NEW PRODUCT DEVELOPMENT

Stage Model:

1. IDEA GENERATION

-Internally i.e. brainstorming

-Externally

2. SCREENING

-Which ideas match the organisations ability to manufacture (match them

to core competencies)

-Check list encourages evaluators to be systematic

-May involve marketers testing product concepts

3. BUSINESS ANALYSIS

-Product is evaluated to determine its potential contribution to the firm's

sales, costs and profits

4. PRODUCT DEVELOPMENT

-Is it technically feasible to produce the product and if it can be produced

at costs low enough to make the final price reasonable

5. TEST MARKETING

-Limited introduction of the product in areas chosen to represent the

intended market

6. COMMERCIALISATION

-Planning of full scale manufacturing and marketing of

the new product

NPD performs the following roles:

o Ensuring that product obsolescence is avoided

o Helping to ensure that the organisation can compete in new and growing market
segments
o Reducing the dependence upon one or more (declining) market sectors
 o Matching or beating competitors
o Helping to achieve long-term growth

Problems with test marketing

o The dangers of the test market alerting competitors

o The problem of finding representative test areas
o The time needed to identify repurchase rates
o Distributors being reluctant to become involved in test marketing costs
o The difficulties of interpreting what is often an ambiguous results pattern

80% of new product fail. What do you consider are the reasons for NPD failure?

• Lack of product differentiation from existing products in the targeted market. (poor
product positioning)
• Poor screening of ideas generated
• Poor test marketing (or inefficient/inappropriate test marketing)
• Communication/promotion of the NPD is not carried out fully or is poor in display
• Competing against an existing strong brand
• Proactive role of competitors already established in the market-place, to NPD
• Market sector not 'large' enough to take another product i.e. market already in saturation.
Or the managers have overestimated the size of the market
• The product under-performing
• Competitors being too firmly entrenched
• Lack of real commitment to the product from distributors
• The product idea having been pushed through the NPD process by a senior manager,
even through evidence exists to suggest that the product is likely to fail

INNOVATION

• The framework for studying the consumer acceptance of new products is known as
"DIFFUSION OF INNOVATIONS"

The Diffusion Process

"The process by which the acceptance of an innovation is spread by communication to members

of the social system over a period of time"

Four Key Elements:

1. The innovation
2. The communication process and channels
3. The adoption time
4. The social systems involved
THE SOCIAL SYSTEM

• Refers to the target market or market segment. Modern social systems are characterised
by:
o Positive attitude to change
o Advanced technology
o Respect for education and science
o Rational, ordered social relationships
o Interaction between members and outsiders
o Willingness to change roles

The social system's orientation sets the climate in which marketers operate to gain acceptance
for new products

TIME: Affects three aspects of the diffusion process:

1. PURCHASE TIME

-The time that elapses between initial awareness of a new product and the
decision to purchase or reject it

2. THE IDENTIFICATION OF ADOPTER CATEGORIES

-Categories for grouping consumers according to when they adopt a new product

Innovators: venturesome, eager to try new ideas, daring, risk-takers

Early Adopters: respectable, opinion leaders

Early Majority: deliberate not leaders, weigh up pro's and con's

Late Majority: sceptical, adopt after average time, react to peer pressure

Laggards: traditional, local in outlook, past-orientated, suspicious of new

(diffusion of innovation curve)

3. THE RATE OF ADOPTION

-The extent to which a new product has been adopted by members of a

social system

-The rate of general adoption is getting shorter

 -Marketers require a rapid rate of adoption in order to penetrate the
market quickly and gain market leadership

Diffusion of Innovation:

The process is carried out through reference group influence. Three main theories concerning the
mechanisms have been proposed:

1. TRICKLE-DOWN THEORY

- Says that wealthy classes obtain information about new products and the
poorer classes imitate their 'betters' (Veblem). This theory has largely been
discredited in wealthy countries because new ideas are disseminated overnight
by the mass media and copied by chain stores within days

2. TWO-STEP THEORY FLOW

- Here 'influentials' are the start of the adoption process not wealthy people. This
theory began in the 1940's and is somewhat outdated again through access to
the mass media

3. THE MUTI-STAGE INTERACTION MODEL

- Recognises and allows for the influence of the

mass media (Engel Blackwell). Here the
influentials emphasise or facilitate the
information flow (perhaps by recommendations
to friends or acting as advisors)

Three Types of Innovation

1. CONTINUOUS INNOVATION

o The modification of an existing product. Causes the least disruption of

established patterns of behaviour.

e.g. remote control, low-fat yoghurt

1. DYNAMICALLY CONTINUOUS INNOVATION

o The creation of a new or modification of existing product

e.g. disposable nappies, colour television

1. DISCONTINUOUS INNOVATION

o A totally new product which causes consumers to alter their behaviour patterns
significantly
 e.g. fax machines, home computers, VCR machines

Innovation Strategy

There are six strategies:

1 OFFENSIVE: pride in being the first, e.g. Sony, 3M

2 DEFENSIVE: 'Me-too's', maybe slightly better

3 INITIATIVE: Straight copies of other companies products

4 DEPENDANT: Led by bigger companies, e.g. Microsoft produces new software for IBM-
compatible machines

5 TRADITIONAL: Resurrecting old-fashioned designs

6 OPPORTUNITIES: Selling and marketing of inventions

Evertt ROGERS identified that consumers took account of the following perceived attributes of
innovative products when considering a purchase

• RELATIVE ADVANTAGE > the degree to which the innovation is perceived as better
than the idea it supersedes
• COMPATIBILITY > consistency with existing values, past experiences and needs of
potential adopters
• COMPLEXITY > the ideas are easily understood
• TRIALABILITY > the degree to which a product can be experimented with
• OBSERVABILITY > the degree to which the results of an innovation are visible to others