2. Speak on different types of products.

Read text 4 and explain the meaning of me-too products.

Text 4. The Process of New Product Development

(a) Generation of ideas. A constant supply of ideas is needed in order that some will survive the process of new product development. Potential losers are weeded out at each stage and very few make it through the entire development process to reach the market. For a product that fails at a particular stage, the process may need to revert back to an earlier stage, perhaps even to the point of beginning with a new idea.

Ideas for new products or concepts can come from almost anywhere. Customers and retailers often suggest ways in which existing products can be adapted. Employees can also generate useful ideas through processes such as suggestion boxes, brainstorming sessions and so on. Then there is the sales force, who effectively function as the 'eyes and ears' of the company in the marketplace. Being in direct contact with customers they are in an ideal position to recommend improvements to products. Most importantly, they can identify potential gaps in the market where consumer needs have yet to be satisfied.

Larger companies tend to carry out their own research and development (R & D) programs. Those who operate at the leading edge of technology in industries such as aeronautics, electronics and pharmaceuticals view their often considerable investment in R & D as an essential investment in the future. Marketing research can be useful in identifying unsatisfied consumer needs - though research is less useful in the case of highly innovative products which exploit latent needs, largely because consumers find it difficult to evaluate an idea which is completely new to them.

Companies can also pick up ideas by scouring the literature of competitors. It is well documented that the Japanese firm of Seiko acquired their knowledge of quartz watch technology by studying freely-available Swiss technical jour­nals. More companies then would openly admit to doing so obtain ideas from competitors' products. For example, many electronics manufacturers practice reverse engineering. This is where competitors' products are stripped down to the smallest component so that any superior features which are found can be improved on and incorporated in their own version.

Ideally, the 'new' version should not be an exact copy of the competitor's pro­duct. Such me-too products are rarely successful, unless they offer a significant improvement on the earlier model. Nevertheless, me-too products have become a fact of life. In the nature of things it is perhaps inevitable that successful pro­ducts are going to attract competition. However, it is the sheer scale of this com­petition that has left observers gasping. As Richard Brooks points out in his book, “The New Marketing”, 'Five years after the launch of its personal com­puter, IBM was fighting a new PC battle - not with the Japanese, as everyone originally expected, but with low-wage companies in Taiwan and South Korea. By 1986 IBM's PC had become a commodity product and was being copied by more than two hundred firms.'

(b) Product concept screening. The aim of the screening process is to narrow down the list of ideas generated to a small number of concepts which are worth investigating further. Some product ideas are sifted out simply because they are inappropriate to the strengths and weaknesses of the company. For instance, it is unlikely that a company making fashion clothing will start to make microwave ovens as it will not have the skilled labor, production facilities or distribution channels needed to produce the ovens. Alternatively, ideas may be rejected purely on the basis that they are incompatible with the company's existing range of products.

Once a product concept is considered a serious prospect, the company may decide to carry out a value engineering study in order to weed out products which might be too impractical or uneconomic. This involves looking into the availability of raw materials and components, probable manufacturing costs and so on.

Assuming that the product is a feasible proposition from the company's point of view, the next step is to assess whether the proposed new product is likely to appeal to customers. Detailed drawings or scale models of the concept are prepared. These are inexpensive for the company to produce yet realistic enough for consumers to get a good idea of what the product would be like. In order to evaluate the likely benefits of the product, respondents are also asked to imagine what it can do for them. Concept testing therefore makes it possible to evaluate consumers' reactions to a new idea before the company has committed itself to the expense of actually making the product.

(c) Assessing market potential. The next stage involves carrying out a detailed analysis of the product's market potential. The marketing department calculates sales forecasts and market share projections, estimates the advertising and promotional budgets that will be needed and recommends the prices that should be set. They also receive estimates from the production department as to the availability and cost of raw materials, packaging and production equipment, etc.

In addition, a break-even analysis is performed to establish the point at which the product would begin to make a profit. Most importantly, marketers can use the forecasts to determine whether the volume of sales would be sufficient to cover development costs and provide a healthy profit margin in the long term.

Thorough and detailed analysis of this nature is expensive and time-consuming. Nevertheless, it is money well spent if it enables companies to decide at this early stage that a product is not commercially viable. This is par­ticularly important as costs of development begin to escalate greatly at this stage.

(d) Developing a prototype. Given that the company has eliminated any unrealistic product ideas and car­ried out a thorough analysis of market potential, it will now be in a position to develop a prototype product. The main advantage of building a prototype is that designers and engineers can see potential manufacturing problems much more easily when they have a tangible, physical product before them.

Increasingly, however, the number of prototypes needed in testing is being reduced (or even eliminated) by the use of computer simulation techniques. Simulations allow the performance characteristics of the computer model, such as its resistance to stress, to be analyzed accurately. Whereas in the past a com­pany like Rolls Royce would have built as many as 39 test engines when develop­ing a new aero engine, today 8 or 10 would be enough as the majority of the early testing is done by computer simulation.

(e) Test marketing. Providing that the prototype performs satisfactorily, the next stage is for the product to be sold in a test market, which is usually a town or small TV region. For example, Tyne-Tees was used as a test market for the launch of Wispa chocolate bars because it is a fairly neat, self-contained region, representing 5 per cent of UK spending power. Undertaking a small-scale trial enables the company to assess the degree of consumer acceptance for a new product without incurring the expense of a full national launch.

If the product does not realize its full potential, companies can cut their losses fairly easily. Linked to this is the fact that if the product fails dismally, then any damage to the company's reputation and image is limited to a small geographical area and thus a small number of potential purchasers.

Test marketing also benefits successful products in that it enables initial teething problems to be dealt with at the outset. However, test marketing is not possible for all new products; the need for secrecy can be vital to prevent rival firms getting wind of a launch. For example, whilst a US firm researched its new brand of chocolate-chip cookies in Kansas City, competitors Nabisco and Keebler rushed to launch their own versions nationwide, stealing the initiative (and much of the early sales advantage) from the pioneering brand.

(f) Full commercial launch. Once a product has proved to be successful in test markets, it is then ready for full commercial launch. Production capacity is increased to cope with the pro­jected national level of demand. Final modifications are made to the product formulation, packaging and price, as well as to the promotional campaign. Advertising is booked, the sales force trained and distribution channels set in place.

The new product is then ready for national roll out. It is introduced first into one region, then a few months later into a second region. Firms thus have an opportunity to fine-tune any aspect of the marketing mix. At the same time, they have a chance to build up stock levels to meet the rising level of demand as the launch proceeds nationwide.