Process of new product development

Dr. Upali Mahanama

Markets all over the world are in a constant state of flux. Consumer habits and attitudes are constantly changing and consumers are looking for new improved products all the time. New Trade Channels are coming into play. The impact of technology has paved the way for the creation of highly sophisticated products which are flooding markets. Contrary to traditional practice, in comparative terms, women and children are getting more involved in the buying decision and sometimes even taking this decision almost exclusively.

In the context of globalization strongly supported by the impact of fast developing technology, competition from international brands is steadily escalating. Taking all these factors into consideration, life for marketers who had hitherto enjoyed certain market shares is going to be increasingly difficult. Thus, for the very existence of a business organization in this fast changing business environment, greater emphasis has to be paid to constantly develop and launch new products.

This article focuses on the process of new product development or the innovation process, backed by a total marketing orientation. The following key areas will be discussed herein, to offer marketers practical guidelines on this vital marketing discipline:

The challenge of new product launches, marketing orientation and disciplines, the consumer - focus of all marketing activity, market forces new product development, the elements of the marketing mix, the need for new product development, new product development and its impact on the organization, the product lifecycle, high risk involved and minimizing the risk of failure, stages in the innovation process, the brand marketing strategy and the marketing plan, ethics and social responsibilities of marketing.

Challenge of new product launches

In the early seventies, Lever Brothers (Cey) Limited, planned to launch a product called ‘Coconut Cream’ to attract housewives. The brand manager in charge of this product then, was the genial Daya Senanayake one of the most brilliant marketing personalities nationally and internationally.

Almost all Sri Lankan housewives prepare curries with coconut milk. The rural sector of Sri Lanka constitutes over 70% of the population. The Rural housewife undergoes an ordeal to husk, split, scrape and prepare coconut milk. This process takes a lot of her time. Thus, the Company identified an excellent opportunity to develop and market a packet of coconut cream equal to the strength of six coconuts. Over 10 years were spent in formulating and testing the product.

The product was test marketed on a number of occasions, after all product development disciplines were followed. However, the company dropped its marketing plans, as the final test market did not yield projected results.

The product attracted only the housewife in the urban sector who has a different lifestyle, but not her counterpart in the rural sector, which represented the bulk of the target market.

One of the reasons was a psychological and cultural one, as further consumer research indicated. By substituting the cream, the rural housewife felt that her role as a housewife diminished, as her working time was reduced significantly. She felt that her contribution to the household was rendered minimal, compared to her husband who worked a full day in the fields, often in the sweltering heat.

This is an example which reflects the frustrations and challenges of developing and launching new products, despite the company having faithfully adhered to accepted marketing disciplines.

Marketing, orientation and disciplines<P>In mid 1970s, Texas Instruments developed a new digital watch based on its commitment to innovation of industrial products. A quality watch was then sold around U.S.$ 125.

As the watch was developed at a low cost, they decided to price it at U.S.$ 20. They registered good sales for a couple of years, after which the company started making losses. An analysis of the failure established that the declining trend was based on a marketing factor.

The company had not given due consideration to consumer preferences and desires in terms of product characteristics, in developing the watch, which was based exclusively on technical expertise.

Marketing disciplines should receive high priority attention in launching Products. What is Marketing? In broad terms, It is a management process involving a number of complex, interactive business activities.

Non-marketing people regard visible activities such as selling and advertising, as marketing. There is more to marketing than commonly identified areas of selling and advertising.

William J. Stanton, Professor of Marketing, Colorado University defines marketing as, “A total system of interacting business activities designed to plan, price, promote and distribute want-satisfying products and services to present and potential customers”.

This projects marketing as a dynamic business process, although the profit element, which is a primary facet of running a business, is not specifically mentioned, but implied, in that it states it is a business activity.

One could conclude that marketing is “The process by which services or goods developed, based on present and potential customers’ current & future needs, are made available to them at the right price, right time, right place, in the right quantities and effectively promoted to stimulate purchases, with the objective of getting a reasonable return on capital employed.”

The absence of a universally accepted definition, teaches us an important lesson. As marketing is a pragmatic, complex and dynamic business philosophy, we cannot rely on a single definition.

In view of the complex nature of its activities, what is more important is to understand the definitions and apply them to practical situations using good judgment - preferably good grandmotherly common sense.

The consumer - focus of all marketing activity

Earlier, persons engaged in running businesses were “production or technical-oriented.” With automation and mass-production, an entirely new business philosophy came into existence in the early 1950s, where all operations had to be “consumer-orientated” by paying greater emphasis to the wants, needs, expectations and desires of consumers.

Such an approach became imperative to stimulate consumer franchise and continued brand loyalty and Brand equity. The modern marketing Concept inter-alia, focuses on the following:

The consumer is the most important person in the business. A specific consumer benefit or value must be offered through a consistently high quality product.

The product should be I Good value for money. The manufacturer should get a reasonable return on investment.

Thus, the modern marketing concept can be summarized as, the business philosophy which focuses heavily on giving the consumer the highest priority stature and at all times endeavouring to satisfy consumer wants, needs, desires and expectations by offering a consistently high quality product and getting a fair return on capital employed.

Market forces product development

Whether it is a rural or urban marketing operation, companies have to contend with various market forces, which can be divided into 2 specific areas: internal forces, external forces.

External forces are not controllable whilst internal forces can be strategically controlled by marketing management.

(a) Internal Forces: A Company can function effectively only through a strong team effort, involving the various departments within the organization, which handle different functions such as personnel, finance, commercial, technical and production. The marketing management has to effectively co-ordinate activities with all such departments, to achieve optimum results.

If these departments are not marketing- oriented and do not comprehend the supreme role of the consumer, then the achievement of declared marketing objectives to that extent can be affected. In the context of today, there is a dire need for all departments in an organization to take cognizance of this fact and act as strong support service units, assisting the company's total marketing effort.

By the same token, marketers must regard the need to galvanize the unstinted support of all departments to achieve their marketing objectives. Thus, the different departments within the organization constitute a force, which the marketing team has to contend with, if they are not marketing -orientated.

(b) External forces: These forces can be divided into 5 main areas: Socio-cultural force - Consumer behaviour (habits, attitudes etc.), Economic force - Purchasing power (disposable income), Government force - Political & legal (Political ideologies & legislation), Trade force- Distribution structure (based trade demands), Competition force - Impact of other players in the market, Technological force - Impact of technological development.

The above forces cannot be controlled by Marketers. However, when launching new Products, due consideration has to be given to these uncontrollable factors, by a detailed study of current trends in respect of all these forces. This is what makes the process of new Product Development more complex, as one has to work with a host of intangibles and to a great extent rely on human judgment.

Elements of the marketing mix

An effective marketing operation consists of a number of interactive areas of activity. The brand manager or the marketing manager should study all areas of activity on a regular basis and employ the correct mix of activities, using his best judgment.

This should assume high priority stature in developing and launching new products, to achieve declared objectives. These activities constitute the marketing mix and each activity is generally referred to as an element.

Different authorities classify the elements of the marketing mix in different forms. For example, a common classification of the Marketing Mix is the 4 Ps which refer to: plan, price, place, promotion.

Today we see that the traditional 4Ps have been progressively increased to 7Ps with the addition of: people, process, physical evidence.

Some of the above are further classified into other areas of marketing activity. For example, promotion is further sub divided into: Advertising, sales promotion, personal selling, publicity.

However, brand managers should not get bogged down by taking technical jargon or cliches. They must always take a practical stance to view market situations objectively and treat theoretical knowledge only as background information. They should clearly comprehend the different key functions of the elements of the marketing mix and develop the skill of employing the elements in the right proportions, to pragmatically produce planned results.

The key activities or elements vital for a successful marketing operation, comes, under 12 specific areas. These 12 areas have to be taken into consideration and given priority attention with a professional approach, for the success of a marketing operation are listed below, along with a brief description of their functions, for easy reference:

Marketing research: A structured system of collecting information on all activities of marketing, to assist marketing managers to solve problems and exploit opportunities.

Product: The development and presentation of a product to satisfy standards that fulfil consumer wants and needs and periodically phase out, withdraw or modify, improve, introduce new products based on changing consumer needs and trends.

Branding: Giving the Product a specific name and creating a unique identity and image to facilitate consumer identification and support advertising and sales promotion activity.

Packaging: Introducing a suitable pack to preserve the product, facilitate easy handling by the consumer, and to use the package as a promotional platform and communicate specific messages to the consumer.

Pricing: Strategically fixing an affordable price for the product, based on market segmentation, product differentiation, product positioning and competitor pricing.

Selling: The exchange of goods or services for money, by employing various techniques, tactics and negotiating skills based on a careful study of customers and prospects.

Distribution: The effective selection and use of all trade channels to ensure easy accessibility and ready availability of the product, at places convenient for the consumer to buy.

Advertising: The use of paid media of mass communication to convey vital product or product-related information to target consumers, to create awareness and impel and compel them to buy the Product and involve the customer and the consumer, in all Product-related activity.

Sales promotion: All activities other than personal selling, advertising, and publicity, mainly tactics and gimmicks, designed to motivate the trade and the consumer to buy the product, make increased purchases, to get new users etc.

Display: To develop presentations of the product at point of sale creatively and attractively, to catch the consumers’ eye. A good display is a “permanent, silent salesman.”

Merchandising: All activities done and different methods employed by the seller, to promote the product at point of sale, inside the sales outlet.

Servicing: Having in place systems and procedures to offer an effective and personalized service, after sales service, to satisfy customer needs, expectations and solve problems prior to a purchase and after. It is common practice for non-Marketing people to rush into advertising, when they experience a sales decline. This can be naive, as the “quickest way to kill a bad product is to advertise it.”

The reasons for the decline should be identified, carefully studied and the appropriate elements of the marketing mix must be used strategically, using the best possible judgment, to arrest the sales decline. No single activity in the marketing mix can determine the final success of a marketing operation, which is determined by the strategic application of all the elements of the marketing mix, in the right proportions, based on existing market conditions. It is very important to focus attention on all the above areas of activity in developing and launching new products.

Need for new product development

Based fast changing consumer habits and attitudes and the demand for new improved products and other relevant market factors such as the impact of competition, the need to periodically phase out, withdraw, modify, improve or introduce new products cannot be over-emphasized.

The success of a marketing operation depends on a number of key factors - particularly the judicious application of the elements of the marketing mix consisting of 12 specific areas of activity detailed earlier. The single manager in the marketing division who is responsible almost exclusively, for planning, coordinating all marketing activities and developing a cohesive marketing plan, is the brand manager.

Thus, the periodical introduction of new products or effecting changes to existing products is the responsibility of the brand manager. However, in a well managed marketing organization, the function of new product development is not the sole responsibility of the brand manager but it should be vested in a team of senior managers from different professional disciplines. This Team has to be led by a brand manager or a marketing manager. The brand manager, is finally responsible for the profitability of his brands after all direct expenditure, which comes within his control, such as sales, distribution, advertising, sales promotion etc.

A product which satisfies current needs may fail to satisfy future needs of Consumers. Thus, certain changes to the product to a greater or lesser extent are inevitable, if the product is to enjoy continued consumer franchise. On the other hand, completely new products may have to be developed to satisfy new consumer needs. In this context, a business organization must give priority attention to the process of new product development and ensure that this discipline is given high priority attention on an on-going basis. This innovation process has become almost a philosophy in the effective management of a business. In his book titled ‘The practice of management”, Peter Drucker highlights this when he says:

“Because it is its purpose to create a customer, any business enterprises have to conduct only two basic functions: Marketing and Innovation.”

Product development and its impact on the organisation

The introduction of new products or the creation of improved products based on consumer needs, plays two vital roles in an organization:

1. Survival of the organization

2. Growth/development of the organization

If an organization rests on its laurels and continues to market its range of products without due consideration to the process of new product development, it could be suicidal. A time would come when either the product becomes obsolete or competitors would come out with new improved products, thus displacing your product completely, over a period of time.

On the other hand, continued reliance on the existing range of products would stunt growth and development, once the level of sales reaches a peak or its saturation point in the product life cycle.

The product life cycle

The life cycle of a product can be divided into 5 distinct stages. The 5 stages are:

Introduction/market development, market growth, market maturity, market saturation, market decline.

At the first stage of introduction, as in the case of a new born child, the product is virtually struggling to find its place in the market. Sales growth at this stage is very slow. In the second stage of growth, with the impact of marketing inputs such as advertising, sales promotion etc. Sales of the product begin to grow at a higher rate.

Once again, in the third stage of maturity, in comparative terms, growth in sales slows down. In the fourth stage of saturation after sales have reached a peak, it tends to level off, as the product has achieved its maximum potential in the market. After 5-7 years, in the fifth stage of decline, sales of the product tend to decrease steadily until the Product dies a natural death.

As in the case of man, a product too, has a life cycle with distinct, identifiable stages. For the successful marketing of products on a continued basis and retention of the organization's customer base, it is very important that marketers have an intimate understanding of the product life cycle. That is not all. Based on a clear understanding of the product life cycle appropriate action has to be initiated through product development, such as modifying the product or improving the product or give it a new look. This is of paramount importance to keep the product alive in the market through carefully planned improvements to the product, subject of course to changing consumer needs.