FOOD PRODUCT DEVELOPMENT

STAGE 1: PRODUCT STRATEGY DEVELOPMENT This stage ends with decisions on the type of product to develop and the viability of the project for the company; the two main outcomes on which the decisions are based are respectively the product design specifications (the product concept) and the project evaluation (the product report). The activities therefore form two interlocking groups - one developing product ideas and product concepts, and the other gathering the information and analysing it for the production, marketing, financial, legal, environmental and social evaluations. Some of the important pathways of activities, outcomes and decisions in the first stage are: Activities Business Strategy Change prediction Information search Idea generation Concept engineering Market analysis OUTCOMES Product mix strategy PD possibilities PD project identified Product concepts Design specifications Sales/profits prediction DECISIONS New product areas PD plan Project aim Product concept selected Technical acceptance Market acceptance

Note that these pathways are often interlinked; for example, the product development possibilities come from the product mix strategy as well as the technological, consumer and social change predictions. The market and technical information search may lead to product ideas as well as to the project aim. The product design specifications come from the product concept through concept engineering. These paths are more of a thought checklist rather than paths that are taken in every project.

This is a stage of both creativity and evaluation. There is a need to collect information on as many areas as possible, to determine its accuracy and then to build up the whole base for the project from it. At the end of this stage, there is an assessment by senior management of the probability of success in the market, the time/costs for the remainder of the project and its continuing harmony with the business strategy. Finally there is the decision to go on with this product and provide the resources. The product development project starts with the selection of the project and then continues to the end of Stage 1 and into Stage 2: product design and process development. There is not a definite demarcation between the two stages - it depends on the company and the type of product. Sometimes the decision to go on is taken after the product concept is completed if design is not technically difficult; at other times it is taken after the product design specifications. It should be realised that both the product concept and the product design specifications continue to develop throughout the design process. STAGE 2: PRODUCT DESIGN AND PROCESS DEVELOPMENT At the end of this stage the decisions to be made by management can be divided into the product, the production and distribution, the market, the financial predictions and the level of risk. Management need to know: Is the product satisfying consumer needs and wants? Is it safe? Is it legal? What is the market and can the company service this market? Can the present market channels be used, or are new ones needed? Are there raw materials available?

Will the production be accommodated in the present equipment, or is new equipment needed? What are the costs of further development and commercial production and marketing? Can the present storage and transport methods be used, or is a new method needed? What are the estimated profits and probabilities of success?

Some of the important pathways of activities, outcomes and decisions in the second stage are: Activities Product design Consumer testing Product optimise Process design Market testing Costing analysis OUTCOMES Prototypes Acceptance Final prototype Process conditions Sales prediction Costs (capital and operating) DECISIONS Technical capability Market suitability Company compatibility Technical feasibility Market success Financial success

Certain product characteristics are defined in the product design specifications. The technologist designs, makes and tests the product against these product standards. Product design specifications cannot be rigidly maintained: there has to be the opportunity for creative design of the product. Product concept engineering continues in the design stage, as more information is gathered to define the product characteristics quantitatively. The raw materials and the processing conditions are investigated as the product is developed. Important considerations during this product design/process development stage are the test procedures used; these are related to the qualities required by the customer/consumer and not to arbitrarily chosen standards. As early as possible in the development, some of the future buyers and users of the product use and eat some of the product prototypes. It is comparatively inexpensive to change a formulation or a product form at this stage, but expensive if done during the plant trials and even more so during final production. Therefore, it is important to experiment as much as possible with the product and the process at this stage. The basic packaging design is started at this time as it is usually an integral part of a food product, giving protection and use. This is also related to the proposed physical distribution, including storage and transport, which really is a continuation of the processing design. The product prototypes are tested under the conditions expected in the physical distribution so that the shelf-life of the product can be predicted. Finally in product design, preliminary production trials are organised and the final product prototype put through a large consumer test so that the level of technical success and market acceptability can be predicted. At the end of this stage, there is an assessment by senior management of the product, the target market, the compatibility with production and marketing, the predicted capital investment, the time/costs for the remainder of the project, the risk of failure in the next stage and the continuing harmony with the business strategy. The decision - to go on to product commercialisation, a much more expensive stage - is an important one. STAGE 3: PRODUCT COMMERCIALISATION At the end of this stage, the top management decision is to go on or to stop before committing to the large expenditure of the launch.

Management study the feasibility of production and distribution, the viability of the market strategy, the finance and the other resources needed for the next stage, the predicted returns on investment and the relationship to the other strategic plans of the company. For this they need product and production specifications, a marketing strategy, capital costs, investment returns, predicted operating costs and profits, and again the risk in the further development. Some of the important pathways of activities, outcomes and decisions in the third stage are: Activities Marketing study Marketing testing HACCP* process Process engineering Financial analysis OUTCOMES Market strategy Buying behaviour Process control Plant, production Costs, prices, profits, investments DECISIONS Market plan Sales predictions Product safety, quality Production plan Returns on investments, risks

*HACCP - Hazard Analysis Critical Control Points - a preventive system to eliminate or minimise potential biological, chemical and physical hazards to the safety and quality of foods. It is the basis for a Food Safety programme. If the new product is an addition to a present product line or an improved product, there may be a Food Safety programme on place, but it is always important to check because there may be a change in raw materials and in the process.

Packaging design is completed in this stage; it is started as part of the product design but the aesthetics cannot be completed until the promotion is planned. Packaging design is based on protection of the product, on consumer needs and uses of the product, and on the market presentation. At the third stage, the cost of the project in terms of finance, people and time escalates, and many expensive product failures occur because of lack of control at this stage. At the end of this stage, there is enough information to detail the market for the product and to draw up a complete market plan for launching the product including channels of distribution, pricing, methods of selling, promotion and advertising. Process equipment is designed or, if present plant is to be used, the layout and adaptation of this equipment for the new processing conditions is determined. The production method is optimised and a complete plan developed for both production and physical distribution of the product. A more exact costing of production and launching is made, sales revenues predicted and a detailed financial evaluation prepared. The product can be tested in town market trials where the product is put into the shops in a certain area and sold with the aid of all the pricing, promotional, advertising and selling techniques to be used in the final market. This demonstrates that the product will actually sell in the marketplace and identifies any difficulties which might emerge during marketing. It also gives an opportunity to test the production system at higher production rates, and to improve quality, yields and costs. At the end of this stage, there is an assessment by senior management of the capital investment, the return on investment, the risk of failure in the market, the human resources needed and available, the possible effects on the society, the effects on their other products and businesses, and the continuing harmony with the business strategy. STAGE 4: PRODUCT LAUNCH AND EVALUATION At the end of this stage, top management decides the future direction of the product and its acceptance into the company's product mix. Management set standards to judge the launch before the launch takes place, and also consider their strategy for reacting to competitors' actions. They plan for the future of the product - will there be further products added to the product line, or a relaunch with improved product and packaging, or a reduction in price related to increasing efficiency of production? The launch is not an end but a beginning and there is a need to plan for the future at the same time as the mechanisms for a successful launch are being started. Management study the product on the basis of future product strategy and therefore future business strategy.

Some of the important pathways of activities, outcomes and decisions in the fourth stage are: Activities Marketing organisation Production organisation Distribution organisation Launch sales analysis Product, production study OUTCOMES Time, people, costs Quality, quantity, costs Time, costs, convenience Sales/customers Quality, efficiency DECISIONS Effectiveness Specifications met Efficiency Marketing changes Improvement

For marketing, the next steps are to train the sales staff and to persuade the retailer to accept the product. The decision of the retailers to accept or reject is based on product attributes such as strong growth in the product category, a new product or a me-too product, acceptable product quality and high expected profit contribution, but they are also influenced by strong promotion and advertising, competition, adequate funds for the retailer's promotion and discounts.

The retailer is very often a supermarket chain and they may have product specifications which have to be met (and should have been recognised much earlier in the project). They may also charge for shelf space and have a pre-determined price range. For production, the plant is built or organised, the production personnel trained, quality assurance programme put in place and production begun. The stocks of the product are built up in stores and finally distributed to the retailers. For marketing, the final step is to ensure the distribution of the product, its placement on the retailers' shelves with any in-store promotion and then the release of the advertising. All is then ready to commence on the product launching date - the advertising is placed in the media and the product is put on the shelves in the supermarket or the store. The only step remaining is for the consumer to buy the product so that the retailer will keep on ordering it. The sales personnel, particularly the merchandisers, have to ensure that the shelves are kept stocked, the displays are attractive and the retailers' problems with the products are solved. In the evaluation after the launch, the sales of the product are monitored, and the product's performance checked in production, distribution, storage and the supermarket. The retailers' attitudes to the product and their placement and promotion of the product in the supermarket are studied - as well as, of course, the consumers' attitudes and behaviour towards the product. On the production side, the yield of the product and the quality of the product are monitored, but also important are the raw material quality and quantity, the equipment functioning and the labour content. This monitoring usually leads to product improvement, production and quality assurance improvement, and cost trimming, and often to changes in distribution and in marketing methods. The time after launching is a time of constant improvement of product and process, of reduction in production costs and of increase in the effectiveness of the marketing methods. After the launch, there is an assessment by senior management of the financial returns and the effect this product is having on the business strategy. Decisions are taken at set times to either pull the product from the market or adopt it into the product mix. IDEA GENERATION Idea generation is based on the interrelationships between: Company Product Consumer

These relationships are constantly changing, and the surrounding environment is also subject to continuous social and technological change; understanding the changes that are occurring leads to innovative products which fulfil a need. The product developer needs to be aware of all these forces and their interactions, from the crudest level where marketing simply wants a copy of a competitor's new product (a 'me-too' product) to

the complex use of a new technology such as pressure preservation or to a major marketing change such as the shift from multi-person to single and two-person households. It is the study of the interactions that identifies and refines the product ideas. Is the consumer increasingly concerned about waste packaging - can we make an edible pack or a short-term pack? New low temperature technology produces a tomato powder with a fresh tomato flavour - what new product would consumers want with a fresh tomato flavour, a tomato soup or a fresh breakfast drink? The creation of all new product ideas - revolutionary or evolutionary - can only be successful if there is an atmosphere which stimulates innovative thought and the search for new ideas. If the company does not encourage the process of generating ideas, then new ideas will not be produced. To many individuals in the company trained in logical and systematic thinking, free idea generation is frequently difficult. It seems to be almost a fact of life that a company has very few really creative ideas to work on. Product development is often improvement, needed because of technological or marketing change or increased knowledge. As marketing and technical research either struggle to look for modifications to existing products or try to react to a competitor's product, they are often surprised by the absolute simplicity of some original and successful new product which meets real consumer needs and which is showing rapid market growth. The true innovation can form a new product platform on which to build many new evolutionary products. There are two methods of idea generation: focused or convergent thinking and free or divergent thinking, and both are useful depending on the company's product strategy. Focused, systematic thinking is useful for the slow evolution of the product mix. Free, lateral thinking is useful for the discontinuous major step-changes. In the food industry where there is pressure to continuously launch new products, there is an emphasis on focused, systematic thinking. If food companies plan to have innovative new products in their product mix, there is a need to develop an atmosphere which gives the freedom for idea generation. There are always problems in finding new ideas, and also risks in choosing the direction for product development - either product improvement, apparently low-risk, little research and low cost or product innovation, high-risk, extensive research and high cost. SYSTEMATIC FOCUSED IDEA GENERATION Ideas come from both a 'technology push' and a 'consumer pull'. The technology push comes from knowledge of marketing, processing and product technology and their related scientific bases. The consumer pull comes from knowledge of the consumers and their individual and societal bases. The consumer needs analysis includes the relation of present products to user needs, defects in present products, unfulfilled needs. Consumer concerns have been a strong pull in the 1990s, with the proliferation of 'deprivation foods' low in sugar, salt and fat, nutritional foods offering supplements of proteins, minerals and vitamins, functional foods offering physiological benefits and/or reductions in the risk of chronic disease beyond nutritional needs, and pharmaceutical foods (nutriceuticals) offering health benefits. The technology sources include the scientific and technical literature, R&D scientists in the company, universities and research organisations, the production, engineering and quality assurance staff in the company, and the raw material and equipment suppliers. In small companies, it tends to come from production and engineering staff, in the large company from the R&D department. The marketing sources include competition, overseas markets, sales journals, consumers, consumer books and magazines, advertising agencies, market research companies, distributors (wholesalers, retailers, food service, agents, brokers), sales personnel and

marketing people in the company. This information includes market trends, new product introductions, market needs and market analysis. Retailers may see a need for further brands of a certain product, and they can under their own brands copy a product already on the market to supply this need. The market can be analysed by studying trends in sales, by gap analysis to see if there is a product missing, by measuring shelf space to see if a product line needs to be extended, and by comparison testing with competing products to see if the company's product needs to be improved. The company can set up a product matrix of their own and competing products, i.e. product classes, product lines and individual products, to discover gaps into which the company can introduce a new product. The company is continuously monitoring the 'feel' of the market by doing market research, including retail audits and consumer studies. Sales trends and information from supermarket sales are now extensively available and analysed. More general information can be found on business and economic trends from banks and consultants, and on social changes from social studies reports by government or academics. Some knowledge sources for new product idea generation Consumer: Researching consumer life changes Researching changes in eating patterns Studying what consumers need now and in the future Studying what consumers want now and in the future Studying the growing consumer concerns Technology: Basic research on food properties and reactions Research on processing and manufacturing engineering Research on new raw materials and ingredients Research on transport and storage methods Invention of new types of equipment Adaption of other technologies Market: Researching social, cultural, economic changes Studying competing products Looking for a gap in the food market or a specific target market Studying new products on the food market Improving present products Looking for a different market or market segment Studying marketing changes, particularly distribution channels

PRODUCT CHARACTERISTICS AND IDEA GENERATION Product characteristics or attributes These are the features that identify the product to the company, the market and the consumer. Each product is a complex of tangible and intangible characteristics which define the product, its use and value. Product characteristics can be viewed as technological, consumer and market: technological: raw materials, composition, structure, size/shape, processing method, storage method, product type; consumer: convenience, sensory properties, use, nutrition, safety, psychological, social;

market: type of market, marketplace, sales, price, promotion. Variation of the characteristics and addition of new characteristics can make the product more appealing to the consumer and indeed give a unique product. Comparison with the characteristics of competitive products can define the positions of the different products in the market; this can reveal gaps in the market where there are no products, and also give better direction to 'me-too' products. A product has a number of characteristics, and they can be ranked in importance not only to the consumer, but also technically and for the market. The important characteristics are combined to give a product profile. Each product has a unique product profile with a number of characteristics, some being more important than others. Some product characteristics can be needed or wanted by the consumer and are often called consumer product benefits. Other characteristics can be disliked by the consumer! Product types have characteristics with different 'strengths', for example fruit juices could vary from slightly sour to very sour, slightly sweet to very sweet, cheap to expensive, subdued to gaudy packaging, ordinary to prestigious. Studying product characteristics is widely used in developing product concepts both within the company and more often with consumers. Two important uses of product characteristics for product idea generation are in product morphology and in product positioning. Product morphology Product morphology breaks a product area into characteristic types and then into characteristic descriptions. Ingredients are a type of product characteristic and they can be varied: in canned beans, the ingredients could be types of beans, sauce, meats, vegetables. Nutrition could be the focus: in a formulated dairy product, the nutritional characteristics could be fat, protein, sugars, calcium, vitamins. Psychological characteristics are important: in a take-away food they could be fun, comfort, prestige. Ideas can be developed under each heading; in the canned beans, there could be five types of beans, six types of sauces and they could be combined in different ways to give new product ideas, for example kidney beans with bacon in a salsa sauce, soybeans with tofu in black bean sauce. Through product morphology, an individual or a group can develop ideas for product characteristics and also many product ideas by combining the characteristics in different ways. Product positioning In product positioning, competitive products are placed on a number of linear scales, one for each product characteristic. The scales are rated from low (or none) to high for the product characteristic. Two or three scales can also be combined in a multi-dimensional space. New product ideas can be found by moving the company's product on the scales, making its characteristics weaker or stronger. A product characteristic can be magnified or reduced in strength, the product characteristics can be combined in different ways, or a new characteristic can be introduced - all leading to new product profiles and new products. PRODUCT IDEAS SCREENING The aim in idea screening is to retain the successful ideas and eliminate the ideas which could be failures much easier to write than to carry out in practice! If in doubt, keep the idea until more information is obtained. Idea screening can be based on tacit knowledge of the individual and of the company, with little new explicit information sought in or outside the company. But the aim in successive screenings is to build up the necessary information for the decisions to be made in a quantitative, objective way. Screening is both a reiterative and a progressive process, so there is a need to relate to the first screening even in the last screening in case the product description has changed and it no longer fits the screening criteria first set out. The components in idea screening are product idea descriptions or concepts, screening factors and screening techniques. There is a need to have product idea descriptions that everyone involved in screening understands and is evaluating in the same way. The choice of screening factors is of course fundamental obviously the direction of choice is strongly influenced by the criteria. Lastly the people who do the screening, and the techniques they use, affect the screening results.

Product idea descriptions These must be clear and concise. They include: a clear description of the product; the use of the product; the target market segment; the relationship to the company's present products; the relationship to competing products. For example, the new product idea in an ice-cream company could be a range of liqueur ice-creams. What is meant by a liqueur ice-cream - is it a liqueur flavour, or does it have drops of liqueur embedded in it? Is it targeted at sophisticated diners at home or in restaurants? Is it to be the top of the company's ice-cream range? Is the nearest competitor the specialty ice-creams made in high-class restaurants? Should problems be anticipated from sections of the community such as teetotallers or religious groups or will there be legal difficulties with excise duties? The initial description is usually kept broad so that ideas on the product, the market and the technology can be continually studied, but there is a need to focus the idea in a certain direction so that the people involved are not taking off in too many directions at once. As the product idea builds from a product idea description, to a brief product idea concept, to the final product concept, to the product design specifications and to the product specifications, the focus is being narrowed all the time. One product idea description for the liqueur ice-cream was: a line of plain based ice-creams with little jellies containing concentrated liqueurs, aimed as a gift to be taken to dinner parties, sold through higher-class supermarkets Screening factors The strong screening factors, with which the product idea must agree, arise from the project aim and the project constraints. The overall aims of the company always take precedence over other factors. No matter how brilliant a product idea is in isolation, it is rejected if it does not fit with the company's business strategy, in particular the product strategy. There may be an outstanding product idea which may change the direction of the company's business strategy, but it has to be taken from the project ideas and directed back into the top management area. This product idea has to be viewed in its scale and suitability for the company, and decisions within the company must be taken at top management level. The constraints identified at the beginning of the project are also important screening factors. A product may be dropped for many reasons: it does not meet the food regulations; there is not sufficient money to develop or to produce it; the managing director does not like it! The factors used in screening should be as objective as possible, but sometimes subjective decisions are made. Factors for product screening Marketing factors: Potential market size Compatibility of market image with company's product lines Relationship to competing products Compatibility with existing or specified market channels Access to suitable physical distribution systems Fits into an acceptable pricing structure Relationship to promotional methods and resources Marketing resources needed to produce success Production factors: Compatibility with existing product lines

Availability of processing equipment Availability of raw materials and ingredients Availability of technical skills to produce the product Availability of production time Agreement with any legal requirements Cost and availability of new resources required Development factors: Knowledge needed for development Available knowledge and skills Available time and human resources Development funds needed and available Compatibility with existing strengths Development difficulties and risks of failure Financial factors: Compatibility of development costs with financial resources Capital investment resources needed and available Finance needed and available for market launch and ongoing product support Profits or returns on investment required

Significant factors are many and these are just a few that often occur. The choice of screening factors depends on the type of ideas, the company and its resources, the company's environment and the level of innovation. There could be many factors but it is not humanly possible to use them all, so that the factors are ranked in importance and only the most critical chosen in the first screening, although others may be checked later. Factors can be rated as crucial, most important, important and minor. PRODUCT IDEA CONCEPT DEVELOPMENT The product idea concept is first developed from market and consumer research but with consideration of the technical aspects of the product. Usually, it is a combination of internal company information searching combined with consumer or, in industrial marketing, customer discussion groups. In industrial product development, it has been shown that selecting the most innovative customers for product concept development reduces the time and improves the product concepts. The product idea concept research leads to a more detailed description of the product ideas and also includes screening of the ideas. The consumer discussion panel, or as it is usually called the consumer focus group, is invaluable for building up the product concept. About 30-60 consumers can take part in small discussion groups of 6-8 people. They are given simple descriptions of the product ideas and are allowed free rein in their discussions. The consumers discuss their own attitudes and behaviour towards the products and identify their needs and wants in the products. The product idea concept developed after the discussions details the 'benefits' that the consumers want from the product. These 'benefits' can be divided into four types - basic product benefits, package benefits, use benefits, psychological benefits: Basic product benefits include physical characteristics (such as size, shape, colour), chemical composition, sensory qualities, nutritional value and safety features. Package benefits include price, value for money, ease of storage, use and disposal. Use benefits include convenience in buying and carrying, information on use, easy preparation, attractive presentation, recipes and nutritional information.

Psychological benefits include prestige, fun and friendliness, aesthetics, healthiness. When writing product idea concepts for use in further consumer panels or consumer surveys to build up the product concept, there are five things to remember: Be brief. Present a picture of the product, with no technical details. Use simple, everyday language. Use attractive, interesting and lively descriptions to keep the consumer interested. Start with the product category. Pinpoint the kind of product with the first few words of the description. Give a true picture of the product. State and do not exaggerate the product qualities. The idea product concept should be both believable and realistic. Describe the product's reason. Describe the uses and values of the product. Answer the consumer's question 'What is in it for me?' Show it has a useful and needed advantage over existing products. PRODUCT CONCEPT BUILDING To build up the product concept, the important product characteristics are identified by the consumers, then the descriptions and if possible the 'strengths' of the product characteristics are determined. The product characteristics and their strengths are combined in a product profile. Product profile First the important product characteristics (the consumer product benefits) are identified by the consumer. The sensory properties are usually important to the consumer and there is often an emphasis on the sensory characteristics in building up the product profile as they are directly related to design. For Madeira cake (a sweet plain, rectangular cake, soft texture, cut into slices), the important characteristics were identified as colour, taste/flavour, moistness and crumbliness. But there are other benefits to the consumer in buying a Madeira cake: the size, the packaging, the storage life, the availability to produce it quickly for a visitor. Consumers may not consider the nutritional value of a Madeira cake, but this is an important characteristic for many other foods. A checklist of general product benefits is useful as a reference during the consumer focus group discussion. The ideal product profile The ideal product profile is developed by the consumers, based on the most important product characteristics. In ideal product profile tests, the consumers study the competitive products and/or the product prototypes, and for each product characteristic score the test products on a scale from low to high. Then they place their scores for their ideal product (I) on the same scales. The ideal product profile gives a quantitative measure for each product characteristic which can be built up to the product design specifications. PRODUCT CONCEPT EVALUATION In product concept evaluation, several product concepts are evaluated and screened to find the most suitable product concept. The product concepts can be evaluated by consumers to see which they identify as winners and losers, and

also by the company personnel to see which can be processed and marketed, and which has the highest predicted sales potential and profit or/and market share. Initial predictions of costs, prices and sales have a wide range at this stage but do give some indication of possible profits. Market share for a new product in an established market can be predicted from the market shares of the competing products in the present market, but obviously an innovative product in a new market is hard to predict. As predictions are inaccurate; pessimistic, most likely and optimistic predictions are made. The consumer studies can be either a series of focus groups or a consumer survey. Not only do the consumers indicate their acceptance of the different products, but also their prediction of buying at different prices. They also need to compare the products with the competitive products and identify advantages and disadvantages in the new product concept. The product concepts can be presented as descriptions, drawings, computer sketches and as prototype products, depending on the availability and suitability for the product of the different forms. It is useful to give the consumers a number of product concepts so that they can compare them and then patterns of acceptance can be ascertained. It is important that the questions asked help to sort out the product concepts, preferably in a quantitative way. The following are among the questions to be considered in planning a product concept evaluation by consumers: Consumers: Users/non-users of this type of product or of the company brand? Representative of the general population or the market segment? Statistically representative of the market or not? How many consumers - 30, 60, 200? Product: One product prototype, or a group of product prototypes? Packaging and the brand included? Method: Do the consumers choose the product they prefer? Do the consumers select the product they will buy? Do the consumers score the product characteristics for each product? Do the consumers assess the product accessibility, price, package size, retailer? Scoring by the consumers of the product characteristics in a product profile for a number of prototypes and their ideal product gives the designer a greater understanding of the product for further development. A simple product preference does not give clear directions. Technical and marketing groups also evaluate the product concepts for their suitability for production and for the market, using some of the checklist or probability screening methods. PRODUCT CONCEPT ENGINEERING In most industries, design specifications are usually set before the design process starts; yet in the food industry, the food technologists often plunge into formulation and process development before considering the characteristics desired in the product and there are seldom any quantitative product design specifications. Product design is not an easy task if the information that the designer is given are a set of constraints and a few ideas (often vague and definitely not quantitative) from consumers or the marketers. Before embarking on the design of a new product or the modification of a product, it is important that clear concise product design specifications are set so that a specific product can be developed.

Product concept engineering is the interpretation of consumer needs and wants into technical terms. The target product is identified in the product concept and product profile; the target consumers are identified together with their needs, wants and attitudes in buying, carrying, preparing, eating and disposing of wastes. Based on the target consumer and the target product, a quantitative design specification is developed with quantitative values for product characteristics if possible. Product design specifications in other industries call the quantitative descriptions metrics, and product target values are set for each metric. In the food industry, they are usually called product quality standards. It is often useful to define the marginally acceptable target values for consumer satisfaction, so that the design parameters are not too tight but are set within a defined range. Metrics also aid comparison with competing products. Three important areas for research activities are production, marketing and environment, as shown in Figure 4.3. Figure 4.3 From product concept to product design specification PRODUCT CONCEPT

Environment Social Marketing Target: consumer Product image Packaging Promotion Market channel Price setting Political Cultural Production Target: product Product qualities Raw materials Processing Packaging Storage, transport Costing Physical Economic

PRODUCT DESIGN SPECIFICATIONS

A great deal of technical information is needed to change the product concept into product design specifications - on product qualities, raw materials, processing variables, storage variables, packaging, marketing. Basically in todays product development we are changing the old cooking standards into technological specifications. Product qualities Product qualities, which are technically recognised and can be measured, are generated from the consumer product concept. There is a basic quality and a basic use for a product that need to be set as crucial quality specifications. The consumers want a high protein food and that is changed into, say, >10% protein; they want a pale pink colour and that is changed into a reading on a colorimeter; they want a crisp texture and that is changed to a force

measured by a texture meter. Today there are more and more correlations between consumer sensory scores and machine measurements, so that these quantitative standards are more easily set. But sometimes it is not possible for the product characteristics and the ideal sensory scores to be converted into measurable product qualities, so sensory panels are trained to measure the sensory characteristics. Product specifications are set for chemical composition, nutritional value and physical properties such as size, appearance and viscosity; as well as microbiological standards, safety standards and standards for price and sensory properties. It is important in setting standards that they agree with legal standards and that consideration is also taken of ethical standards expected by the consumers and the society. An important product quality for design of other manufactured products is the aesthetic or artistic quality, for example the designer of a chair or an electric toaster relates the design to the prevailing art of the time. But art is seldom discussed in food design. This is now changing because consumers are becoming tired of bland processed foods. Food design is slowly becoming part of product design and accepting the general principles of design; therefore in setting the product quality, more consideration is being given to the current trends in design and how the food aesthetics can be developed to create the most desirable image. The product quality standards (metrics) are written out clearly, showing the optimum level for each product characteristic and the limits of divergence from this that the consumers will tolerate. Sometimes the consumer will accept quite wide variations in the product quality and still rate the product as acceptable. The product quality standards must of course agree with any legal regulations that apply and with defined company policy. Raw materials The raw materials are identified which can be used and are available, and the limits on their use are obtained. The desired quality is related to the product quality standards. For example, if the product is to contain 5% protein, then it is necessary to know the protein content of the raw materials; if the colour is to be an orange/red, then the colouring ingredient must contain that type of red, perhaps defined by standard reference colours or physical spectra. In raw materials specifications, limits (both minimum and maximum) are set on the quality, for example the chemical composition and the microbiological counts. There are limits on the quantities of raw materials in a formulation arising from processing needs, product structure needs, product properties, the quantity of raw materials available and the cost. In bread, there is a minimum amount of wheat flour needed to give the required amount of gluten in the structure. Cost of raw materials is important because the product will be in a certain price range and it is important to recognise this before the design starts so the design may be formulated to meet it. The origins of the raw materials also need to be noted, as required often by regulations. Processing variables Product formulation is essentially the selection of a blend of raw materials to give the desired product qualities, but the processing conditions will affect the transformation of the raw materials and therefore determine the final product. Formulation cannot be divorced from the process. Food formulations are often developed on the bench top using small-scale household equipment, and when this formulation is transferred into the process the results can be very different. Not only the types of processing but the conditions of processing need to be identified early in development. It is important that the processing variables and their limits are set at the conditions to be expected in the plant before product design starts. Processing variables are identified together with their predicted limits. The important variables that affect the product quality, particularly safety, sensory quality and nutritional value, need to be studied so that limits can be set for them in the process. For example, the heat treatment required to sterilise the food needs to be quantified, i.e. the lower limits for time and temperature, but upper limits need to be set to reduce the deterioration of the colour and flavour of

the food. It is important to understand the effect of the processing variables on the reactions causing changes in the food materials during processing and how changes in the processing variables affects the rates of change in the food. Storage and transport variables These are defined because a food is not like a button or a bolt which only changes slowly over time; a food is continuously changing, sometimes very fast, depending on the conditions. The aim of food preservation is to keep the food within the acceptable quality range for as long as possible; this duration is the shelf-life of the food. Shelf life of the food is affected by the conditions of storage - the temperature, humidity, time, atmosphere, packaging. The desired shelf life, the method of deterioration and the storage/transport conditions are specified at the outset of the design. The transport method (road, rail, sea, air), the transport conditions (time, temperature, humidity, vibration, handling, costs), the storage (ambient, chilled, frozen) and the storage conditions (time, temperature, humidity, handling, costs) have all to be considered. Again costs can be a restriction, and they need to be in the design specifications. Packaging Packaging is based on either the consumer or the industrial customer's needs and their uses of the food product, but it must also protect the product, fit into the processing and packaging lines, and meet the cost criteria. There may also be promotional needs for the packaging, and although during commercialisation, the final aesthetic design is completed, the needs of marketing have to be considered in the early design. For the product design specifications, the first factors to consider are the consumers' needs for the packaging and the preservation of the food by the packaging. For example, if the food is to be heat sterilised in the pack, then a can or a retortable pouch is the only packaging. If the consumer wants to heat the food in the container, this limits the types of materials that can be used. Often packaging types and packaging methods are limited by the packing line, the costs and the availability of the packaging. For example, polyethylene may be the only film available at the price; only a pasteurisation packaging system may be available and not a UHT (ultra high temperature) sterilisation packaging system. These restrictions need to be identified before the design starts. Marketing Marketing is defined by the market segment(s) and the marketing methods to be employed, including the market channel, the desired promotion and promotional methods and of course the price. The product design can be affected by the type of retail display, the retailers' needs for the product and certainly the price range. The market and marketing specifications to consider are the market channel (retail outlets, wholesalers, agents, product flow), the market channel requirements (size, weight, availability, price, display information), the promotional method (TV; radio, newspapers, magazines, sampling) and the promotional message (exciting, new, sophisticated, natural, nutritional, low calorie). In particular, there is a need to define the image that the product is to have in the market and to the consumer, and also the promotion of this image by the packaging. Study of competing products is important in setting the product's position in the market and in determining the possible price range. The positioning of the product against competing products needs to be specified so that the designer can appreciate the product characteristics needed. Also the prices, margins and discounts in the market need to be studied so that a price range for the new product can be set. Legal requirements Any legal requirements for the product, packaging, processing and marketing need to be carefully researched and specified. There are many legal regulations for product standards, which vary from country to country and also change with time, so these must be checked carefully during the development of the product specifications. There can be TQM and HACCP requirements for the processing, and nearly always Food

Hygiene standards. There may also be limits and sometimes bans for raw materials and product movement into and out of a country, and often duties which affect the costs and prices. Summary of product concept engineering In product concept engineering and the building up of the product design specifications, it is useful to have a checklist to see that important factors are considered in all projects. There are usually similar conditions in many product development projects in a company unless the project is aiming at an innovation completely new in all aspects to the company, or a new product platform. Usually the production equipment, the distribution method and the market channels remain the same and so follow standard specifications. New specifications are only developed for specific aspects of the project, usually the product qualities, but it is always important to check the standard specifications as they do change with time. Products that are major innovations will require extra consideration especially of their novel features. PRODUCT DESIGN SPECIFICATIONS In summary, a general outline for a product design specification is as follows: 1. Product concept: general statement on the product 2. Product qualities 3. Target consumers 4. Production design specifications: - Raw materials/ingredients - Processing/formulation - Packaging - Storage, transport 5. Marketing design specifications: - Packaging - Promotion - Market channel - Price setting - Competition 6. Environment: - Social - Cultural - Legal - Economic - Physical 7. Costs: - Production - Marketing In some industries this outline is called the product design brief. In the first attempt at the product design specification all this information may not be available. The product design specification develops as more information is obtained and the first prototypes are developed in 'ball park' experiments. There is no specific time in the PD Process by which the product design specification has to be completed - it depends on the type of product and the company, but it should be at or before the early stages of product design. When the product design specification is completed and agreed by all the different people in the PD project, including the top management, then it should be signed by all involved to show their commitment and responsibility. If major changes are made during the design procedure, then there needs to be a meeting of all concerned to ensure agreement on the changes. THE DESIGN PROCESS The design activities are grouped into steps: 'getting the feel', screening, ball-park studies, optimisation and scale-up of production and marketing, leading at the end to product and process specifications, marketing strategy and financial analysis as shown in Figure 5.1. This allows control of the design process as the

consumer, product and process activities are coordinated into small mini-projects with specific objectives. The activities and some of the experimental techniques in the various stages of product design and process development are shown in Figure 5.1. The stages used in this book are getting the feel, screening, ball-park studies, optimisation, scale-up (production) and scale-up (marketing). Figure 5.1 Activities and experimental techniques in product design and process development PRODUCT DESIGN SPECIFICATIONS

'Getting the feel'

Recognising the variables Setting the limits Ad hoc' experiments

PRODUCT 'MOCK-UPS' Screening Importance of variables Interrelationships of variables Simple experimental designs

ELEMENTARY PRODUCT PROTOTYPES Ball-park studies Variables limits Variables interactions Basic packaging Linear programming Factorial designs

ACCEPTABLE PRODUCT PROTOTYPES Optimisation Stepwise variable changes in small area Aesthetic product design Complete process design Optimisation designs

OPTIMUM PRODUCT PROTOTYPE Scale-up: production Process testing in plant Yields study EVOP HACCP

Scale-up: marketing

Marketing/product definition Market channel selection Pricing analysis Sales prediction Consumer panels, large consumer test Market survey Sales forecasting

FINAL PRODUCT PROTOTYPE PRODUCT AND PROCESS SPECIFICATIONS

MARKETING STRATEGY

FINANCIAL ANALYSIS

FEASIBILITY REPORT In the design, both the input variables to the process and the output variables of the product qualities are identified early in the developments. The input variables are: raw materials: type, quality, quantity; processing variables: types of processing, processing conditions. The output variables are: product qualities; product yields The levels of the input variables that are possible in the production are identified and used in the design experimentation. The level of a raw material (or ingredient) is the percentage in the formulation. Raw materials and ingredients are sometimes differentiated: raw materials as the primary products from agricultural and marine sources, and ingredients as processed materials. In this book, raw materials includes both, and mean all materials used in the process. The levels of processing variables are related to physical, chemical and microbiological measurements and also the achievable and necessary limits set by equipment and environmental conditions. There are limits set on the input variables by the needs of the product, processing and costs; there may be a lower level and a higher level, or just one of these. Identifying these levels early in the design reduces the time spent on experimentation. The product qualities wanted by the consumer are identified and quantified. Usually a range is discovered within which the product is acceptable; this sets the range within which the quality has to be controlled. Again there are usually low and high levels identified for the product qualities. The yield of product necessary to give acceptable costs is identified early in the design to direct the raw material and process experimentation. The design is a continuous study of the relationships between the input variables and the product qualities, so that the final product prototype is the optimum product under the conditions of the process. The two main parts of product design are making and testing the product prototypes, and the two important groups of people are the designers (often called developers in the food industry) and the consumers. The prototype products are tested under the standards set by the product design specifications, so that product testing needs to be organised along with the product design and the processing experiments. Regularly there is consumer input, to confirm that the product is developing characteristics as identified in the product concept and not developing characteristics which are neither wanted nor needed by the consumer. The product design ends with a final product prototype and a feasibility report: defining the feasibility of the product for technical production, the market and the company; anticipating the technical and market success; assessing the financial feasibility; and predicting associated impacts on the company and the market of various levels of product success. Gathering information for the feasibility report is an important part of the design process. STEPS IN PRODUCT DESIGN AND PROCESS DEVELOPMENT Carrying out the design in the five successive steps listed in Figure 5.1 goes some way towards eliminating the mistakes of choosing the wrong design and also making the product on a large scale when very little is

known of the processing system. 'Getting the feel' This is a continuation of the development of the product concept and the product design specifications. The processing methods and conditions outlined in the product design specifications are used to make the early product prototypes, and the technical testing methods are examined for reliability and accuracy in testing both the technical product characteristics and also their relationships to the consumer product characteristics. There is a question of consumer involvement at this stage; some people advocate this strongly because it means that there is control over the design; others say that it is faster and just as accurate to use the knowledge of the designers. The choice of no consumer testing depends on the level of consumer knowledge held by the designer. The basic costing used in the company is also identified so that a simple method of determining costs can be used in the next stages of the product design. The target market was identified in the product concept stage and the consumers are selected to represent this target market(s). Screening Screening reduces the wide range of raw material and processing variables to the input variables affecting important product qualities. This hastens the design. Initially the variables can be reduced using the previous knowledge of the designer and also published or company information easily available. There can still be a number of floating variables and these are studied in controlled experimentation, not 'ad hoc' try-and-see experimentation. Many experimental designs are available to screen the variables but the most common are partial factorial designs, or Plackett and Burman designs. In a Plackett and Burman design, it is possible to screen N-1 variables with N experiments. The screening experiments identify the important variables and their magnitude levels that affect the product qualities, but they are not statistically accurate and cannot quantify the relationships between the input variables and the product qualities. Some food designers have the consumers test many samples in these designs, sometimes for acceptability, but more usefully in product profile tests. Other designers use trained sensory panels. At this stage, the raw materials are being selected, and the quality, availability and costs of those raw materials are studied. There is likely a basic total cost range for the raw materials, but it is important not to select individual materials only on cost at this stage. Higher qualities of raw materials may give a unique property to the product, and also the more expensive materials may not need to be used in the same quantities as the cheaper. Sometimes there are restrictions in the company on the raw materials that are to be used; the buying department can often give some indications without restricting the design. Ball-park studies In ball-park studies, the aim is to set the limits of the raw materials and the processing variables which give acceptable product qualities as judged by the consumer. By this stage, the variables are reduced in number and their outside limits are set. They are examined in factorial designs, and for raw materials in mixture designs. In factorial designs each input variable is considered at high and low levels, and the combinations of these high and low levels for all input variables are tested. In a full design all possible combinations are run, therefore for three variables the total number is 23 = 8 experiments. In food formulations, mixture designs are often used because it is impossible to vary one ingredient while holding all the others constant; in mixture designs, the sum of all the ingredients in the formulation must add to 100%. The product designer must always be aware that when they change the content of one ingredient, the

proportion of the other ingredients changes, for example reducing the fat content will increase the proportion of other ingredients: carbohydrate, protein or water. With factorial designs and mixture designs, the effects of the various input variables, alone and together, on the product qualities are analysed, and mathematical relationships developed between the input variables and the product qualities. To set up the experimentation and to analyse the results, there is computer software readily available for food product development. Both technical testing and consumer testing of these product prototypes are carried out. The consumers are testing for acceptability and the technical tests are examining the chemical, microbiological, physical and sometimes the sensory properties of the products. Accuracy and reliability are important considerations in this testing, both for studying the effects of the input variables on the product qualities and for developing the quality assurance programme. The total processing costs of these product prototypes are compared to identify the effects of the input variables on the costs, and to check that the costs are within the target cost range. Optimisation Here the aim is to optimise the overall product quality by determining the levels of the input variables which will give the best possible product quality. The problem is that often when optimising one product quality, another product quality is less than optimum. So it is a case of setting the relative importance of product qualities, and for the most important product qualities studying the formulation and processing variables to find the optimum. But the limits that are acceptable across all the product qualities need to be known so that during the optimising experiments none of the other product qualities become unacceptable. For raw material formulations, linear programming can be used to optimise a number of product qualities and costs with the amounts of raw materials in the formulation held between upper and lower levels. Scale-up Scale-up (or ramp-up) of both the production and the marketing is the last stage of the product design and process development. The production scale-up is the in-plant test to verify that the product can be made at the quality and quantity required, and the marketing scale-up is a large consumer test to verify that the target consumers will buy the product and what marketing strategy will encourage this buying. The aim of the processing scale-up is to determine the optimum production process for product quality, product yield, process control and costs. If the previous design research has combined the product and the process, this can be achieved without too many problems. But if the process has been ignored, then there can be disastrous problems. For example, if some of the intermediate materials have never been pumped during the design experimentation, then they could break down during scale-up. The scale-up can be either on a pilot plant or short production runs on the main plant. If it is a new process, or there is to be quite extensive experimentation, then the scale-up is conducted on a pilot or small-scale plant. If the process is only an adaptation of the present production, then the scale-up is conducted on the main production plant. The decisions on the type of scale-up are often much influenced by cost; the production trial can cost a great deal if the product cannot be sold and this restricts the use of the production plant until the final stage. But if there is no investment money to build a pilot plant then the production run may be the only scale-up available. The question can often be asked as to when the scale-up from the laboratory bench to the small plant to the production line should be carried out. A great deal of time can be spent perfecting a product in the laboratory, only to find that it is impossible to duplicate this in the plant. If the product is rushed from the laboratory to the production line, then there can be a great deal of raw material and product discarded at a substantial cost. Knowledge of the interrelationship of the processing variables and the product qualities can reduce these failures. EVOP (evolutionary operations) are used in optimising the process variables, especially if using the production line in scale-up. EVOP is a way of plant operation

that tests small changes in the process variables in a simple factorial design. It continuously changes the process variables until optimum product qualities are reached, but only slowly so that the product can be used for large scale testing or even sold. The marketing scale-up aims to define the market, describe the market strategy to reach this market and predict the possible sales revenues for the product. Possible market channels are studied and the market channel suitable for reaching the target consumers and for the company is chosen. The price range related to the production costs, competitors' pricing and company policy is tested with consumers to see how it affects their buying intentions. Also the final product concept (the product proposition) is built up from the final prototype product, the packaging design and consumer studies. The definitions of the product, price and market channel are used not only to develop the aims and methods for the promotion of the product but are also the basis for planning the marketing mix during product commercialisation. The final prototype product from the production scale-up and the various parts of the marketing strategy are tested in a large-scale consumer test where the consumers test the product in their usual environment and are interviewed about the marketing strategy. PRODUCT TESTING Product testing is an integral part of the product design and process development as can be seen in Figure 5.2. Figure 5.2 Testing activities and techniques in product design and process development PRODUCT DESIGN SPECIFICATIONS

Technical 'Getting the feel' Setting up Reliability Training Standard tests

Consumer Ideal profiles

Costs Company costs

Profile tests

Cost analysis

Correlation of technical/consumer tests

PRODUCT 'MOCK-UPS' Screening Technical Sensory Product testing Product comparison Difference testing Raw materials cost limits Materials cost comparison

ELEMENTARY PRODUCT PROTOTYPES Ball-park studies Technical Sensory Statistical testing Acceptability Preference panel Preliminary product costing Spread sheets

ACCEPTABLE PRODUCT PROTOTYPES Optimisation Technical Sensory Product Improvement Product, packaging, process costing

Storage Control testing Shelf life tests Use tests Cost comparison Competitive comparison

OPTIMUM PRODUCT PROTOTYPE Scale-up Quality assurance Buying predictions Marketing study Market survey Attitude panel Large consumer test Yields Materials Equipment Equipment comparison Total costing: capital, operational

Raw material testing Process study Product study

FINAL PRODUCT PROTOTYPE PRODUCT AND PROCESS SPECIFICATIONS MARKETING STRATEGY FINANCIAL ANALYSIS

FEASIBILITY REPORT To achieve the final product prototype, it is very important that the product is tested at all stages during its design for technical compliance, acceptability to the consumer, and compliance with cost constraints as shown in Figure 5.2. Technical testing Technical testing varies a great deal depending on the type of product, the testing facilities available, safety needs, processing needs and legal regulations. The tests can be chemical, physical or/and microbiological. The technical testing for consumer acceptance is built up from the consumers' product profile, and suitable technical test methods are sought which relate to the product characteristics identified as important to the consumer. In the early stages of product design, correlating the technical tests on the product qualities with the consumer product profile is essential. Technical testing is also required to confirm that any food regulations are being met, that consumer safety is ensured and that any labelling requirements for example nutritional value are confirmed. At the later stages, technical testing is developed to monitor the product specifications for quality assurance, and account needs to be taken of the accuracy and reliability of the results. Consideration also needs to be given to the costs of testing Can the efficiency be improved? How much testing is needed for control of the product quality? Shelf life testing Testing shelf life is important in food design because there is usually a target shelf life to be achieved for transport and storage in the distribution chain as well for storage of the product by the consumer after buying. From previous knowledge, some predictions can be made early in the design on the possible shelf life; foods can be divided into short-life products (up to 10-14 days), medium-life products (up to eight weeks) and longer-life products (up to 1-2 years). The possible deterioration reactions in the food are identified, for example chemical reactions like browning and loss of colour, and microbial growth of food spoilage organisms, moulds and yeasts. It may be necessary to carry out accelerated tests under severe conditions to identify exactly

what the deteriorative reactions are. Shelf life testing needs to be started as soon as possible in the prototype development, usually at the start of optimisation experiments. Shelf life testing takes time and can be the critical activity controlling the completion of the project. The variables need to be identified usually temperature, humidity and surrounding atmosphere in storage; vibration, handling and contamination in transport. Factorial designs are again used so that the quantitative effects of changes in the storage and transport conditions on product quality can be measured. Sensory evaluation Sensory evaluation can be carried out by expert sensory panels or by consumers. Traditionally in product design, the expert panel determined the differences between prototypes and the direction of the differences, while consumer panels evaluated the acceptance of products or preferences between products. This meant that consumer input did not take place until the final stages of prototype development. But with the acknowledged importance of the early stages of product design, consumer panels are now used to guide the design. Such panels are used in screening the ingredients, determining the product characteristics and their strength in the ideal product, developing and optimising the product profile of the product prototypes, and optimising products for acceptance and cost. Care needs to be taken when choosing the consumers are they the people who buy the product, who prepare the meal, who eat it? A trained panel may consist of between four and ten people, but consumer panels are larger, comprising at least thirty people depending on the type of testing. The members of a trained panel after a month or longer training are able to score the product qualities reliably and accurately. Consumer panels are not trained, but are representative of the users of the product. Initially consumer panels were considered 'too much work' and expensive, but experience has shown that this is not so. The size of the consumer panel increases throughout the design as the importance of making the right decision becomes critical and the penalty for a wrong decision becomes larger. In product formulation, it can consist of 15-20 consumers, rising to 50-100 consumers during the final processing trials and 200-300 for the final product prototype, while in some large markets with greater variability it may be even more. The smaller panels are useful when some depth of knowledge is needed though they are not a statistically valid method of determining how many people in the market will buy the product. But over the years, it has been shown that there are significant correlations between the verdicts of the consumer panel and the larger consumer test if the members of the consumer panel have been selected carefully and are representative of the market. Consumer panels are used for seeking in-depth information about the product's characteristics and uses. The aim is to obtain as much detailed information as possible so that informed changes can be made in the product design. The consumer panel gives opinions on all product characteristics, not just sensory qualities but others such as safety, nutrition, size, ease of use, transport, storing and convenience. They can also be involved in the design of the package. The final consumer panels test the packaged product under the conditions in which they would use it. This would normally be in their home, but sometimes because of secrecy and also the need to watch their use of the product such trials may take place in the laboratory. For example, there is a need to check: Is the pack ergonomically suitable? Does it fit their hands? Can they open it? Is the product suitable for their equipment and their abilities? Can they prepare and cook the product? Do the other people in the house like it? Is it acceptable to younger/older people, different sexes?

Costs Costs provide a basic criterion for controlling the design; they need to be monitored throughout development to ensure they are within the target range. At the beginning of the design, the company's cost structure and the target range of costs for the new product need to be agreed by all involved. The basic costs for producing and distributing the product can be subdivided into manufacturing costs, distribution and marketing costs and general company costs. A simple breakdown is shown in Table 5.1 Table 5.1 Basic costs for producing and distributing a product

Manufacturing costs

Raw materials cost Direct processing costs Fixed costs Plant overhead costs Physical distribution costs Market channel costs Promotion costs Sales and selling costs Administration costs Development costs Financing costs

Distribution and marketing costs

General company costs

Some of the manufacturing costs comprise raw materials, packaging, labour, depreciation of equipment, electricity, steam, gas, water, waste disposal and plant overheads. In many companies, during the product design and process development, the raw materials and direct processing costs are continuously determined and are part of the design. For example, in the linear programming models for product formulation there is usually either a total cost constraint for the raw materials or the aim is to minimise cost. Standard percentages or ratios on these materials and processing costs are used to predict the company costs. This has to be carried out with care, especially with innovative products or new markets where some of the marketing and distribution costs are unknown - these may be found to be too high only at the later stages of the project and prevent the launch. At the end of the product design and process development stage, there should be reasonably accurate forecasts of production and distribution costs, and some indication of the probable marketing costs. There are three important general activities in product design: product formulation, packaging development and processing development. PRODUCT FORMULATION Many food products are made by combining raw materials in specific proportions in a formulation, and research on the effects of various formulations on product qualities is common in product design. In systematic formulation there are five steps: Set the product qualities required, Find data for the raw material compositions, qualities and costs, Determine limits on the raw materials and the processing variables, Use quantitative techniques: linear programming, experimental designs, mixture designs,* Use product profile tests and technical tests to relate product qualities to changes in formulations. (*there are many useful computer software packages to

use these statistical techniques.) The raw materials can be divided into two groups: the basic product raw materials and the 'top' or aesthetic raw materials. This does not mean that the basic raw materials do not give aesthetic qualities to the product - in fact in modern food design this is recognised as a fundamental factor. But sometimes there is a need for the addition of colours and flavours to improve the aesthetic effect. In formulation studies, the important development in the last ten years has been the use of the computer. First, there is the raw material database on the computer; this started by detailing the chemical and nutritional compositions of different raw materials but has expanded to other properties such as microbiological quality, sensory qualities and to the effects of raw materials in processing, where this information is available. For companies with a narrow range of products, this raw materials database can be used in all product development projects as a starting point for formulation; in other companies with a wide-ranging product mix there may be need for two or three databases. The database is only useful if it is kept up-to-date and is also related to the company's buying policy. The database can be used to build and analyse various formulations to see how they fit the criteria for the product qualities, the costs and the processing. This can be done quite simply using computer spreadsheets. There are also expert systems available which provide a decision support framework made up of two parts: a task part containing the distinct problemsolving steps involved in creating a formulation, and a physical part with the specific knowledge about the properties of the raw materials and the processes involved. As more information is obtained from factorial experimentation, mathematical relationships between the raw materials in the formulation and the product qualities are developed and these can be used in such techniques as linear programming. PACKAGING DEVELOPMENT Packaging design at this stage concentrates on the packaging of the individual product; the outer packaging research is only related to decisions regarding size and to the protection required during distribution. The design of the packaging for the individual product is based on the needs of the consumer and the requirements of product preservation and protection in the product design specifications, but it also considers the process and the distribution, as well as the needs of retailers and the environment. The graphic design is usually carried out during the commercialisation stage together with the promotional artwork, but consideration needs to be given to any printing and display needs in the selection of the packaging and the materials to be used. The needs of the consumer and the retailer dictate the dimensions as the package has to be stored on retailers' and consumers' shelves, consumers have to be able to handle and open the package with their hands, the quantities are related to the serving of the food and the packaging has to stand up to the general conditions of use. The packages have also to fit into the standard outer container shapes and sizes. The product may be processed in the package in which case the package must be able to stand up to the processing conditions and also not interact with the food during processing and storage, for example packaging constituents leaching into the food. In all cases, the package needs to fit into the packing line with not too much adaptation. The factors to consider in packaging design at this stage of product and process development are summarised in Table 5.2. Table 5.2 Factors in packaging design

Consumer Product

Buying, transporting, storing, using, eating, disposing Containment Protection in external environment, distribution Presentation for communication, promotion, selling Use by consumer: convenient, dispensable, ergonomic, information Legal requirements Preservation of food, processing ability, interaction with processing Product packaging quality Machine ability in making, forming, filling, closing Outer packing, unitisation, transport, storage conditions Retailer needs Storage, display, communication, bar coding, tamper-proofing Resources used: energy, raw materials Waste: reuse, recycle, or disposable

Process

Distribution

Environment

From the research, the packaging is defined as packaging material (films, cardboard, metal, glass, solid plastic), packaging type (bottle, carton, pottle, can), packaging size, packaging method (hand, continuous, automatic, aseptic). The designer does not have a great deal of room for originality in food packaging except with regard to the graphic design, but there is still a great deal of originality as can be seen on the supermarket shelves. The use of computers with design software has made it easier to design packaging. The package is then put to the test on the processing/filling line, and for shelf life, and product protection during storage and transport. Finally the consumer has to test the packaging with the product. PROCESS DEVELOPMENT Process development is interwoven with product design. For example, in the Thai sausage example a standard fermentation process was chosen for the Plackett and Burnam experiments, and then in the later studies on the starter cultures, the processing variables of temperature and humidity were also studied during fermentation. The Thai sausage processing was divided into three parts: raw material preparation (mincing of meat, cooking of rice), mixing of the raw materials and stuffing into the sausage casings, and fermentation. The first two parts were kept standard throughout and only the fermentation conditions were varied. This division of the process into its individual parts is the method used in either analysing a current process for a new product (process analysis) or for building a new process for a new product (process synthesis). The individual parts and then the connections between them are studied to give the optimal overall process. There are three aspects of studying processing: unit operations, unit processes and processing limits: Unit operations. These are the physical processes such as heating, pasteurisation, sterilisation, freezing, chilling, drying, mixing, emulsifying, tumbling, pumping, conveying, packing. They can be grouped into separation processes, assembly (or combining) processes, conversion processes and preservation processes. There are more than a hundred unit operations used in food processing. Unit processes. These are the chemical, biological and microbiological changes such as gelatinisation, hydrolysis, oxidation, browning, protein denaturation, vitamin destruction, destruction and growth of micro-organisms, fruit ripening and meat tenderising. There are a number of these reactions occurring together in a food process and this leads to a complicated study in design. In the past much of the knowledge was empirical, but gradually basic quantitative studies of the rates of these reactions are leading to more directed process design.

Processing limits (maximum and minimum). These can be temperatures, rates of increase/decrease in temperature, viscosities, mixing speeds, shear rates and pH, as well as processing times, availability and cost of equipment and services such as water quantity and steam pressures. The combination of basic knowledge of food processing which has been built up over the last twenty years and the use of computers has led to a great deal of change in food product design and process development from the recipe testing of the past to systematic design based on process engineering principles and knowledge of food chemistry, biochemistry and microbiology. The development steps are common in all projects, but the relative amounts of time and effort required for different steps may change considerably. Many food products are processed in more or less generic equipment so the emphasis in development lies on the product. If process development is more extensive, the logical sequence remains but the description of the steps may change, for example detailed design for items of equipment or a continuous line are included. BUILDING THE MARKETING Consumer panels can be used during the product design to devise the best method of marketing the product; such panels build up knowledge of their relationship with the product, the acceptable price range and the product image. Distribution testing of the prototypes builds up knowledge about the physical distribution system and the market channel possibilities. Costing analysis gives an idea of the basic product and marketing costs. The marketing researchers then have a great deal of knowledge on which to build the marketing strategy. The researchers are then able to determine: price range, relationship of the product to competitive products, product's position in the market, various market channels and their suitability for the product, target market segments and product image. Having done this, they test the product in a large consumer test so that they can confirm the marketing method and also determine sales potential and market share. Market survey Market survey combines a number of activities whose objectives are to select the market segment(s) and the position of the product in the market segment, to determine the possible sales to the market segments, and to find information on which to base the marketing strategy. The information from the consumer research in the product design needs to be confirmed and expanded, either by secondary market research using published information and company information, or by primary market research using consumer focus groups, retail audits, and studies of the competitors and of the industry. Focus groups may be organised to collect in-depth information on the target market, product, price, buying place, promotion, preference, preference over competitive products and long term buying predictions. Retail audits can be bought from commercial companies who regularly monitor sales of products in retail outlets, or more likely today, from the summarised information of supermarket electronic data. This information not only gives the market shares of the competing products, but continuous sales records, which can be a basis for sales forecasting. The sales of competing products need to be backed by information on the qualities of the different competing products, from either technical comparison or consumer comparison of the products, as well as on the competing companies and their methods of marketing. For industrial products, there is a need for industry studies to discover the different customers in the market

and their characteristics - size, method of processing, company organisation, economic status, and present use of raw materials. There is also a need to study the whole market channel and the physical distribution system. In consumer food marketing, the retailers have a strong control on the introduction of new products, so there is a need to study the competing products on their shelves and how they promote them, their attitudes to new products, and the effects on their new product behaviour of the prices, discounts, and promotional financing by the manufacturers. One also needs to investigate any retailers' charges to obtain shelf space for new products. The place of the new product on the company's and the market's product life cycle is determined to ensure that a suitable marketing strategy is selected. Internally, the place of the new product in the company's product mix and product line is studied to see how the new product will affect the complete product mix and also individual products. Large consumer test Large-scale product testing of the final prototype product is undertaken by consumers, or in industrial marketing by one or two large customers in their plants or by a number of food service outlets. To obtain results for the major decision to go into commercialisation, it is usually preferable to have a statistical sample of the target market so that the accuracy of the buying prediction is known. However, the sample size is often limited by practical considerations such as the amount of money available, the time to do the test and the amount of product available. The questions to be answered in the large-scale test include: Which consumers like/dislike the product? Do they prefer it to competing products? What product characteristics need improvement? Does the product or the packaging need to be redesigned? Will they buy the product at the given price? In what price range will they buy the product? How much will they buy, and how often will they buy at the different prices in the price range? The consumer products are tested in a central location such as a shopping mall or in the home. In the central location test, a stall or a caravan is set up in a central position such as a shopping mall and people passing are asked to taste the product and give their comments on a self-administered form or in an interview. This does not give a random sample of the population but it is quicker and cheaper than the in-home test. In an in-home test, the consumers are given a sample of the product, either unidentified or with the full branded pack, and asked to prepare and eat it in their household. The consumer or all the members of the household can be asked to comment on the product. A problem is the timing of the test which can influence a food product. It is preferable to do the consumer test at a time of year when the product would be expected to sell but this may not be possible. If done at a low acceptance time, this must be taken into account when analysing the results. Industrial product testing with small processors and food service outlets is very similar to the organisation of the in-home test. Sufficient product is given to the processor to try the product in their process, and to the food service chef to develop a dish to put on their menu. A restaurant may test this dish by putting it onto the blackboard menu and watching their customers' reactions to the dish. The processors and the food service outlets are usually interviewed after the test to find how the product has been used, the problems and successes with the product, the intention to buy, the acceptable prices and predicted quantities to be bought. With larger processors, pilot plant or small production trials are organised either jointly by the supplier and the buyer or often by the buying company because of secrecy.

Products for overseas countries should be tested in that country, and international companies either have their own testing facilities in those countries or contract local market research companies to conduct the research. International product testing uses the same techniques but presents problems. First there is the problem of language - the questionnaires have to be in the language of the consumers and there may be problems in translation not only into a particular language but even into a particular dialect. Definitions of products and product characteristics may be substantially different. Scaling methods may also have to be changed. For example the 9-point hedonic scale from 'like extremely' to 'dislike extremely' may not be acceptable in a culture where expressing negative opinions is socially unacceptable, so the dislike terms have to be removed. PRODUCT AND PROCESS SPECIFICATIONS AND MARKETING STRATEGY Outline process plans include raw material specifications and quantities, process flow charts and processing conditions, product quality specifications, process control points and product testing methods. From this information, product and process specifications can be written and an approximate product cost determined. If necessary, legal or governmental approval is sought for the product or/and the process. An approximate idea of the customer and consumer acceptance of the products is already known; from this and historical sales data, sales forecasts can be determined. From the consumer and market studies, the marketing strategy can developed. Product and process specifications Final specifications include the raw material specifications, the product formulation, the process flow chart, the processing conditions in the individual unit operations, a preliminary HACCP analysis of the process, the testing of the intermediate and the final products, and the final product qualities. These are based on only preliminary production runs and can change during the commercialisation. Costs and prices Costs and prices are predicted from the trial production runs and from the consumer test. These will be ranges at the present time, as the production yields are only based on the small-scale tests, and the prices are only based on consumer comments, not actual buying. Usually pessimistic, most likely, optimistic, predictions are made for the costs and the prices. Sales forecasts Sales forecasts are based on the consumer test results: the target market segments, the total number of potential customers and the potential consumption rate. There will also be a proportion of potential consumers who will not buy the product and this is also known from product test results. From this type of data and allowing for direct competition, it is possible to make an estimate of the probable sales. However, this estimate must only be used in conjunction with estimates from other sources, since the details of buying intentions given by consumers to market researchers are notoriously inaccurate. Sales forecasts for most products can be made by considering sales levels of similar products in conjunction with past and current socio-economic trends. Past records can, in general, be used in two main ways. First, a past trend can be directly extrapolated on the assumption that the causes which led to its occurrence will be maintained at the same level in the future. Second, an analysis can be made of the chief determining factors of any trends, and an attempt made to estimate future trends in accordance with any variations expected as a result of those factors. A broader approach to sales forecasting includes the factors which have an overall effect on the economic behaviour of the nation. Most new products are in the non-staple food class; they are convenience products, impulse products, or alternative food choices, and sales levels of these can be affected by changes in total consumer expenditure. Detailed discussion of forecasting is not possible here but all the above factors will need to be considered to make reasonable forecasts. Sales forecasting is now a scientific technique which has been developed to make predictions as rational as possible, exploring every conceivable factor which could affect sales. Sales

forecasts are sometimes wrong but all efforts must be made to ensure they are incorrect only for the most unexpected or unusual reasons. Marketing strategy The marketing strategy is built up, to outline and integrate the product, the packaging, the price, the distribution methods and the promotional message. At this stage, these are still general descriptions, and the two most important decisions to be made concern the objectives of the market strategy, and the product concept developed from the final product prototype and earlier research. At this stage the product concept is being developed into a product proposition, which is the basis for the product communications in selling and promoting the product during the commercialisation. Financial analysis This is based on the costs predicted by the processing and marketing research, and the prices and sales forecasts from the market research. From these, the future cash flows and profits are predicted. Capital investment for the production plant and maybe the distribution system are estimated, and the working capital for the commercialisation and product launch predicted. From this information can be predicted rates of return on investment and also break-even times for development costs to be recovered. At this stage, these predictions have quite a high range of inaccuracy, and risk of being wrong; therefore probabilities of accuracy are placed on the predictions The product and process specifications, the sales forecasts, the marketing strategy and the financial analysis, although at this time not exact, give excellent information for a feasibility study and for the evaluation of the product before the very expensive step of commercialisation is attempted. Costs Costs provide a basic criterion for controlling the design; they need to be monitored throughout development to ensure they are within the target range. At the beginning of the design, the company's cost structure and the target range of costs for the new product need to be agreed by all involved. The basic costs for producing and distributing the product can be subdivided into manufacturing costs, distribution and marketing costs and general company costs. A simple breakdown is shown in Table 5.1 Table 5.1 Basic costs for producing and distributing a product

Manufacturing costs

Raw materials cost Direct processing costs Fixed costs Plant overhead costs Physical distribution costs Market channel costs Promotion costs Sales and selling costs Administration costs Development costs Financing costs

Distribution and marketing costs

General company costs

Some of the manufacturing costs comprise raw materials, packaging, labour, depreciation of equipment, electricity, steam, gas, water, waste disposal and plant overheads. In many companies, during the product design and process development, the raw materials and direct processing costs are continuously determined and are part of the design. For example, in the linear programming models for product formulation there is usually either a total cost constraint for the raw materials or the aim is to minimise cost. Standard percentages or ratios on these materials and processing costs are used to predict the company costs. This has to be carried out with care, especially with innovative products or new markets where some of the marketing and distribution costs are unknown - these may be found to be too high only at the later stages of the project and

prevent the launch. At the end of the product design and process development stage, there should be reasonably accurate forecasts of production and distribution costs, and some indication of the probable marketing costs. There are three important general activities in product design: product formulation, packaging development and processing development.

OUTCOMES AND ACTIVITIES IN PRODUCT COMMERCIALISATION From the product specifications, the marketing strategy and the final prototype product, commercialisation builds into three important functional plans (marketing, production and finance) and then into an overall operational plan. These are combined together as shown in Figure 6.1, which shows the different outcomes needed in each plan. The outcomes from the three plans are combined in an operational plan for the launch. After the launch there is a review of the final outcomes. Figure 6.1 The outcomes from product commercialisation FINAL PRODUCT PROTOTYPE PRODUCT AND PROCESS SPECIFICATIONS MARKETING STRATEGY FINANCIAL ANALYSIS

MARKETING PLAN OBJECTIVES PRODUCT DESCRIPTION MARKET STRATEGY MARKET CHANNELS PHYSICAL DISTRIBUTION PRICING SALES PLAN PROMOTION PERSONNEL COSTS TIMING SCHEDULES

PRODUCTION PLAN PRODUCT QUALITIES RAW MATERIALS PROCESSING PROCESS CONTROL STORAGE & TRANSPORT QUALITY ASSURANCE EQUIPMENT SERVICES PERSONNEL COSTS TIMING SCHEDULES FINANCE PLAN COSTS, PRICES PROFITS CASH FLOWS CAPITAL INVESTMENT WORKING CAPITAL RETURN ON INVESTMENT RISK ANALYSIS

OPERATIONAL PLAN PRODUCTION CAPACITIES AND INVENTORIES SELLING ORGANISATION PROMOTION ORGANISATION FINANCE AND FINANCIAL CONTROLS FULL SCALE INTRODUCTION POST-LAUNCH EVALUATION

DETERMINATION OF RETURN ON INVESTMENT

COMMERCIAL REPORT During commercialisation, the knowledge required to formulate these plans has to be found, organised and integrated. It starts with information from the product design and process development: product and packaging qualities, product concept, target market, price range, market channel, physical distribution, process flow sheet, process conditions, product testing. At this point, final adjustments are made to the product so that it is acceptable not only to the consumers but also to the companys operational divisions, the retailers and other people in the distribution system. With industrial products, it has to be acceptable across the different groups in the buying company - product development, quality assurance, production and buying. The product and its inner and outer packages need to be tested through production and distribution to determine if the packaging provides the necessary protection to the product and also meets the expected demands of distribution, sale and use. Some of the product prepared during the small plant tests can be tested in large consumer/customer 'use' tests. In industrial marketing, it is important not only that the new ingredient is acceptable in the manufacturer's plant but also that the manufacturer's product is acceptable to the consumers. In consumer marketing, there are further consumer use tests and sometimes a small test market in a few supermarkets representative of the overall market to test the effects of different prices and promotions. There is constant comparison with competitive products on the market to confirm that the product has advantages to the users. After these studies, there is enough information to detail the market for the product and to draw up a complete market plan for launching the product, including market trials, methods of selling, promotion and advertising, and methods of distribution. The production development differs if the present plant is to be used, or if a new plant is to be built, or if new equipment is to be bought or built. A preliminary process equipment design can be made or, if current plant is to be used, the layout and adaptation of this equipment for the new process determined. The production is fine-tuned and quality assurance developed. Costs and prices are studied, the investments needed for marketing and production are estimated and a financial analysis is made. Then the decision is taken to stop, or to test the market and production plans, or to allow the product to go forward to launching. The production and the marketing are integrated first in largescale production and market testing, and then in an operational plan. A final commercial report, based on the information collected, analyses whether the product fits in with the commercial and financial aims of top management. The steps and some of the activities in commercialisation are shown in Figure 6.2. Figure 6.2 Activities in product commercialisation FINAL PRODUCT PROTOTYPE PRODUCT AND PROCESS SPECIFICATIONS MARKETING STRATEGY FINANCIAL ANALYSIS

Knowledge of the product, production and marketing Product Product qualities optimised Final packaging design Final product concept

Marketing Target market finalised Preliminary market/sales prediction Price, promotion, place studies

Production Plant design Plant commissioning HACCP analysis Process control Yields and costs studies Quality assurance designed, tested Transport/storage testing

Planning marketing, production and finance Preparation of: Market strategy Market plan Market forecast Preparation of: Production specifications Production plan Physical distribution plan Preparation of: Final costing and pricing Investment finance plan Operational finance plan

MARKETING, PRODUCTION AND FINANCE PLANS

Integration of marketing, production and finance Prepare marketing material Test market Production on large-scale Variability of production Study of cash flows Finance sources, costs Analyse financial feasibility Improve costs

Analyse marketing and production testing Improve marketing Improve production

OPERATIONAL PLAN DETERMINATION OF RETURN ON INVESTMENT COMMERCIAL REPORT

KNOWLEDGE REQUIRED FOR THE MARKETING PLAN The following operating functions are included in the marketing plan: market information - market research and analysis, particularly the targets to be set for the launch and post-launch and the methods to monitor these; product - product proposition (product concept), packaging, branding, image; market channel and distribution - choice, control and development of market channels, transportation, storage; pricing - price range, relation of price to demand, margins, discounts, specialling; promotion - retailer and consumer promotion, advertising, public relations; sales - methods of selling, terms of sale, sales reporting, analysis and forecasting. Market information

The aim of information is to provide knowledge of both the consumer and the retailer as the basis for a successful marketing strategy, and also to predict the number of units that will be sold and revenue generated in order to set the targets for the post-launch analysis of the success of the marketing. The questions to answer are: What will be the consumers' purchasing and repurchasing behaviour? What will be the consumers' reactions to the prices, the promotions? What are the predicted pessimistic, most likely and optimistic sales units and revenue over the next months, years? What are the predicted competitive reactions? What are the predicted market shares? Before the marketing plan is developed, there should already be a comprehensive description of the potential consumers in the target market segment. With the 'line-filler' type of product, the company will know the consumer from previous marketing efforts. For the innovative product, market research, using either a survey or a product test or both, will provide information to predict the potential consumption rate. For the purpose of sales forecasting, the company needs to know the total number of potential customers and the potential consumption rate. From this type of data and allowing for direct competition, it is possible to make an estimate of the probable sales in conjunction with estimates from other sources. There are short-term or launch forecasts and also monthly or yearly long-term forecasts. The intervals of forecasting depend on the predicted product lifecycle. If it is a one-season product with a life between three and six months then monthly sales at least need prediction. For the longer life product of five to ten years, then monthly sales for the first year and yearly predictions after that are often used. Product The aim is to have a product the consumers will buy. Some of the questions to answer are: Is the product what the consumers want? Does it have the benefits wanted by the consumers? Does it have the desired characteristics wanted by the consumer (sensory, ease of use, safety, nutrition, psychological)? Is it packaged correctly? Is the pack the right size? Is the pack attractive at the point of sale? Are the product and the pack legal? ethical? Does the brand suit the product? The product characteristics, benefits, packaging type and size, brand and packaging aesthetics, product image and the final product proposition to be presented to the retailer or the industrial customer are identified and then integrated into the complete product description for the market plan. The services provided for the industrial customer need to be identified such as delivery, packaging, technical help. Packaging The aim of packaging is to present a unique design which will stand out on the retailers' shelves and in the kitchen, encouraging consumers to buy and use the product. The packaging design consists first in choosing a brand and a product name, and then developing a graphic package design. In choosing the brand, there is the decision whether to use a family brand name or a product brand name or both. Products have been seen on supermarket shelves with three brand names, but this is confusing to the buyers! A family brand name gives recognition and reassurance to the consumer but must have strong associations with the new product. The product name needs to be readily recognised by the target consumers and instantly related to their food preferences and also related to the benefits they see in the product. Name selection is achieved through the typical process of idea generation and screening, with strong involvement by the consumer. The graphic design should be attractive but also informative, giving details on the ingredients, the nutritional value and how to use the product. There are also legal requirements from the Food Regulations

which must be followed. Market channel and distribution The aim is to make the product available at the right price at the right place at the right time. The questions to answer on the marketing of the product are: Who will sell it? How will it be sold? How much will be sold? How will it be transported? How will it be stored? How will it be displayed? How will it be promoted by the retailer? The type of market channel will have been identified but there is also a need to analyse the people/organisations involved so that the product can be sold effectively with control over and integration of selling and buying. The overall system of food production is so complicated today, with international movement of raw materials, ingredients and consumer products, that the whole system from the agricultural and marine producers to the final consumer needs to be studied, not just the immediate market channel of the product from the company to the retailer. The domination of large multinational agricultural companies, processing companies, supermarkets and fast food restaurants means that they control or at least strongly influence the market channels. But there are still many small companies such as family bakeries, restaurants, coffee shops, market stalls, family stores, which need to be reached and the distributing company has to decide if they do this themselves or work through agents and wholesalers. Small companies, especially in food exporting, need to have agents or distributors to organise their market channel. In studying the market channel, the coverage of the target market achieved is determined, the costs estimated and the sales predicted for the different types of outlets in the market channel. The logistics are important, especially in export marketing. The locations of the plants, storage facilities and the customers in the distribution system, the transport available, the inventory held in the total distribution system and the losses in quantity and quality of product in the system need to be investigated so that the optimum system for quality of product, sales and costs can be determined. Most companies have an established distribution system and cannot change it to suit one new product. However, the launch of a new product is a good opportunity to study the alternatives if there are any. In the marketing of pre-packaged consumer food products, the supermarket has become the all-important means of achieving distribution, but there may be an opportunity to look at alternatives such as home selling. Pricing The price aim is to have a product giving 'value for money' for the consumer but at a price that will produce the desired sales revenue and profit for the company. Company pricing issues include the list price, discounts, allowances, payment period and credit terms. The list price is based not only on the company costs plus the profit and the advertising budget, but also on external factors that affect price. The questions to answer are: What price range will the consumer accept? Does the consumer have any psychological attitudes to price? What is the relationship between sales forecasts and prices? How does the price relate to competitors' prices? What are retailer and wholesaler margins, agent percentage?

What price specials, discounts may be needed? What are the subsidies, the taxes, the exchange rate? What are the basic company costs, the advertising allowances, the company profit? Do they vary at different levels of outputs and sales? Pricing is not a simple matter for a new product because of the many factors to be taken into account, but in food marketing there is little scope for a great deal of movement in price once the company has decided on its basic cost structure, pricing policy and the position of the product on the market. A major decision is where to position the product in the price range for this type of product: at the top as high quality, in the centre as good quality or at the bottom as 'cheap'. In launching new products, two pricing policies are particularly important: market skimming, where the price is set high to recover development costs quickly, and market penetration where the price is set so that the consumers will buy quickly and the main market is penetrated before competitors can react. Promotion The aim of promotion is to make the consumers aware of the product and encourage them to buy the product at the rate of sales growth desired by the company. Promotion includes advertising, personal selling, sales promotion and publicity. The questions to answer are: Who are the target consumers? What is the product image? What is the message that has to reach the consumers? What promotion is needed to convey this message? What promotional methods are available? What budget is there? For a food innovation, the consumer is made aware of the product, educated about its use and benefits, and encouraged to try it. Although TV advertising is often used for new food products because it reaches a large number of consumers very quickly, it may not be the most effective choice. Demonstrations and tasting can encourage the consumer to try the product and to remove some of their doubts about it because of its newness. Promotion is also to the retailer, an important intermediary on the way to the consumer. Because of the difficulty of persuading supermarket managers and owners to give shelf space to a new product, retailer promotion is being given a larger proportion of the promotional budget. The promotional budget is the sum of money available for spending on the launch and is usually calculated as the amount needed for a given annual sales target rather than a fixed percentage on expected sales. Promotion as percentage of turnover may be as high as 30% or 40% in the initial stages of a product's life; this may be justified as being necessary to achieve maximum distribution quickly and to bring notice to the company's other products as a whole. How much should be allocated to a new product for the purpose of the launch is difficult to decide rationally - there is seldom a model correlating sales with promotion for a new product. The next step is to assess whether or not the product is worth such a promotional budget, taking into account the purpose for which the product is being introduced. If it is not, then either work on a reduced sales forecast and budget or leave the market to someone who will find it worthwhile. As can be seen in some of the Case Studies throughout the text, even some large companies have not learnt this lesson. The whole situation is rather unsatisfactory but there are techniques to put the promotional budget decision on an analytical footing if the company and the industry has collected the requisite data. Selection of the advertising mix presents similar problems to budget determination, and

sometimes precedes it. Decide what you want to do and then allocate the budget to do it! The obvious prerequisites to the selection of methods of promotion are to know whom the promotion is aimed at and what it is trying to do. The people to influence are usually the purchasers and all those who affect their decisions, and of course the final consumers who eat the food. The aims of the promotion may be to produce immediate sales, to stimulate brand recognition and to 'educate' the consumer on a new type of product benefit or characteristic. When the target people and the reasons for the promotions are decided, logical selection of media can commence. There are reasonably good quantitative techniques for this task, but it is still frequently left to experience and value judgements. Sales The sales aim is to achieve the sales targets that have been predicted at the budgeted costs. This needs organisation of the sales areas and the sales personnel. Sales targets are set for the sales areas and the individuals, and the sales people are organised to achieve these sales. Training is provided before the market launch, so that sales people have knowledge of the product, the market research, pricing and promotion and know how to sell the product. Sales calls before the launch and merchandising (shelf display organisation) during the launch are needed to achieve the necessary shelf space for the new products. In the marketing plan the number of such special calls must be detailed to allow adequate planning by the area managers. The product proposition is the material presented to the buyer by the sales person. This will include the product itself, written and oral details of the research behind the product, the advertising programme, the margins and suggested retail price and any introductory offer. In supermarkets, the sales person will contact the buyer who then has the choice of whether to recommend the product to the new products selection committee or to make the decision themselves. Some companies will sell through a wholesaler, a food broker or a manufacturers' agent. The sales person has to be equipped with facts which will convince the buyer, the wholesaler or the agent that the product is a 'must' to enable them, in turn, to 'sell the product to the buying committee. THE MARKETING PLAN There are several factors that need to be considered when developing the market plan: product position in the market; stage of the lifecycle for the product class, and therefore the position of the new product on the product class lifecycle; relationship of the new product marketing mix to the overall company marketing mix; interaction of the parts of the marketing mix - market channel with price, promotion with price, product with promotion; quantitative relationship between sales volumes and the various parts of the marketing mix; marketing profitability and efficiency of the marketing mix; reactions to the marketing mix of the industrial, social, legal and political environments. A summary of the parts of the market plan is shown in Table 6.1, and an example of a market plan is given in Example 6.1. Table 6.1 Summary of a marketing plan for a new product Overall Marketing Plan

Objectives: volume of sales, market area, profit. Predicted environment: economic, political, social, industrial. Place of product in product mix (product line): type of product, quality level, price range, place in line (leader, minor product). Market segment(s): type(s), location, size, characteristics. Market channel: type of channel, retail, food service, institutional, industrial; intermediate organisations (wholesalers, agents, brokers); geographical positions of all organisations in the channel. Marketing strategy: strategy outline, target markets, marketing mix, marketing expenditure level. Product plan Product: proposition, uses, characteristics. Packaging: branding, information, legal requirements, size(s), aesthetics. Costs and prices Costs: fixed and variable costs, marginal costs. Prices: company list price, distributors' margins, retail price. Sales and distribution plan Sales organisation: personnel, training, launch, post-launch. Physical distribution: transport, store location, inventory plan. Sales: reporting, analysing, forecasting. Sales targets and budgets: area targets, sales persons' targets, areas and sales budgets. Sales promotion: merchandising, sales communications. Sales evaluation: targets and costs analysis. Advertising and promotion Message selection: creative development. Consumer advertising: press, television, cinema, radio, outdoor posters, public relations, internet Consumer promotions: price specials, reduced price offers, competitions, coupons, free samples. Point-of-purchase: display material, tasting, cooking demonstration. Trade promotions: incentive schemes, display competitions, sales contests. Trade advertising: trade journals, trade displays, conferences, publications. Schedules Production: times, quantities, quality, losses Distribution: times, quantities, quality, losses. Selling: times, launch quantity, future predicted quantities. Promotion and advertising: times.

In preparing the marketing plan, there are some points to remember: The promotional artwork must be completed before the package manufacture. There must be sufficient capital to finance the stocks of product and the introduction costs - the money available will set the limits on your marketing plan. The sales force must be adequately trained before product stocks are built up in the different distribution centres but after the promotion has been designed. Adequate stocks of the product must be available at the time of introduction. The promotion should give sales which are related to the sales forecast but also the production capacity of the plant. The marketing plan is summarised in a marketing programme, which is an integrated plan of

all activities together with their timing and costs. It includes a marketing budget with the sales forecasts - volume, revenue and the costs and the gross profits. The plan is evaluated before final approval. Is it feasible, comprehensive and flexible? Does it include a schedule, a budget? Is it in written form, in line with company policy? Does it provide for effective implementation? Has it been carefully reviewed and agreed by the people who will carry it out? Is it integrated with the production plan? KNOWLEDGE REQUIRED FOR THE PRODUCTION PLAN A production plan is developed along the same lines as the market plan to ensure that all the tasks are carried out and completed in time. The main areas in production planning are: raw materials; processing; quality assurance. Raw materials The aim here is to ensure that the raw materials are delivered at the right time and in the right quantities and of the right quality and at the right cost so that the process runs successfully. The factors to be considered when sourcing raw materials for both the product and the packaging are: location of the source relative to the plant; level of quality required for the raw material; price that the product can afford; reliability of the supplier regarding specifications and delivery; services provided by the supplier; uniqueness of the supplier for this raw material. These factors are listed in order of importance. The most important factor is met first and so on down the list to determine the most suitable supplier(s) for each raw material. The raw material might need to be of a specified quality but as it is highly perishable it needs to be sourced near the plant. Therefore quality and location would be considered first when choosing suppliers. An important decision is to have either a longterm association with a supplier or to choose the supplier according to the factors as conditions change. It is important to determine the timing and the quantities of ordering, arrival, storage and use of the raw materials. Some raw materials have very long lag times before delivery, especially packaging materials and imported ingredients, therefore a schedule for ordering materials is made out and followed so that all the materials arrive in time to start production. It is also important that the materials do not arrive too early as this can cost the manufacturer a great deal for inventory and also materials may deteriorate in storage. There has been a great deal of emphasis on just-in-time production in recent years, but this can cause a great deal of trouble when starting production for a new product. It is easier to manage a less tight schedule as it is never certain what is going to happen. The quantity to be ordered and held in stock depends on the time from order to delivery, the costs of delivery and storage, the quantity required for a production run and the number of experimental runs planned. It is preferable to have the same raw materials for all runs so that the processing effects can be studied. Another important factor in raw material planning is to study if alternative raw materials can be used and also if raw materials from different suppliers can be substituted for the first choice. Then if there are any problems in supply, there are alternatives which can be obtained quickly. If the product is a greater market success than predicted, it would be embarrassing and might even kill the product if production had to stop because of lack of a raw material. The ways of handling, sorting and preparing raw materials are very important in the food industry. There is a need to study the materials handling so that it is not labour intensive and fits into the main process. Also inline sorting equipment gives a tighter control and reduces human sorting and judgement.

Processing/manufacturing The aim of processing/manufacturing is to produce the right quality and quantity of product at the right time and cost, not only for the launch but for the months ahead. After the production trial at the end of product design and process development, many problems will have been identified and discussed with production staff and hopefully solved in order to make 'start up' as trouble-free as possible. However, just because it works, it may not be the most efficient and effective way of producing the product. The factors which need to be studied in processing can be grouped under technical, economic and human reactions. Technical factors to consider are the plant design and commissioning, and the process analysis and control. New plant or new equipment may be needed and this has to be designed and built or bought; in both cases there need to be engineering specifications based on the processing requirements, mechanical/electrical design and computer control. The plant layout and supply of services is important. Sometimes imaginative new thinking in this area can increase product quality and yields and improve the overall efficiency and conditions of the plant. It is too easy to be complacent, so look carefully at movement of materials, employment of staff and bottlenecks in production. Economic factors in processing can be summarised as initially setting the lowest practicable capital and running costs and the required financial returns from the project, and then ensuring by constant monitoring and fine-tuning that the budget is implemented. Experience during the development may show a need for reconsideration of the budget; if a change is required then it is essential that all implications for prices, profits, predictions and so on are fully explored, understood and taken into account. Human reactions in a processing line are critical both in getting a new development off the ground and in the evolving stages. Commitment is a most important ingredient in implementing change, and development always means change. If the staff want to make it work then they will, and often this means an extensive selling job to staff at all levels from the most senior manager to the floor operators. This needs to be done systematically and comprehensively, and the more effectively it is done the more smoothly the product development project will move. In commissioning new plants, several points to remember are: Does the product meet specification in terms of quantity, quality, consistency? Can the plant be operated and controlled reliably, conveniently, without stress? Are the running costs for services, staffing and maintenance as planned? Do the plant components match the design stipulations, pricing schedules? Has adequate information material been prepared for the instruction of operating, quality assurance, trouble shooting and maintenance staff? Have arrangements been made to remove out of spec' products and other waste materials from the plant without loss of secrecy? Quality assurance The aim of quality assurance is to ensure a product correct for its intended use. Quality and safety are absolutely essential elements which must be built into new products. The first step in analysing product safety and quality is to set up systems for Hazard Analysis Critical Control Points (HACCP) or Hazard Analysis/Risk Assessment (HARA) or Hazard Analysis and Operability (HAZOP). The steps in studying a process using HACCP are as follows: Establish full specifications for raw materials, processing, product, packaging and distribution. Identify and quantify risks. Prepare a full flow diagram for the process. Identify critical control points (CCPs) along the processing and distribution line using risk assessment techniques. Establish measurements and set points and limits necessary at each CCP for adequate and safe control. Establish and define criteria for tolerable departure from set points, and corrective action to be taken to maintain control. Establish a monitoring regime; review the procedures for the HACCP system.

HACCP was originally introduced to ensure the safety of food, but it is now also used to ensure product quality. Process control is based on the HACCP system, using computer controls, total process modelling systems and process optimisation, and in-line testing. Process control techniques are improving rapidly and will make this area of the product development process more quantitative and less empirical. The process study also needs to ensure that there is integration of the new process technology into the existing system with minimum disruption and cost. From these studies a quality assurance plan is developed, which includes the controls and testing required during the process and the testing of the final product. Quality assurance includes the sampling, testing and control procedures, the targets for each, and the statistical control methods needed to study any changes that are occurring. Companies must decide how far to take these when choosing the quality assurance standard (ISO 9001, 9002, 9003) for their production. There may be a need for new testing equipment and certainly for the training of staff. Once the plant is running, tolerance limits will be finalised but they should be provisionally set well before then. Production as well as quality assurance staff need to know the new requirements as they are often the first to notice out-of-specification' product. Quality assurance is integrated into the company's TQM (total quality management) which takes into consideration all aspects of the business that affect quality. Process analysis is one of the most important tools in TQM. The most important factor in building quality into production is the staff and the communications between them. There is a need to have regular exchanges of information both verbal and written between production and marketing, but especially between the designers of the process and the production and quality assurance staff. There should be cooperation between staff. Nothing is more likely to be disastrous than the design team running the production trials. The production staff needs to run the production with back-up and technical advice from the designers. Accurate and timely information is not only crucial for effective management control, but it also improves staff commitment and morale across departments. A set procedure is needed; the production trial will require details from the design and production managers on: quantity required, plant capacity/capability; reasons for trial; trial control methods; review methods for problems; personnel involved and contact methods. contingency plans; contamination and safety potential. Other useful communication methods include factory trial requests, production sheets, quality assurance sheets, product costing and a planning schedule, as well as the production specifications and an outline marketing strategy. The regular critical decision points should be identified so that all understand when production development is to continue and when it is to stop. Staff education about the new process is important. There are information security problems during these trials, as there is a need to keep information away from competitors, so there will be constraints on communication and staff must fully appreciate and respect the need for confidentiality. THE PRODUCTION PLAN The production plan includes careful consideration of: product specifications, raw materials, processing, distribution, quality assurance, personnel, costs, timing schedules.

The production plan is developed after trial runs have solved any problems with the raw materials and processing. This may be just two or three runs if a standard process is to be used but many months, even years, for an innovative process. The initial production plan is usually gradually changed as the production outputs are increased. The product developers should cooperate with the production staff in developing the plan, but responsibility for the production plan is with the production/technical manager. KNOWLEDGE REQUIRED FOR THE FINANCIAL PLAN From the marketing and the production studies comes information on the costs, prices, quantities and investment needed to launch the product and to continue producing and marketing the product in the future. There are predictions on the relationship between production outputs and costs, the fixed costs and variable costs, the price range and the relationship between price and demand, the capital investment for new plant, the investment needed for launching both by production and marketing, and the working capital needed during the launching and post-launch. From this information the finance team, with its knowledge of loans, interest rates, taxes, subsidies, import duties and exchange rates, can determine inward and outward cash flows (sales revenue and costs) for future years and the investment costs during the same periods. From this, they can determine the profits and the total investment, and then determine the return on the investment. The cash flows are usually discounted so that future cash flows are brought to present-day values. These predictions are compared with the company's financial targets and constraints. As these are predictions, it is important that the probabilities of achieving them are estimated. THE FINANCIAL PLAN This consists of the prediction for the next few years of: costs; prices; profits; inward and outward cash flows; investments, both investment capital and working capital; returns on investment; predictions of financial variations due to product, market, company and economic changes. Possible changes in technology and consumer expectations also have to be taken into account in developing the production and market plans. THE PRE-LAUNCH TRIAL The next stage is to integrate the production, market and financial plans in one pre-launch trial. Once the results of this are known, the final overall operational plan for the launch can be organised. With a product which is using the existing production and marketing facilities, there may not be a need for additional test production and marketing and the product will go straight into the launch; or if there is some doubt there can be a 'rolling' launch, with the product introduced into a series of areas. But there is still a need to research the production and the marketing so that it can be improved as the launch proceeds. Test marketing is not undertaken when: time into the market must be as short as possible because the product is vulnerable to competitors who can easily copy the product and launch their competing product onto the market; research is convincing that the product will be successful and it does not justify the extra expense; the new product is a line-filler or a me-too; the launch costs will not be

high and so the losses are small in the event of a failure; there is confidence that any technical problems will not affect the product quality. Production and market testing brings the product through the production sequence in the production plan and puts the product on the market under the market plan in controlled conditions in a restricted area. On the production side, the raw material quality and quantity need to be monitored along with, most importantly, the yield and quality of the product. Any equipment problems such as breakdowns and the staff needed also need to be monitored. Also there is a need to monitor the process variables and to identify any tendency to wander outside the set limits, either intermittent, or in a pattern. It is very important to monitor not just the sales of the product, but to check how the product is performing in distribution, storage and in the supermarket, the retailers' attitudes to the product and their placement and promotion of the product in the supermarket, and of course the consumers' attitudes and behaviour towards the product. Are they buying again? How much are they buying? What do they like/dislike in the product? This monitoring usually leads to improvements in product, production and quality assurance and also often signals desirable changes in distribution and marketing methods. The pre-launch trial is a time of constant improvement of the product, of reduction in production costs and of increase in the effectiveness of the marketing methods. In industrial marketing, the general stages are the same but the product is being developed for use by a customer in their process or the chef in food service, so there has to be knowledge of how the ingredient is behaving in the customers' processes and their products. Product testing is preferably undertaken with the customer in their own plant, but because of the customer's needs for secrecy it may have to be undertaken in the supplier's pilot plant. Other factors to consider are the area of market testing and the length of time the marketing and production testing will last. The test market area needs to be representative of the total market in terms of the consumers, the retailers and the marketing mix. The time for the market test depends on the average repurchase period, the competitive situation and the cost. It is necessary to observe a few repeated purchases of the product to see if the product will be a long-term success. If this period is likely to be very long, then buyer interviews can be used to predict repeat purchasing. Competition may come in very fast and either launch their product or upset the market by pricing specials, forcing the test to be shortened. Production testing is continued until the process stabilises. The test market can be in one or two market areas, or just in one or two supermarkets. The sales of competitive products are determined before the new product is introduced and during the test both the competitive products and the new product sales are monitored. With two areas, one area can have the product introduction and the other area does not; this gives some idea if the observed effects arise from the product or from some other cause in the whole market. Usually as well as undertaking a retail sales audit, consumer panels or buyers' surveys are conducted to determine consumer reactions. From the production and market tests, information can be found on production efficiency, product quality variations, costs, market share, and relationship of new product to main competing products in terms of consumer acceptability and sales, and also the predicted sales for the total market. The company will then have a realistic idea of how the product will fare in the national market, and of any minor improvements needed to the production and the marketing. OVERALL OPERATIONAL PLAN The overall operational plan gives the final directions for the production and marketing. It contains information on: building production capacities and inventories, organising selling and promotion organising financial controls, full-scale introduction, post-launch evaluation.

The different activities in the operational plan are shown in Table 6.2. Table 6.2 The operational plan

Building production capacities and inventories Complete production facilities and organise raw materials Organise warehouses, stores and shipping patterns Determine inventory levels Ensure production is operating to specification Ensure quality assurance is operating to specification Produce and distribute the required volumes Organising selling Organise the market area Organise the selling method Set targets for areas and individuals Decide on approach to buyers Train the sales people Make introductory visits Organising promotion Finalise promotion design Book television and radio time Prepare television films and radio sound tracks Design and print in-store promotional material Design newspaper and magazine advertisements Negotiate space in newspapers and magazines Distribute final material to merchandisers and media Organising finance and financial controls Organise capital investment funds Organise working capital Set cost targets Set price targets Set sales revenue Set profits Set returns on investment Full-scale introduction Organise sales meetings Introduce generally to trade Introduce to specific retailers by sales people Deliver stock to retail stores and ensure it is displayed correctly Start advertising and promotions Release the product Post-launch evaluation Quantitative targets Qualitative targets These marketing, production and financial activities need to be coordinated, and time and resources allocated to them. The development of a critical path network of the activities ensures the completion of the launch at the correct time as the critical activities can be recognised and taken into account. It is important to set the standards and methods for the post-launch evaluation before the launch that is in the operational plan. FINANCIAL ANALYSIS

By this stage costs are more accurate. Predictions can be made of costs at different production levels and of the sensitivity of costs to changes in raw material prices, energy prices and personnel wages. The price range and the different types of discounts necessary will have been confirmed. This means that the profit per unit can be predicted. Also the sales of units at the launch and in the future will have been predicted from the test market, so the total sales revenues over time can be forecast. From the sales and costs, the profits can be determined and the cash flows for the next few years set out. Financial analysis is vital before the decision is taken to launch the product. Product development requires adequate resourcing, paid for through financing which has to be planned. Both the capital investment and the working capital investment are determined for the launch and also to support the future. It may take some time before the cash flow becomes positive and there needs to be cash available to overcome this. For small companies failure in new product introductions is often the result of insufficient cash reserves or an inability to borrow money to sustain the project through this period of loss. The return on investment can be predicted and compared with the company's policy. Usually discounted cash flows are used in analysing the return on investment. The risk is also assessed by setting probabilities on the most pessimistic, most likely and most optimistic cash flows. Important aspects of financial analysis are: Finance quantity, in that sufficient capital or credit has to be assured to meet the total costs of the project as they arise and as the project progresses. In a large organisation, this may be met from R&D budgets, by effectively borrowing resources from other operational parts of the company, through short-term credits from suppliers, overdrafts and so on. Smaller organisations may have to formally borrow from outside, even set up a new corporate structure and raise external funds by the sale of shares. In any event, what can be thought of as the project balance sheet has to balance. In the longer term it is expected to generate profits and pay its way in full. Finance quality, in that the cash is provided when the need occurs. Each time a decision is made to proceed a further step with the project, new resources are committed, and when these are actually bought, appropriate payments must be made at that time. It should be borne in mind that new steps are generally more costly than those taken already, that the launch is probably the most costly, and that income only comes after sales. Negative cash flows will accumulate and accelerate and the debt balance is expected to peak around launch time. Working capital must be adequate to pay for work in progress, production, marketing, storage, distribution, wages and overheads. It is easy to underestimate and if insufficient can lead to cutting the very corners which are essential to the speedy conclusion and success of the project. THE STEPS IN THE PRODUCT LAUNCH Once the top management decision has been taken for the launch, the product has to be launched to several groups of people, the most important being the company, the retailers, the consumers and the general public. The product launch can be regarded as three steps: launch to the company, launch to the market and launch to the consumers, and these are followed by the launch evaluation. The activities are the typical operational activities of the company in departments such as marketing, sales, production, quality assurance, finance, but the new product causes changes and sometimes problems. The launch to the company has as its outcome the completed company organisation. The launch to the market involves the production and distribution of the product combined with the marketing to the retailers and the outcome is the complete set up ready to launch, and the final stage is the launch to the consumer. For the industrial products, the launch can be just to the company and to the customers, but there may also be

distributors and agents in the chain. The outcomes from the three steps are important, both in their quality and their timing. In timing, the company organisation for the launch needs to be completed before the launch to the market starts, or disaster can ensue; for example: product that has not arrived at all the retail stores, TV. advertising that cannot be booked for the launch date, and printing of in-store promotional material that is two weeks behind. Most people in product development have met these crises, and scrambled to solve them. The quality also needs to be correct or again disaster ensues: instant powder that does not dissolve in the correct time, T.V. advertising that does not mention the product name, and in-store promotional material that is a different colour from the packaging. Once the product is launched to the consumers, there is not time to sit back and relax; there is constant checking of product, production, distribution, marketing, sales and costs. The checking will show up any problems that are occurring so that they can be rectified quickly. Are the sales increasing more slowly than predicted? Is this caused by lack of consumer interest in the product, consumer lack of acceptance of the product or retailers' lack of promotion or shelf space? The checking also collects the qualitative and quantitative information needed for the post-launch evaluation. The post-launch evaluation leads into the final analysis which will decide the product's future - to be dropped, improved, or accepted immediately into the company's product mix. But during this time of evaluation, there is a need to continue the improvement and the stabilisation of the product qualities, the marketing, the production and the costs. The activities and the outcomes in the four stages of launch and the post-launch evaluation are shown in Figure 7.1. Within these stages, the activities are organised as suits the company and the project, but the marketing and product organisation are not separate as shown in the Figure but are integrated and coordinated. Figure 7.1 Activities and outcomes in the product launch and post-launch

Marketing organisation

Production organisation OPERATIONAL PLAN

Launch to the company Finalise promotion Media advertising contracted In-store material prepared Sales presentation to staff First introduction to retailers Design, build, commission plant Quality assurance finalised Raw materials contracts Physical distribution contracts Production finalised

Market channel/physical distribution organisation COMPLETED COMPANY ORGANISATION

Launch to the market

Launch targets finalised Complete selling to retailer In-store material distributed Merchandising in supermarket Release advertising Release product for sale PRODUCT LAUNCH Produce the product Distribute the product Check product quality in supermarket Check product safety

Launch to the consumers Merchandising Advertising Sales recording Buyers' surveys Competition study Marketing costing Improving production efficiency Reduce product quality variation Checking product in distribution Checking product in retailers Production costing Distribution costing Financial analysis of costs, revenues Analysis of production, distribution, marketing Comparison of actual results with targets PRODUCT LAUNCH EVALUATION

Post Launch New phase of advertising New phase of in-store promotion Pricing revamping Sales recording Sales analysis Buyers' studies Future developments of product, production, marketing Financial analysis of investment, costs, revenues and profits Future returns on investment predicted FINAL EVALUATION REPORT Standardising production TQM in place Raw material procurement revised Future costing

ADOPTION OF PRODUCT INTO PRODUCT MIX

CONSUMER LAUNCH The launch to the consumer depends on the type of product, the budget and the general policy of the company. Products can vary in the consumers minds in terms of newness, the amount of 'learning' needed to adopt them and also the costs of trying them. If all three are high, the growth of sales is likely to be slow unless there is a very high budget. But there is also an element of risk, which could discourage the use of a high budget, favouring instead the use of a gradual launch through the market. At the other extreme, for example for a line-extension or an improved product, the product can be introduced quickly to as wide an area

as possible. There are three types of consumer launch: National Launch: the product is distributed to the total market area. This method is used if the competition is very close to launching a product that is similar or if the product change is minor. It does give a good start over the competition if the product is a success, but is very costly if the product is a failure. Area Launch: the product is launched in specific areas. Areas with the best potential are chosen: for example a wealthy area when it is a high priced or luxury food, and a strong ethnic area for an ethnic food. Some companies will choose to launch only in certain areas because they have neither the production capacity nor the distribution system to cope with a national market. Rolling Launch: this is much the same as an area launch in that it starts with one or two areas, then when the product has proved successful after a certain time, it is launched into another area(s). This is continued until it is selling through the whole market. The rolling launch is used when the product is innovative and the production and marketing are still under trial. This gives an opportunity to improve the product or perhaps prepare a line of products to make the production more efficient in terms of quality and quantity, and to make the marketing mix more effective. In other words, if the company needs a learning period, a rolling launch is preferable. But of course care needs to be taken that it does not give the competition time to come in and take a major part of the market. TIMING THE LAUNCH Should the launch be a frantic rush or a well planned exercise? The latter takes longer but entails much less risk. When the product looks a success, everyone involved is itching to get it out on the market, and this may be intensified by rumours that competitors are ready to flood the market with copies of the new product. What is important is that the launch should be planned for the right time of the year for this particular type of food, just before the beginning of the high sales period. Problems may be caused by unusual climate changes, for example if temperatures are staying high and winter is taking some time to come when you are launching a line of winter soups; or vice versa, in summer, temperatures do not rise and ice-creams are not selling but you have a new frozen novelty which will only last a season. Usually, however, the timing of the launch can be calculated reasonably accurately, and the timing of the activities in the launch can be controlled on a critical path network or a job progress bar chart. The company also needs to decide, as policy, if the new product is to be the first of this type of product on the market, or if they want to follow another companys product as second or even third. . The first product on the market may have a problem convincing the consumers to buy, while the second and third product can be improved and launched later at less expense and still take the larger market share. The product in the project may be of course only one of the company's new products, and its timing has to relate to the timing of any other launches. EVALUATION OF THE LAUNCH It is very important to monitor not just the sales of the product, but also to check how the product is performing in distribution, storage and the supermarket, the retailers' attitudes to the product and their placement and

promotion of it, and of course consumers' attitudes and behaviour towards the product. How much are they buying? Are they re-buying? What do they like/dislike in the product? Would slight modifications improve it? So there is a need for qualitative research on the product, production, distribution and marketing as well as the technical research on product quality and the quantitative research on the efficiency of the launch. Many of the studies on the efficiency of production, distribution and marketing are carried out continuously for the company's day-to-day activities. If there is only a small change in the new product, then this data is sufficient. But a major change of product, production, distribution or marketing needs more detailed evaluation of the launch. Timing is most important and there is a need to check the timing and schedules detailed in the operational plan to see that they are being met and nothing is falling behind raw materials, production, distribution or marketing. Quantitative analysis should be undertaken to determine the success or failure of the launch. The company will have set targets for the launch: short-term targets of volume of sales units, sales revenue and market share, and long-term targets of a certain profit and return on investment and a time to recover the launch and development costs. Obviously as the launch proceeds, the evaluation will become more definitive as more accurate data accumulates and better predictions of future cash flows can be made. The data which are necessary for the evaluation include production and distribution costs, prices, unit sales, sales revenues, marketing costs, company costs and finance costs. The evaluation after the launch needs to consider carefully the operational, marketing and product plans detailed in Chapter 6, but some important areas to consider are identified in Table 7.1.

Table 7.1 Important evaluation areas

Production and distribution: quality and efficiency Product and marketing: quality and efficiency Nutrition, health and safety Environment: physical, social and legal Customer response Company-fit Sales Finance Company organisation

Production and distribution: quality and efficiency On the production side, the raw material quality and quantity must be monitored, the process variations studied and, most important, the yield and quality of the product checked. Equipment breakdowns and the response of employees need to be monitored. Distribution and marketing are also monitored. This monitoring usually leads directly to improvements in the product, in production, in process control limits and in quality assurance, and also often to changes in distribution and marketing methods. The time after launching is a time of constant improvement of the product, reduction in production costs and increase in the effectiveness of the marketing methods. Measurements of these factors are followed in many companies during the launch. The raw materials and direct processing costs are continuously watched to check if they are improving and are within or better than target. The variation in the quality of the raw materials, the process conditions and the distribution conditions are recorded and analysed, and most important the technical standards for the product continually monitored. The wastes from the production and costs of their disposal also need to be measured. The distribution costs, delivery times and product losses are recorded so that improvements can be made. Also retailers can be surveyed to see how they regard the distribution. An important consideration is the return of product because it is damaged, too near the use-by date, or not as specified. Such returns are costly in terms of both money and company reputation, but also the acceptance of the product in the market as summarised in Example 7.2, and the production and distribution has to be controlled to reduce them to a

minimum. Example 7.2 Failure of production in small and medium sized companies Failure was caused by: 1. A lack of understanding of the properties of the raw materials used, and an inability to control or monitor these materials. A company producing surimi (finely ground fish paste) from fish waste did not understand that the raw materials varied due to the season and the type of fish and they had no method of testing the properties of the fish waste. So the frozen surimi was rejected by the market because of variability in quality. 2. A reluctance to invest in resources not seen to contribute directly to the bottom line, and an inability to control the production environment. A new small company built up a strong market for their pies during the winter months but during the summer, there were complaints and they lost orders. This was shown to be caused by lack of control of the temperature and humidity in the processing area causing problems with the pastry when made at the summer temperatures. 3. Undertaking projects with requirements that exceed the skills and knowledge of the development and production teams. A small company developed a range of tomato sauces packed in sachets for individual use. Sales increased and they adapted the production, but then they received customer complaints regarding blown product, due to microbiological contamination. They did not have a food safety programme and had no controlled shelf life testing because they did not have technical staff to do this.
(From Sorensen, T.(2008) Up-scaling from development to production by small manufacturers fishing, baking and sauce industries in Case studies in food product development, by Earle M. and Earle R., (eds.) Cambridge, Woodhead, pp 222-243.)

Product and marketing: quality and efficiency The advertising and promotions are checked in consumer surveys, usually by telephone, to determine if they have been seen, whether the message was remembered, and whether consumers were encouraged to buy. Prices are monitored continuously to record what the actual retail prices were and whether any price specials had taken place; these are then related to sales. A more practical relationship between price and demand can be developed, in particular if there are any psychological effects of pricing on consumer buying. The total marketing costs also need to be recorded and reviewed, particularly the sales and promotional costs. The sales analysis only provides the overall sales, and if there is a need to know who is first-buying and who is re-buying, then information compiled from buyer diaries can be obtained. Consumer panels record purchases, and from this data companies can determine the re-buying pattern, the timing and the amounts for each purchase. They can also determine from what particular other brands it is gaining customers, to what other brands the product is losing customers, what types of customers are showing the most interest in the new product, and which type of customer has never bought it, and so on. There is also need for information on consumers' behaviour and attitudes towards the product and the marketing mix. A survey of buyers can be made either just outside the supermarket after they have made a purchase or later after they have used it. Another method is to attach a return card on the package, perhaps with some inducement such as a free sample or a discount voucher. This survey will indicate how the product can be improved and how the marketing mix can change to improve sales. The competitors' reactions to the new product should be constantly surveyed to see what tactics they are using either to prevent success or to attach their products to the success. Also the reactions of the retailers should be studied - are they enthusiastic, or do they only want to give the product a month's shelf space? How can their aspirations for the product be fulfilled? Nutrition, health and safety

These are important evaluations as regards both the consumer and society. If the nutrition is not what is expected of the product, then suspicions about the product may be raised. As shown in Case Study 7, the nutritional value of a product is becoming more and more important, and the company needs to have sufficient knowledge to recognise, control and communicate the nutritional value during the launch. Are the right values being emphasised to fit current market aspirations or should they be re-jigged? Are the claims backed by scientific evidence? Do they agree with changing regulations? Today with the increase in specific health claims, particularly with functional foods and nutriceuticals, there is a need to carefully monitor any changes that are occurring in acceptance, both by the consumer and the society. There may arise disagreements between individual nutritionists and health professionals on the validity of some health claims as more research results become available. This may become serious and the food regulators may ban a product or at least not allow claims. Safety is of course a factor which needs to be checked very carefully. Obviously, it will have been considered during the development, but it must be monitored in the distribution system, in the retail outlets and in the home. If there are any doubts, then the product has to be withdrawn. Any adverse effects of the product on the consumers' health will 'kill' a new product, perhaps forever. In the USA, a product liability study is especially important in new product development. Environment: physical, social and legal These include assessments of the effects on the physical, social and legal environments. Are there waste/effluent problems which are affecting the community? Is the new technology in some way threatening to the society, for example biotechnology at the present time? Are the products obeying the legal regulations and known cultural or religious taboos for foods, for environment, for the geographic area? These especially must be monitored when launching in an overseas country with which the company is not very familiar. The wastes are not only the wastes from the production facilities but the waste occurring in the distribution and also with the consumers. Packaging is a waste area which causes controversy and there are regulations in some countries to control it. Another type of waste today is energy some supermarkets may view foods which are transported over long distances as wasteful. Technology may cause suspicions about the product, especially if this is a new technology which the consumers and the society do not have a great deal of knowledge. Genetically designed products may be accepted in some countries and be banned in others. Customer response The most basic analysis is to study the consumers and customers responses as the acceptability is what will make this a long-term product or just a one day wonder. In the case of industrial and food service products, the service as well as the product has to be studied. Who are buying the product? How much are they buying? Are they re-buying once, two, three times? What is the interval between re-buying a week, a month, a year? These are the important demand questions to ask so that one can predict future sales. But it is useful to know which customers are migrating to the new product and what are the products that the new product is replacing, Especially with an innovative product, it is important to survey the consumers and discover what are the product attributes and benefits that have caused them to buy the product and if the product delivered their expectations in cooking, serving and eating. Was there anything that they disliked about the product? What improvements would they like to see in the product? How does this product compare with other products they have bought? eaten? It is useful to know how the consumer heard about the product advertising, in-store tasting or from a friend so that the communication can be improved and made more noticeable and attractive. Company-fit Such an evaluation includes how the product is affecting the total product mix or the category product mix, the product's relationship to the other new product introductions, its relationship to the company image and the effect on strategic planning. Any launching difficulties or problems should be studied and the method used to

overcome then recorded for future use. An important consideration for the company is the future for the product - is it to become a long-term member of the product mix? Will it be either an important member giving a large share of the profits or only a minor product as regards sales but useful for marketing and maybe filling production capacity? SALES MEASUREMENT Sales measurement involves not just making a record of what has been produced. Shipment data from the plant initially records product made to 'fill up the distribution line' and then to satisfy retailers' orders. But because of the inventory effects in the system, shipments may not relate to retail sales. The most efficient method is to buy supermarket audit data which has been recorded electronically, i.e. the quantity of the product that has actually been sold in the supermarket. This is up-to-date actual retail information. Commercial sales research companies will provide sales not only of the new product but of competitive products so there is a control on analysing the sales. Sales may be analysed as follows: Share of total market of the product category. This is usually measured in units, tonnes, dollars, pounds, but it is also interesting to measure the percentage of the target consumers who buy and how much they buy as this is a fundamental measure. Share of market in individual supermarkets or other point of distribution. This is useful because it identifies the type of supermarket and/or the area in which the product sells. Ratio of sales of new brand against competitors. This gives an indication of how the product stands in the market. Per capita sales rates. The new product's sales divided by the number of people or households in the geographical area or in the population of the target market. This can be used as a basis for predicting sales in other areas. Also it can be compared with nutritional surveys on food eating to give an idea of the importance of the product in the diet.

FINANCIAL EVALUATION This consists of two parts: first the collection and control of the costs of launching, and second the recalculation of financial predictions to include the new information on sales revenue and costs from the launch. A launch is always expensive. Costs can run away as people try to solve problems in production and marketing, while sales may grow more slowly than predicted. In small companies with inadequate working capital, this is where the company's outgoings exceed the limits to which the bank has agreed and the bank may place the company in receivership. But even with larger companies it may cause the product to be withdrawn before it has had time to develop a position in the market. The short-run profitability can be determined, that is the payback time for the development and launch costs. If the launch has been a success the payback time may have been reached already, but in all cases the predicted time for payback will have become more accurate than the pre-launch predictions. If the launch is not going as predicted, an estimation of the additional working capital, additional capital expenditure and additional production and marketing costs is required, together with another calculation of the payback time to determine how much further it will be extended into the future. Balancing the further expenditure, the payback time and the financial condition of the company are crucial at this time. When deciding to remove the product from the market altogether or to continue at reduced or full expenditure, up-to-date and accurate financial information is critical to the decisions.

The long-term financial analysis, carried out in the product commercialisation stage, can now be refined. The difference between the predicted pessimistic, most likely and optimistic cash flows will have become closer, the costs are becoming stabilised, the initial sales growth is history and the competitive reactions are apparent. With this information, the costs and sales revenues in future years can be estimated with some confidence. Market predictions based on the earlier data and on the actual sales are made, using techniques such as time series analysis and moving averages. There are also predictions from the buyers' surveys, and from the company staff as a result of their experience in the launch. Comparing all these predictions is a good basis for forecasting the pessimistic, most likely and optimistic sales potentials for the next five years with their associated probabilities of achievement. The net present value, or the return on investment, can be calculated using discounted cash flows. Very simple examples of payback time analysis and net present values are shown in Tables 7.2 and 7.3. There are two predictions in Table 7.2, one made before the launch and one two months after the launch, to show how predictions need to be updated when actual sales and costs are available. The payback period is defined as the length of time required to recover the cost of the project. This is useful to control the cash flows but it is not helpful in choosing the project in the first place, as a project with long-term profits could be dropped. To take into account the timing of the investment, costs and profits, discounted cash flows are used as in Table 7.3. Timing has a direct bearing on the profitability of the project. The objective of discounted cash flows (DCF) is to relate cash flows arising from the project to a common base year, normally the present; hence the name 'net present value (NPV). For a project, the discounted investments are subtracted from the discounted earnings to give the present value of the project as shown in Table 7.3. Table 7.2 Predicted payback period for new product A

Prediction Before launch Project cost up to launch Launch costs Profits 400,000 2,000,000 350,000 Prediction Before launch Profits per 2 month 4 months after launch 6 months after launch 8 months after launch 10 months after launch 12 months after launch Total profit after 1 year 500,000 600,000 600,000 700,000 800,000 3,550,000

Actual Two months after launch 380,000 2,500,000 250,000 Prediction Two months after launch

400,000 500,000 600,000 700,000 800,000 3,250,000

Pay back period Project costs ~3 months ~4 months

Project + launch costs

~9 months

~11 months

Table 7.3 Predicted cash flows and present value for new product B

Years after introduction 0 Investment* Actual Present value factors Present value Earnings Revenue Costs Cash flow Present value factors Present value
b a

Total 4 5

6.0 6.0

1 0.93 0.9 6.9

0 0 0 0 0

2 2.1 -0.1 0..89 -0.1

4.5 1.5 3.0 0.80 2.4

6.0 2.0 4.0 0.71 2.8

4.5 1.8 2.3 0.64 1.5

2.5 1.5 1.0 0.57 0.6 7.2 0.3

Net present value *Values are millions of dollars. Interest rate: for investment 8%, and for earnings12%.
a b

The computation uses present value factors, which are calculated for various rates of return. Present value = future value/(1+i) where i is the interest rate and n the number of years; 1/(1+i) is known as the discount factor. In Table 7.3, 12% was used and the factors calculated using this gave a positive net present value, showing the project returned more than 12%. The actual DCF rate of return can be calculated by finding the rate where the earnings and the investment cash flows are equal, i.e. profits will just pay back the capital and the interest over the life of the project. COMPANY ORGANISATION There also needs to be an evaluation of the company organisation for product development after a product launch; the depth of evaluation related to the size of the project. Some important areas are: knowledge and skills available in house and out sourcing team functioning integration with other company functions production, distribution, marketing, finance management decision making project leader, top management resources
n n

timing control of costs and revenue level of risk PD Process effectiveness company structure for innovation. Although every project is different, there is a continuing organisation which is central. After every project is completed, this organisation needs to absorb what was learned so that the product development knowledge in the company is increased and improvements can be made.