Marketing management plays a key role in the new-product-development process along with the research and development department and other related departments.
The consulting firm Booz, Allen & Hamilton has identified six categories of new products in terms of their newness to the company and the marketplace.
New-to-the-world products (Product new to the company and the market)
New product lines: New products that allow a company to enter an established market for the first time (the product is new to the company not the market)
Additions to existing product lines: New products that supplement a company’s established products lines (package sizes, flavors, and so on)
Improvements and revisions of existing products: New products that provide improve performance or greater perceived value and replace existing product (Improvements in features and benefits of a product)
Repositionings: Existing products that are targeted to new markets or market segments (to be called a new product there must be some changes in the existing product to suit the new segments targeted).
Cost reductions: New products that provide similar performance at lower cost to the company.
Kotler says only 10% of all new products are truly innovative and new to the world.
New product development in various categories mentioned above is very important for any organization because existing products are vulnerable to changing consumer needs and tastes, new technologies, shortened product life cycles, and increased domestic and foreign competition. Organizations have to be on the lookout for new products.
Factors That Contribute to Success in New Product Marketing
Madique and Zirger found the following factors:
1. Deep understanding of the customer needs.
2. High performance to cost ratio of the product
3. Being the early entrant into the market
4. Higher contribution margin
5. Larger amount of marketing expenditure
6. Strong top management support
7. Greater cross-functional teamwork among R&D, Engineering, Manufacturing, Purchasing, Marketing and Finance from the beginning
Effective Organizational Arrangements for New Product Development
An effective new product development organization starts with top management. The amount of money spent on R & D is an important top management decision related to new product development. Companies give the responsibility for new product development to product mangers, or new-product managers, or new-product committee, or new-product department, or new-product venture teams. In general product managers may not be able to devote adequate time to new products as they have to take care of existing products’ marketing and selling issues.
Managing the New Product Development Process
Eight stages are involved in the new product development process.
1. Idea generation
2. Idea screening
3. Concept development and testing
4. Marketing strategy development
5. Business analysis
6. Product development
7. Market testing
A number of creative idea generating techniques can help individuals and groups generate idea. Some of them are:
- Attribute listing
- Forced relationships
- Morphological analysis
- Need/Problem identification
- Brain storming
The purpose of screening is to drop poor ideas as early as possible and allow only promising ideas for further stage in the new product development process.
There is likelihood of two opposite types of errors occurring in this process. One, the drop error, results in dismissing a good idea. The other, the go-error, results in moving a poor idea forward.
Poor ideas result in product failures. Three types of product-marketing failures can be categorized: Absolute product failure loses money even on variable cost. Partial product failure recovers variable cost and some fixed cost. Relative product failure yields a profit, means it recovers variable cost and fixed cost, but the profitability is less than the company’s target rate of return.
Concept Development and Testing
A product concept is an elaborated version of the product idea and it is expressed in meaningful consumer terms so that consumer can visualize the product.
Concept testing involves an appropriate group of target consumers giving their reactions to the concept.
New Product Marketing Strategy Development
After the concept is finalized, marketing strategy needs to crystallized. At this stage the marketing strategy is expressed in three parts.
The first part: It describes the target market’s size, structure, and behavior. Product positioning is defined. The sales size, market share and profit goals are expressed.
The second part: The price and distribution strategy and the required marketing budget for the first year are specified.
The third part: It describes marketing-mix strategy over time and evolution of sales and profit.
At this stage, marketing department has finalized its market understanding and converted it into sales revenues and related marketing costs. The next stage is analysis of operating costs and profit analysis.
If the business analysis clears the product, actual product development work is given to the research and development department
Test Marketing or Market Testing
High investment/high-risk products, where the chance of failure is high must be market tested. The cost of the market tests will be an insignificant percentage of the total project cost. Various types of market testing are:
Simulated test marketing
Controlled test marketing
Based on marketing, if the company decides to go for the manufacture and sale of the product, capacity decisions are to be made. The timing of the launch, the geography of the initial launch, the niche market within the target market and how to launch the product become important decisions.
Consumer Adoption Process
Marketers need to understand the new product adoption process to build an effective strategy for developing market for the product. Adoption is an individual’s decision to become a regular user of a product. The adoption process is followed by loyalty process.
Stages in the adoption process
Rogers defines the innovation diffusion process as “the spread of a new idea from its source of invention or creation to its ultimate users or adopters.”
Adopters go through the following five stages:
New product marketer has to aim his effort at facilitating the movement of consumer who is an adopter of new product through the five stages.
Philip Kotler, Marketing Management (Main text for revision and article)
Modesto A. Maidique and Billie JO Zirger, ” A Study of Success and Failure in Product Innovation: the Case of the U.S. Electronics Industry,” IEEE Transactions on Engineering Management, November 1984, pp. 192-203
See Bibliography also
Determinants of New Industrial Product Performance: A Strategic Reexamination of the Empirical Literature by GARY L. LILIEN AND EUNSANG, 1989
New Product Successes in Japanese Consumer Goods Market,
Hotaka Katahira, Makoto Mizuno, and Yoram Wind, 1994, Wharton School Working Paper
New Product Diffusion Models in Marketing: An Assessment of Two Approaches by Malcolm Wright and Don Charlett, Marketing Bulletin, 1995