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The New Product Development Process
Because introducing new products on a consistent basis is
important to the future success of many organizations,
marketers in charge of product decisions often follow set
procedures for bringing products to market. In the scientific
area that may mean the establishment of ongoing laboratory
research programs for discovering new products (e.g.,
medicines) while less scientific companies may pull together
resources for product development on a less structured
timetable.
In this PowerPoint slide show, we present a process comprising
the key elements of new product development. While some
companies may not follow a deliberate step-by-step approach,
the steps are useful in showing the information input and
decision making that must be done in order to successfully
develop new products. The process also shows the importance
market research plays in developing products. We should note
that while this process works for most industries, it is less
effective in developing radically new products. The main reason
lies in the inability of the target market to provide sufficient
feedback on advanced product concepts since they often find it
difficult to understand radically different ideas. So while many
of these steps are used to research breakthrough ideas, the
marketer should exercise caution when interpreting the results.
*
New Products are vital
As the cartoon highlights, in this era of rapid changes in our
external environment, innovation is imperative. A firm cannot
rest on their laurels (and current products). Furthermore, the
time it takes firms to bring new products to market has
accelerated. Firms that fail to develop new products put
themselves at risk as their existing products are vulnerable to
changing customer needs and tastes, new technologies,
shortened product-life-cycles, and increased competition. In
this PowerPoint slideshow, we highlight the 8 step new product
development process as described by Kotler and Keller (2016).
*
8 Step New-Product Development Process1. Idea Generation2.
Idea Screening3. Concept Development and Testing4.
Marketing Strategy Development5. Business Analysis6.
Product Development7. Market Testing8. Commercialization
How Kotler and Keller (2016) describes the New Product
Development Process is as an eight stage process in which the
new product can be dropped at any time. Other sources will
condense some of the steps so you may see others refer to fewer
steps. If you look at these closely though, they are not deleting
any of the activities, but instead are combining some of them.
*
Step 1: Idea GenerationAt this stage marketers need to ask: Is
the idea worth considering?If yes, proceed to idea screening.If
no, drop.Ideas for new products can come from:Customers and
channel membersScientists and engineersBy examining
competitorsTop management
The first step of new product development requires gathering
ideas to be evaluated as potential product options. For many
companies idea generation is an ongoing process with
contributions from inside and outside the organization. Many
market research techniques are used to encourage ideas
including: running focus groups with consumers, channel
members, and the company’s sales force; encouraging customer
comments and suggestions via toll-free telephone numbers and
website forms; and gaining insight on competitive product
development through secondary data sources. One important
research technique used to generate ideas is brainstorming
where open-minded, creative thinkers from inside and outside
the company gather and share ideas. The dynamic nature of
group members floating ideas, where one idea often sparks
another idea, can yield a wide range of possible products that
can be further pursued.
*
Step 2: Idea ScreeningAt this stage marketers need to ask: Is
the product idea compatible with company objectives,
strategies, and resources?If yes, proceed to Concept
Development and Testing.If no, drop.
In Step 2, the ideas generated in Step 1 are critically evaluated
by company personnel to isolate the most attractive options.
Depending on the number of ideas, screening may be done in
rounds with the first round involving company executives
judging the feasibility of ideas while successive rounds may
utilize more advanced research techniques. As the ideas are
whittled down to a few attractive options, rough estimates are
made of an idea’s potential in terms of sales, production costs,
profit potential, and competitors’ response if the product is
introduced. Acceptable ideas move on to the next step.
*
Step 3: Concept Development and TestingAt this stage
marketers need to ask: Can we find a good concept consumers
say they would try it?If yes, proceed to Marketing Strategy
Development.If no, drop.Example of Concept
Development/TestingRegarding a concept of new shower
enclosures coated with Teflon, a marketer asks
consumers:Would this type of shower enclosure solve a cleaning
problem for you?
With a few ideas in hand the marketer now attempts to obtain
initial feedback from customers, distributors and its own
employees. Generally, focus groups are convened where the
ideas are presented to a group, often in the form of concept
board presentations (i.e., storyboards) and not in actual working
form. For instance, customers may be shown a concept board
displaying drawings of a product idea or even an advertisement
featuring the product. In some cases focus groups are exposed
to a mock-up of the ideas, which is a physical but generally
non-functional version of product idea. During focus groups
with customers the marketer seeks information that may
include: likes and dislike of the concept; level of interest in
purchasing the product; frequency of purchase (used to help
forecast demand); and price points to determine how much
customers are willing to spend to acquire the product.
*
Step 4: Marketing Strategy DevelopmentAt this stage marketers
need to ask: Can we find a cost-effective, affordable marketing
strategy?If yes, proceed to Business Analysis.If no, drop.
Marketing strategy development involves describing the target
market’s size, structure and behavior; the planned product
positioning; and the sales, market share, and profit goals sought
in the first few years. Then marketers would outline the
planned price, distribution strategy, and marketing budget for
the first year. Finally, marketers would describe the long-run
sales and profit goals and marketing-mix strategy over time.
*
Step 5: Business AnalysisAt this stage marketers need to ask:
Will this product meet our profit goal?If yes, proceed to Product
Development.If no, drop
At this point in the new product development process the
marketer has reduced a potentially large number of ideas down
to one or two options. Now the process becomes very dependent
on market research as efforts are made to analyze the viability
of the product ideas. The key objective at this stage is to obtain
useful forecasts of market size (e.g., overall demand),
operational costs (e.g., production costs) and financial
projections (e.g., sales and profits). Additionally, the
organization must determine if the product will fit within the
company’s overall mission and strategy. Much effort is directed
at both internal research, such as discussions with production
and purchasing personnel, and external marketing research, such
as customer and distributor surveys, secondary research, and
competitor analysis. This stage involves preparing sales, cost,
and profit projections in more detail than in the previous stage
to determine whether they satisfy company objectives.
*
Step 6: Product DevelopmentAt this stage marketers need to
ask: Have we got a technically and commercially sound
product?If yes, proceed to Market Testing.If no, drop.Example
of Product Development StageA new-product development
department is excited about a new product idea for a suntan
lotion that goes on blue, but fades away as the ability of the
lotion to protect skin disappears.Projected sales, growth, and
profit looks promising.The idea has been passed to R&D to
determine if the product could be feasibly made.
Ideas passing through business analysis are now given serious
consideration for development. Companies direct their research
and development teams to construct an initial design or
prototype of the idea. Marketers also begin to construct a
marketing plan for the product. Once the prototype is ready the
marketer seeks customer input. However, unlike the concept
testing stage where customers were only exposed to the idea, in
this step the customer gets to experience the real product as
well as other aspects of the marketing mix, such as advertising,
pricing, and distribution options (e.g., retail store, direct from
company, etc.). Favorable customer reaction helps solidify the
marketer’s decision to introduce the product and also provides
other valuable information such as estimated purchase rates and
understanding how the product will be used by the customer.
Reaction that is less favorable may suggest the need for
adjustments to elements of the marketing mix. Once these are
made the marketer may again have the customer test the
product. In addition to gaining customer feedback, this step is
used to gauge the feasibility of large-scale, cost effective
production for manufactured products.
*
Step 7: Market TestingAt this stage marketers need to ask:
Have product sales met expectations?If yes, proceed to
CommercializationIf no, send the idea back for product
development.Examples of Consumer-Goods Market
TestingSales-Wave ResearchConsumers initially try the product
at no cost then are reoffered the product, or a competitors’
product at a slightly reduced price.Simulated Test Marketing –
lab storeControlled Test Marketing Panel of stores carry new
product for a fee.
Products still surviving are ready to be tested as real products.
In some cases the marketer accepts what was learned from
concept testing and skips over market testing to launch the idea
as a fully marketed product. But other companies may seek
more input from a larger group before moving to
commercialization. The most common type of market testing
makes the product available to a selective small segment of the
target market (e.g., one city), which is exposed to the full
marketing effort as they would be to any product they could
purchase. In some cases, especially with consumer products sold
at retail stores, the marketer must work hard to get the product
into the test market by convincing distributors to agree to
purchase and place the product on their store shelves. In more
controlled test markets distributors may be paid a fee if they
agree to place the product on their shelves to allow for testing.
Another form of market testing found with consumer products is
even more controlled with customers recruited to a “laboratory”
store where they are given shopping instructions (simulated test
marketing). Product interest can then be measured based on
customer’s shopping response. Finally, there are several high-
tech approaches to market testing including virtual reality and
computer simulations. With virtual reality testing customers are
exposed to a computer-projected environment, such as a store,
and are asked to locate and select products. With computer
simulations customers may not be directly involved at all.
Instead certain variables are entered into a sophisticated
computer program and estimates of a target market’s response
are calculated.
*
Step 8: CommercializationAt this stage marketers need to ask:
Are product sales meeting expectations?If yes, make future
plans.If no, modify the product or marketing program or
drop.This is the most expensive step of the new product
development process.
If market testing displays promising results the product is ready
to be introduced to a wider market. Some firms introduce or
roll-out the product in waves with parts of the market receiving
the product on different schedules. This allows the company to
ramp up production in a more controlled way and to fine tune
the marketing mix as the product is distributed to new areas.
*
SourcesKnowthis.com (2011). New Product Development
Process. Retrieved May 19, 2011, from
http://www.knowthis.com/principles-of-marketing-
tutorials/managing-products/new-product-development-
process/.Kotler, P. and Keller, K.L. (2016). Marketing
Management (15th ed.). Upper Saddle River, NJ: Pearson
Prentice Hall.Richardson, P. (2011, February, 16). Dilbert New
Product. Retrieved May 19, 2011 from
http://www.witiger.com/marketing/dilbertnewproductSM.jpg.
*
Instructions:
Read
the
following
two
discussion
questions
(in
blue)
and
answers
that
are
provided
to
each
of
the
discussion
questions
(in
green).
Then
write
a
half
page,
single-­‐spaced
response
to
each
of
the
discussion
question
answers
provided
(you
are
responding
to
the
answers).
You
will
need
a
detailed
response
to
the
answers
that
involves
application
of
the
source
materials
(see
attachments
that
are
the
source
materials
and
supports
the
questions
and
answers)
as
well
as
any
additional
information
you
would
like
to
provide
in
answering
the
questions
(please
provide
at
least
one
reference
in
each
of
your
single
spaced
responses).
Your
written
responses
need
to
reference
and
expand
upon
the
answers
given
to
the
discussion
questions
and
reference
the
attached
materials.
Thus,
even
if
you
are
sharing
an
anecdote
that
relates
to
the
topic,
at
some
point,
you
need
to
connect
it
to
the
attached
source
materials.
Question
1:
Utilizing
the
information
in
the
Module
materials,
discuss
the
eight
steps
of
the
New
Product
Development
Process
by
illustrating
how
your
firm
would
utilize
these
eight
steps
and
what
improvements
would
you
recommend
to
them.
Answer:
The
New
Product
Development
Process
consists
of
8
steps:
idea
generation,
idea
screening,
concept
development
and
testing,
marketing
strategy
development,
business
analysis,
product
development,
market
testing,
and
commercialization.
According
to
Kotler
and
Keller,
firms
often
times
create
internal
teams
or
divisions
to
focus
on
product
development
and
implementation
(p.
436).
Companies
such
as
3M
and
General
Mills
employ
venture
teams
to
develop
a
specific
product
or
business.
The
text
refers
to
them
as
intrapreneurs,
as
they
serve
an
almost
entrepreneurial
purpose
within
a
company.
Many
companies
use
a
stage-­‐gate
system
“to
divide
the
innovation
process
into
stages,
with
a
gate
or
checkpoint
at
the
end
of
each”
(Kotler,
2016,
436).
The
first
step
in
the
process
is
idea
generation.
According
to
the
text,
marketing
experts
believe
to
find
“the
greatest
opportunities
and
highest
leverage
for
new
products
by
uncovering
the
best
possible
set
of
unmet
customer
needs”
(Kotler,
2016,
p.
438).
In
this
stage
firms
gather
ideas
and
“inspiration”
for
potential
products
or
future
opportunities.
Corporations
turn
to
internal
sources
for
ideas
such
as
employees
and
external
sources
such
as
customers,
advertising
agencies,
and
competitors
to
name
a
few
(Kotler,
2016,
p.
438).
Prior
to
my
position
as
an
underwriter
at
State
Farm,
I
worked
as
a
sales
representative
for
a
State
Farm
agent.
Many
product
ideas
started
from
customers
as
a
means
to
better
serve
them
and
maintain
a
cutting
edge
in
the
insurance
industry.
For
example,
smart
phone
applications
have
exploded
as
a
means
to
conduct
business
such
as
for
shopping,
travel,
and
now
finances.
GEICO
was
leading
the
insurance
industry
with
its
commercials
of
the
“wee
little
big”
demonstrating
the
efficiency
of
their
application.
Before
introducing
the
Pocket
Agent®
App,
it
started
as
a
simple
idea
from
consumers
who
needed
their
insurance
at
their
fingertips
as
with
anything
else.
The
next
step
in
the
New
Product
Development
Process
is
idea
screening.
At
this
stage,
according
to
the
course
study
materials,
“marketers
need
to
ask:
is
this
product
idea
compatible
with
company
objectives,
strategies,
and
resources?”
The
purpose
of
this
stage
is
to
“drop
poor
ideas
as
early
as
possible”
(Kotler,
2016,
p.
443).
As
costs
rise
with
successive
developmental
steps,
managers
use
this
stage
to
narrow
down
only
those
ideas
worth
considering
for
further
development.
This
includes
creating
ranking
charts
for
screening.
As
ideas
move
to
this
stage
at
State
Farm,
leadership
evaluates
cost,
efficiency,
and
effectiveness.
The
costs
for
the
Pocket
Agent®
App
included
salary
to
new
technology
developers
and
licensing.
Also,
at
this
stage,
State
Farm
had
to
consider
if
the
product
would
be
well
received
by
customers
and
are
competitors
utilizing
similar
technology.
Next
is
the
concept
development
and
testing
stage.
According
to
the
course
study
materials,
companies
“attempt
to
obtain
initial
feedback
from
customers,
distributors,
and
its
own
employees.”
Focus
groups
and
surveys
are
utilized
during
this
stage.
Marketers
introduce
focus
groups
to
drawings
or
mock-­‐ups
of
ideas.
Then
customers
provide
their
likes
and
dislikes
of
the
product
idea.
State
Farm
would
gain
tremendously
from
focus
groups.
As
many
of
our
processes
and
products
are
customer
centered,
allowing
customers
to
provide
feedback
prior
to
implementation
would
prevent
unnecessary
costs
in
development.
I
believe
it
would
be
beneficial
for
State
Farm
to
utilize
focus
groups
of
a
wider
pool
of
its
agents,
agent
staff
members,
and
employees.
This
way
agents
will
be
familiar
with
customer
platforms
and
could
offer
suggestions
as
to
what
would
benefits
customers
based
off
of
their
interactions.
The
fourth
step
in
the
process
is
the
marketing
strategy
development.
This
stage
encompasses
a
three
step
strategy
for
introducing
the
product.
The
first
step
involves
describing
the
target
market,
the
planned
brand
positioning,
market
share,
and
profit
goals
sought.
The
second
step
involves
pricing,
distribution
strategy,
and
marketing
budget.
The
third
and
final
step
outlines
the
long-­‐run
sales
and
marketing
and
profit
goals.
(Kotler,
2016,
p.
448).
Essentially,
according
to
the
course
study
materials,
marketers
desire
to
know
if
there
is
a
cost-­‐effective
marketing
strategy
for
the
new
product.
State
Farm
marketed
the
Pocket
Agent®
App
for
millennials
who
prefer
to
conduct
business
via
technology
versus
sitting
with
an
agent.
The
company
hoped
to
attract
more
of
this
demographic
which
would
increase
profits.
State
Farm
relies
heavily
on
its
agents
to
relay
information
to
customers.
Agents
are
central
to
the
company
marketing
strategy.
If
I
could
offer
a
suggestion
for
the
company,
it
would
be
to
utilize
commercials
to
discuss
new
products,
initiatives,
and
platforms,
instead
of
using
commercials
primarily
for
agent
publicity
(all
agents
featured
on
State
Farm
commercials
are
real
agents).
Stage
five
is
the
business
analysis.
The
course
study
materials
describes
this
stage
as
where
“marketers
need
to
ask:
will
this
product
meet
our
profit
goal?”
After
getting
the
idea,
ranking
its
worthiness,
generating
feedback
from
consumers,
and
designing
a
marketing
strategy,
companies
want
to
know
will
this
product
make
them
money.
Market
research
and
financial
projections
will
be
used
in
this
stage.
Companies
also
seek
to
know
at
this
stage
if
the
new
product
would
meet
company
objectives.
State
Farm’s
corporate
objective
is
centered
on
our
policyholders
and
our
ability
to
meet
claims
obligations.
The
business
analysis
will
determine
if
the
product
would
add
to
our
monetary
reserves
to
pay
claims
and
place
State
Farm
in
a
higher,
more
favorable
position
in
the
insurance
industry.
The
next
stage
in
the
New
Product
Development
Process
is
the
product
development
stage.
In
this
stage,
quality
function
deployment
is
initiated
by
taking
a
list
of
desired
customer
attributes
and
translating
them
into
engineering
attributes.
Prototypes
are
developed
and
rigorously
tested
internally.
Then,
products
are
consumer
tested,
which
could
include
lab
testing
with
consumers.
This
stage
is
generally
conducted
at
State
Farm
headquarters
in
Bloomington,
Illinois.
Prototypes
are
tested
thoroughly,
which
can
take
a
long
time.
When
State
Farm
informs
its
employees
that
something
new
is
coming
either
for
customers
or
employees,
we
know
it
could
be
possibly
years
before
it
is
made
available.
That
in
part
is
due
to
the
amount
of
testing,
retesting,
and
more
testing.
There
have
been
incidents
where
this
stage
was
not
done
thoroughly
and
caused
in
interruption
in
operations
for
over
six
months
and
the
unintentional
deletion
of
policies!
Stage
seven
involves
market
testing.
According
to
Kotler
and
Keller,
many
companies
forgo
this
step
in
the
process.
Why?
Often
times,
“managers
find
it
difficult
to
kill
a
project
that
attracted
much
effort
and
attention,
even
if
they
should
do
so
based
on
market
testing”
(Kotler,
2016,
p.
451).
However,
companies
that
perform
market
testing,
estimate
four
variables:
trial,
first
repeat,
adoption,
and
purchase
frequency
(Kotler,
2016,
p.
451).
State
Farm
chooses
to
undertake
market
testing
because
each
product,
discount,
technology
application
can
have
a
different
reaction.
In
the
textbook,
Revlon
skips
this
step
based
on
prior
product
rollouts.
However,
in
the
insurance
industry,
that
method
of
relying
on
prior
experience
is
not
absolute.
The
final
stage
in
the
New
Product
Development
Process
is
commercialization.
Course
study
materials
states
that
if
success
is
achieved
in
the
market
testing,
then
the
product
is
ready
for
a
wider
market.
State
Farm
completes
this
step
via
its
agents.
Certain
regions
of
agents
across
the
country
will
have
access
to
or
start
a
new
process
before
the
rest
of
the
country
gets
on-­‐board.
For
example,
State
Farm
introduced
Initial
Loss
Reporting
(ILR)
to
be
the
first
step
in
the
auto
claim
process.
This
service
was
started
in
only
one
region
to
test
its
effectiveness
before
rolling
it
out
to
the
entire
country.
However,
when
the
company
tried
to
mass
introduce
the
Drive
Safe
and
Save®
discount,
many
agents
were
not
applying
it.
Its
effectiveness
was
“lost
in
translation.”
Gradual
introduction
to
products
by
region
is
most
effective
for
State
Farm.
That
way
agents
know
something
is
coming
and
can
have
time
to
adjust
any
existing
processes
and
gain
as
much
knowledge
as
possible.
References
Kotler,
P.,
&
Keller,
K.
(2016).
Marketing
management
(15
[edition].
ed.).
Pearson
Education.
“Course
Study
Materials”
is
making
reference
to
PowerPoint
presentations
posted
by
Dr.
Eastman
Question
2:
Utilizing
the
information
above,
please
discuss
what
represents
luxury
to
you,
why
it
represents
luxury
to
you,
and
how
does
price
impact
that
perception?
Answer:
According
to
Kotler
and
Keller,
“luxury
brand
marketers
have
to
remember
they
are
often
selling
a
dream,
anchored
in
product
quality,
status,
prestige”
(p.
377).
I
grew
up
on
a
very
modest
income.
My
family
shopped
at
stores
such
as
Payless,
Walmart,
Kmart,
and
primarily
the
Value
Village
thrift
store.
Money
was
spread
thin
and
luxury
was
essentially
a
dream.
At
that
time,
I
established
a
frame
of
mind
that
luxury
is
essentially
something
that
is
out
of
reach
or
something
that
is
not
affordable.
It
did
not
have
to
do
with
quality
but
rather
affordability.
Luxury,
as
a
kid,
was
going
to
the
mall
to
buy
something
from
Aéropostale
or
even
being
able
to
window
shop.
I
recall
when
my
mother
purchased
a
Lexus
and
being
invited
to
The
Taste
of
Lexus
event.
Kotler
and
Keller
state
regarding
marketing
luxury
brands
that
“one
trend
for
luxury
brands
is
to
wrap
personal
experience
around
the
products”
(p.
377).
Those
Lexus
events
emanated
luxury.
You
were
able
to
test
drive
newer
models,
view
cooking
demonstrations
with
high
end
cookware,
or
indulge
in
gourmet
food.
Now,
as
a
young
adult,
luxury
is
mainly
represented
by
quality.
I
emphasize
quality
because
growing
up
shopping
at
the
above
mentioned
stores,
the
items
we
purchased
were
not
of
high
quality.
They
would
tear,
break,
or
become
destroyed
fairly
easily
and
quickly.
Benjamin
Wallace
shared
on
his
Ted
Talk
his
experience
with
trying
various
luxury
brand
products.
Some,
he
believed,
were
worth
the
cost,
and,
if
he
could
afford
them,
would
purchase
the
products.
But
many
he
believed
did
not
necessarily
live
up
to
the
“hype”
of
the
cost.
These
items
were
no
different
in
appearance
and
feel
than
items
not
seen
as
luxury.
I
would
prefer
to
spend
my
money
on
items
that
may
not
necessarily
be
rare
but
are
of
high
quality
and
within
my
budget.
Knowing
that
I
can
afford
high
quality
items
gives
me
a
sense
of
accomplishment.
I
have
arrived
at
the
point
in
my
life
that
I
can
afford
luxury.
Recently,
I
purchased
a
2012
Chevrolet
Cruze
LTZ
RS.
I
desired
a
luxury
car
without
the
luxury
price.
I
wanted
the
“bells
and
whistles.”
My
car
has
leather
seats,
sunroof,
seat
warmers,
etc.
I
honestly
feel
a
sense
of
luxury
knowing
that
my
Chevy
Cruze
has
similar
trim
and
quality
to
BMW,
Lexus,
and
Mercedes
Benz.
References
Wallace,
B.
(n.d.).
Benjamin
Wallace:
The
price
of
happiness.
Retrieved
September
27,
2015.

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Introduction to Nonprofit Accounting: The Basics
 

The New Product Development ProcessBecause introdu.docx