, identifying the factors governing the price, ascertaining their relevance and
significance, determining the product value in monetary terms and formulation of price policies
and the strategies, implementing them and controlling them for the best results”.
Thus, pricing refers to the value determination process for a good or service, and encompasses
the determination of interest rates for loans, charges for rentals, fees for services, and prices for
goods.
 PRICING OBJECTIVES

I. PROFIT-ORIENTED OBJECTIVES:
a. Maximizing Profit:
Implies that prices are set in such a way that they help in achieving maximum profit. According
to Stanton, Etzel and Walker, “The pricing objective of making as much money as possible is
probably followed more than any other goal.” Profit maximization is more beneficial in the long
run as compared to short run. For instance, an organization selling a new product tries to build a
customer base by selling the product at low prices in the short run. This helps the organization to
gain profit in the long run by winning loyal customers.

b. Achieving a Target Return:

Refers to earn an adequate rate of return on the investment done by an organization in
manufacturing a product. The main focus of marketers is on maintaining a specific return on
sales or investment. This is done by adding extra cost to the product for earning a desired profit.

II. SALES-ORIENTED OBJECTIVES:

a. Increasing the sales volume:
Implies sales expansion by giving discounts to customers. In the short run, an organization might
be ready to bear losses by reducing the prices to increase the sales volume. For instance the hotel
industry faces low demand during off–season; therefore, it prefers to decrease its prices and
offers discounts to increase sales.

b. Increasing or maintaining market share:

Plays a crucial role in the success of an organization. The organization tries to gain market share
by lowering down the prices as compared to its competitors.
III. STATUS QUO-ORIENTED OBJECTIVES:
a. Stabilizing the Prices:
Prevents price wars between competitors. The prices are stabilized in those industries where
product is standardized in nature. The stabilization of the prices helps in maintaining the demand
and reducing competitive threats.

b. Meeting the Competition:

Implies that the changes made in the price of a product help an organization to gain competitive
advantage. Sometimes, the organization also tries to neutralize competitive pressures by price
movement.

c. Survival

The objective of pricing for any company is to fix a price that is reasonable for the consumers
and also for the producer to survive in the market. Every company is in danger of getting ruled
out from the market because of rigorous competition, change in customer’s preferences and taste.
Therefore, while determining the cost of a product all the variables and fixed cost should be
taken into consideration. Once the survival phase is over the company can strive for extra profits.

d. To promote development in society

An organization also adopts pricing objectives to promote developmental activities in the

society. For instance, an organization may reduce the prices of a product for the low-income
sections of the society. Thus, the pricing objectives play a significant role in the overall growth
of the organization.