Product development process started with new product ideas.
Finding promising new product ideas is the starting point in the new product development process for idea generation. New product ideas trigger planning for new products. The idea is evaluated as it moves through the process, and new product planning expenses accumulate. There are various internal and external sources of new product ideas. Ideas can be generated by information search, marketing research, research and development, incentives, and acquisition.
I’ll be discussing the screening, evaluation, and business analysis to help determine if a new product concept is sufficiently attractive to justify proceeding with development.
Sources of Ideas
New product ideas come from many sources. Limiting the search for new product ideas to internal research and development activities is far too narrow an approach for most companies. Sources of new product ideas include company employees, customers, competitors, outside inventors, acquisitions, and channel members. Both solicited and spontaneous ideas may emerge from the sources, and some even occur by accident.
Procter & Gamble’s Ivory soap was a result of an accident. Manufacturing over-mixed the ingredients in the manufacturing process creating air bubbles in the soap, causing it to float. Customers love it!
The essential issue that management must face is how to establish a program for generating and evaluating ideas that will meet the needs of the company. Several questions must be answered in developing such a program:
- Should ideas searches be targeted or open-ended?
- Should the search for new product ideas be restricted to those ideas that correspond to the mission, target market, and the company’s strategy?
- How extensive and aggressive should the company idea search activities be?
- Should search being active or passive function within the firm?
- Where will responsibilities for new product ideas search be placed?
- How will new product planning activities be directed and coordinated?
My research findings indicate that financial performance is higher for high-technology companies that have a proven competence in their products. Companies that focus their product strategy perform much better over a long time span than those that did not. These findings came from a study of 246 products across 26 small and medium-sized companies.
For most companies, the idea search program should be aligned with corporate mission and objectives. While some far out new product ideas may change the future of a company, more often, open-ended ideas search the disparates resources and misdirects efforts.
It is impossible to generalize about the other three questions since they depend on many factors. Factors like size and type of company, technologies involved, new product needs, resources, management preferences, and corporate capabilities. Top management should develop a plan for idea generation that will satisfy the company’s requirements.
Many new product ideas start with customers, particularly ideas for industrial products. The use of a lead user analysis offers promising potential for the development of new industrial products. Lead users are those companies whose existing needs and requirements anticipate marketplace needs. The approach is to try to identify these market leaders and analyze their needs to improve the productivity of new product development and product markets that change rapidly. The objective is to satisfy the lead users needs, thus accelerating new product planning. Both industrial and consumer buyers are useful sources of new product ideas.
Methods of Generating Ideas
Several alternatives for generating ideas are shown in Exhibit 1. Typically a company uses more than one of these options.
Systematic monitoring of various information sources may be helpful in identifying new product ideas. New product idea publications and online sources are available from companies that wish to sell or license and ideas they do not wish to commercialize. New technology information is available through computerized search services. New sources may also yield information about the new product activity of competitors. Many trade publications contain new product announcements. Marketing management must identify the relevant search areas and assign responsibility for a search to an individual or group. Kickstarter and Indiegogo provide a good area to look for new ideas as well.
Survey of product end-users can be useful in identifying needs that new products can satisfy. One useful technique to identify and evaluate a new product concept is the focus group, which can be used for both consumer and industrial products. A small group of 8 to 12 people is invited to meet with an experienced moderator to discuss new product ideas. Idea generation might start with a discussion product requirements for some product use. Subsequent focus group sessions can evaluate product concepts formulated to satisfy the needs identified in the initial session. More than one focus group can be used at each stage in the process. Focus groups may include channel members and company personnel as well as customers.
Another consumer research technique that may be useful in generating new product ideas is the advisory panel. These groups are selected to represent a target market of the company. For example, a producer of computer accessories would include computer users on the panel. Companies in various Industries including telecommunications and pharmaceuticals are using customer advisory groups. These groups provide insight and evaluate new and existing products.
Internal and External Department
Companies research and development generate many new product ideas. New product ideas may also originate from development efforts outside the company. Sources include inventors, private laboratories, research universities, and small high-tech firms.
Other Idea Generation Methods
Incentives may be useful to glean new product ideas from employees, marketing middleman, and customers. The amount of the incentive should be high enough to encourage a submission. The company should also guard against employees leaving the company and developing a promising idea elsewhere. For this reason, many companies require employees to sign a nondisclosure agreement.
Consumer product funds are an interesting concept for generating new products, developing them, and moving their ideas and to commercialization.
While the objective of consumer product funds is to provide a return to investors, corporate participant’s may gain access to new products without the high cost of internal development. However, critics of the funds argue that small venture firms do not have the experience to successfully plan and introduce new products. There’s also the possibility that two or more corporate investors will try to compete for a promising new product or perhaps the entire company.
Finally, acquiring other firms offer a way to obtain new product ideas. This strategy may be more cost-effective than internal development and can substantially reduce the lead time required for new product planning.
Idea generation identifies one or more product concepts to be screened and evaluated. And an idea for a new product must be transformed into a define product concept. The complete product concept is a statement about selected anticipated product attributes that show how they will yield selected benefits relative to other products or problem solutions already available. For example, the pump toothpaste dispenser (attribute) offers a simple and quick alternative (benefit) tube.
SCREENING, EVALUATING, AND BUSINESS ANALYSIS
Evaluating new ideas is essential for new product planning. Assume that a successful new product specifies criteria for commercial success (e.g., sales, profit contribution, and market share).
Two risks are involved in the evaluation as shown in Exhibit 2.
If the level of risk for rejecting an idea is set too low, then too many ideas will be developed that later must be rejected. Moving too many ideas too far into development and testing is an expensive mistake. Management must establish a screening and evaluation procedure that will kill unpromising ideas as soon as possible. While keeping the risk or rejection of good ideas at an acceptable level.
Expenditures buildup from the idea stage to the commercialization stage, or as the risk of developing a bad new product decline as more and more information is obtained about the product and the market. Thus, the best screening procedure is one that is not too tight. The objective is to eliminate the least promising ideas before too much time and money are invested in them. The tighter the screening procedure, the higher the risk of rejecting a good idea. Based on the specific factors involved, management should have established a level of risk appropriate for the situation.
A new product idea should be evaluated regularly as it moves through the new product planning stages. Ideas may be rejected at any stage. Even though the objective is to eliminate the poor risk relatively early in the planning phase before major product development expenditures occur. The evaluation techniques appropriate to each stage in the planning process are matched to the evaluation task.
An idea for a new product should receive an initial screening to determine that strategic fit in the company. Two important dimensions should be evaluated:
- The strategic capability of the idea
- The commercial feasibility of the venture
The purpose of screening is to eliminate ideas that are not compatible or feasible for the company. These assignments or somewhat subjective since management must establish how narrow or wide the screening boundary should be. For example, the management of two otherwise similar companies might have very different missions and objectives. Thus, an idea that involves a new product market area could be strategically compatible in one company is not in another. The dimensions on which management evaluates ideas/concepts/products included all key management areas.
Some firms develop screening procedures using scoring and rating techniques for the factors shown in Exhibit 2. the result is a score for each idea being screened. Management can set ranges for passing and rejecting. The methods are effective only if managers agree on the relative importance of the screening factors.
The boundaries between idea screening, evaluation, and business analysis are not clearly drawn. Some firms combine two of the evaluation stages. Nevertheless, the distinction seems appropriate. After completing the initial screening, the ideas that survive are subject to a more comprehensive evaluation. Several of the factor shown in Exhibit 2 may be evaluated in greater depth, including buyers reaction to the proposed concept. Concept tests are useful in evaluating and refining new product ideas.
The objective of concept testing is to obtain a reaction to the new market concept from a sample of potential buyers before the product is developed. The product concepts are presented to the test participants in various forms, such as a written description, a drawing, a model, or a package. Typically, a statement of a concept is part of the testing procedure. The statement should be brief, consisting of one or two paragraphs. Bias must be avoided in the wording of the statement.
When designed and implemented, the concept test offers a very useful means of evaluating a product idea very early. The cost of concept testing is reasonable, given the information that can be obtained. There are some important cautions. The test, at best, is a very rough gauge of commercial success. Since the actual product and a commercial setting are not present, the test is somewhat artificial.
The concept test is probably most useful in signaling very favorable or unfavorable product concepts. It also offers a basis of comparing two or more concepts. A requirement for concept testing is that the product can be expressed as a concept. Moreover, the participants also have the experience and capability to evaluate it.
The completion of the evaluation stage should yield one or more concepts for business analysis. In general, consumer products firms spend a higher percentage of time on screening and evaluating ideas then industrial product firms. The time devoted to the actual development of the new product is greater for industrial goods companies than for consumer goods companies.
The business analysis estimates the commercial performance of the proposed product, obtaining an accurate financial projection depends on the quality of the revenue and cost forecast. Business analysis is normally accomplished at several stages in the new product planning process. The first assessment is conducted before the product concept moves into the development stage. Financial projections are refined at later stages.
The newness of the product, the size of the market, and competing products influence the accuracy of revenue projections. For SaaS computer software, estimates of total market size can usually be obtained from industry information. Several industry associations publish in the industry forecast. Industry and financial analyst such as Gartner, IDC and, Forrester provide great industry information as well. The more difficult task is estimating the market share that is feasible for a new product entry.
Sales of new-to-the-world products are very difficult to forecast. One approach is to identify the potential size of the target market and then estimate the new products rate of market penetration. For example, sales forecast for electric cars could be based on the percentage of penetration in the conventional gas driven car market over a specified time.
Several types of cost or encountered in the planning and commercialization of new products. One way to categorize the cost is to estimate them for each stage in the new planning process. The cost increases rapidly as the product concept moves through the process. Cost for each planning stage can be further divided into functional categories (e.g., marketing, research and development, and manufacturing). Executives experience in new product planning should be able to generate reasonable cost estimates.
Several types of profit projections can be used to gauge a new product financial performance. Those appropriate for new product business analysis include Breakeven computation, cash flow, return on investment, and profit contribution. Breakeven analysis is useful to show how many units of a new product must be sold before it begins to make a profit. Management can use the break-even level as a basis for estimating the project feasibility.
Senior management must determine the appropriate level of time for projecting sales, costs, and profits. Policy guidelines may be specified. For example, the product may be required to recoup all costs within a certain time period. Business analysis estimates should take into consideration the estimated flow of revenues and cost over the time span used in the analysis. Typically, new products incur a higher cost before they start to generate revenues.
Several issues must be considered in the business analysis of a proposed product concept. First, management should formulate guidelines for the financial performance of new products. These can be used to accept, reject, or further analyze the product concept. Another issue involves assessing the amount of risk. This factor should be included either in financial projections or as additional consideration beyond the financial estimates. Finally, the possible cannibalization of sales from existing products should be estimated. New products that are substituted for existing products often cannibalize sales.
EXAMPLES OF NEW PRODUCT IDEAS
- Ring Video Doorbell
- A Solar-Powered Camping Tent
- The Biolite Camping Stove
- Ultra-Ever Dry Waterproof Coating
- PaperKarma: The Junk Mail-Eliminating App
- Senz: The Stormproof Umbrella
- Justick: An Electro-Adhesive Bulletin Board
New product development process starts with a search for new ideas. The search should not be casual. Senior management should define the products and markets to emphasize. It should state the new product objectives, whether it is cash flow, market share domination, or some other objective. It should state how much effort should be devoted to developing original products, modifying existing products, and copying competitors products.
The purpose of idea generation is to create a number of ideas. The purpose is to reduce the number of ideas to an attractive, practicable few.
Organizations are recognizing the necessity and advantages of developing new products and services. Their more mature and declining products must be replaced by newer products.
New products, however, can fail. The risk of innovation is as great as rewards. The key to successful innovation lies and developing better organizational processes for handling new product ideas and developing sound research and decision procedures at each stage of the new product development process.
How do you and your organization handle new product ideas?
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