An introduction to New Product Development (NPD)

New products Development: Considerations when developing an NPD strategy

New Product Development- Considerations when developing NPD strategy

Learning Objectives
Understand the contribution market research can make to the new product development process Recognize the benefits and weaknesses of consumer new product testing Recognize the powerful influence of the installed base effect on new product introductions Understand the significance of discontinuous products Understand the role of switching costs in new product introduction

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The Purpose of New Product Testing

Estimate market reaction to the new product under consideration prior to expensive production and promotional costs 1. The market Current buying patterns Existing segments Customer view of the products available 2. Purchase intention: Trial and repeat purchase Barriers to changing brands Switching cost 3. Improvements to the new product Overall product concept Features of the product concept
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Type of Customer Needs

Basic needs e.g. A customer would expect a new car to start every time Articulated needs- A customer can readily express e.g. A customer may express a desire for additional features on a motor car Exciting needs that will surprise customers e.g. new financial packages enabling easy and quick purchase of a new car

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Market Research Activities

Ensure that companies are consumer oriented New products are more successful if they are designed to satisfy a perceived need rather than taking advantage of technology With sufficient research, chances of failures are significantly reduced Once a product has been carried through the early stages, it is sometimes painful to raise questions once money has been spent
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Techniques Used in Testing New Products

Concept Tests Qualitative techniques, especially group discussions, are used to obtain target customer reactions to a new idea or product:
Understanding and believability in the product Ideas about what it would look like Ideas about how it would be used Ideas about when and who it might be used

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Techniques Used in Consumer Testing of New Products

The most common way to assess purchase intention is to provide a description of the product or provide the product to respondent: Definitely would buy Probably would buy Might or might not buy Probably would not buy Definitely would not buy

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Techniques Used in Consumer Testing of New Products

Test Centers
Used for product testing when product is too large Too expensive or complicated to be taken to consumers for testing Consumers to be brought to the test centre for exposure to product and reaction testing

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Techniques Used in Consumer Testing of New Products

Hall Tests/Mobile Shops
Used for product testing or testing other aspects of marketing mix such as advertising price, packaging ect Representatives sample of consumers is recruited E.g. Shopping mall or mobile caravan Representatives are exposed to test material and asked questions about it
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Techniques Used in Consumer Testing of New Products

Product-use Tests
Frequently used in business-to-business markets(B2B) Use of the product for a limited period of time Technical people watch how these customers use the product Manufacturer learns about customer training and servicing requirements Customer asked detailed question about the intent of the purchase

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Techniques Used in Consumer Testing of New Products

Trade Shows
Draw a large numbers of buyers who view new products in a few days See how buyers react to various products on display Convenient and deliver in depth knowledge of the market Buyers views may differ considerably from end user consumers
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Techniques Used in Consumer Testing of New Products

Monadic Tests
Respondents given only one product to try and asked of their opinion Consumer tries new product and draws on recent experience with the product they usually use Not very sensitive in comparing the test products

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Techniques Used in Consumer Testing of New Products

Paired Comparisons
A respondent is asked to try two or more products in pairs and asked Less real in terms of the way consumers normally use products Deliberately tested against others

In-Home Placement Test

Impression of how product performs in normal use is required Respondent are asked to use the product in the normal way and complete a questionnaire Tested comparatively or sequentially

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Techniques Used in Consumer Testing of New Products

Test Panels
Representative panels are recruited and used for product testing Test material and questionnaires are sent through post to reduce cost of conducting in home placement test B2B firms may use test panels of customers or intermediaries with whom new product or service ideas or prototypes can be tested

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Discontinuous New Products

Major innovations
referred to as discontinuous new products when they differ from existing products in that field Could be entire new markets and changes in behavior patterns E.g. 3Ms Post-It notes

Major Difficulties in market research

1. The problem of selection of respondents 2. The problem of the understanding of the major innovation
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Barrier to Discontinuous Product Adoption Technology-Intensive Products

Installed Base
Massive inertial effect of an existing technology e.g. User prefers QWERTY keyboards despite DVORAK which has shown to provide up to 40% faster typing speeds

Switching Cost
One time cost for buyer to switch to new product Compatibility issues Buyers may have to develop routines and procedures for dealing with a specific vendor that will need to be modified

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Breaking with convention and winning new markets

customers are notoriously lacking in foresight. Ten or fifteen years ago, how many of us were asking for cellular telephones, fax machines and copiers at home, 24 hour discount brokerage accounts, multivalue automobile engines, video dial tone ect?

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When it may be correct to ignore your customers?

Critics of market oriented approach see consumer research act as an expensive obstacle course to product development the significance of discontinuous new products is often overlooked Marones (1993)

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Striking the balance between new technology and market research

False Dichotomies That you must either lead or follow customers That you cannot stay close to both current and potential customers That technology push cannot be balanced with market-pull

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Tutorial
1. Explain why consumer market testing might not always be beneficial? 2. Discuss the dilemma faced by all firms of trying to listen to customers needs and wants and yet also trying to develop new products for those customers that they do not yet serve. 3. Explain why some writers argue that organizations are the graveyard of product innovations rather than the birthplace.

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