MARKETING MANAGEMENT - I

NEW PRODUCT DEVELOPMENT

What is a New Product ?
New Product means the Product new to
the company
Three Most Important Questions
1. How often should company launch ?
2. Percentage of New Products to Old
Products ?
3. Who should be involved in development
team ?
MARKETING MANAGEMENT - I
NEW PRODUCT DEVELOPMENT
What is a New Product ?
Original Products : Original to company as
well as the market
Modified Products : Existing products with
alterations
Me Too Products : Copying one of the
successful product in the market
Product Line Acquisition : Products
available from some subsidiary company
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NEW PRODUCT DEVELOPMENT
In a New Product the company will always have
something NEW into the Product Mix. It could be a
New Experience or New Products
Why New Product ?
Risky not to innovate considering the competition
Consumer Expectations : Consumers expectation
for steady stream of New & improved products
with changes in Needs & Wants
Continuous innovation is the only way to avoid
Product Line Obsolescence
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NEW PRODUCT DEVELOPMENT
Why Does A New Product Fail ?
A senior level executive pushes a favorite idea in
spite of negative market research findings.
The idea is good, but market size is overestimated
The product is not well designed
The product is incorrectly positioned in the market,
not advertised properly, overpriced.
The development costs are higher than expected.
Competitors fight back harder than expected
MARKETING MANAGEMENT - I
NEW PRODUCT DEVELOPMENT
Difficulties in New Product Development
Shortage of important new Product ideas
Fragmented Market
Growing social & Government constraints
Cost of New Product Development
Capital shortages
Faster required development time
Short life span of successful products
MARKETING MANAGEMENT - I
NEW PRODUCT DEVELOPMENT
New Product Development Organisation
Product Managers
New Product Managers (recruited exclusively
for new product lines - Product Planners)
New Product Committees (handle new
portfolio with existing responsibilities)
Venture Team (gather knowledge pool within
organisation and allow them to work on new
product for next 2 - 3 years)
MARKETING MANAGEMENT - I
NEW PRODUCT DEVELOPMENT
New Product Development Stages
Idea Generation
Idea Screening
Concept Development
Business Analysis
Product Development
Test Marketing
New Product Launch
MARKETING MANAGEMENT - I
NEW PRODUCT DEVELOPMENT
New Product Development Stages
The process starts with lot of ideas but only one
of them gets selected for the Product Launch
1. Idea Generation :
Every New Product starts off as an Idea
Most Ideas never become Products
Large no. of ideas needed to locate good idea
Greater the no. of ideas, better the best ones
are likely to be.
MARKETING MANAGEMENT - I
NEW PRODUCT DEVELOPMENT
New Product Planning Group
Responsibilities
Search - Active search in an environment
Stimulation - Motivate company personnel
to develop more ideas
Enhancement - Reroute ideas to other
functional areas in the company for
feedback and idea enhancement

MARKETING MANAGEMENT - I
ORGANISATION OF IDEA FLOW
New
Product
Cell
Customer
Technology
Competition
Top management
R & D
Sales
MARKETING MANAGEMENT - I
NEW PRODUCT DEVELOPMENT
Scientific Method for Idea Generation :
Attribute Listing - Modification of different
attributes in search of a new product
Forced Relationship - List all the ideas &
consider each one in relation to the others
Brain Storming with Customers
Survey your customers

MARKETING MANAGEMENT - I
NEW PRODUCT DEVELOPMENT
2. Screening :
The purpose of Screening is to eliminate
those ideas which are dissonant with either
company objective or resources
Typical Company Objectives are Profit, Sales
growth, company image etc.
Generally considered Company Resources
are Capital, Know How, Physical facilities etc
MARKETING MANAGEMENT - I
NEW PRODUCT DEVELOPMENT
2. Screening (cont.) :
In other words Screening is Quantitative
evaluation of ideas against companys
objectives, compatibility with existing
production & distribution facilities together
with gross economic factors such as potential
competition etc.
MARKETING MANAGEMENT - I
NEW PRODUCT DEVELOPMENT
2. Screening (cont.) :
Few Basic Questions :-
Can the existing production facilities be utilized
Can the present raw material be utilized ?
Can we use existing distribution channels ?
Can we use the existing know how ?
Can we produce economically smaller batches ?
Can it be priced competitively ?
Is there an existing demand ?
What are the chances of stability of demand ?
MARKETING MANAGEMENT - I
NEW PRODUCT DEVELOPMENT
Product Marketability Index (P.M.I.)
Excellent quantitative technique for
evaluation of a new product.
1. Marketability Factors :
Relationship with present distribution channel
Competitive Price - Quality relationship
Effect on Sales of Existing Products
2. Market Durability Factors :
Size of potential market
Resistance to economic fluctuation
Product Life Cycle
MARKETING MANAGEMENT - I
NEW PRODUCT DEVELOPMENT
Product Marketability Index (P.M.I.)
3. Production Capability Factors :
Equipment Needs
Personnel necessary
Raw Material need
Each of the above factor is rated on a scale
of 1 to 10 with 1 as Very Poor and 10 as
Excellent
The weights of each of above factors could
be decided on what is the product, which is
the industry and how are you placed.
MARKETING MANAGEMENT - I
NEW PRODUCT DEVELOPMENT
Product Marketability Index (P.M.I.)
I. Marketability Factor Weights(%) Rating Total Score
1. Rela. to prese. Distr. Channel 5 4 20
2. Compet. Price/quality rela. 10 7 70
3. Effect in selling exi. Prod. 15 5 75

II. Durability Factor Weights(%) Rating Total Score
1. Size of Potential market 20 8 160
2. Resistance to eco. Fluctu. 10 7 70
3. Product Life Cycle 20 9 180

MARKETING MANAGEMENT - I
NEW PRODUCT DEVELOPMENT
Product Marketability Index (P.M.I.) (cont.)
III. Prod. Capability Factor Weights Rating Total Score
1. Equipment Need 5 2 10
2. Personnel Need 10 5 50
3. Raw Material Need 5 4 20

P.M.I = 655 / 1000 = 0.655

If PMI < 0.5 then drop the product, dont market
If PMI > 0.5 then the Product can be considered
If PMI > 0.6 then it is a preferred product
MARKETING MANAGEMENT - I
NEW PRODUCT DEVELOPMENT
3. Concept Development :
Ideas which pass through screening
undergo further development into fully
mature Product Concept
Product Idea
Product Concept
Product Image
MARKETING MANAGEMENT - I
NEW PRODUCT DEVELOPMENT
3. Concept Development (cont.):
Product Idea :- It is a possible product
described in the objective functional terms
that the company can see itself offering to the
market.
Product Concept :- It is the particular
subjective concept that the company is trying
to build into the product.
Product Image :- It is the particular
subjective picture that the consumer actually
acquires of the product.
MARKETING MANAGEMENT - I
NEW PRODUCT DEVELOPMENT
3. Concept Development (cont.):
If Product Concept and Product Image of your
company is mirror image then your product
would be the most successful one in market.
Consumers never buys a Product Idea, but
only the Product Concept which fits with their
preferences
A product Idea can be turned into a large
number of Product Concepts. One needs to
know who is the real user. e.g. Infants,
Children, Family or Adults.
MARKETING MANAGEMENT - I
NEW PRODUCT DEVELOPMENT
3. Concept Development (cont.):
Check the Core Product Concept against
criteria for selection of Product Concepts.
Market Research to check the Consumer
preference for our core product concept.

MARKETING MANAGEMENT - I
NEW PRODUCT DEVELOPMENT
4. Business Analysis
Demand Analysis
Profitability Analysis
Cost Analysis
A. Demand Analysis
Evaluate the demand in terms of Past,
Current and Future trends.
For the Entire industry or for a Particular
company or Specific Market or Substitutes
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NEW PRODUCT DEVELOPMENT
A. Demand Analysis (cont.)
To check the durability of demand against economic
factors affecting demand for a product.
B. Cost Analysis
Past Current Future
Production Cost :- Capital Equipment
Plant Maintenance Cost
Marketing Costs :- Distribution Costs, Packaging
Costs, Advertising Costs, Field Selling Costs
Overheads Costs

MARKETING MANAGEMENT - I
NEW PRODUCT DEVELOPMENT
C. Profitability Analysis
The various tools used to measure the
Profitability Analysis in the industry are
as under :
Break Even Analysis
Return On Investment
Discounted Cash Flow
Pay Back Period
MARKETING MANAGEMENT - I
NEW PRODUCT DEVELOPMENT
5. Product Development
First stage in developing the product in
physical / concrete form
Normally involves a large investment as
compared to cost in earlier stage.
Steps :-
1. Engineering
2. Consumer Preference Testing
3. Packaging & Branding
MARKETING MANAGEMENT - I
NEW PRODUCT DEVELOPMENT
5. Product Development (cont.)
Consumer Testing can be done in following methods :-
Paired Comparison Test : using 2 unmarked
containers. Generally a blind test and used for FMCG
products like Tea, Soft drink, Food items etc
Multiple Choice Test : give several choices to
consumers and let consumer choose which one they
would prefer.
Ranking Procedure : Request customer to rank the
various products they have tested and make our
decision from there.
MARKETING MANAGEMENT - I
NEW PRODUCT DEVELOPMENT
5. Product Development (cont.)
Branding : A brand is a name, term, symbol or
design or a combination of those which
intended to identify goods or services of one
seller from those of a competitor
Importance of Branding to Customers :
To identify the Products or services
Identifies firm behind the product
Allows comparison with the competitors
Branded Products tend to improve in quality over
period
MARKETING MANAGEMENT - I
NEW PRODUCT DEVELOPMENT
5. Product Development (cont.)
Reasons for Non - Branding
Inability to advertise
Inability to maintain quality
Company considerations
Nature of Product
Characteristics of Good Brand
Brand name is a good reflection of Product benefits
e.g. Walkman
Name is easy to pronounce, spell & remember e.g. Lux
Distinctive brand names e.g. Vicks
Can be versatile to include new products e.g. TATA

MARKETING MANAGEMENT - I
NEW PRODUCT DEVELOPMENT
5. Product Development (cont.)
Importance of Branding
Importance to Manufacturers
Facilities advertising & display
Reduce Price comparisons
Facilitates expansion of Product Mix
Helps to increase and control market shares
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NEW PRODUCT DEVELOPMENT
5. Product Development (cont.)
Packaging - New Dimension
Self Service - Attract buyers when kept on shelves
Convenience, Appearance, Prestige Appeal -
Customers willing to pay a price
Innovations in Packaging - Aerosol Spray,
Thermocole packaging
Packaging - Evaluations
Production Tests
Visual Tests
Dealer Acceptance Test
Consumer Acceptance Survey
MARKETING MANAGEMENT - I
NEW PRODUCT DEVELOPMENT
6. Test Marketing :
Objectives :-
1. To improve the knowledge of Potential Product Sales
2. Pre-Test alternate marketing plans
Issues :-
Number of Test Market Centers - It depends upon the
number of alternate marketing plans company has.
Selection of Cities - It should be representation of
entire market. e.g. Pune, Bangalore etc.
Duration of Test Marketing - up to 2 repurchases
Information Collection
Test Marketing Data Analysis
MARKETING MANAGEMENT - I
NEW PRODUCT DEVELOPMENT
Attributes Plan 1 Plan 2
Without
any mktg
plan
Product Very Good Average Average
Price High Low Low
Promotion High High Low
Personal Selling Low High High
Distribution Low High High
MARKETING MANAGEMENT - I
NEW PRODUCT DEVELOPMENT
6. Test Marketing (cont.):
Problems in Test Marketing :-
1. Obtaining a Set of Test Market which
represents the entire market
2. Problems of translating National media into
the local equivalent
3. Close follow up of Test Marketing results
by Competition
4. Change of economic factors during post
test marketing periods
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NEW PRODUCT DEVELOPMENT
6. Test Marketing (cont.):
Test Marketing Information Sources:-
1. Product Sales Data
2. Retail Audits
3. Consumer Panels
4. Buyer Surveys
Test Marketing Data Analysis :-
Trial
Rate
Repurchase
Rate
Actions to be Taken
High High Commercialise
High Low
Redesign Product or Advertising
Message
Low High
Increase Advertising & Sales
Promotion
Low Low Drop the Product
MARKETING MANAGEMENT - I
NEW PRODUCT DEVELOPMENT
7. Product Launch :
Activities : -
Outline of tasks to be performed
Time Schedule of all activities
Budget of resources for plan & schedule
Typical Tasks : -
Scaling up of Production facilities
Inventory build up
Training of Sales Personnel
Designing of Advertising Campaign
Launch Conference
Designing of packaging & POP materials
MARKETING MANAGEMENT - I
NEW PRODUCT DEVELOPMENT
Sr.
No.
Stage
No.
of
Ideas
Pass
Ratio
Cost per
Idea (Rs.)
Total Cost
(Rs.)
1 Idea Screening 64 1 : 4 5,000 320,000
2 Concept Testing 16 1 : 2 100,000 1,600,000
3 Product Development 8 1 : 2 1,000,000 8,000,000
4 Test Marketing 4 1 : 2 5,000,000 20,000,000
5 National Launch 2 1 : 2 50,000,000 100,000,000
129,920,000
Cost of finding ONE successful product from 64 Ideas