Stages of new product development, and why new products fail

Introduction

A new product may be an original invention, an improvement or modification of an existing product, or a new brand developed by the firm. New products are risky and costly, so firms follow a systematic process in which weak ideas are dropped early, before large sums are spent.

Stages of the new product development process

1. Idea generation. A systematic search for new product ideas from internal sources (research and development, employees, sales staff) and external sources (customers, dealers, suppliers, competitors, trade shows, online reviews). Many ideas are needed because most will be rejected.
2. Idea screening. Ideas are evaluated against the firm's objectives, resources and capabilities, so that poor ideas are dropped as early as possible. Firms guard against two errors: dropping a good idea and going ahead with a poor one. A simple rating checklist (market size, fit with skills, cost, profit) is often used.
3. Concept development and testing. A promising idea is developed into a detailed product concept, described in meaningful consumer terms, and tested on a group of target consumers, who are asked whether they understand it, see a benefit, and would buy it.
4. Marketing strategy development. An initial plan is drawn up: the target market, positioning, sales, share and profit goals for the first few years; the planned price, distribution and promotion budget; and long-run goals.
5. Business analysis. Sales, costs and profits are projected to see whether the product meets the company's objectives, using break-even and payback analysis.
6. Product development. Research and engineering turn the concept into a physical prototype or service design, which is tested in the laboratory and by consumers for function, safety and appeal. This stage needs large investment.
7. Test marketing. The product and its marketing programme are introduced in a limited, realistic market (a few cities or an online pilot) to test sales, pricing, packaging and promotion before a full launch.
8. Commercialisation. The product is launched on a full scale. The firm decides when (timing), where (region, national or international roll-out), to whom (early adopters, heavy users) and how (the launch plan and budget). Production capacity and distribution are set up.

These stages may overlap: a firm in a hurry can run some of them side by side, checking with customers as it goes.

Why a new product fails in the market

1. Over-estimation of market size or demand by enthusiastic managers.
2. Poor design, or a product that does not offer a real benefit over existing products.
3. Wrong positioning, pricing or timing of the launch.
4. Weak advertising and distribution, so that buyers do not know about the product or cannot find it.
5. Development costs higher than expected, and strong reaction from competitors.
6. Poor timing: a launch made too early, before buyers are ready, or too late, after competitors have taken the market.
7. Inadequate test marketing, so that problems in the product or the marketing plan are found only after launch.
8. Lack of support from dealers, or a product that does not fit the firm's existing channels and brand image.

A disciplined process, with honest screening, real consumer testing at each stage and readiness to drop weak ideas, reduces these risks. For example, a food company that tests a new flavour of instant noodles in two cities, and corrects its spice level and pack price before the national launch, avoids an expensive failure.