Stages of the new product development process

Introduction

New products are vital to a firm's growth because existing products eventually decline. A new product may be one never made before, a better or changed version of an existing one, or a new brand, brought out by the firm itself. Since new products are expensive and many fail, firms follow a systematic, stage-by-stage process in which ideas are tested and weak ones dropped before heavy spending.

Stages of the new product development process

1. Idea generation. The systematic search for new product ideas. Internal sources: research and development staff, engineers, salespeople and other employees. External sources: customers (complaints, suggestions, online reviews), competitors' products, distributors, suppliers, trade fairs and research institutions. Firms may also invite ideas through open contests (crowdsourcing).
2. Idea screening. The ideas are evaluated to spot good ones and drop poor ones as early as possible, because costs rise sharply in later stages. Each idea is judged on market size, customer need, fit with the firm's objectives and resources, technical feasibility, likely costs and profits. The firm must avoid both what Kotler calls drop errors (rejecting good ideas) and go errors (accepting poor ones).
3. Concept development and testing. A product idea is worked up into a product concept: a description of the product written the way a buyer would understand it. Alternative concepts are tested with target consumers, who are asked whether the concept is clear, what benefits they see, whether they would buy it and at what price.
4. Marketing strategy development. An initial marketing plan is prepared; Kotler and Armstrong describe three parts: the target market, positioning and sales, share and profit goals for the first years; the planned price, distribution, promotion and marketing budget for the first year; and long-run sales, profit goals and marketing-mix strategy.
5. Business analysis. Estimates of demand and sales, of costs and the investment required, and of profit are reviewed to find out whether the product meets the firm's objectives; break-even and return on investment are estimated. If they are satisfactory, the product moves to development.
6. Product development. Research and engineering develop the concept into a physical product or prototype. It is tested in the laboratory and in the field for performance, safety and durability, and by consumers for acceptance. This stage requires a large jump in investment and may take months or years.
7. Test marketing. The product and its full marketing programme, positioning, packaging, pricing, distribution and advertising, are introduced in limited, realistic market settings (selected cities, or online pilots). Test marketing shows buyers' and dealers' responses and allows corrections before the full launch; it may be shortened or skipped for low-risk products.
8. Commercialisation. The product is launched in the full market. The firm decides when to launch (timing relative to season and competitors), where (a single region, nationally or internationally, often in phases), to whom (early adopters and heavy users first) and how (the launch marketing programme). Production and distribution capacity are set up.

Conclusion

The new product development process reduces the risk of failure by testing an idea at each step before the next, larger investment. Many firms now overlap the stages and involve customers throughout to bring products to market faster.