New Product Development Process This CTR corresponds to Figure 9-1 on p. 275 and relates to the discussion on pp. 275-286. Stages in New Product Development Idea Generation . This stage is the systematic search for new product ideas. Sources for new product ideas include internal sources, customers, competitor's products, distributors & suppliers, and other sources. Screening. This stage focuses on reducing the number of ideas by dropping poor ideas as soon as possible. This helps reduce costs and focus attention more productively. Concept Development and Testing. This stage involves translating ideas into product concepts or detailed versions of the ideas stated in meaningful consumer terms. Concepts are then tested on target consumers. Marketing Strategy. This stage consists of three parts. The first part describes the target market, the second part outlines the product's projected price, distribution, and budget for the first year, the third part describes long-term sales, profit goals, and marketing mix strategy. Business Analysis. This stage reviews the sales, costs, and profit projections for the product to find out if they satisfy overall company objectives. Product Development. This stage involves bringing the product concept into existence as a physical product to ensure that the idea is a workable product. Test Marketing . This is the stage at which the product and marketing program are implemented in one or more realistic market settings. Commercialization. This stage involves actually introducing the new product into the competitive marketplace. In this stage, the company must make decisions involving when to introduce, where, to whom, and how.
Test Marketing This CTR relates to the discussion on pp. 282-284. Test Marketing Standard Test Markets . Under this approach, the company finds a small number of representative test cities, conducts a full marketing campaign in those cities, and then measures and evaluates performance. This provides a “real world” picture of how the product performs. But there are drawbacks. Standard testing is expensive, long, and tips competitors to company strategy. Controlled Test Markets . This approach uses a research firm that has designated store placement space for their clients. Participating stores receive a fee. Some services like Scantrack (Nielsen) and BehaviorScan (IRI) offer computerized monitoring of individual consumer panels whose television viewing is cross-tabulated with store purchases. Controlled testing is quicker and less expensive than standard testing. Concerns revolve around representativeness of the test markets (small size) and tipping off competitors. Simulated Test Markets . This approach creates a simulated shopping environment by the company or research firm. Consumers are exposed to promotions and then given money to shop with. Purchase patterns are observed and consumers are interviewed afterward by researchers. Simulated test marketing is inexpensive and quick. Representativeness and demand characteristics are concerns and this approach might be used as a pretest for a go-no go decision on further testing.
New product development
The New Product Development process is defined as “ Creation of product with new or different characteristics that offer new or additional benefits to the customer. It may involved modification of an existing product or its presentation, or formulation of an entirely new product that satisfies a new defined customers want or market niches.”
New to the world New product lines Addition to the existing products lines Improvement & revisions of existing products. Repositioning. Cost reduction.
Idea Generation and Screening Concept Development and Testing Marketing Strategy Business Analysis Product Development Test Marketing Commercialization
New Product Development ProcessStep 1. Idea Generation Systematic Search for New Product Ideas Internal sources Customers Competitors Distributors Suppliers
New Product Development ProcessStep 2. Idea Screening Process to spot good ideas and drop poor ones Criteria › Market Size › Product Price › Development Time & Costs › Manufacturing Costs › Rate of Return
New Product Development ProcessStep 3. Concept Development & Testing 1. Develop Product Ideas into Alternative Product Concepts 2. Concept Testing - Test the Product Concepts with Groups of Target Customers 3. Choose the Best One
New Product Development Process Step 4. Marketing Strategy DevelopmentMarketing Strategy Statement Formulation Part One - Overall: Target Market Planned Product Positioning Sales & Profit Goals Market Share Part Two - Short-Term: Product’s Planned Price Distribution Marketing Budget Part Three - Long-Term: Sales & Profit Goals Marketing Mix Strategy
New Product Development ProcessStep 5. Business AnalysisStep 6. Product Development Business Analysis Review of Product Sales, Costs, and Profits Projections to See if They Meet Company Objectives If No, Eliminate Product Concept If Yes, Move to Product Development
New Product Development ProcessStep 7. Test Marketing Standard Controlled Test Market Test Market Full marketing campaign A few stores that have in a small number of agreed to carry new representative cities. products for a fee. Simulated Test Market Test in a simulated shopping environment to a sample of consumers.
Faulty product Idea. Distribution related problems. Poor timing of Launch. Improper Positioning. Some other reasons of product failure. Technical problems in the product. Competitors fighting back harder than expected. Poor market research. Poor marketing plan. Poor timing. Poor product quality. Non delivery of promised benefits of product. Rapid change in market (economy) Faulty estimate of production.
According to Philip Kotler“ Test Marketing is the stage at which the product and Marketing Programs are introduce into more realistic market settings” According to Mason and Rath“ Test marketing means marketing goods experimentally to consumers in several carefully selected areas before releasing them into wide scale”
To know the Reaction of the consumers. To Know the Alternatives.
To evaluate a complete market plan including advertising, distribution, sales, pricing, etc To determine the media mix channels. To forecast the sales volume. To ascertain the various uses of the product, classes or category of users and the motives that prompt the users or buyers.
To determine the number of cities. Selection of Cities. Duration of the test. To Collect the Necessary Information. Launching the New Product.
The collection of businesses (products) is called the business portfolio of the company. Most companies operate several businesses, in terms of ‘products’. A business can be defined in terms of three dimensions; customer groups, customer needs, and technology. Large companies normally manage quite different business as Strategic Business Units (SBUs) The best business portfolio is one that fits the companys strengths.
SBU can be either an entire medium size company or a divisions of a large company, as long as it formulates its formulates its own business level strategy & has separate objectives from the parent companyB. It is a single business or collection of related businesses that can be planned separate objectives from the parent company.C. It has its own set of competitors.D. It has a manager who is responsible for strategic planning and profit performance and who controls most of the factors affecting profits.
Companies needs to classify their businesses into SBUs to unable them to analyze their performance and develop separate strategies for each SBU. Two of the best analytical tools available to classify their businesses by profit potential, are the Boston Consulting Group Model and the General Electric Model.
BOSTON CONSULTING GROUP (BCG) MATRIX is developed by BRUCE HENDERSON of the BOSTON CONSULTING GROUP IN THE EARLY 1970’s. According to this technique, businesses or products are classified as low or high performers depending upon their market growth rate and relative market share.
• Market share is the percentage of the total market that is being serviced by your company, measured either in revenue terms or unit volume terms.• RELATIVE MARKET SHARE• RMS = Business unit sales this year Leading rival sales this year• The higher your market share, the higher proportion of the market you control.
Market growth is used as a measure of a market’s attractiveness. MGR = Individual sales - individual sales this year last year Individual sales last year Markets experiencing high growth are ones where the total market share available is expanding, and there’s plenty of opportunity for everyone to make money.
It is a portfolio planning model which is based on the observation that a company’s business units can be classified in to four categories: Stars Question marks Cash cows Dogs It is based on the combination of market growth and market share relative to the next best competitor.
Stars are leaders in business. They also require heavy investment, to maintain its large market share. It leads to large amount of cash consumption and cash generation. Attempts should be made to hold the market share otherwise the star will become a CASH COW.
Low growth , High market share They are foundation of the company and often the stars of yesterday. They generate more cash than required. They extract the profits by investing as little cash as possible They are located in an industry that is mature, not growing or declining.
Dogs are the cash traps. Dogs do not have potential to bring in much cash. Number of dogs in the company should be minimized. Business is situated at a declining stage.
Most businesses start of as question marks. They will absorb great amounts of cash if the market share remains unchanged, (low). Why question marks? Question marks have potential to become star and eventually cash cow but can also become a dog. Investments should be high for question marks.
To assess : Profiles of products/businesses The cash demands of products The development cycles of products Resource allocation and divestment decisions
Identifying and dividing a company into SBU. Assessing and comparing the prospects of each SBU according to two criteria : 1. SBU’S relative market share. 2. Growth rate OF SBU’S industry. Classifying the SBU’S on the basis of BCG matrix. Developing strategic objectives for each SBU.
BCG MATRIX is simple and easy to understand. It helps you to quickly and simply screen the opportunities open to you, and helps you think about how you can make the most of them. It is used to identify how corporate cash resources can best be used to maximize a company’s future growth and profitability.
BCG MATRIX uses only two dimensions, Relative market share and market growth rate. Problems of getting data on market share and market growth. High market share does not mean profits all the time. Business with low market share can be profitable too.
Act2 Market attractiveness & Competitive strength is also important.
In order to overcome the weaknesses of BCG portfolio matrix, General Electric Company of USA has developed a nine cell grid with the help of McKinsey and Company of USA, Leading consulting firm. GE Grid differ from BCG model in two respects , which are as follows;3. The GE grid has considered a number of factors in assessing the industry attractiveness and businesses strength instead of single measure for each of two dimensions – market share and market growth.4. The GE grid considered three dimensions –high, medium and low – as compared to degrees –high and low.
GE consider market share, profit margin, ability to compete, customer and market knowledge, competitive position, technology and management caliber to measure the business strength and importance of different factors for being successful in an industry. The degree of strength and importance mat be assigned rating and weight subjectively based on personal experience.Industry Attractiveness Factors and Measurement It includes market size and growth rate industry profit margin, competition, seasonality and cyclicality, economies of scale, technology & social environment, legal and human factors. These factors can be quantified as same way as has been in the case of business strength factors