For many businesses developing new products is their lifeline for new growth. Look at all the line extensions that the major brands keep introducing. As an example, have you noticed how many different flavors there are for Special K cereal, not to mention the Special K snack bars?
But when you cut to the chase, NPD isn’t hard, it’s risky. The NPD process is all about minimizing risk. After all, you spend all that money to develop the new product, build inventory, and get it on the shelf, and it may not sell. Now you are faced with returns, over stocks, and it just goes downhill from there.
So, consider this; New Product Development is like cooking pasta. If you don’t add enough salt while it is boiling it seems that no amount of salt can catch up later and the pasta ends up tasting bland. With NPD if you don’t build in the solution to the customers’ needs up front, no amount of advertising or promotion will save you later.
This is the part where the risk comes in. How do you know if your new product will solve the needs of your target customers? The landscape is fraught with product failures, even from large companies with a lot of resources (and supposedly smart people).
You can never eliminate the risk in NPD. There are no sure bets on any product. But, all hope is not lost. Here is a short list of steps that should be taken to minimize risk. The more of these you do, the greater the chance of success.
1. Make sure you have a development process in place. I favor a phase and gate process, but whatever you use make sure it includes best practices.
2. My second point is critical. Whoever is in charge of the project must know how to use the process. DO NOT let the process dictate the work you do, rather, use the process to reach the goals. There is not a process that is 100% right for any company or product. Tailor it to eliminate items or steps that will not add any value.
3. Do your research. The more the better. If your budget is challenged this is not the place to sacrifice. You must obtain VOC (voice of the customer). If you don’t have internal resources to get it, then hire a professional agency. The better the research, the less risk involved.
4. Understand the target segments. There probably is more than one segment that needs/wants your product, but they are likely to have some differences in the way they use the product. Also, the positioning will be different to reach different segments.
5. Know your competition. Is your product faster, better, smaller, or cheaper? If not there better be something about it to set it apart from all the others on the market that are already out there solving needs.
6. Use market back pricing. This is where you work backwards to determine the price the end user will pay. Many companies simply figure out what the product costs to make, sell, ship, and advertise, and then add the amount of margin they need to make to reach the final price. This will sink you faster than the Titanic. In market back pricing you start with the final price to the end user – the amount the market will bear. Then subtract the middleman’s margin, your overhead costs, your desired profit margin, and any other cost that will be involved. This results in the amount you must be at, or under, to produce the product. If you cannot produce it at this cost, then you do not have viable product.
7. Write superior requirement documents. Someone has to translate all the information obtained in the steps above into a document that the R&D team, engineers, manufacturing team and marketing can understand. Start with an MSA (marketing situation analysis) which lays out the market need for the product. Follow that with an MRD or PRD (market/product requirement document). I have seen NPD programs go astray because these documents were not clear or not even written.
8. Lastly, be realistic. Do not get so close to the forest that you cannot see the trees. Too many people get caught up believing that their new “baby” will take the market by storm. Stay objective, keep emotion out of it. You will not find an emotional step in any good NPD process.
So there you have it. Reduced risk. How can I be so sure? I brought a billion dollar product line to market using these steps. I have often been asked, “How do you reach a billion dollars in sales?” It’s simple, follow the steps, and put enough salt in the water while it is cooking.