New-product development is the process companies go through in creating, changing, and repositioning PRODUCTs for their TARGET MARKETS. Given the dynamics of changing markets and changing technology, almost every business needs to be constantly evaluating new products. Studies show leaders in any industry are the firms that are creating new products. As one saying goes, “If you are not creating, you are decaying.” STOCK MARKET analysts, particularly in industries like pharmaceuticals, closely watch what each company is spending on RESEARCH AND DEVELOPMENT and how many new products companies have “in the pipeline.” Pharmaceutical companies’ new-product development is relatively easy to observe because new drugs must go through various stages in FOOD AND DRUG ADMINISTRATION approval. For most businesses, new-product development is a closely held secret. The process of development can be either formal or informal, but in major companies it tends to be structured. Recognizing new-product failure rates and the cost of bringing new products to market, companies generally go through a six-step process.
1. Idea generation. Ideas can come from anywhere. Typically they come from either consumers or organization employees. Many businesses actively seek the ideas and opinions of consumers and front-line staff who interact directly with consumers. Some ways new products can be created include adding something to existing products, taking something out, answering consumer complaints, changing the shape or size, making a task easier, using products in a new way, substituting one product for another, or looking in other markets for ideas.
2. Idea screening. Marketers report that one idea in 100 becomes a new product. As marketing teams go through the development process, COSTS go up. Therefore marketers screen ideas, using questions such as, “Is the idea in a field or market the company is engaged in? Can the product be made with materials or machinery the company already owns or has access to? Can the new product be marketed through the organization’s existing sales and distribution system? Is there sufficient market potential? Is there sufficient PROFIT potential?”
3. Business analysis. At this stage the new-product development team conducts an in-depth analysis of the market potential and profitability. Sometimes consulting firms are used to conduct market-feasibility studies.
4. Product development. At this stage a company commits to creating prototypes of the new product. Sometimes this can be quite expensive, other times it can be done with minor adaptations to existing products.
5. Test marketing. For large CORPORATIONs, it can be quite expensive to introduce new products. Many companies conduct tests in a few outlets or markets before doing a full rollout. One problem with test marketing is that competitors will learn quickly about the new product. Sometimes test marketing is skipped in order to get new products to market ahead of the COMPETITION. Almost any new-product development is going to need adjustment, and test marketing provides opportunities to address problems early in the marketing process.
6. Commercialization. At this stage the new product is fully introduced to the target market. Depending on the type of new product involved, at the commercialization stage SALES PROMOTION efforts will focus on generating interest or awareness of the new product.
Generally there are five categories of new products, ranging from new-to-the-world goods people have never seen before to repositioning and targeting existing products to new markets or new uses. Most new-product development falls in between, including products new to the firm (i.e., adding a product line to a retail store), additions to a product line (i.e., adding fruit juices to a convenience store’s beverage offerings), and product improvements (i.e., new and improved XYZ). Each of these new-product development strategies builds upon existing knowledge and strengths within the organization and therefore are less risky than introducing totally new products.
See also POSITIONING; TARGET MARKETS.