Tuesday, March 16, 2004

New Product Development Process

In business and engineering, new product development (NPD) is the complete process of bringing a new product to market. A product is a set of benefits offered for exchange and can be tangible (that is, something physical you can touch) or intangible (like a service, experience, or belief). There are two parallel paths involved in the NPD process: one involves the idea generation, product design and detail engineering; the other involves market research and marketing analysis. Companies typically see new product development as the first stage in generating and commercializing new product within the overall strategic process of product life cycle management used to maintain or grow their market share.

The Eight Stages

  1. Idea Generation is often called the "NPD" of the NPD process.
    • Ideas for new products can be obtained from basic research using a SWOT analysis (Strengths, Weaknesses, Opportunities & Threats). Market and consumer trends, company's R&D department, competitors, focus groups, employees, salespeople, corporate spies, trade shows, or ethnographic discovery methods (searching for user patterns and habits) may also be used to get an insight into new product lines or product features.
    • Lots of ideas are generated about the new product. Out of these ideas many are implemented. The ideas are generated in many forms. Many reasons are responsible for generation of an idea.
    • Idea Generation or Brainstorming of new product, service, or store concepts - idea generation techniques can begin when you have done your OPPORTUNITY ANALYSIS to support your ideas in the Idea Screening Phase(shown in the next development step).
  2. Idea Screening
    • The object is to eliminate unsound concepts prior to devoting resources to them.
    • The screeners should ask several questions:
      • Will the customer in the target market benefit from the product?
      • What is the size and growth forecasts of the market segment / target market?
      • What is the current or expected competitive pressure for the product idea?
      • What are the industry sales and market trends the product idea is based on?
      • Is it technically feasible to manufacture the product?
      • Will the product be profitable when manufactured and delivered to the customer at the target price?
  3. Concept Development and Testing
    • Develop the marketing and engineering details
      • Investigate intellectual property issues and search patent databases
      • Who is the target market and who is the decision maker in the purchasing process?
      • What product features must the product incorporate?
      • What benefits will the product provide?
      • How will consumers react to the product?
      • How will the product be produced most cost effectively?
      • Prove feasibility through virtual computer aided rendering and rapid prototyping
      • What will it cost to produce it?
    • Testing the Concept by asking a number of prospective customers what they think of the idea – usually via Choice Modelling.
  4. Business Analysis
    • Estimate likely selling price based upon competition and customer feedback
    • Estimate sales volume based upon size of market and such tools as the Fourt-Woodlock equation
    • Estimate profitability and break-even point
  5. Beta Testing and Market Testing
    • Produce a physical prototype or mock-up
    • Test the product (and its packaging) in typical usage situations
    • Conduct focus group customer interviews or introduce at trade show
    • Make adjustments where necessary
    • Produce an initial run of the product and sell it in a test market area to determine customer acceptance
  6. Technical Implementation
  7. Commercialization (often considered post-NPD)
  8. New Product Pricing
    • Impact of new product on the entire product portfolio
    • Value Analysis (internal & external)
    • Competition and alternative competitive technologies
    • Differing value segments (price, value and need)
    • Product Costs (fixed & variable)
    • Forecast of unit volumes, revenue, and profit
These steps may be iterated as needed. Some steps may be eliminated. To reduce the time that the NPD process takes, many companies are completing several steps at the same time (referred to as concurrent engineering or time to market). Most industry leaders see new product development as a proactive process where resources are allocated to identify market changes and seize upon new product opportunities before they occur (in contrast to a reactive strategy in which nothing is done until problems occur or the competitor introduces an innovation). Many industry leaders see new product development as an ongoing process (referred to as continuous development) in which the entire organization is always looking for opportunities.
For the more innovative products indicated on the diagram above, great amounts of uncertainty and change may exist which makes it difficult or impossible to plan the complete project before starting it. In this case, a more flexible approach may be advisable.
Because the NPD process typically requires both engineering and marketing expertise, cross-functional teams are a common way of organizing projects. The team is responsible for all aspects of the project, from initial idea generation to final commercialization, and they usually report to senior management (often to a vice president or Program Manager). In those industries where products are technically complex, development research is typically expensive and product life cycles are relatively short, strategic alliances among several organizations helps to spread the costs, provide access to a wider skill set and speeds up the overall process.
Also, notice that because both engineering and marketing expertise are usually critical to the process, choosing an appropriate blend of the two is important. Observe that this article is slanted more toward the marketing side.
People respond to new products in different ways. The adoption of a new technology can be analyzed using a variety of diffusion theories such as the Diffusion of Innovations theory.
A new product pricing process is important to reduce risk and increase confidence in the pricing and marketing decisions to be made. This is described as an integrated process that breaks down the complex task of new product pricing into manageable elements.
The Path to Developing Successful New Products points out three key processes that can play critical role in product development: Talk to the customer; Nurture a project culture; Keep it focused.
It is also worth mentioning what incremental, platform and breakthrough products are.
  • Incremental products are considered to be cost reductions, improvements to existing product lines, additions to existing platforms and repositioning of existing products introduced in markets.
  • Breakthrough products are new to the company or new to the world and offer a 5-10 times or greater improvement in performance combined with a 30-50% or greater reduction in costs.
  • Platform products establish a basic architecture for a next generation product or process and are substantially larger in scope and resources than incremental projects.