Chapter 07 - New Product Planning and Development
Chapter 7
New Product Planning and Development
High-Level Chapter Outline
I. New Product Strategy
II. New Product Planning and Development Process
A. Idea Generation
B. Idea Screening
C. Project Planning
D. Product Development
E. Test Marketing
F. Commercialization
G. The Importance of Time
III. Some Important New Product Decisions
A. Quality Level
B. Product Features
C. Product Design
D. Product Safety
IV. Causes of New Product Failure
A. Need for Research
Detailed Chapter Outline
I. New Product Strategy
Authors C. Merle Crawford and Anthony DiBenedetto have developed a useful definition
of new products based on the following categories.
oNew-to-the-world-products—products that are inventions and create a whole new
market.
oNew-to-the-firm products—products that take the firm into a category new to it but
not to the world.
oAdditions to existing product lines—these are products that extend existing product
lines to current markets such as Bud Light, Apple’s iMac and Tide’s liquid detergent.
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Chapter 07 - New Product Planning and Development
oImprovements and revisions of existing products—these are current products that are
made better. Virtually every product on the market has been improved, often many
times.
oRepositionings—products that are retargeted for a new use or application.
oCost reductions—these are new products that simply replace existing products in a
line, providing the customer similar performance but at a lower cost.
The best strategy is the one that will maximize company goals.
A second approach to the new product question is the one developed by H. Igor Ansoff in
the form of growth vectors (Figure 7.1).
Market penetration denotes a growth direction through the increase in market share for
present product markets.
Product development refers to creating new products to replace existing ones.
Market development refers to finding new customers for existing products.
Diversification refers to developing new products and cultivating new markets.
Market penetration and market development strategies use present products. A goal of
these types of strategies is to either increase frequency of consumption or increase the
number of customers using the firm’s product.
Product development and diversification can be characterized as product mix strategies.
Policy-making criteria on new products should specify:
oA working definition of the profit concept acceptable to top management
oA minimum level or floor of profits
oThe availability and cost of capital to develop a new product
oA specified time period in which the new product must recoup its operating costs and
begin contributing to profits
It is critical that firms do not become solely preoccupied with a short-term focus on
earnings associated with new products.
II. New Product Planning and Development Process
Ideally, products that generate a maximum dollar profit with a minimum amount of risk
should be developed and marketed.
Refer figure 7.2 for the new product development process.
A. Idea Generation
Every product starts as an idea. Some estimates indicate that as many as 60 or 70 ideas
are necessary to yield one successful product.
The problem at this stage is to ensure that all new product ideas available to the
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Chapter 07 - New Product Planning and Development
company at least have a chance to be heard and evaluated.
Since idea generation is the least costly stage in the new product development process,
it makes sense that the emphasis be placed first on recognizing available sources of
new product ideas and then on funneling theses ideas to appropriate decision makers
for screening.
Top-management support is critical to providing an atmosphere that stimulates new
product activity.
Both technology push and market pull research activities play an important role in new
product ideas and development.
By taking a broad view of customer needs and wants, basic and applied research
(technology push) can lead to ideas that will yield high profits to the firm.
Marketing, on the other hand, is more responsible for gathering and disseminating
information gained from customers and other contacts.
B. Idea Screening
The primary function of the idea screening process is twofold:
oTo eliminate ideas for new products that could not be profitably marketed by the
firm
oTo expand viable ideas into full product concepts
The organization has to consider three categories of risk (and its associated risk
tolerance) in the idea screening phase prior to reaching a decision:
oStrategic risk: It involves the risk of not matching the role or purpose of a new
product with a specific strategic need or issue of the organization.
oMarket risk: It is the risk that a new product will not meet a market need in a
value-added, differentiated way.
oInternal risk: It is the risk that a new product will not be developed within the
desired time and budget.
In evaluating these risks, firms should not act too hastily in discounting new product
ideas solely because of a lack of resources or expertise.
Instead, firms should consider forming joint or strategic alliances with other firms.
A strategic alliance is a long-term partnership between two organizations designed to
accomplish the strategic goals of both parties.
Potential benefits to be gained from alliances include:
oIncreased access to technology, funding, and information
oMarket expansion and greater penetration of current markets
oDe-escalated competitive rivalries
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Chapter 07 - New Product Planning and Development
C. Project Planning
This stage involves several steps.
Various alternatives exist for creating and managing the project teams.
Two of the better-known methods are the establishment of a skunkworks, whereby a
project team can work in relative privacy away from the rest of the organization, and a
rugby or relay approach, whereby groups in different areas of the company are
simultaneously working on the project.
The common tie that binds these and other successful approaches together is the
degree of interaction that develops among the marketing, engineering, production, and
other critical staff.
A key component contributing to the success of many companies’ product
development efforts relates to the emphasis placed on creating cross-functional teams
early in the development process. (Marketing Insight 7-6 explains why
cross-functional product development teams can work.)
D. Product Development
At this juncture, the product idea has been evaluated from the standpoint of
engineering, manufacturing, finance, and marketing.
If it has met all expectations, it is considered a candidate for further research and
testing.
In the laboratory, the product is converted into a finished good and tested.
A development report to management is prepared that spells out in fine detail:
oResults of the studies by the engineering department
oRequired plan design
oProduction facilities design
oTooling requirements
oMarketing test plan
oFinancial program survey
oEstimated release date
E. Test Marketing
Test-market programs are conducted in line with the general plans for launching the
product.
Test marketing is a controlled experiment in a limited geographical area to test the new
product or in some cases certain aspects of the marketing strategy, such as packaging
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Chapter 07 - New Product Planning and Development
or advertising.
The main goal of a test market is to evaluate and adjust, as necessary, the general
marketing strategy to be used and the appropriate marketing mix.
Throughout the test market process, findings are being analyzed and forecasts of
volume developed.
In summary, a well-done test market procedure can reduce the risks that include not
only lost marketing and sales dollars but also capital—the expense of installing
production lines or building a new factory.
Upon completion of a successful test market phase, the marketing plan can be
finalized and the product prepared for launch.
F. Commercialization
This is the launching step in which the firm commits to introducing the product into
the marketplace.
During this stage, heavy emphasis is placed on the organization structure and
management talent needed to implement the marketing strategy.
Procedures and responsibility for evaluating the success of the new product by
comparison with projections are also finalized.
G. The Importance of Time
Time to market can be defined as the elapsed time between product definition and
product availability.
Successful time-based innovations can be attributed to the use of short production
runs.
Several U.S. companies, including Procter & Gamble, have taken steps to speed up the
new product development cycle by giving managers, at the product class and brand
family level, more decision-making powers.
III. Some Important New Product Decisions
In the development of new products, marketers have several important decisions to make
about the characteristics of the product itself.
These include quality level, product features, product design, and product safety levels.
A. Quality Level
Both consumers and organizational buyers consider the level of product quality when
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Chapter 07 - New Product Planning and Development
making purchase decisions for both new and existing products.
In designing new products, marketers must consider what criteria potential customers
use to determine their perceptions of quality.
An important indicator of a number of the criteria listed in Figure 7.3 is the presence
and extent of a new product warranty.
A warranty is the producer’s statement of what it will do to compensate the buyer if
the product is defective or does not work properly.
A guarantee is an assurance that the product is as represented and will perform
properly.
Figure 7.3 presents some criteria for determining perceptions of quality.
B. Product Features
A product feature is a fact or particular specification about a product.
Marketers may identify a need for new features that target markets have not yet
thought of and may not even understand.
C. Product Design
Designing new products with both ease of use and aesthetic appeal can be difficult, but
it can clearly differentiate a new product from competitors.
Good design can add great value to a new product.
D. Product Safety
New products must have a reasonable level of safety.
Safety is both an ethical and a practical issue.
Ethically, customers should not be harmed by using a product as intended.
Some products are inherently dangerous and can result in injury to users.
Other products such as patented medicines can harm a small portion of users.
Hopefully, the benefits such products offer outweigh their risks.
IV. Causes of New Product Failure
Many new products with satisfactory potential have failed to make the grade for reasons
related to execution and control problems. Some of the more important marketing causes
of new product failures are as follows:
oNo competitive point of difference, unexpected reactions from competitors, or both
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Chapter 07 - New Product Planning and Development
oPoor positioning
oPoor quality or product
oNondelivery of promised benefits or products
oToo little marketing support
oPoor perceived price/quality (value) relationship
oFaulty estimates of market potential and other marketing research mistakes
oFaulty estimates of production and marketing costs
oImproper channels of distribution selected
oRapid change in the market (economy) after the product was introduced
A. Need for Research
Top management has a responsibility to ask certain questions, and the new product
planning team has an obligation to generate answers to these questions based on
research that provides, marketing, economic, engineering, and production information.
Some of the specific questions commonly raised in evaluating product ideas are:
oWhat is the anticipated market demand over time? Are the potential applications
for the product restricted?
oCan the item be patented? Are there any antitrust problems?
oCan the product be sold through present channels and the current sales force?
What number of new salespersons will be needed? What additional sales training
will be required?
oAt different volume levels, what will be the unit manufacturing costs?
oWhat is the most appropriate package to use in terms of color, material, design,
and so forth?
oWhat is the estimated return on investment?
oWhat is the appropriate pricing strategy?
KEY TERMS
Commercialization: Stage of the new product development process that involves the actual
launch of the product and the implementation of the marketing strategy.
Cross-functional teams: Members from many different departments come together to jointly
establish new product development goals and priorities and to develop schedules.
Diversification: A strategy that seeks to develop new products and cultivate new customers. It
often leads the organization into new businesses, sometimes through acquisition.
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Chapter 07 - New Product Planning and Development
Guarantee: An assurance by the producer that the product is as represented and will perform
properly. If not, the organization making the guarantee replaces the product or refunds the
customer’s money.
Idea generation: Stage of the new product development process at which the goal is to ensure
that all new product ideas considered by the organization have the opportunity to be heard and
evaluated because the success of the process will depend greatly on the quality of the ideas
generated.
Idea screening: Evaluation of an idea based on strategic risk, market risk, and internal risk for
the purpose of eliminating ideas that could not be profitably marketed and expanding viable
ideas into full product concepts.
Market development: A strategy that seeks to find new customers for existing products. An
organization pursuing this strategy seeks to establish footholds in new markets or preempt
competition in emerging market segments.
Market penetration: A strategy that denotes a growth direction through the increase in market
share of present products in present markets. An organization pursuing this strategy hopes to
capitalize on existing markets and combat competitive entry or incursions.
New product development process: Stages include idea generation, idea screening, project
planning, product development, test marketing, commercialization.
Product development: A strategy that seeks to create new products to replace existing ones. An
organization pursuing this strategy hopes to capitalize on existing markets and combat
competitive entry or incursions.
Product development stage: Stage of the new product development process at which the
product idea has met all expectations and is considered a candidate for further research and
testing. In the laboratory, the product is converted into a finished good and tested.
Project planning: Stage of the new product development process at which the idea is evaluated
further and responsibility for the project is assigned to a project team. The idea is evaluated in
terms of production, marketing, financial, and competitive factors. A development budget is
established, and preliminary marketing and technical research is undertaken.
Rugby or relay: An approach to creating and managing product development teams that
involves groups in different areas of the organization working simultaneously on the project.
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Chapter 07 - New Product Planning and Development
Skunkworks: An approach to creating and managing product development teams that involves
team members working in relative privacy, away from the rest of the organization.
Test marketing: Stage of new product development process at which the product is no longer a
company secret. Test marketing is a controlled experiment in a limited geographical area to test
the new product as well as elements of the marketing mix.
Time to market: The elapsed time between product definition and product availability. It is
important because history has shown that organizations that are first in bringing their product to
market often gain a competitive advantage in terms of profits and market share.
Warranty: The statement of the producer of what it will do to compensate the buyer if the
product is defective or does not perform properly.
ADDITIONAL RESOURCES
Adamson, Allen P. The Edge: Fifty Tips from Brands That Lead. New York: Palgrave Macmillan,
2013.
Bender, Michael. A Manager’s Guide to Project Management. Upper Saddle River, NJ: FT Press,
2010.
Biyalogorsky, EyaI, William Boulding, and Richard Staelin. “Stuck In The Past: Why Managers
Persist in New Product Failures.” Journal of Marketing, April 2006, pp. 108-122.
Estrin, Judy. Closing The Innovation Gap. NY: McGraw-Hill, 2009.
Knight, Joe, Roger Thomas, and Brad Angus. Project Management for Profit. Boston: Harvard
Business Review Press, 2012.
Macintosh, Julie. Dethroning the King. NY: John Wiley and Sons, 2011.
Mack, Ben. Think Two Products Ahead. NY: John Wiley, 2007.
Siegel, Eric. Predictive Analytics. Hoboken, NJ: John Wiley and Sons, 2013.
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