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The Product Development Process: Listening, Learning & Launching

The Importance Of "New"

It very much depends on the industry as to what proportion of a product portfolio should be “new”. In a high-tech business it would be reasonable to expect that the majority of the products in the portfolio will be less than five years old. In a company that sells aggregates into the construction industry it would be unlikely that any of the products in the portfolio will be less than a few million years old. Product development is important because “new” is one of the most powerful words in the marketing vocabulary. “New” catches a buyer’s attention as it implies that the product will perform better. New products are the lifeblood of a business as they provide the opportunity to differentiate, increase prices and steal market share.

Three Types Of New Products

Steve Jobs once said that “creativity is just connecting things”. Jobs was implying that businesses need not necessarily invent breakthroughs; rather a less risky product development is one that creates a variation or combination of products that already exist. For example, under his leadership, Apple didn't invent tablet computers or MP3 players; the company just made them better, adding design features that were new to the product category.

Fundamentally new products—those that are breakthroughs and haven’t been seen before—present themselves rarely but enable the manufacturer to truly lead the market. The wheel, the internal combustion engine, electricity, the airplane, radio and television, the telephone, the computer etc. are in the revolutionary bucket. The paint can or adhesive tube that is emblazoned with the word “new”, however, is most likely a variation on a theme that has been around for some time.

Following breakthroughs, the two types of “new” products are line extensions and product refreshes which are much quicker and more cost effective to develop and launch. Line extensions are usually additional products within a range and are sufficiently distinct from existing products within the category. Product refreshes typically replace existing products as a result of a change to the formulation or even just the packaging. Many of the modifications that can be made to products in b2b markets involve incorporating services into the offering which are very much a latent opportunity.

There are numerous forces impacting on the product development research process. Beyond the pressures from shareholders, the competition indirectly forces companies to innovate as competitors are also in the race to launch the latest products. Raw material suppliers have their impact on product development through introducing substitutes (often at lower prices), or through raw material shortages. Depending on competitor offerings, the new product will either be a follower (ideally with a compelling customer value proposition), or it will be first to market––first to the world (with patents and IP protection) or first to industry (e.g. a b2b variation of a consumer product).

Product Development
The Three Types Of New Products

Voice-Of-The-Customer-Driven New Product Development

Who should generate ideas for new products? A study by MIT Sloan School of Management Economist and Professor, Eric von Hippel, found that 80% of industrial innovations came from customers themselves. Such innovations are most likely to have been created by the manufacturer as a result of customer feedback on unmet needs and pain points. Indeed the people using products don’t always know what is technologically possible in terms of improvements and they cannot be expected to play the role of R&D Director. Product ideation should, therefore, combine the voice-of-the customer with internal knowledge from within the manufacturing company.

Sadly more new products fail than succeed. In the grocery market it is suggested that 70 to 80% of new products fail. In business-to-business markets the figure could be at least equal to this because many products are launched but never gain strong market traction. When assessing the product portfolio of an industrial company, in most cases a myriad of products has accumulated over the years and simply atrophied. Some of these may have been developed for customers who bought them for a while until their needs changed and so the products remain as a hopeful offer on the product listing.

Much stringency is required during the launch of new products for otherwise high costs will be met in failure. Products that fail or achieve marginal sales reflect badly on the perpetrator and carry a high cost. A number of companies can provide examples of products in which they have invested millions of dollars and which delivered only disappointing revenues. A mechanism such as the Stage-Gate process is, therefore, required for assessing the viability of a new product from the embryonic idea stage through to the fully developed product, in order to make go/no-go decisions based on empirical data and before increasing costs are incurred. A typical Stage-Gate process is shown below.

Product Development
A Typical Stage-Gate Process For Product Development

Idea Screen

New ideas can come from anywhere. Sometimes customers propose valuable ideas (especially when asked about unmet needs and pain points) and at other times they come from the technical department, the marketing department, the sales team or anyone else within the company. The more ideas at this early stage, the more likely the chance of cultivating a successful new product. Ideas must then be screened––a process that is best carried out within the company, where internal experts know what is technically feasible.

Stage 1: Concept Creation

The small number of ideas that pass through the first gate may need testing as a concept and here market research can help. In order to build a solid business case the company needs to know whether there is a reasonable chance of success. Testing concepts is not like testing the real thing but it does provide a valuable feel for whether an idea will be viable or not. The market research should explore customers’ first impressions of the concept, likes and dislikes, awareness of any similar offers on the market, appeal of the offer, and intent to purchase it if it were available on the market. Price perceptions are also sometimes included in concept tests.

Stage 2: Business Case

Assuming the research findings on the concepts were sufficiently positive to pass through the gate, this next stage of the process comprises the building of the business case which is a key milestone in the roadmap to commercialization. It comprises three key components about the new product in development:

  1. Product description – a detailed explanation of the product including the purpose of the product, technical specifications, market drivers, barriers, competitive environment, etc.
  2. Project justification – a breakdown of the market size and potential in terms of:
    1. the total addressable market (i.e. notional spend from all audiences who could be consumers of the new product);
    2. the served available market (i.e. current spend on all products with which the new product would compete);
    3. pricing strategy and revenue potential.
  3. Project plan – next steps and criteria for successful product launch, such as technical and manufacturing feasibility, CAPEX requirements, risks, costs and timings for each subsequent stage in the Stage-Gate process, and annual sales targets upon commercialization.

The findings from market research on the concept in the previous stage are often incorporated into the business case in order to evidence the opportunity for the product. Some companies commission market research during this stage for an opportunity analysis, i.e. sizing the market and potential for the new product, which provides further empirical data for the business case.

Stage 3: Product Development

This is a pivotal stage in the process in that the project plans lead to the development of the physical product. Prototypes are created for review, and the manufacturing and marketing plans delineated. Market research is less common at this stage; at most it would comprise a quick and small scale customer review of the prototype so as to identify any major potential flaws in the product as early as possible.

Stage 4: Test & Validation

Once sufficient prototypes have been made, it is highly recommended that the product is tested in the field. Software is typically put through a “beta” test to identify any bugs but also to get feedback on what users think. Industrial products can be placed with potential customers for them to trial and then comment on their likelihood to buy the product if it were on the market.

Stage 5: Launch & Monitor

The final stage kicks off the commercialization of the product with full-scale production. The ultimate success of the new product is as much due to its successful positioning, promotion and pricing as it is to the features of the product itself. The market research conducted earlier in the process plays an essential role here in making sure that these other aspects of the 4Ps are suitably met. Some companies choose to carry out further research upon launch of the new product to monitor its uptake and keep a pulse on its “health” within the market.

Developing Success Criteria For Go/Kill/Modify Decisions

Qualitative research is particularly useful for the ideation stage at the start of the process and for exploring the concepts. However, many companies require a more structured mechanism for assessing both concepts and prototypes. An increasing number of b2b companies are using the best practices of consumer-packaged goods manufacturers by developing success criteria appropriate for their markets and products. These criteria are best developed upon completion of at least a handful of concept tests and product trials, in order that relevant data are available on which to base the criteria.

The success criteria are usually based on a purchase intent question asked to the market research participants in the form of a 5-point Likert scale, as follows:

Assuming the product was offered at a price considered acceptable by your company, which of the following best describes your intent to purchase it?  
Definitely would buy O
Probably would buy O
Might or might not buy O
Probably would not buy O
Definitely would not buy O

Two key metrics stem from this question:

To pass through the gate, the concept or prototype needs to fall within the threshold for the standard purchase intent score for either the top box or top 2 box hurdle. As per the example shown below, a prototype must obtain a minimum top box score of 30% or a minimum top 2 box score of 60%. If the prototype fails to meet these thresholds, then the lead on the project needs to decide whether to kill the product or whether to modify the product and then reenter the Stage-Gate process.

Success Criteria  Top Box Hurdle Top 2 Box Hurdle
Intent to buy   Standard 30% - 34% 60%
Good 35% - 44% 70%
Excellent 45%+ 80%

Example Of Success Criteria For Prototypes Following Voice-Of-The-Customer Trials

The success criteria should be monitored over time based on the numbers of “go” and “kill” project outcomes. It may be necessary to tweak the criteria so as to optimize them for the business. In view of cultural differences, some companies have also created regional variations of the success criteria, such as relatively higher thresholds for European data given that respondents in Western Europe tend to be less enthusiastic in scalar survey responses compared to their North American counterparts.

Conclusion

There is no doubt that new product launches are an expensive process. The development of a new product and the market research that can accompany it as it moves through the Stage-Gate needs carrying out quickly, cost effectively and by experienced researchers who don’t misinterpret the data and kill a good idea. Success criteria for directing go/kill/modify decisions streamline decision-making throughout an organization, and increase the likelihood of product success based on the disciplined and focused approach along the journey to commercialization. Costly it may be but the rewards of voice-of-the-customer-driven product development are huge when a business can point to the fact that 50% of its new and successful products have been launched within the last five years.