What occurs during the commercialization stage of the new-product development process?

Learning Outcomes

• Explain the stages of the new-product development process

There are probably as many varieties of new-product development systems as there are types of companies, but most of them share the same basic steps or stages—they are just executed in different ways. Below, we have divided the process into eight stages, grouped into three phases.  Many of the activities are performed repeatedly throughout the process, but they become more concrete as the product idea is refined and additional data are gathered. For example, at each stage of the process, the product team is asking, “Is this a viable product concept?” but the answers change as the product is refined and more market perspectives can be added to the evaluation.

Stage 1: Generating New Product Ideas

Generating new product ideas is a creative task that requires a particular way of thinking. Coming up with ideas is easy, but generating good ideas is another story. Companies use a range of internal and external sources to identify new product ideas. A SWOT analysis might suggest strengths in existing products that could be the basis for new products or market opportunities. Research might identify market and customer trends. A competitive analysis might expose a hole in the company’s product portfolio. Customer focus groups or the sales team might identify unmet customer needs. Many amazing products are also the result of lucky mistakes—product experiments that don’t meet the intended goal but have an unintended and interesting application. For example, 3M scientist Dr. Spencer Silver invented Post-It Notes in a failed experiment to create a super-strong adhesive.

The key to the idea generation stage is to explore possibilities, knowing that most will not result in products that go to market.

Stage 2: Screening Product Ideas

The second stage of the product development process is idea screening. This is the first of many screening points. At this early stage much is not known about the product and its market opportunity. Still, product ideas that do not meet the organization’s overall objectives should be rejected at this stage. If a poor product idea is allowed to pass the screening stage, it wastes effort and money in later stages until it is abandoned. Even more serious is the possibility of screening out a worthwhile idea and missing a significant market opportunity. For this reason, this early screening stage allows many ideas to move forward that may not eventually go to market.

At this early stage, product ideas may simply be screened through some sort of internal rating process. Employees might rate the product ideas according to a set of criteria, for example; those with low scores are dropped and only the highest ranked products move forward.

Stage 3: Concept Development and Testing

Today, it is increasingly common for companies to run some small concept test in a real marketing setting. The product concept is a synthesis or a description of a product idea that reflects the core element of the proposed product. Marketing tries to have the most accurate and detailed product concept possible in order to get accurate reactions from target buyers. Those reactions can then be used to inform the final product, the marketing mix, and the business analysis.

New tools leveraging technology for product development are available that support the rapid development of prototypes which can be tested with potential buyers. When concept testing can include an actual product prototype, the early test results are much more reliable. Concept testing helps companies avoid investing in bad ideas and at the same time helps them catch and keep outstanding product ideas. 

Stage 4: Business Case Analysis

Before companies make a significant investment in a product’s development, they need to be sure that it will bring a sufficient return.

The company seeks to answer such questions as the following:

1. What is the market opportunity for this product?
2. What are the costs to bring the product to market?
3. What are the costs through the stages of the product life cycle?
4. Where does the product fit in the product portfolio and how will it impact existing product sales?
5. How does this product impact the brand?
6. How does this product impact other corporate objectives such as social responsibility?

The marketing budget and costs are one element of the business analysis, but the full scope of the analysis includes all revenues, costs, and other business impacts of the product.

Stage 5: Technical and Marketing Development

A product that has passed the screening and business analysis stages is ready for technical and marketing development. Technical development processes vary greatly according to the type of product. For a product with a complex manufacturing process, there is a lab phase to create specifications and an equally complex phase to develop the manufacturing process. For a service offering, there may be new processes requiring new employee skills or the delivery of new equipment. These are only two of many possible examples, but in every case the company must define both what the product is and how it will be delivered to many buyers.

While the technical development is under way, the marketing department is testing the early product with target customers to find the best possible marketing mix. Ideally, marketing uses product prototypes or early production models to understand and capture customer responses and to identify how best to present the product to the market. Through this process, product marketing must prepare a complete marketing plan—one that starts with a statement of objectives and ends with a coherent picture of product distribution, promotion, and pricing integrated into a plan of marketing action.

Stage 6: Test Marketing and Validation

Test marketing is the final stage before commercialization; the objective is to test all the variables in the marketing plan including elements of the product. Test marketing represents an actual launching of the total marketing program, done on a limited basis.

Initial product testing and test marketing are not the same. Product testing is totally initiated by the producer: he or she selects the sample of people, provides the consumer with the test product, and offers the consumer some sort of incentive to participate.

Test marketing, on the other hand, is distinguished by the fact that the test group represents the full market, the consumer must make a purchase decision and pay for the product, and the test product must compete with the existing products in the actual marketing environment. For these and other reasons, a market test is an accurate simulation of the broader market and serves as a method for reducing risk. It should enhance the new product’s probability of success and allow for final adjustment in the marketing mix before the product is introduced on a large scale.

Stage 7: Launch

Finally, the product arrives at the commercial launch stage. The marketing mix comes together to introduce the product to the market. This stage marks the beginning of the product life cycle.

Stage 8: Evaluation

The launch does not in any way signal the end of the marketing role for the product. To the contrary, after launch the marketer finally has real market data about how the product performs in the wild, outside the test environment. These market data initiate a new cycle of idea generation about improvements and adjustments that can be made to all elements of the marketing mix.

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How did Steve Jobs come up with iPhone? How did the iPhone come into existence? What are some of the new product development processes? How do companies come up with product ideas?

You'll learn the answers to these questions and much more once you get to the bottom of this explanation.

New Product Development Process

The primary processes of new product development include idea generation, idea screening, concept development, concept testing, marketing strategy, and commercialization.

New product development: Idea generation

Idea generation, often known as the systematic search for new product ideas, is the first step in developing new products. The most important sources of new product ideas come from inside and outside the company in the form of consumers, rivals, distributors, suppliers, etc.

New product development: Idea screening

The production of a significant number of ideas is the objective of the idea-generating process. Oftentimes there may be too many ideas generated. Some ideas will have to be prioritized, others not. Thus idea screening comes in handy.

The step of limiting the number of ideas is called idea screening, and its purpose is to identify and eliminate poor ideas as quickly as possible.

Because the subsequent phases of product development come with much higher expenses, the corporation only wishes to go forward with those new concepts that will result in lucrative finished products.

New product development: Concept development and concept testing

After the company has come up with ideas and chosen the right one, it must develop a product concept.

A product concept refers to a version of the new product idea, stated in consumer terms.

After the company has developed the concept, it must test it before increasing production and aiming for a larger market.

Concept testing refers to testing a new product with a small group of target consumers, gathering feedback, and determining whether the product has consumer appeal.

Before developing them into tangible new goods, many businesses first put potential new product ideas through rigorous customer testing. A word or visual description may be adequate for specific idea examinations. However, marketers may improve the dependability of the concept test by presenting the concept in a more solid and tactile manner.

New product development: Marketing Strategy

The next step includes developing a marketing plan and an initial marketing strategy for releasing the new product into the market.

The marketing strategy is divided into three sections as follows:

1. The first section describes the target market, the anticipated value proposition, sales, market share, and profit targets for the first few years.

2. The second section of the description provides an overview of the product's anticipated pricing, distribution, and marketing expenditures for the first year.

3. The long-term sales objectives, profit targets, and marketing mix strategy are part of the third section of the marketing strategy.

Product development

The next step in the process is product development.

Product development refers to turning the product concept into a physical product.

This is the part where the R&D team and other relevant teams come together to develop the product's physical form.

New product development: Test marketing

The following phase, test marketing, is the stage during which the product and its intended marketing program are examined in actual market conditions.

If the product is successful in both the idea and product tests, it is ready for the test marketing stage. Test marketing aims to familiarise the marketer with the process of selling a product before the marketer goes through the enormous expenditure of a complete introduction.

It allows the organization to evaluate the product and its complete marketing program, including advertising, distribution, pricing, branding and packaging, target markets and positioning strategies, and budget levels.

New product development: Commercialisation

Commercialization is the final phase of new product development. Information management needs to make a final choice on whether or not to launch the new product obtained via test marketing. If the business decides to go through with commercialization, which means releasing the new product into the market, it will be required to bear significant expenditures.

For instance, the business would need to either construct a new production facility or lease an existing one. Additionally, in the case of a brand new consumer product, the company may spend hundreds of millions of dollars in the first year on combined advertising, sales promotion, and other marketing initiatives.

As a recap, the stages of new product development are as follows:

1. Idea generation

2. Idea screening

3. Concept development and testing

4. Marketing strategy development

5. Business analysis

6. Product development

7. Test marketing

8. Commercialization

Idea Generation in New Product Development

Idea generation in new product development is the first phase of producing new products. This step is also often called the systematic search for new product ideas. Consumers, competitors, distributors, and suppliers are essential sources of new product ideas. Marketers may find the most important sources of new product ideas inside and outside their organization. There are four primary sources of idea generation:

• Internal sources. The firm can uncover new ideas via the process of formal research and development by using internal sources. Many companies invest vast amounts of money into research and development, which helps them learn more about new product needs and develop them accordingly.

• External sources. Businesses can get valuable ideas for new products from any one of a variety of external sources. Distributors and suppliers, for instance, could have some suggestions to give. Because of their proximity to the market, distributors are uniquely positioned to relay information on consumer concerns and product opportunities. The firm may learn about new ideas, methods, and materials from its suppliers, which it can then incorporate into the development of new products.

• Competitors. The company's rivals are also a very significant source. Businesses should keep an eye on their rivals' communications campaigns and marketing strategies to learn more about their upcoming products.

• Crowdsourcing. Many businesses are now developing what is known as crowdsourcing or open innovation, a new method that gets customer feedback and then uses that information to drive innovation.

Advantages and Disadvantages of New Product Development

There are many advantages and disadvantages of new product development.

The main advantages of new product development include:

• Seizing opportunities - As the preferences and interests of customers change over time, new product development may assist businesses in capitalizing on possibilities to market to these evolving tastes and interests.

• Keeping pace - In a world where most customers cannot keep up with the rapid introduction of game-changing innovations, a product line that remains unchanged over time may seem worn out and stale to consumers. With new product development, a company may stay relevant in today's ever-evolving market.

The main disadvantages of new product development include:

• Risk - Instead of venturing into uncharted ground, companies may stay with a market they already know. When launching new products to the market, there is a great deal of unpredictability involved, from working out the characteristics of untested manufacturing procedures to presenting clients with options they may or may not desire.

• Cost - New product development may be pricey. Companies need to come up with the idea generation process, develop the concept design, and then make the physical aspect of the product. Additionally, companies should spend significant money on test marketing. All these aspects ad costs.

Some examples of new product developments are as follows.

Netflix was once a service for renting movies on DVD. Netflix's transition toward streaming media is an excellent example of product development. Netflix is now one of the most popular over-the-top (OTT) platforms available on the market.

Netflix shifted its focus from licensing pre-existing material to producing original content, demonstrating a profound comprehension of what consumers want from an OTT streaming firm.

When we examine the past of Netflix, we find that a consistent pattern emerges, and that theme is their objective of making the consumer experience as frictionless as possible.

Netflix has seen a need in the consumer market and built a product to fill that void in response.

Netflix continuously develops its product in line with customer needs, whether it is the easy availability of DVDs in the early days of the account profiles or on-demand streaming available now.

The transformation of traditional landlines into wireless handsets enables convenient mobility and uninterrupted access to communication at all times. A company that makes such services possible must go through all the product development stages, such as idea screening, test marketing, and finding the right target market to sell the service.

New Product Development - Key takeaways

• The primary processes of new product development include idea generation, idea screening, concept development, concept testing, marketing strategy, and commercialization.

• Idea generation is the first step in developing new products.

• The step of limiting the number of ideas is called idea screening.

• A product concept refers to a version of the new product idea, stated in consumer terms.

• Product development refers to turning the product concept into a physical product.

• Test marketing is the stage at which the product and its intended marketing program are examined in actual market conditions.