THE PRODUCT-DEVELOPMENT PROCESS

 The specific process used in
implementing product-development programmes varies among organisations.
However, it is important that they employ logical, sequential processes
with full recognition of the role that product is expected to play in corporate and marketing strategy. The
advantage of having such a structured approach is to provide some mechanism for
evaluating a new product idea at several points in time as additional
information is developed. Hence in each stage, management must decide whether:

It should be clear from Table 1
that a variety of market-based internal and external factors are often considered. Therefore, screening
must generally be carried out by a multifunctional group such that
relevant inputs might be collected from production, finance, R&D, and marketing.

Apart from the four general
aspects contained in Table 10.1, it is also important to check whether the product idea is
consistent with the current product­development objectives. In this regard, a
good idea that has scaled all the hurdles of the screening factors may be
rejected or stepped down, if it will absorb resources needed to achieve the top priority objectives.

In this screening stage, the firm
must avoid two types of errors: a DROP-error or a GO–error.

A DROP–error occurs when the
company dismisses an otherwise good idea.

It is often said that if a firm
markets too many DROP-errors, its standards are too conservative.

A GO-error occurs when the company
permits a poor idea to move into development and commercialisation.
There are three types of product failures that can arise from this error:

(i)            
An absolute product failure. This loses money, and its sales do not cover variable costs.

(ii)         
A partial product failure This also loses money. However, its
sales cover all the variable costs and some of the fixed costs.

(i i) A relative
product failure: This yields a profit that is less than the firm’s normal rate
of return.

In summary, the major objective of the idea screening stage is to spot and
drop poor ideas as early as possible. The justification for this is premised on
the fact that product­ development costs rise substantial y at each stage. It is
thus, a case of “a stitch in time saves nine”.

Stage 3: Concept
Development and Testing

The purpose of concept development and testing is to ensure that the
proposed product is devoid of all kinds of problems when it eventually gets to
the market.

After the
elimination of all the poor product ideas at the screening stage, the surviving
ideas must now be developed into product concepts. It will be necessary to
distinguish between a product idea, a product concept, and a product image: A product idea is
just an idea for a product that the firm can think of offering to the market. A
product concept
is an elaborated version of the idea expressed in meaningful
consumer terms. A product image is the particular picture that consumers acquire of an
actual or potential product.

Concept Development

Concept development can be
illustrated with the case of a food processor, who has an idea of producing a powder to be added to
milk for the purposes of increasing its nutritional level and taste. At
this point, this is merely a product idea. However, customers do not buy
product ideas, but product concepts.

General y speaking, any product
idea can be turned into several product concepts. Firstly, we start with the
persons or group(s) of persons who are likely to benefit from the use of the product. For instance, the proposed
powder can be aimed at infants, children, teenagers, middle­aged adults,
or the elderly. 

Secondly, the primary benefits to be derived from the consumption of the powder are
considered. This could be taste, nutrition, refreshment or energy. 

Thirdly, the primary occasion for the drink is next considered. For instance,
should it be for breakfast, mid-morning, lunch, mid-afternoon, dinner or late
evening?. By properly given
adequate considerations to the issues raised above,a firm can develop several
product concepts. For example, the following three concepts can be
generated from the issues already
raised:

Concept 1: An
instant breakfast drink for working-class adults who want a quick nutritional breakfast without
preparing a breakfast.

Concept 2: A tasty
snack drink for school children to drink as a midday refreshment

Concept 3: A health supplement for the elderly to drink in
the late evening before
going to bed.

Concept Testing

The purpose of concept testing is to
develop a more refined estimate of market acceptance for the new product concept, or to compare
competing concepts in order to determine the most appealing one (or two), or
both.

Concept testing is particularly
designed to obtain the reaction of potential consumers or buyers to one or more
hypothetical product concepts. What is usually done is to present the
product features and benefits in verbal form or explained through visual aids.
Potential users are then interviewed to obtain comments about the advantages
and shortcomings of each concept. Alternatively they may be asked to rate the products in various ways.

Stage 4: Marketing-strategy Development

What goes on at this stage, is the
development of a preliminary marketing­ strategy. This is refined appropriately
in subsequent stages.

The marketing-strategy statement
often consists of three parts: In the first part, the description of the
size, structure, and behaviour of the target market are given. Furthermore, the
planned product positioning and the sales, market share, and profit goals sought in the first
few years are similarly stated.

In the second part of the
marketing-strategy statement, the proposed product’s planned prices, distribution strategy, as well as the
marketing budget for the first year are outlined.

The descriptions of the planned
long-run sales and profit goals and the marketing-mix strategy over time are
presented in the third part of the marketing-strategy statement.

Stage 5: Business Analysis

The business attractiveness of the
new-product proposal is evaluated here.

Essentially, the proposal is expanded into a concrete business
proposal in which management

(a)       estimates sales;

(b)      
estimates
costs and profit projections.

These are
done in order to determine whether such projections satisfy the firm’s objectives.

One major
purpose of estimating sales is to check if it will be high enough to return a satisfactory profit to the firm. The
best approach for the sales estimation is to examine the sales history
of similar products. Additional y, a survey of market opinion should also be
undertaken. From these, management should then prepare estimates of minimum and
maximum sales to learn the range of risk.

After the preparation of sales forecast, management goes
on to estimate the expected costs and profits of the proposal. The costs are
estimated by the R&D, manufacturing, marketing and finance departments.
Several techniques are then used to determine whether the proposed project
meets the firm’s minimum profitability standards. Among the most widely used
methods are the net present-value and the payback approaches.

Stage 6: Product Development

If the business analysis for the
proposal turns out to be favourable, the product concept moves to
R&D and/or engineering, where it is developed into a physical product. It
is at this stage that the “idea-on-paper” is converted into a
physical product.

As would be expected, this stage calls for huge investment
which is far beyond what was spent in earlier stages. This stage often determines whether the
product idea can be translated into a technical y and commercial y
feasible product. Otherwise, the firm’s accumulated investment will be lost,
safe for any useful information gained in the process.

While developing one or more
physical versions of the product concept, the R&D department strives to find a proto-type that satisfies
the fol owing criteria:

(1)    
consumers
views it as possessing the key attributes described in the product-concept statement;

(2)    
the
prototype performs safely under normal use and conditions;

(3)    
the prototype can be produced for the budgeted
manufacturing costs.

It usually
takes considerable length of time to develop a successful prototype. There is
the need for lab scientists
to design the required functional characteristics. They should also know how to
communicate the psychological aspects through physical cues. For example, in order
to support the claim that a lawnmower is powerful, the lab people have to
design a heavy frame and a fairly noisy engine!. It will also be necessary for
the marketing team to work closely with the lab people so as to let them
understand how consumers judge product qualities they have in mind.

When a prototype has been developed,
it must be put through rigorous functional and consumer tests. The functional
tests are conducted under laboratory and field conditions to make sure
that the product performs safely and effectively. The functional tests are
essentially technical. They are meant to provide information on:

(i)    Product shelf life

(ii)    Product wear-out rates

(iii)    Problems resulting from improper
usage or consumption

(iv)     Potential defects that will require
replacement

(v)      
Appropriate
maintenance schedules.

As earlier pointed out, it is also
necessary to examine the product performance from the buyers’
perspective. Such consumer testing can take a variety of forms, ranging from
bringing consumers into a lab to test the product versions to giving them
samples to use in their homes. The degree to which the new product is likely to
acquire new customers rather than simply “cannibalizing” the sales of
any existing products can be
established. In addition, consumer product testing can provide a check
on whether or not the concept has been implemented. If consumer descriptions of the product do not match the
intended concept, then reformulation may be necessary.

Stage 7: Market Testing

If the
product’s functional performance is satisfactory, the product is deemed fit to be dressed up with a brand name,
packaging and a preliminary marketing programme, to test it in more
real-life consumer settings. The purpose of market testing is to learn how
consumers and dealers react to handling, using, and repurchasing the actual
product and how large the market is.

Market testing can yield valuable
information about buyers, dealers, marketing programme effectiveness,
market potential etc.

The amount of
market testing is influenced by the investment cost and risk on one hand, and the time pressure and
research cost on the other hand. Normally, high investment/risk products
deserve to be market-tested so as not to make costly mistakes. Here then, the
cost of the market tests will be an insignificant percentage of the cost of the
project itself. 

In addition, high-risk products i.e those that create
new-product categories or have novel features, require more market testing than
modified products. However, the amount of market testing may be seriously
limited if the firm is under intense pressure to introduce its brand probably
because the season is just starting, or competitors are about to launch their
brands. In some instances, the firm may prefer the risk of a product failure to
the risk of losing distribution
or market penetration on a highly successful product. Finally, the cost
of market testing will affect how much is done and what kind.

There are
differences in the market-testing methods between consumer and industrial products.

CONSUMER–GOODS
MARKET TESTING

The main
purpose of testing consumers is to estimate the main determinants of sales i.e
trial, first repeat, adoption, and purchase frequency. Ordinarily, most firms
want to find all of these at a high level. However, a firm might find many
consumers trying the product but not re-purchasing it, thus indicating a lack
of product satisfaction. Yet, another firm might find high first-time
repurchases but only experience a rapid wear-out effect. In another
instance, a firm might find high permanent adoption but low frequency of
purchase because the buyers use the product only on special occasions.

Furthermore, the firm wants to
understand how many and what types of dealers will handle the product, under what terms, and with
what shelf-position commitments.

There are
four main methods of consumer-goods market testing. These are (a) sales-wave
research (b) simulated store technique (c) control ed test marketing (d) test
marketing.

(a)   
Sales-wave research

This is an extension of the ordinary
home-use testing in which consumers who initially try the product at no cost
are re-offered the product, or a competitor’s products, at slightly
reduced prices. These consumers may be re-offered the product as many as three
to five times. During these
periods of offer, the firm records how many consumers selected its own
product again, together with their reported level of satisfaction.

Apart from under-studying the repeat
purchase of products, sales-wave research can also be used to monitor
the impact of advertising exposure on repeat purchase. This is done by exposing
consumers to one or more advertising concepts in rough form and then recording the effect.

Sales-wave research has been found to
possess some advantages. Firstly, it enables the firm to estimate the
repeat-purchase rate under conditions where consumers spend their own money and
choose among competing brands. Secondly, the firm can also measure the impact
of alternative advertising
concepts on producing repeat purchases. Thirdly, sales-wave research can
be implemented quickly, conducted under relative competitive security, and
carried out without needing to develop final packaging and advertising.

This method however has two limitations: It does not indicate
the trial rates that would be achieved with different sales promotion
incentives, since the consumers
are pre-selected to try the product. Neither does it indicate the brand’s
power to gain distribution and favourable shelf position from the trade.

(b)            
Simulated store technique

This is also
variously known as “laboratory-test-markets”; “purchase laboratories” or
“accelerated test-marketing”. Here, about thirty to forty shoppers
at a shopping centre or elsewhere are invited to a brief screening of some television commercials.

What is
shown to this audience contains a number of well-known commercials and some new ones, and they usually
cover a range of products. Within the period of screening, one commercial
advertises the new product, but this is not singled out for attention.

The consumers are later given some small amount of money, as well as
invited to a store, where they
may use the money to buy any item or keep the money. The researchers record how
many consumers buy the new product and competing brands. This definitely
provides a measure of the trial of the commercial effectiveness against competing brands. The consumers are
made to reconvene in order to know the reasons for their purchases or
non-purchases.

Some weeks
later, the same sets of consumers are re-interviewed by telephone to determine product attitudes,
usage, satisfaction, and re-purchase intention and are offered another
opportunity to repurchase any products.

The simulated store technique has
several advantages. These include the measuring of trial rates, as well as repeat rates,
advertising effectiveness, speedy results, and competitive security. The results of the
exercise are often incorporated into mathematical models in order to project
ultimate sales levels. The outcomes of such prediction have been found to be
very accurate.

(c)   
Control ed test marketing

This is also cal ed “mini-market testing”. The method often
requires the marketing research firm conducting the test to make some
arrangement with a controlled panel of stores. Such stores must have agreed to
carry new products for a given
amount of money. The firm with the new product specifies the number of
stores and geographical locations it wants. The marketing research firm then delivers the product to the
participating stores and subsequently controls shelf location, number of
facings, displays and point-of-purchase promotions, as well as pricing according
to pre-specified plans. Sales that result from this arrangement can be audited
both from shelf movement and from consumer diaries. In addition, the firm can
test small-scale advertising in local newspapers during controlled test
marketing.

This method has a special advantage since it allows the firm to test the
impact of in-store factors and limited advertising on consumers’ buying
behaviour without involving consumers directly. A sample of consumers can be
interviewed later in order to obtain their impressions of the product. Another
advantage inherent in the control ed test marketing method is that the firm
does not have to use its own sales force, give trade allowances, or take the time
to buy into distribution.

However, this method does not
provide experience in trying to sel the trade on carrying the new product. In addition, the
technique also exposes the product to competitors.

(d)   
Test marketing

This is the costliest and
the best way of testing a new consumer product. Under the method, a firm offers
a product for sale in a limited geographic area that is as representative as possible of the total market in
which the product will eventually be sold. Test marketing has several
distinguishing features relative to other approaches:

(i)      
Test marketing lowers the risk of national
failure, which could endanger channel relationships, reduce confidence, and
morale of employees, and have a negative impact upon present customers’
images of other products.

(i ) No
special benefits are offered to induce purchasing other than those that would
later

be available on a national basis.

(iii)     The
product competes with other competitive products in a real sales environment.

Any firm
using test marketing usually works with an outside research firm to locate a
small number of representative test cities in which the company’s sales force
will try to sell the trade on
carrying the product and exposing it effectively on the shelves. Moreover, the
firm needs to put on a frill advertising and promotions campaign in these
markets as would be done in frill national marketing.

As would be expected,
test marketing costs money. The actual amount to be spent however depends
on the consideration given to the fol owing:

(a)     
The number of cities:

It has been found that most tests use
between two and six cities, with an average of four. Again, it has been
further suggested that a larger number of cities should be employed if:

(i) there is the probability of loss
from going national or the maximum possible loss is very great;

(i
) there is substantial number of contending/marketing strategies or the level
of uncertainty is very high;

(iii)
there are wide regional differences; and

(iv)     
there
is high chance of calculated test-market interference by competitors.

(b)      Type of cities:

Though no
one city is a perfect replica of the nation as a whole, some cities often typify aggregate national or
regional characteristics bet er than others. Such cities may be included
in the study. Firms are of course, free to develop their own test-selection criteria.

(c)       Length of test:

General y, the length of test markets
ranges from a few months to several years. The longer the product’s average
re-purchase period, the longer the test period necessary to observe
repeat-purchase rates. However, if competitors are rushing to the market, the
period should be shortened.

(d)            
Nature and
amount of information:

The type of information to be collected has a bearing
on its value and cost. The following can be used to illustrate the
variations in the amount of details contained in
different types of information:

(i)      
Warehouse
shipment data shows gross inventory buying, but fails to

indicate weekly sales at retail

(ii)     
store audits will give actual retail sales and
competitors’ market

shares but will not
indicate the characteristics of the buyers of the different brands.

(i
i) Consumer panels will show which people are buying which brands together with their loyalty and
switching rates

(iv)
Buyer surveys give in-depth information about consumer attitudes, usage, and satisfaction.

Other things that
can be re-searched here include trade attitudes, retail distribution, and the effectiveness of advertising,
promotion, and point-of-sale material.

Many benefits are derivable from test marketing. Firstly, it yields a more
reliable forecast of future sales. For instance, if product sales fall below target
levels in the test market, the firm may have to drop or modify the product.

Secondly,
the method allows the pre-testing of alternative marketing plans. A different marketing mix can be
employed in each of the test cities. From these, the optimum mix that results
in the best profit level can be detected.

Thirdly, a
firm may discover a product fault that escaped its attention in the product-development stage. In addition, the firm may discover important clues to distribution-level
problems, and through this, it may gain better insight into the behaviour of
different market segments. It has been observed that the main value of test
marketing’s does not lie in sales forecasting, but in learning about unsuspected problems and
opportunities connected with the new product.

Though test
marketing has lots of advantages, a number of problems have been identified as limiting its effective
application. These concern the problems of:

(i)       
obtaining
a set of markets that is reasonably representative of the country as a whole

(ii)      
translating
national media plans into local equivalents

(iii)     
estimating what is going to happen in the coming
year, based on what has happened in this
year’s competitive environment

(iv)        
competitive
knowledge of appropriate test(s) and of deciding whether any local counter
activities are representative of what competition will do national y in the
future.

(v)        
extraneous and uncontrollable factors such as
economic conditions and weather

 INDUSTRIAL-GOODS MARKET TESTING

In the past, it is usual
for new industrial goods to undergo extensive product testing in the laboratories
in order to measure performance, reliability, design and operating cost.

With satisfactory results, many firms will commercialise the
product by listing it in the catalogue and turning it over to the sales
force. In modern-day business however, a large number of firms are changing to
market testing as an intermediate step. Firms stand to gain substantial benefits in the process,
since market testing can indicate:

(i)       
the
product’s performance under actual operating conditions;

(ii)      the key buying influences;

(iii)    
how different buying influences react to
alternative prices and sales approaches;

(iv)      the market potential; and

( v )
the best market segment

Due to certain reasons, test marketing is not typically used for industrial products. Firstly, it is too expensive to produce their samples, not to talk of putting them up for sale in a select market, just to see how well they sell . Secondly, industrial buyers will want to be sure of the availability of spare parts and after-sales services before buying durable goods. Thirdly, marketing research firms are yet to develop the test-market systems that are found in consumer markets. Hence, industrial-goods manufacturers have to use other methods that can be employed in researching the market’s interest in new industrial products. Four of such methods are in use. These are (a) product-use test (b) trade shows (c) distributor and dealer displays and (d) controlled or test marketing.

(a) Product-use test

This is the most common method, and
it is similar to the in-house use test for consumer products. Here, the
manufacturer selects some potential customers who must have agreed to
use the product for a limited period. The technical team from the firm monitors how these customers
use the product. The outcome of this exercise often exposes unanticipated problems of safety and
servicing. It also gives the manufacturer clues about customer training
and service requirements. At the end of the test, the customer is asked to express purchase intent and
other reactions.

(b)    Trade shows

Another common market-test method is
to introduce the new industrial product at trade shows. Trade shows usually
draw a large number of buyers, who view new products in a few concentrated days. During the exposure, the
manufacturer wil be able
to see how much interest buyers indicate in the new product, how they react to
various features and terms, and how many of them actually express purchase intentions
or place orders. One major disadvantage inherent in this method is that it
reveals the product to competitors. Hence, the manufacturer should be ready to
launch the product once it has been displayed at trade shows.

(c)     Distributor and dealer display rooms

Manufacturers
can also market-test new products in distributor and dealer display rooms, where such products may be
placed next to the manufacturer’s other products and possibly
competitors’ products. This method makes it possible to obtain preference and
pricing information in the normal selling atmosphere for the product. It
however has some shortcomings. For instance, the customers may want to place
order that cannot be met. In addition, the customers who come in might not be
representative of the target market.

(d)    Controlled or test marketing

Although it was mentioned earlier
that test marketing is not typically used for industrial products, some
manufacturers have been found to make use of it. In this case, they produce a
limited supply of the product and give it to the sales force to sell in limited
geographical areas with adequate promotional support, printed catalogue sheets
etc. Through this process, the firm can have a fore knowledge of what might
happen under full-scale marketing and thus get wel prepared for the launching.

Stage 8: Commercialisation

At this
stage, full-scale production and marketing programmes are planned, and then the
product is launched. There are a number of important decisions to make

before the product is final y launched.

First, the timing of the introduction
should be careful y evaluated. In general, it Is more appropriate to introduce
the new product during peak periods if demand is seasonal. This wil allow the
firm to obtain a high rate of trial and early sales, helping to offset the high
costs of introduction. It is also necessary to time the introduction
appropriately, so that distributors will have adequate levels of inventory by the time the introductory
promotional campaign starts.
If the new product is being proposed to replace another product, it might be
necessary to delay its introduction until the old product’s stock is
drawn down, through the normal sales.

Second, the firm should properly
consider its geographical strategy. In particular, it should decide whether to launch the
new product in a single locality, a region, several regions, the national
market, or the international market. It has been observed that only a few firms
have the confidence, capital, and capacity to launch new products into full
national distribution. They therefore tend to develop a planned market
rollout over time. For smaller companies, this approach entails the
selection of an attractive city with an aggressive promotional campaign to enter
the market. Larger companies on their part often introduce their new products
into a whole region and then enter others, one at a time.

Under rollout marketing, firms have to assess the alternative
markets for their new products, using such criteria as market potential, firm’s
local reputation, cost of filling the pipeline, quality of research data
available in the particular area, influence of area on other areas, and
competitive penetration. The outcome of the assessment will allow the firm to
determine the prime markets and develop a geographical rollout plan.

Third, with respect to the rollout markets, the firm must
target its distribution and promotion to the best prospect groups. It is
expected that prime prospects should have been identified during the market testing stage.
Ideal y, prime prospects for new consumer products have been found to be:

(i )early adopters

( ii ) heavy users

(iii)   
opinion leaders who talk favourably about the
product

(iv)    
reached at a low cost .

We should note that very few groups
of prospective customers possess all of the above characteristics. The best
thing is for the firm to rate the various prospect groups on these features,
and then target the best one. The purpose of doing this is to generate high
sales as soon as
possible to motivate the sales force and attract other new prospects.

Fourth, other programme decisions,
with respect to price, advertising, sales promotion, and sales and
distribution activities need to be developed and coordinated. These programmes are very important since they
influence the sales and profit results of any new products.

CONCLUSION

You have learned in this unit that every company needs to develop new products. This is because new-product development shapes the company’s future. Replacement products must be created to maintain or build sales. Customers want new products, and competitors will do their best to supply them. Therefore companies that fail to develop new products are putting themselves at great risk.