New Product Development – Process and Stages with Examples and Case studies

New Product Development is a process by which companies bring new products into the market. It is an 8 step process used by the R&D department to launch new products.

Launching a new product is not always about generating a product that is new to the world. As a fact, according to Kotler, hardly 10% of all the new products are actually innovative and unique to the market.

Companies usually upgrade their existing products by relaunching them as new ones or adding some new products to the current product mix, etc. This helps to cater to the customer’s ever-changing needs and tastes, technologies, and product life cycles.


New Product Development – Process

  1. Idea Generation – Developing a large pool of ideas
  2. Idea Screening – Non-feasible and non-viable ideas are screened out.
  3. Concept Development – The selected ideas are turned into concepts are tested to find the best one.
  4. Marketing Strategy – Marketing strategy is developed for the new product.
  5. Business Analysis – The business aspect of the new product is analysed.
  6. Product Development – The actual product is developed and tested for feasibility.
  7. Test Marketing – The business strategies are tested in test markets
  8. Commercialisation – The new product is introduced in the market.

Stage 1 – Idea Generation

Ideas that are unique and meet consumers needs form the spine of the new product development. It is the most important step in developing any new product, and they arise from market opportunities that can be innumerable.

This stage suggests creating a large pool of ideas from both internal and external sources using numerous techniques

  1. Research and Development Department.
  2. Employees of the firm.
  3. End customers.
  4. Channels Of Distribution.
  5. Competitors.
  6. Other sources such as consultants, communities, government agencies, market research firms, commercial laboratories, etc

Example: Google

Google’s most prominent management philosophy is the “20% time” policy which was created by Google Founders Larry Page and Sergey Brin in 2004. In the policy, the company has been encouraging its employees to dedicate 20 % of their time to side projects, which is one of the primary reasons why it remains as one of the most innovative companies in the world.

It’s intended to give employees one full day per week to work on a Google-related passion project of their choice. The results have been unbelievable and revolutionizing, and their exhibits are Gmail, Google Maps, and Slack that started as side projects.

Stage 2 – Idea Screening

This stage involves the evaluation of the pool of innovative ideas and discarding the lesser effective ones.

  1. Compatibility: Compatibility of the concept with the overall business objectives.
  2. Relevance: Relevance of the idea based on the existing and predicted business conditions and goals.
  3. Assumptions: Validity of the premises on which the idea is based upon.
  4. Constraints: Internal and external barriers that inhibit the growth of the idea into reality.
  5. Feasibility: Practicability of the idea to work based on the resources available.
  6. Value: The idea’s predicted return on investment.
  7. Risks: Internal or external risks that may limit the idea’s progress.

There’s a probability of 2 types of errors occurring in the new product development process, and the idea screening stage serves as a filter to prevent the business from them. The errors are:

  • Drop error – Discarding a good idea.
  • Go error – Going ahead with a bad idea.

Example 1

The television show ‘Friends’ almost didn’t see the light of the day [Almost a – Drop Error]. The National Broadcasting Company’s [NBC] comedy show ‘Friends’ enjoyed a good 10 year run from 1994 to 2004 as a continuing powerhouse for ratings.

According to an internal NBC research report, the show nearly didn’t see the light of the day as the pilot episode was reported as ‘Not very entertaining, clever or original’ and was given a poor grade, scoring 41 out of 100.

Example 2

Starbucks – My Starbucks Idea. Howard Schultz, in 2008, introduced the My Starbucks Idea to increase further the company’s focus on the customer and their wants. Starbucks on My Starbucks Idea gave customers insight into what the company was doing and made them the feel of an insider.

This Idea has seen colossal success and has been the source of ideas such as Cake Pops, Hazelnut Macchiato, and free Wi-Fi. In 2013 by the fifth anniversary of My Starbucks Idea, the company had generated over 150,000 ideas and had implemented the best 277 of them.

Stage 3 – Concept Development and Testing

An idea is different from a concept. An idea is just an imaginative construction of a business possibility or an opportunity, but a concept is an idea that has passed through the process of fine-tuning and is not as inconsistent.

The concept is a prepared version of the product idea which takes into consideration the following points;

  1. Potential value propositions
  2. Product usage
  3. Potential target audience

Example 1

A fitness centre could be a product idea. But a product concept would be more of a fitness centre that focuses on giving Yoga sessions to working women offline in the morning and online in the evening

Example 2: Lego Ideas

Lego, as a brand has been leveraging crowdsourcing to design innovative new products through its Lego Ideas website. Users here are given complete liberty to design their Lego products from scratch using their free software provided by Lego.

The finished idea is then voted for by the consumers, and the most popular designs are finalized, manufactured, and sold as LEGO branded products giving the original owner some royalties. Designs that gain 10,000 votes in six months are considered as “eligible for review” where Lego then determines whether or not it will actually manufacture and sell the designs.

Main reasons that the company rejects designs after receiving good levels of support are IP infringement, inappropriate content for younger viewers (such as guns, sexual references, or alcohol), and design characteristics that would prove the project to be unprofitable (such as too many unique pieces).

Stage 4 – Marketing Strategy Development

Once a concrete concept is finalized, the next step involves generating a marketing strategy for the new product. The marketing strategy is divided into three parts:

  1. A detailed summary of the target market’s size structure and behaviours, the proposed value proposition, the product positioning strategy, and sales size, market share and profit goals for the first few years.
  2. An outline of the pricing strategy, distribution strategy, and the required marketing budget for the first year.
  3. The marketing mix strategy [4 Ps] and the planned long-term sales and profit goals.

Stage 5 – Business Analysis

The next step after the product and its marketing strategy is finalized is the evaluation of the product as a business by reviewing the following points;

  1. Expenses incurred in manufacturing, marketing, and selling.
  2. Projected sales.
  3. Projected profits.

The analysis is then compared with the firm’s goals, and the product is sent for production only if the above-stated factors satisfy the objectives

Stage 6 – Product Development

The product up to this stage only existed as a word description, a drawing or a prototype. After business analysis clarifies the product, the research and development department takes over for actual product development.

Here the product may take days, weeks or even months to develop final product as it goes through a sequence of testing phases (alpha testing and beta testing) to verify all the assumptions.

Alpha testing is examining the product inside the firm to ensure it meets the set standards. Beta testing means launching a Minimum Viable Product [MVP] or a test version in the market to verify the product-market fit. Nevertheless, it doesn’t include testing the final end product or marketing strategy.

Example: Samsung Note 7 Failure

Samsung Galaxy Note 7’s failure is one example of improper product development. The faulty batteries cost the customer electronic giant $14.3 billion in losses in 2016.

Stage 7 – Test Marketing

After the product development stage, the product is then given a brand identity and introduced in a selected market segment as a pilot for testing.The product is taken to the next step and developed in full scale only after test marketing shows positive results. There are three kinds of test markets;

1. Standard Test Markets

These comprise of small representative markets, for example, a single concentrated city instead of the full state where the firm conducts a full-fledged marketing campaign and makes use of store audits, customer surveys and distributor surveys

2.Control Test Markets

These are artificial testing venues like panels of stores that consent to carry new products for a fee. Even here there’s a risk of competitors gaining access to the new product.

3. Simulated Test Markets

These are events of a shopping environment created by the firm to examine customer behaviour concerning the new product and its competitors. This test market also lets the researchers interview customers.

Example: Samsung Galaxy Fold Failure. CNET decided to put the Galaxy Fold through a folding torture test. The phone didn’t live up to Samsung’s promises. The $2,000 device was put into a machine that swiftly folded and unfolded it. As a result, its display failed at around the 120,169 folds mark.

Samsung, upon the announcement of the Fold, said that it had tested up to 200,000 folds in internal testing. Samsung Electronics CEO DJ Koh called the company’s failed launch of its radical screen-bending Galaxy Fold “embarrassing”

Additionally, Koh took personal responsibility, admitting “I pushed it through before it was ready”.

Stage 8 – Commercialization

Test marketing stage provides the management with the data needed to make the final decision of launch about the product. After the final decision of the product to be launched in the market is made, it goes into the ultimate stage of commercialization and is manufactured in the required quantity.

This stage involves the highest costs as

  1. Manufacturing units are rented or purchased.
  2. Advertising and communication campaigns are administered.
  3. Sales promotion and other marketing efforts are executed to develop an initial demand

Various important decisions are made during the commercialization stage such as;

  1. Introduction time: What is the best time to launch the product?
  2. Introduction place: Should the product be launched in a single market or simultaneously in multiple markets?

3. Future strategies: What should be the strategies that would be taken once the product is launched in the market?