New Product Development, Principles of Marketing Video Lecture | Principles of Marketing - B Com

and now let's understand the new product
development process at companies as you
would imagine new products are important
to sustain growth and profits and to
replace obsolete items but overall
innovation initiative success rate is
only 4.5 percent that's pretty dismal
and that is why companies need to come
up with a large number of new products a
company like Procter & Gamble for
example launches on an average about 300
new products each year but wait a minute
not all of those products are new to the
world here are all the categories of new
products that companies launch in a
given financial year as you can see the
biggest chunks are product line
additions and improved and revised
products while new to the world products
are only 10% of the total so new
products is not about radical innovation
but often incremental innovation as well
so what is a new product development
process look like at companies here are
all the various steps in a typical new
product development process and despite
company's carefully following these tips
very few new products succeed for each
successful new product introduced a
company needs between 50 and 60 other
new product ideas in the new product
development process and that is why the
process looks like a funnel a lot of new
ideas enter at the top but very few
actually finally make it to
commercialization the first step is the
new product jet idea generation and
companies try to get ideas from all
fronts to illustrate the kinds of
efforts companies spend in generating
ideas IBM once organized a new idea
generation competition and 350 employees
because of that in that competition 350
thousand employees Channel Partner
and their employees participated in an
idea generation contest the company IBM
invested hundred million dollars were to
be awarded to the top ten ideas and all
of the idea sponsors had the opportunity
to join the idea themed management of
the company and along with that a
financial reward was given to them and
you won't believe because of that
competition in 72 hours flat three days
IBM had 37,000 new product ideas and
finally top 10 were given the
development money another technique for
idea generation is a brainstorming in
this technique a fixed amount of time is
given to participants and they are asked
to come up with as many ideas as
possible quantity is more important than
quality no one is supposed to judge each
other on their ideas and combining ideas
from others is also allowed
brainstorming can be practiced with a
variety of participants such as
employees customers channel partners etc
after a company gets a large variety of
product ideas it needs to screen them
and arrive at a manageable list and both
qualitative and quantitative factors are
used for screening out not-so-good ideas
an example of a qualitative idea
screening technique could be how Corning
Glass you might have heard of the name
of a company cordoning that makes glass
products a corning glass only wants to
sell glass related products and does not
want to make anything that is not glass
that's part of koenings mission
statement as a company similarly a
quantitative screening method could be
that the expected growth in the general
product category should be at least a
certain percentage points say 20 percent
the next step is their concept
staying in this stage the short list of
ideas which went past initial screening
are put to test with the with the
prospective customers customers are
described the product idea in detail and
as the simple question as to whether or
not they will buy such a product if made
available the level of detail given in
concept testing varies some descriptions
can be up to even two pages long so here
is a typical example of a concept test a
picture or narrative of the proposed
product idea and finally a question
asking whether or not customers will buy
such a product one thing is worth
mentioning here do you notice that no
major investment has been made in the
proposed new products so far by the
company yes all of these initial stages
are a low investment low-risk phase in
the product development process and no
serious investment is made until the
actual development stage when a
prototype of the product product is
developed so the few ideas that pass the
concept testing stage are then put to
business analysis to figure out the real
profitability that the company can
expect from each of the proposed ideas
this will typically typically be the job
of an inter functional team since a
variety of expertise is needed for such
a business analysis often companies such
as General Electric lay down a certain
minimum return on investment they expect
from such a business analysis 20%
ROI expectation is quite common at this
stage for making a go/no-go decision so
these kind of questions are asked during
the business analysis stage for example
what is a likely demand for the product
what impact with the new product have on
total sales profits market share and
return on investment for example how
would the introduction of a new product
of an existing products
with the new product cannibalize
existing products things like that what
current customers benefit from the
product with the product enhance the
image of the company's overall product
mix with the new product effect current
employees such as hiring more people or
reducing the size of the workforce which
will have an implication for the costs
what new facilities would be needed
because of the proposed floor and those
kind of things
how might competitors respond what is a
risk of failure is the company willing
to take the risk
so projections of all such details are
worked out by a multifunctional team of
experts and then comes the next stage
where the firm makes a significant
investment into the new product for the
first time a prototype or in other words
a working model of the product is
created and a comprehensive
manufacturing and marketing strategy is
developed prototypes come much more
expensive by the way compared to the
actual product that we see in the
markets to give you an idea when an auto
company like Ford Motors or General
Motors when it first develops a new a
few prototypes each piece costs the
company's about $500,000 a piece
compared to the cars that we finally buy
which cost on an average about $25,000
can you guess why prototypes are so
expensive well one of the primary
reasons is the lack of economies of
scale the final products available to us
are cheaper because millions of them are
being manufactured at a time which
brings the cost per piece down
significantly but before the part is
rolled out in the wider market
internationally or say or nationally
even not internationally saying in the
US companies usually test market their
products in other words the product is
launched at a similar at a much smaller
scale in limited geographic markets this
is done to iron out any kinks in the
plan and to ensure there are no
surprises with the national launch now
here is the key thing we need to know
about good test markets in any country
the most important characteristic of a
good test market is that the city or
town or towns should very well represent
the larger population of the country or
final launch it should be a microcosm of
the overall country that's a good test
market with very similar demographics
such as level of education ethnicities
age groups diversity rural urban divide
density of population buyer power in
terms of their incomes occupations etc
etc the test market in other words
should be a mini USA in a way so can you
think of some good cities that would
make ideal test markets for marketers
given the description the description I
just gave you I have heard many people
say New York well that is not true let's
look at a document that lists countries
top test markets so we fill the document
that that's talking about Richmond
Virginia as one of the top 10 US markets
and it tries to give a reason why
Richmond is a great test market so if
you roll down you will see the top 20
u.s. test markets and you have alberni
Rochester Greensboro winston-salem
Birmingham sitacles these are countries
they're most these cities are mostly
representative of the US market as a
whole and you can roll down and you can
see how that case is being made and here
the demographics of USA and Richmond
they are being compared
and is gender male female very close
USA 49 Richmond 48 USA 50 Richmond 51
age-groups male and you will see that
they compare very closely female again
they compare free clothes yay and so on
so Richmond is actually looks like a
very good test market going by the
comparisons in the demographic data
that's big that's being made and let's
roll down all the way and here is a
longer list of the best test markets is
a list of hundred 50 possible test
markets actually we have Grand Rapids
here somewhere as well it's it's at
number forty it's not such a bad test
market after all and one thing I would
like to point out to you is in this list
150 test markets let's see which you see
New York we talked about New York it's
dead last 150 in a list of 150 cities
other big cities San Francisco
Tallahassee Chicago Miami they're all
not so good test markets because their
profile overall is very different from
the USA as a whole and of course the
rankings can differ lit differ a little
based on who conducts them but you get
an idea the last stage in the process is
there of commercialization where
full-scale product launch beyond the
test markets is taken up and for an
average consumer product on the retail
shelves it can cost about 50 million
dollars to conduct a national launch the
whole machinery of manufacturing
inventory distribution sales advertising
etc is undertaken with hopes that the
new product will prove to be a
successful one so that was all about the
new powered development process as
practiced by companies but that doesn't
mean the products launched by leading
companies are all good and likely to be
successful let's look at a few examples
of products that didn't seem to make
sense even to begin with and were
quickly discontinued after launch yogurt
by cosmopolitan magazine publishers
kitchen entrees by Colgate no jokes
these are real products bottled water
for pets breakfast mates with cereal
milk and spoon inside seems like a very
good product only that it wasn't meant
for the refrigerated section so the milk
inside was warm at room temperature oops
and finally disposable underwear by big
a company that makes disposable pants so
that was all in this chapter a couple of
key messages for you to think about and
here are the key terms that you should
know take care and bye for now