In this article, we will deal with the sources of new product ideas. Ideas for new products can be obtained from many sources, some of which are:
- Findings of the research and development personnel.
- Company executives.
- Researches and new products of competitors.
- Information from marketing people.
- Data secured from customers.
- Information from associated companies overseas.
- Discoveries of technological and scientific institutions.
- Information given by the employees.
- Data generated through brainstorming sessions.
- Examination and study of unused patents.
Overview Of The New Product Development Process
|Idea Generation||Develop number of product ideas||Techniques used: Brainstorming Reverse brainstorming Forced relationships Benefit-structure Analysis Attribute listing|
|Screening||Evaluate and reduce the number of product ideas||Rating of new product ideas according to specific criteria|
|Business analysis||Evaluate the financial aspects of new products||Capital budgeting Payback Average rate of return Present value|
|Product concept||Develop the subjective meaning the company hopes to communicate about the product||Identify market segments Concept evaluation Identify characteristics of market segment Concept positioning|
|Product development||Development of the physical product||Detailed information is developed in manufacturing and costs|
|Market testing||Fine-tuning the marketing mix for a new product by marketing it in a limited geographic area||A major commitment to the product is made by top management.|
|Commercialization||Introduction of the product to the national market||Requires maximum coordination among marketing, manufacturing, distribution, as well as major expenditures. See this article on how to develop different effective marketing strategies|
Source: P.S Busch and M. J. Houston: 1985
Stages In The New Product Process
The following are the stages involved in the new product ideas process
- Generation of Ideas: for every product, there are thousands of product ideas. Before any product is developed, many ideas are generated through some idea generation techniques.
- Screening: this attempts to simulate the ideas generated with a view to determining workable ones that can undergo further detailed analysis. The things to consider under this stage include technology requirements, finance, manpower, managerial and marketing capability.
Essentially, new product ideas are evaluated on three basic criteria viz:
- The product ideas must be consistent with the firm’s objectives.
- The product ideas must be such that the firm has the technical, financial, and managerial ability to develop the product(s).
- There must exist a large potential market for the product. Many reasons may inform the introduction of new products by a company.
- Business analysis: the importance of this stage lies in the determination of the financial aspects of the new product introduction. This include:
The Payback period which is the number of years required to recover the initial cash investment in a project. It is calculated as follows:
Payback period = Initial fixed invested divided by the annual cash inflow for recovery period.
The average rate of return for a new product is calculated as follows:
Average rate of return = average annual profits after taxes, divided by total investment.
The Present-value method: This involves a situation where the new cash flows for each year of the recovery period are discounted using a factor representing the time value of money.
- Product Development: During this stage, the physical product takes shape. Before this stage, we had product idea and concept. A product idea is a potential product described in objective, functional terms. A product concept is the subjective meaning about a product that the company tries to communicate to the consumer.
At this stage, the technical details of manufacturing the product and the cost of producing it are developed. This stage calls for team work and a system approach to the solution of the problems. The departments of marketing, research and development (R &D), engineering, and production must coordinate and integrate their efforts.
- Market Testing: This is the introduction of a product in limited geographic areas to determine if the product should be introduced to the national market. It involves taking a sample of the market segments of interest and testing to determine the consumers’ reactions and attitudes to the product.
Market testing arms the firm with both information and experience about the product before introducing the product nationally. It helps the firm to also predict sales for the product. Market testing is a costly venture and firms use alternative methods that may achieve the same objective at a lower cost. These methods include minimarket test, statistical and mathematical models. Minimarket testing uses smaller geographical areas to test the product. If the result of the market testing is favorable, the firm will then commercialize the product.
- Commercialization: This stage requires maximum coordination and integration among the firm’s functional areas (marketing, production, physical distribution, etc). In addition to the huge cost of production, a sizeable amount of money is also required for promoting the new product. These promotion expenditures may come in the nature of advertising, allowances and incentives to intermediaries, free samples, and coupons.
Commercialization represents the last phase of the new product introduction process. It may also be called the launch for the product.