If I were to ask you to name a new product that was launched in the market recently, what would it be? A brand of cell phone? A new biscuit? Or a new shampoo? Whatever your answer may be, you can be sure that less than 10 per cent of these new products actually turn out to be successes. If this is not surprising enough, consider this — less than 15 per cent of new products launched remain on the retail shelves for over six months!
What do these statistics show? Simply that developing and launching new products is not an easy task. Despite the huge amount of research that goes into new product development, companies still fail at an alarming rate in this area. In this series of articles, we will examine some of the factors that affect the success of any new product.
Today’s focus is the process of creating a new product, and it’s important that companies have a structured process for product development. In many cases, it is erroneously thought that new products are only borne out of the passion of an individual. We often think of Chik shampoo, a pioneer in the shampoo sachet segment. This was launched by Beauty Cosmetics (now Cavinkare) in the early 1980s and was, no doubt, the result of the entrepreneur CK Ranganathan’s passion. But even after this early innovation, Cavinkare put a new product process in place to generate a consistent stream of new products.
Cutting the risks
The process typically consists of a formal series of steps that guide the development and testing of any new product before it hits the marketplace. This is required in order to reduce risks. By risks, I mean the uncertainty associated with it.
A new product is fraught with different risks — quality of idea, consumer’s response, product performance, competition reaction and business feasibility — to name a few. It is important for the company to consider carefully whether it is indeed possible to create a new product after factoring in all the above. The new product process is aimed at doing exactly this.
To start with, the quality of ideas. Ideas may come from many different sources — internal employees, external vendors and customers. Apple, for instance, taps into employee sources to come up with new ideas for its product design. If there is a mechanism to sieve these ideas through a set of criteria, then it helps the company be even more sure about the quality of the idea. The various criteria used could be fit of the idea with intended consumer benefit, fit of the idea with the company’s existing expertise, and with the company’s money resources.
Good companies only pursue those ideas they believe they can build on, profitably, in the long run. One of the world’s largest FMCG companies, Procter and Gamble, does not pursue any new product idea that gives it less than a certain profitability percentage.
Consumer response
Second, consumer response. Any new idea should be presented to the consumer before it is launched in the marketplace. Understanding their reaction is paramount in refining the product so that the users do not get to experience a sub-optimal product. There are many sophisticated ways of getting consumers’ response to products by exposing them to their usage, either at home or in laboratories. The scores are then assessed for a ‘go’ or ‘no go’ decision regarding the product. In the fairness cream category, for example, companies leave the product at consumer homes for a week or so to understand their usage and whether the users like it.
The third factor is competition reaction. It would be very naïve on the part of any company to assume that there will be no competition reaction to the new product. Predicting it and planning to counter it will save the company a lot of resources at a later date. Test-marketing a new product is one way to achieve this. A smaller representative market is chosen for this purpose and the new product launched here.
The response is gauged across price acceptance, promotional reactions, packaging, and so on, to ascertain whether this marketing mix will work for the new product. Depending on the results, the company either decides to launch the product full-scale or withdraw it to make modifications. Large organisations like HUL and Britannia almost always conduct a test launch of their products.
Business analysis
Finally, business analysis. Assessing the business feasibility of a new product is one of the most important steps. This is done after knowing what the costs of development are and what the expected returns from the product will be. While it takes a lot of data and calculations to arrive at this information, it is also one of the most important steps. Companies that go through this process are better placed to take more informed decisions regarding the launch of new products.
Overall, it is important to note that the process of new product development itself is an important factor in affecting its outcome. More than 80 per cent of successful new products have had some kind of formal process behind them. Only this will ensure that the company gets a steady stream of predictable new products out in the marketplace.
To end, as Roosevelt said: “In the long run, we shape our lives; we shape ourselves. And this is a process that never ends”. And this is absolutely true of companies too — they need to follow a process in order to shape their own future in the market place.