Developing New Products

and Managing the Product Life Cycle

Course: Principles of Marketing
The New Product Development Process
Rather than leaving new products to chance, a company must carry out strong new product planning
and set up a systematic, customer-driven new product development process for finding and growing
new products. Figure 9.1 shows the eight major steps in this process.
1. Idea Generation
New product development starts with idea generation —the systematic search for new product ideas. A
company typically generates hundreds—even thousands—of ideas to find a few good ones. Major
sources of new product ideas include internal sources and external sources such as customers,
competitors, distributors and suppliers, and others.

Internal Idea Sources: Using internal sources, the company can find new ideas through many
sources. Companies must carefully create organizational structures, processes, and cultures that create
an environment where new thinking is part of everyday operations. Such efforts can take many forms:

• Establishing R&D Research Centers. Companies can develop new product ideas through their
own R&D.
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• Harnessing Internal Creativity. Beyond its formal internal R&D processes, a company can pick
the brains of its own people—executives, salespeople, scientists, engineers, and manufacturing
staff—just about everybody in the organization. Many companies have developed successful
internal social networks and intrapreneurial programs that encourage employees to develop new
product ideas.

• Conducting Focused Hackathons. Many companies sponsor periodic internal “hackathons,” in

which employees take a day or a week away from their day-to-day work to develop new ideas.

• Recognizing “Hidden” Ideas. R&D projects may lead to unexpected discoveries that do not serve
the purpose of those projects. However, managers must be encouraged to think broadly about other
applications for the discoveries.
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• Using Technology to Generate Ideas. Today, technology platforms can help managers efficiently
generate, churn through, and evaluate thousands of product design ideas that meet required
specifications.

• Repurposing Existing Products. Given the risks associated with launching entirely new products,
companies must first examine whether any of their existing products can be modified and
relaunched to enter new markets or appeal to untapped customer segments.

• Unbundling Existing Offerings. One of the easiest ways to create a new, standalone product is to
unbundle an existing collection of offerings.
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External Idea Sources: Companies can also adopt a variety of approaches to glean new product
ideas from the external environment. These include the following.

• Seeking Insights from Suppliers and Distributors. Suppliers and distributors can contribute a
range of ideas. Suppliers often work with a range of companies and industries. That puts them in a
position to tell the company about new concepts, techniques, and materials that can be used to
develop new products.

• Learning from Competitors. Competitors can provide new product insights. Companies watch
competitors’ ads to get clues about their new products. They buy competing new products, take
them apart to see how they work, analyze their sales, and decide whether they should bring out a
new product of their own.
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• Learning from Innovation Leaders outside the Industry. In their quest for new product ideas,
companies often focus within their own industries. But the most powerful ideas often come from
external leaders in other industries.

• Learning from Customers. A company’s products ultimately serve the needs of customers. Not
surprisingly, customers can be a rich, broad, deep, and arguably most important source of ideas for
product innovations. Companies often use customer surveys and interviews to collect ideas for
developing new products and redesigning existing products.

Crowdsourcing: Inviting broad communities of people—customers, employees, independent

scientists and researchers, and even the public at large—into the new product innovation process.
2. Idea Screening
The purpose of idea generation is to create a large number of ideas. The purpose of the succeeding
stages is to reduce that number. The first idea-reducing stage is idea screening, which helps spot good
ideas and drop poor ones. Product development costs rise greatly in later stages, so the company
ultimately wants to go ahead only with those product ideas that will turn into profitable products.
3. Concept Development and Testing
• Product concept: A detailed version of the new product idea stated in terms that are meaningful
to the consumer.

• Concept testing: Testing new product concepts with a group of target consumers to find out if the
concepts have strong consumer appeal.
4. Marketing Strategy Development
Marketing Strategy Development refers to designing an initial marketing strategy for a new product
based on the product concept.

The marketing strategy statement consists of three parts.

• The first describes the target market; the planned value proposition; and the sales, market-share, and
profit goals for the first few years.

• The second part of the marketing strategy statement outlines the product’s planned price,
distribution, and marketing budget for the first year.

• The third part of the marketing strategy statement describes the planned long-run sales, profit goals,
and marketing mix strategy.
5. Business Analysis
Business analysis involves a review of the sales, costs, and profit projections for a new product to find
out whether they satisfy the company’s objectives. If they do, the product can move to the product
development stage.

To estimate sales, the company might look at the sales history of similar products and conduct market
surveys. It can then estimate minimum and maximum sales to assess the range of risk. After preparing
the sales forecast, management can estimate the expected costs and profits for the product, including
marketing, R&D, operations, accounting, and finance costs. The company then uses the sales and cost
figures to analyze the new product’s financial attractiveness.
6. Product Development

Here, R&D or engineering develops the product concept into a physical product or a detailed service
blueprint. The product development step, however, now calls for a huge jump in investment. It will
show whether the product idea can be turned into a workable product.

The R&D department will develop and test one or more physical versions of the product concept.
R&D hopes to design a prototype that will satisfy and excite consumers and that can be produced
quickly and at budgeted costs.

Often, products undergo rigorous tests to make sure that they perform safely and effectively or that
consumers will find value in them.
7. Test Marketing
The stage at which the product and its proposed marketing program are tested in realistic market
settings. Test marketing helps refine and finalize the product and the marketing program before
investing in a full launch. It might even result in the difficult decision to drop the product. Test
marketing lets the company test the product and its entire marketing program—targeting and
positioning strategy, advertising, distribution, pricing, branding and packaging, and budget levels.
8. Commercialization
• Introducing a new product into the market.

• A company launching a new product must first decide on introduction timing. If the new product
will eat into the sales of other company products, the introduction may be delayed. If the product
can be improved further or if the economy is down, the company may wait until the following year
to launch it. However, if competitors are ready to introduce their own competing products, the
company may push to introduce its new product sooner.

• Next, the company must decide where to launch the new product—in a single location, a region, the
national market, or the international market.
Product Life-Cycle Strategies
Figure 9.2 shows a typical product life cycle (PLC), the course that a product’s sales and profits take
over its lifetime. The PLC has five distinct stages:
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1. Product development: The company finds and develops a new product idea. During product
development, sales are zero, and the company’s investment costs mount.

2. Introduction: A period of slow sales growth as the product is introduced in the market. Profits are
nonexistent in this stage because of the heavy expenses of product introduction.

3. Growth: A period of rapid market acceptance and increasing profits.

4. Maturity: A period of slowdown in sales growth because the product has achieved acceptance by
most potential buyers. Profits level off or decline because of increased marketing outlays to defend the
product against competition.

5. Decline: The period when sales fall off and profits drop.