CH 9

NEW PRODUCT DEVELOPMENT STRATEGY

A firm can obtain new products in two ways.

1. Acquisition—by buying a whole company, a patent, or a license to produce someone else’s product

2. New product development refers to original products, product improvements, product modifications, and new brands

developed from the firm’s own research and development.

THE NEW PRODUCT DEVELOPMENT PROCESS

Idea generation is the systematic search for new product ideas.

➢ Internal Idea Sources: Using internal sources, the company can find new ideas through formal research and development.

Or it can pick the brains of employees—from executives to scientists, engineers, and manufacturing staff to salespeople.

➢ External Idea Sources: Companies can also obtain good new product ideas from a number of external sources, such as

distributors and suppliers, or even competitors. Perhaps the most important source of new product ideas is customers

themselves.

➢ Crowdsourcing: Crowdsourcing throws the innovation doors wide open, inviting broad communities of people into the new

product innovation process.

Idea Screening: The purpose of idea generation is to create a large number of ideas. The purpose of the succeeding stages is to

reduce that number. The first idea-reducing stage is idea screening, which helps spot good ideas and drop poor ones as soon as

possible. Identify good ideas and drop poor ideas. R-W-W screening framework:

✓ Is it real? Is there a real need and desire for the product?

✓ Can we win? Does the product offer a sustainable competitive advantage?

✓ Is it worth doing? Does the product fit the company’s overall growth strategy?

Concept Development and Testing: An attractive idea must then be developed into a Product Concept. A product concept is a

detailed version of the product idea stated in meaningful consumer terms. A product image is the way consumers perceive an actual or

potential product.

➢ In concept development, several descriptions of the product are generated to find out how attractive each concept is to

customers. From these concepts, the best one is chosen.

➢ Concept testing calls for testing new product concepts with groups of target consumers.

Marketing strategy development is designing an initial marketing strategy for a new product based on the product concept. The

marketing strategy statement consists of three parts.

1. The first part describes the target market; the planned value proposition; and the sales, market-share, and profit goals for the

first few years.

2. The second part of the marketing strategy statement outlines the product’s planned price, distribution, and marketing budget

for the first year.

3. The third part of the marketing strategy statement describes the planned long-run sales, profit goals, and marketing mix

strategy.

Business analysis involves a review of the sales, costs, and profit projections for a new product to find out whether they satisfy the

company’s objectives.

In product development, R&D or engineering develops the product concept into a physical product. The product development step

calls for a large jump in investment. The new product must have the required functional features and must also convey the intended

psychological characteristics.

Test marketing is the stage of new product development in which the product and its proposed marketing program are tested in

realistic market settings. Test marketing lets the company test the product and its entire marketing program—targeting and positioning

strategy, advertising, distribution, pricing, branding and packaging, and budget levels. Companies sometimes shorten or skip test

marketing to take advantage of fast-changing market developments, as Starbucks did with its hugely successful mobile payments app.

Commercialization means introducing the new product into the market. Decisions must be made concerning:

➢ Timing: If the new product will eat into the sales of other company products, the introduction may be delayed. If the product

can be improved further, or if the economy is down, the company may wait until the following year to launch it. However, if

competitors are ready to introduce their own competing products, the company may push to introduce its new product sooner.

➢ Where to launch the new product (market rollout): in a single location, a region, the national market, or the international

market. Some companies may quickly introduce new models into the full national market. Companies with international

distribution systems may introduce new products through swift global rollouts. For example, Microsoft launched its Windows 8

operating system with a massive $1 billion global marketing campaign spanning 42 countries