An Analysis of the Fundamentals of Marketing (part 41)

Key Stages in the Process of Innovation 

(part A)

by

Charles Lamson

Most successful new products result from a conscious search for opportunities and a systematic attempt to remove the uncertainty surrounding them. This process needs to pass through eight stages if mistakes are to be avoided. These stages are illustrated in Figure 1.

Figure 1 Stages in New Product Development

Stage 1: Idea Generation

A company typically has to generate many ideas to find a few good ones. Sources that can supply the flow of ideas include employees, customers, competitors, distributors, suppliers and others.

Many new ideas originate from employees. While ideas can come from all parts of the firm, those employees who are involved in making the products and selling them to customers, such as Research & Development (R&D), production and marketing staff are particularly valuable, as they are knowledgeable about the technology and the needs of the market. Some large companies such as 3M, M&S and Toyota have tapped this potential to great effect. For example, Toyota receives over 2 million ideas a year from employees and claims to implement about 85 percent of them.

In order to use this source of information to full potential, senior management should create a culture in which employees are encouraged to put forward ideas. Many cimpanies do this by setting targets for each department, e.g. five ideas per employee, and provide rewards for ideas that are implemented.

There are several creativity techniques that have been developed by psychologists and marketing researchers to help individuals and groups generate creative ideas. Among the more popular techniques are brainstorming, morphological analysis and forced relationships.

• Brainstorming involves a group of six to ten people in an intensive session focusing on a specific problem. The purpose is to generate as many ideas as possible no matter how wild they are. An important requirement of brainstorming is that no negative comments should be made about the suggestions during the idea generation stage in order to maximize the number of ideas.
• Morphological analysis means looking at a problem and its components and then finding connections and solutions. For, example, a firm researching the construction of an electronic car would consider aspectsrelating to fuel source, power transmission, body shape and surface contact.

Customers

Almost 28 percent of new product ideas come from watching and listening to customers. These ideas can be obtained from analyzing customer surveys, complaints or simply observing customers. General Electric's Video Products Division, Sony, Toyota and many other effective innovators are known to have their design engineers talk to final consumers to get ideas for new products.

One company to benefit greatly from customer observation was Boeing, that sent a team of engineers to study the problems facing pilots in Third World countries. When the engineers discovered that runways are too short for planes they redesigned the engine for quicker take-off. As a result, Boeing became the best-selling commercial jet in history (Czinkota and Kotabe, 1990; Rees, 1992).


Competitors

Companies such as Canon, Xerox, Hewlit-Packard and Ford use competitor benchmarking whereby they systematically compare their products with the best competitor to look for potential advances.


Distributors, Suppliers and Others

Resellers and suppliers are close to the market and can pass along information about consumer problems and new product ideas. Other idea sources include trade magazines, seminars, government agencies, advertising agencies, university research laboratories and science parks.



Stage 2: Screening Ideas

The second stage involves scanning ideas to eliminate those that are unlikely to prove appropriate or successful. Potential success depends upon three factors: namely, the idea's compatibility with the firm's corporate strategy, the potential demand for the product and the firm's capability to exploit the product opportunity.

Many organizations use a semi-formal weighting procedure to establish the relative importance of screening criteria. This produces a score for each idea, allowing them to be compared with one another.

Given that numerical scores are based on management judgement, a great deal of care is required when assessing ideas, particularly those ideas that lie on the borderline between accept and reject.

Stage 3: Concept Testing

Ideas that make it past the screening stage need to be tested out on their potential market. This can be achieved only if the product features and benefits can be explained to potential customers. It is important to distinguish between a product idea and its positioning concept. The product idea is the new physical good or functional service that is being considered by the company. The positioning concept is the choice of target market segment and benefit proposition. The distinction is crucial because most new products can have very different positioning strategies. For example, when lasers were invented they were positioned for military use. However, far greater opportunities lay in positioning the laser as a key component in technologies as diverse as compact disc players, communication and medical surgery. Even a simple product idea such as a new brand of aspirin could have multiple positioning concepts, e.g. adults or children, cold or headache sufferers. The reason to buy might be that, compared with competitors, it is more efficient, faster, longer acting, easier to swallow or has fewer side effects (Doyle, 1994).

Testing alternative positioning concepts for the product is essential in the new product development (NPD) process. It involves presenting alternative benefit propositions to different potential target markets. Managers then research the following:

• Communicability. Do consumers understand the benefit being offered?
• Believability. Do they believe that the product has the benefits claimed?
• Need. Do they need the benefit being offered?
• Need gap. If a need exists, is it perceived as being satisfied by existing providers?
• Perceived value. Do customers perceive the new product as offering value for money?
• Usage. How would the customers use the product and how often? (Doyle, 1994)
• 
  

Stage 4: Business Analysis

The fourth stage of new product development (NPD) requires the product concept to be specified in greater detail so that production, marketing and finance projections can be made. A marketing assessment will be the starting point. This will include:

• Description of target markets.
• Forecast of sales volume.
• Indication of product positioning.
• Judgement of likely competitor reactions.
• Calculation of potential sales losses from existing products as customers switch to the new product (known as cannibalization).
• Specification of the new product features, including quality levels.
• Assessment of achievable price levels.
• The distribution strategy.
• Statement of promotional requirements.

A financial statement will follow. Based on the marketing assessment, calculations can be made to project:

• Sales value.
• Variable costs of production.
• Incremental fixed costs.
• The contribution and profitability of the new product.

Stage 5: Product Development

At this stage the R&D and/or engineering department develops the product concept into a physical product. So far the product has existed only as a word description, a drawing or a crude mock-up. A large sum of investment is required to ascertain whether the idea can be turned into a workable product.

The length of this stage varies according to the degree of innovation required and the complexity of the product. The process will be more straightforward if the product uses known technology. For example, a firm launching a new shape of potato crisp will face greater problems in creating a successful brand image and maintaining consistent quality than in developing the production process.

This stage requires close co-operation between the different functional areas of the firm. The development experts will be leading the design of the product; manufacturing will be seeking to achieve low-cost production; marketing and distribution will be aiming to achieve the correct marketing mix, sales and logistics. Tests with potential consumers should evaluate functional performance, and product image. Research can be conducted to test advertising effectiveness and consumer attitudes towards projected pricing levels.

Stage 6: Test Marketing

This marketing stage provides information on the likelihood of the target market buying the product, trade response to the product and product performance compared with competition. Such information enables the firm to modify the product where necessary.

A standard test market is commonly used for testing FMCGs. It should correspond, as far as possible, to a scaled-down version of an intended national market, in terms of distribution structure, media availability, competitor activity and the target market profile.

However, there are a number of disadvantages with test markets. They can take up to three years to complete, at the end of which the firm may lose substantial sums of money if it is unsuccessful. Test markets provide competitors with a chance to study the new product and, perhaps, even to launch a retaliatory product before the new product is launched nationally. For example, prior to its launch in the UK, Carnation Coffee-Mate was test-marketed over a period of six months. This gave a rival firm, Cadbury, ample warning and the opportunity to develop and introduce its own product, Marvel, to compete head-on with Coffee-Mate.

Competitors can cause further disruptions in the test market by cutting their prices in test cities, increasing their promotion and buying the product being tested. They are likely to use their best sales forces, which may bias sales results, making them poor predictors of likely total market sales.

Test-Marketing Industrial Goods

Test marketing may be inappropriate for industrial products owing to the following characteristics:

• Market structure. As the total number of potential customers may be small, a test market may be tantamount to a full launch.
• Buyer-Seller Relationships and Customization. Product development in organizational markets is often the result of close collaboration between the buyer and seller. The buyer's involvement at the prototype stage and his or her agreement in discussions about price and availability during the development stage mean that test marketing is unnecessary.
• The product's life-span and purchase frequency may be long for many industrial products, such as capital equipment, so that purchases are made infrequently. Consequently, many of the potential purchasers are unwilling to test the new product, as their existing products may have several years before a replacement is required.

Stage 7: Commercialization

Assuming that no significant changes are required to the product, once the test-market results have been analyzed, the product is ready to be launched into the market. There are two alternatives:

• An immediate national launch can be used if the company has sufficient resources. This allows the advertising campaign to achieve maximum impact and can prevent competitors from disrupting the launch with rival products or publicity campaigns. The risk of a national campaign is that some organizations experience teething problems, especially if they have failed to invest sufficient time and resources in ensuring that their production, quality and supply systems are operating at maximum efficiency.
• A rolling launch is the other alternative to the national launch. Few companies have the confidence, capital and capacity to launch new products into full national or international distribution. This method is popular among firms which prefer to select an attractive city and conduct a campaign to enter the market. They may then enter other cities one at a time.

Stage 8: Monitoring and Evaluation

After a product is launched, it is important to evaluate the process of the launch and the product performance after the launch. When reviewing the process the firm will have to address questions such as:

• Were the correct people involved in the launch?
• Was sufficient time and resources allocated to the launch?
• Was the marketing research information adequate for the launch?

The answer to these questions will help the firm improve future NPD initiatives.

Before the product launch takes place the firm will set performance criteria such as sales targets, market share relative to competition and promotion objectives. By setting such criteria, the firm can measure the actual product performance. Any mismatch between the two needs to be analyzed to determine whether it was caused by poor decision making, lack of information or unforeseen market conditions.

*SOURCE: FUNDAMENTALS OF MARKETING, 2007, MARILYN A. STONE AND JOHN DRESMOND, PGS. 240-246*

END