The New Product Development Process

THE NEW PRODUCT DEVELOPMENT PROCESS (NPD) –
OBTAIN NEW PRODUCTS

We will go into the eight major steps in the new product development process.
The 8 steps in the New Product Development Process

1. Idea generation – The New Product Development Process
The new product development process starts with idea generation. Idea generation refers to the
systematic search for new-product ideas. Typically, a company generates hundreds of ideas, maybe
even thousands, to find a handful of good ones in the end. Two sources of new ideas can be
identified:
 Internal idea sources: the company finds new ideas internally. That means R&D, but also contributions
from employees.
 External idea sources: the company finds new ideas externally. This refers to all kinds of external
sources, e.g. distributors and suppliers, but also competitors. The most important external source are
customers, because the new product development process should focus on creating customer value.
2. Idea screening – The New Product Development Process

The next step in the new product development process is idea screening. Idea screening means
nothing else than filtering the ideas to pick out good ones. In other words, all ideas generated are
screened to spot good ones and drop poor ones as soon as possible. While the purpose of idea
generation was to create a large number of ideas, the purpose of the succeeding stages is to reduce
that number. The reason is that product development costs rise greatly in later stages. Therefore, the
company would like to go ahead only with those product ideas that will turn into profitable products.
Dropping the poor ideas as soon as possible is, consequently, of crucial importance.
3. Concept development and Testing – The New Product

Development Process
To go on in the new product development process, attractive ideas must be developed into a product
concept. A product concept is a detailed version of the new-product idea stated in meaningful
consumer terms. You should distinguish
 A product idea à an idea for a possible product
 A product concept à a detailed version of the idea stated in meaningful consumer terms
 A product image à the way consumers perceive an actual or potential product.
Let’s investigate the two parts of this stage in more detail.
Concept development
Imagine a car manufacturer that has developed an all-electric car. The idea has passed the idea
screening and must now be developed into a concept. The marketer’s task is to develop this new
product into alternative product concepts. Then, the company can find out how attractive each
concept is to customers and choose the best one. Possible product concepts for this electric car could
be:
 Concept 1: an affordably priced mid-size car designed as a second family car to be used around town
for visiting friends and doing shopping.
 Concept 2: a mid-priced sporty compact car appealing to young singles and couples.
 Concept 3: a high-end midsize utility vehicle appealing to those who like the space SUVs provide but
also want an economical car.
As you can see, these concepts need to be quite precise in order to be meaningful. In the next sub-
stage, each concept is tested.
Concept testing
New product concepts, such as those given above, need to be tested with groups of target
consumers. The concepts can be presented to consumers either symbolically or physically. The
question is always: does the particular concept have strong consumer appeal? For some concept
tests, a word or picture description might be sufficient. However, to increase the reliability of the test,
a more concrete and physical presentation of the product concept may be needed. After exposing
the concept to the group of target consumers, they will be asked to answer questions in order to find
out the consumer appeal and customer value of each concept.
4. Marketing strategy development – The New Product

Development Process
The next step in the new product development process is the marketing strategy development. When
a promising concept has been developed and tested, it is time to design an initial marketing strategy
for the new product based on the product concept for introducing this new product to the market.
The marketing strategy statement consists of three parts and should be formulated carefully:
 A description of the target market, the planned value proposition, and the sales, market share and
profit goals for the first few years
 An outline of the product’s planned price, distribution and marketing budget for the first year
 The planned long-term sales, profit goals and the marketing mix strategy.
5. Business analysis – The New Product Development Process

Once decided upon a product concept and marketing strategy, management can evaluate the
business attractiveness of the proposed new product. The fifth step in the new product development
process involves a review of the sales, costs and profit projections for the new product to find out
whether these factors satisfy the company’s objectives. If they do, the product can be moved on to
the product development stage.
In order to estimate sales, the company could look at the sales history of similar products and
conduct market surveys. Then, it should be able to estimate minimum and maximum sales to assess
the range of risk. When the sales forecast is prepared, the firm can estimate the expected costs and
profits for a product, including marketing, R&D, operations etc. All the sales and costs figures
together can eventually be used to analyse the new product’s financial attractiveness.
6. Product development – The New Product Development Process

The new product development process goes on with the actual product development. Up to this
point, for many new product concepts, there may exist only a word description, a drawing or perhaps
a rough prototype. But if the product concept passes the business test, it must be developed into a
physical product to ensure that the product idea can be turned into a workable market offering. The
problem is, though, that at this stage, R&D and engineering costs cause a huge jump in investment.
The R&D department will develop and test one or more physical versions of the product concept.
Developing a successful prototype, however, can take days, weeks, months or even years, depending
on the product and prototype methods.
Also, products often undergo tests to make sure they perform safely and effectively. This can be done
by the firm itself or outsourced.
In many cases, marketers involve actual customers in product testing. Consumers can evaluate
prototypes and work with pre-release products. Their experiences may be very useful in the product
development stage.
7. Test marketing – The New Product Development Process

The last stage before commercialisation in the new product development process is test marketing. In
this stage of the new product development process, the product and its proposed marketing
programme are tested in realistic market settings. Therefore, test marketing gives the marketer
experience with marketing the product before going to the great expense of full introduction. In fact,
it allows the company to test the product and its entire marketing programme, including targeting
and positioning strategy, advertising, distributions, packaging etc. before the full investment is made.
The amount of test marketing necessary varies with each new product. Especially when introducing a
new product requiring a large investment, when the risks are high, or when the firm is not sure of the
product or its marketing programme, a lot of test marketing may be carried out.
8. Commercialisation
Test marketing has given management the information needed to make the final decision: launch or
do not launch the new product. The final stage in the new product development process is
commercialisation. Commercialisation means nothing else than introducing a new product into the
market. At this point, the highest costs are incurred: the company may need to build or rent a
manufacturing facility. Large amounts may be spent on advertising, sales promotion and other
marketing efforts in the first year.
Some factors should be considered before the product is commercialized:
 Introduction timing. For instance, if the economy is down, it might be wise to wait until the following
year to launch the product. However, if competitors are ready to introduce their own products, the
company should push to introduce the new product sooner.
 Introduction place. Where to launch the new product? Should it be launched in a single location, a
region, the national market, or the international market? Normally, companies don’t have the
confidence, capital and capacity to launch new products into full national or international distribution
from the start. Instead, they usually develop a planned market rollout over time.
In all of these steps of the new product development process, the most important focus is on creating
superior customer value. Only then, the product can become a success in the market. Only very few
products actually get the chance to become a success. The risks and costs are simply too high to
allow every product to pass every stage of the new product development process.

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What are the 8 major steps in the new product development process?

What are the purposes of idea generation and idea screening?

THE NEW PRODUCT DEVELOPMENT PROCESS (NPD) –

OBTAIN NEW PRODUCTS

The 8 steps in the New Product Development Process

2. Idea screening – The New Product Development Process

3. Concept development and Testing – The New Product

 A product idea à an idea for a possible product

 A product image à the way consumers perceive an actual or potential product.

Let’s investigate the two parts of this stage in more detail.

4. Marketing strategy development – The New Product

5. Business analysis – The New Product Development Process

6. Product development – The New Product Development Process

7. Test marketing – The New Product Development Process

Some factors should be considered before the product is commercialized:

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