Throughout the new product development process are seven crucial stages that must take place, alongside an organizational mind-set that embraces doing something beyond what has already been mastered, something that will keep your organization relevant in an ever-changing marketplace.
What are the Seven Stages of the New Product Development Process? The seven stages of the new product development process are: Idea Generation, Idea Screening, Concept Development and Testing, Business and Marketing Strategy Development, Product Development, Test Marketing, and Commercialization.
The Seven Stages of New Product Development Process
There is a poignant quote by a masterful poet by the name of Ralph Waldo Emerson that goes something like this, “Unless you try to do something beyond what you have already mastered, you will never grow.”
While Emerson has little to do with the idea of invention or innovation, it’s hard to ignore that within these few insightful words lies the foundation for success in new product development.
As human beings, we cannot hope to grow if we do not try something new. As entrepreneurs and businesses, there likewise can be little growth, and little competitive advantage, if there is not continual emphasis placed on the development of new products that consumers want and are willing to buy.
The new product development process (NPD) includes all of the steps necessary for businesses to create, develop, and promote new products, beginning with numerous brainstorming sessions that eventually lead to a concept or idea that must then be evaluated and tested before potentially being launched to market (Bangad, n.d.).
It is crucial that considerable investment is made in the early stages of the process, and each step is thoroughly considered from every angle prior to moving forward. Doing so allows a company to evaluate and weight the risk versus reward of proceeding with new product ideas before investing substantial amounts to time and financial resources on products that may eventually fail.
Before we get further into the stages and lifecycle of new product development, we’ll first take a big picture look as what NPD entails, and why it is integral to the success and profitability of nearly every business.
New Product Development: What is it, and Why does it Matter?
Broadly defined, new product development is the process of bringing a new, original product idea to the market. These new ideas may include those that have never been brought to the market before, or they may be ideas that improve existing products, solving a problem or modifying a product to meet a new or evolving consumer need (“New Product Development,” n.d.).
We know that consumer needs are constantly – and rapidly – changing, right alongside the rate of change in technology. As new technologies become available, old products become either obsolete, or must be adapted to offer something new or better than what was previously produced.
Consider the smartphones that have become essential to our day-to-day lives. What started as a flip phone with minimal capability has effectively become a hand-held computer that not only allows us to communicate with one another, but also gives us access to online banking, shopping, texting, typing, and even a camera that competes with the best of professional photography.
Because of these rapidly changing needs within the market, companies often attempt to outpace one another, hoping to achieve a competitive advantage over others in the same product category with the same target market. Thus, the rate of new product offerings has increased dramatically over the past few years, and the amount of financial investment into the process is both extensive and expensive (Bangad, n.d.).
Risk vs. Reward in Developing New Products
NPD is also, unfortunately, the riskiest and most complicated task for nearly every company. The rate of success is generally less than optimal – only one successful product for every seven that go through the development process, with an average failure rate “somewhere in order of 25-45%” (Bangad, n.d., p. 4). While the reality is that thousands new products do fail, and many new product ideas never make it to the development stage, the NPD process is what ultimately leads to successful innovation and profitability (Callan, 2019).
Companies who are customer driven and invest in the processes and personnel necessary to effectively generate new products and anticipate the needs of their subsequent target market(s) are more likely to improve the process over time, and ultimately create better opportunities for growth, profitability, and progress (Bangad, n.d.). Embracing the new product development stages helps them do so.
New Product Development Lifecycle
Going through the NPD process is fairly standard, though it should be adapted to the unique needs of particular industries and organizations – in other words, while the process is somewhat similar from one company to the next, it should be adapted to fit the needs of your business plans and goals, and the availability of time as well as resource expenditure (Bangad, n.d.). The way in which a large, global technology company introduces new products will differ from a small, regional company with nuances that large corporations do not have.
Much research has been completed on the process as a whole because despite its seemingly simple step-by-step progression, many businesses have struggled to implement and manage each stage effectively. Some key features of optimal NPD processes include a systematic process, early involvement of all relevant influencers in decision making, an overlapping or parallel environment in working through the stages simultaneously, solid project management structures and teamwork, as well as continual learning and adaptation for improved processes (Ollila, n.d.).
In every step, however, there is one critical driving factor: the customer. The NPD process can only be successful if knowledge and understanding of customers, customer needs and wants, and competitors is paramount throughout the decision-making process (Callan, 2019)
Stage One: Idea Generation
Idea generation is the first stage of the process and entails a method or methods for coming up with new ideas for product development that are superior to what competitors are currently offering.
Often, businesses come up with hundreds of new ideas and end up with only a few that will be pursued in the end. There are quite a few ways to generate ideas, but they are less a “eureka” moment and more akin to hours of target market research, discussion, questioning, and brainstorming utilizing both internal and external idea sources.
Internal Idea Sources vs. External Idea Sources
Internal and external idea sources sound much like they are named – those ideas either found within the company or outside of it. Internal idea sources include those found within the organization from contributions and discussions with employees who have taken part in extensive research and development (Callan, 2019).
External Idea sources, on the other hand, are more commonly those that are identified through external means, including distributors and suppliers, competitors, and, most importantly, customers (Callan, 2019). We’ve previously mentioned the importance of understanding customer needs, and ideally, the goal is to anticipate those needs early and before competitors within the same industry.
Substantial research and investment should go into creating ethnographic studies (understanding people’s habits, customs, and differences) and other means of gathering information and customer feedback to identify any potential un-met need (Bangad, n.d.). Utilizing external and internal sources and customer feedback, companies can better anticipate consumer needs, and create new products that meet those needs.
Once ideas have been generated, the next step in to screen those ideas in order to determine whether or not they may be successful.
Stage Two: Idea Screening
Bringing a product to market is expensive. That is part of the reason for a seven-stage process in new product development. What companies want to avoid is spending resources on products that, once screened, are not as worthy of production as once envisioned. Idea screening is little more than what it sounds like, narrowing ideas down, and picking out the best ones with which to move forward (Callan, 2019).
Because the costs involved in new product development increase exponentially as we move through each stage, the screening process becomes crucial in avoiding huge financial loss.
There are more factors involved in screening than simply whether or not a product idea is deemed “good” or “bad.” Ideas must also fit into the overall business strategy and direction of a company. If the idea is potentially a good idea but does not fit into the marketing mix, it can end up being more costly and impossible to scale, which simply means that your business will be unable to continue to grow in the long term (Bangad, n.d.).
Additional factors include an ability to market the product successfully, its relationship to competing products, access to distribution, pricing of the product, and time to produce. Factors involved in screening may differ between product ideas, the environment, and state of the company (Bangad, n.d.). For example, if the company is struggling financially, despite needing to offer new products to promote growth, the screening process is going to be more specific in addressing whether or not the risk is worth the potential reward.
If a product does not meet the objectives and goals of the screening process, the idea must then be discarded, and the process begins anew with idea generation. If it does pass the screening phase, the next step is to produce a detailed concept of the product and test its viability.
Stage Three: Concept Development & Testing
Concept development entails crafting a detailed version (or versions) of an idea for a product in terms of the customer’s perspective. It is important to understand that while the concept should be specific and detail oriented, this does not mean that you will include any type of branding, packaging, or advertising. At this stage, the concept should focus on the basic principle of the product in order to measure consumer receptiveness. This can be accomplished in multiple ways, but for the most part surveys and/or qualitative methods would be used (Bangad, n.d.).
There are many product development examples out there to help illustrate this point. If say, a technology company is interested in creating a new product within their line of handheld devices, the company would, ideally, create more than one product concept and test each. In this way, the company can determine which concept is best received by the target market and make changes based on consumer feedback. The goal is to find out how appealing each concept is, and thus choose the best one prior to moving forward (Callan, 2019).
This concept testing stage involves a substantial amount of market and consumer research and may take more time than other stages in the process. The product concept description should include an idea name, detailed explanation, specifications and design, as well as positioning within the market. These descriptions can then be tested via consumer surveys and questionnaires or discussion groups (Bangad, n.d.).
Concept Testing with Focus Groups
Consumer discussion groups are often termed “focus groups.” These groups generally consist of 30-60 people who are broken into smaller units. Each smaller unit is then given descriptions of the product concept and idea, and then left to open discussion without intrusion from anyone within the company. The goal is to identify and articulate attitudes and purchasing behavior as it relates to the product, as well as whether or not they would be willing to purchase the product concept as it stands (Bangad, n.d.).
Focus groups allow the company to then use the feedback received in order to make changes or adjustments based on the behaviors and attitudes of the consumer. Changes may include characteristics such as size or shape, as well as packaging, pricing, or safety features, depending on the product category. If a concept is not received well or consumer feedback is not taken into account, it may ultimately lead to product failure and financial loss.
With testing completed and a concept evaluated and confirmed, the next stage in the process requires building a business strategy that fits in with your organization’s goals and overall strategic planning.
Stage Four: Business and Marketing Strategy Development
The main components of building a business strategy include making decisions about marketing, branding, advertising, and other components of the marketing mix. During this stage, you will also want to identify and analyze your competition, the costs involved in development, as well as pricing strategies and anticipated profits, including your breakeven point (Bangad, n.d.).
This stage is also commonly referred to as marketing strategy development and consists of a few important aspects in developing a strong marketing mix (Callan, 2019). These aspects include each of the following:
- A description of the target market, including the value proposition added as it is viewed from the customer’s perspective
- Profit goals over time, specifically within the first year
- Pricing, distribution, and budget allotment
- Long term sales projections
Estimating sales is essential in anticipating the risk involved in moving forward with development. One way in which to estimate sales is to look at current product offerings (both in your company as well as your competition) and conduct market surveys. Doing so will help you to predict both minimum and maximum sales and allow for research-based decision making about whether or not to proceed with the new product idea (Callan, 2019).
Because this stage in the process is also the final stage prior to the production of a prototype, it is even more important that as much information as possible is gathered to ensure that the costs required to move forward fit in with the overall strategy of the organization, and are more likely to result in growth long term.
Developing a Marketing Strategy
A successful marketing strategy differs from a marketing plan in that the strategy outlines the goals and direction for marketing whereas the plan identifies the specific actions that will be taken in order to reach those goals (Bangad, n.d.).
Every marketing strategy must support the mission and vision of the business. It will affect the way in which the business is run, and therefore should focus primarily how new products fit into the goals of the organization as a whole. It should, in addition, accomplish each of the following:
- Describe new products and services to be offered
- Explain the role of the new product in the market as well as in terms of the organization
- Profile customers (to profile simply means to identify the characteristics and attributes of the person targeted to purchase the product, including how, where, and what customers buy)
- Profile competition (similar to profiling customers, but in this sense, you will want to identify products offered by competition, as well as their pricing and marketing strategies)
- Identify how marketing will be accomplished – the marketing plan
- Build marketing plan and ways in which its effectiveness will be measured
With each of the above in mind, the company is then able to consider overarching business goals as they relate to the new product, including goals that focus on how the organization will increase awareness of the new product, how it will both promote and sell the new product and the distribution channels to be used, and how, if applicable, new customer segments will be reached (Bangad, n.d.).
Challenges in Building a Business Strategy
One of the challenging aspects of this phase of development is that the organization will need to clearly identify how the new product fits into the company’s overall long-term objectives. Even the best new product ideas will not prove profitable for the company in the long run if the new product does not coincide with the current branding and identification of the company from the consumer’s perspective.
Another challenge is that upfront planning becomes increasingly important, and often times these initial steps are either overlooked or inadequately completed. A lack of market analysis and research or failure to spend money up front on the planning stages in favor of moving directly into product development will often result in product failures (Bangad, n.d.).
For example, if most of my products fit into a line of merchandise that focus on kitchenware and cooking gadgets, and over the new product development process the organization has decided it wants to break into a different sphere, perhaps other household or automotive items, the costs involved in doing so may yield little return in the long run. It could potentially cost the company more money, and result in significant financial loss, especially if the new product offering does not coincide with the company’s long-term goals.
Many times, we hear about companies who fail because they lack innovation. The reverse can be true as well. Too much new product development that is unstructured or not in line with the organizations mission, vision, and values may result in failure (Ollila, n.d.).
This is one reason why identification of a strong business analysis and marketing strategy become increasingly important. Making decisions about financial commitments to new product development cannot be successful isolated form extensive research and strategic planning (Ollila, n.d.).
In many ways, the way in which an organization creates an environment that supports innovation alongside change when the structures in place are not working will result in the success of new product development processes over the long term. A paired approach that includes both top down (leadership) and bottom up (employee) communication and decision-making yields stronger results and better strategic planning and support of the organizations mission and vision for new product development (Bangad, n.d.).
Stage Five: Product Development
Product development is an exciting stage. The groundwork has been laid, the research completed (but still ongoing), and you are ready to both develop and test a tangible product with your targeted customers to ascertain their reaction to your ideas.
The main goals of this stage in the process include further identification of the target market and decision maker (person who will presumably buy the product), identification of the features and attributes that should be included into the product, identification of the most cost effective ways in which the product can be produced, and finally the actual cost of production and intended price point (Bangad, n.d.).
Building a Prototype
Here, the design features of the product become critical. Using market research, surveys, and questionnaire results from customers, the organization can then create a prototype (or multiple prototypes depending on costs involved and capital available) that has the features customers have identified.
A prototype is simply a sample product built from the initial concept development (stage three). In essence, it is used to confirm that the product idea is both a desirable and workable in terms of design, engineering, and safety (Callan, 2019). Often, this stage also includes additional focus groups who will test and evaluate the prototype and share their experiences and opinions throughout the process, as well as confirm that the attributes they have identified are present in the design of the product (Brown, 1996).
There are a few types of prototypes that can be developed at this point in the process:
While there are certainly limitations to prototypes, the intended goal is to create a product that can be further tested to ensure that the offering is in line with the needs and wants identified by consumer research. Once a prototype has been created it can then be tested in a small sample of the market to identify areas of improvement or change prior to full scale launch and development. Again, new product development is a very expensive undertaking and steps are taken to ensure minimal financial loss, even at this late stage.
In general, the amount of testing varies with the type of product being offered. Products that are high risk should undergo additional testing. Products where uncertainty is still prevalent should likewise undergo more extensive testing within a realistic sample market. The more testing, the more certain a company can be that the new product offering will yield positive results and financial gain over the long term (Callan, 2019).
Final Stage: Commercialization
It’s hard to continue without a strong congratulatory sentiment at this stage – many, many new products never make it to commercialization. Those that do have undergone extensive testing, planning, and likely an instrumental amount of work from individuals throughout the organization. This is the final stage in the process where the new product will be launched, full scale, to the market.
It is at this point that the highest costs are sustained (Callan, 2019). We’ve frequently emphasized that the initial stages are where much investment, both time and financial, should be spent. This is primarily because at this point, if the decision to move forward with full scale launch is made, even more spending is necessary on advertising, sales, and promotion, as well as determining manufacturing facilities and distribution channels.
Other considerations include both when to launch as well as where. As far as timing in concerned, the current economy should be considered as well as what the competition is doing. For example, if the unemployment rate is up and the economy down, launching new, expensive products, no matter how good the idea is, may not yield positive results. It may be better to wait until the following year before incurring additional costs in a market that is not ready to purchase (Callan, 2019).
Decisions about location include where to launch – whether that is regional, national, or international. Most companies will roll out new product offerings slowly, one region at a time, unless it is a large-scale company such as Apple, who will typically introduce a new product on a global scale. In either case, the determining factor often lies in the resources available to the company, and if the product succeeds, ensuring that fulfillment of demand is achievable.
If everything is in place, it’s time to start promoting, and early – if possible, weeks before product launch in order to pique curiosity for the product via social media or other avenues of advertising.
At this point, it’s time to get the creative juices flowing – the more creative the advertising is pre-launch, the better. Social media is one of the biggest, if not the most influential channels for advertising and marketing. It is incredibly easy to interact with those who will influence purchasing behavior. And, it is the most effective way in which to reach the most people as quickly and efficiently as possible through sharing and word of mouth (Bangad, n.d.).
Final Thoughts – Post New Product Launch
While product launches are a bit scary – will the product succeed or fail? – they are also the most exciting time of the entire process. A lot of work has gone into the creation of a new product, and likely months or even years of preparation and planning. This is the moment where you find out if your product development strategy is going to be effective.
The most important thing to remember is to evaluate the business and marketing strategy before, during, and after product launch. Learn from what went well and learn more from what didn’t go as planned. Make changes as necessary and get ready to start the process again. Each stage of the new product development can be arduous, but an ongoing cycle that effectively improves with each new product offering will result in success. And finally, invest more resources in the beginning – it will pay off in the end.
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