NPD 24 11 10 4 2

New Product Development
NEW PRODUCT DEVELOPMENT

– AN OVERVIEW
Learning Objectives:
 Understand the process of product design and
development
 Understand the enterprise-wide view of
PPD(Product and Process Development) in the
context of different industry sectors
 Develop an appreciation for different approaches to
PPD and different implementation methodologies
 Develop an appreciation for collaborative models of
product innovation and commercialization
– AN OVERVIEW
 Who should ultimately design the product ?

 The customer of course.
– AN OVERVIEW
 Once a company has carefully

 segmented the market,
 chosen its target customers,
 identified their needs and
 determined the market positioning
– better will be the position to develop new products
– AN OVERVIEW
 Market Segmentation
I) Consumer Mkt./Prescription Mkt.,
(patients - under diff therapeutic group)
(patient – end consumer – therapeutic
group, Drs. – Intermediate consumer-
Speciality, GPs)
2) Institutional Market (Hospitals)
3) Indl. Mkt. (Bulk drugs used in
formulations)
– AN OVERVIEW
 Four ways of Segmentation

1) by demographic factors ( infant market,
paediatric, geriatric.)
2) by usage rate (heavy users, medium, light) – all
have diff. Needs.
3) by perceived Product benefits
4) by life style or psychographic characteristics
(motive behind the purchase /habits /activities /
interests /opinions) e.g Godrej Hair Dye, Washing
m/c, Indications.
– AN OVERVIEW
 Therapeutic group
 Antibiotics
 Antacid preparations
 Quinolones
 Analgesics
 Cardio vascular drugs
 Cough & Cold preparations
 Psychotropic & neurological drugs
 Topical drugs
 Vitamins
 Anti-rheumatic, Non-steroidal
 Anti-anemic preparations
– AN OVERVIEW
 Every company must develop NEW PRODUCTS

 INNOVATE OR PERISH
 In US four out of five NP fail.
 An Avg. of 58 NP ideas required to produce one
successful NP (Mg. Cons. Booz, Allen & Hamilton)
 New Product development shapes the company’s
future
 Replacement products must be created to
maintain or build sales.
– AN OVERVIEW
 Each year over 16000 new products (including

extensions & new brands) are introduced in drug
stores and groceries
 Less than 10% are truly innovative and new to the
world
 These products involve greatest cost and risk
since they are new to both the company and the
market place
(e.g. Sony – over 80% of NP activity undertaken
to modify and improve existing Sony products)
CHALLENGES IN
 Companies that fail to develop new products are

at great risk
 Their existing products are vulnerable to
 changing customer needs and tastes
 new technologies
 Shortened product life cycles (Introduction, growth,
maturity, decline) e.g Sony takes 3 years for NP Vs.
Matsushita copies within 6 months.
 Increased domestic and foreign competition (Chinese
products – low cost – full capacity utilisation)
CHALLENGES IN
 At the same time NPD is risky:

Me-too marketing is no. 1 killer of NP. Most
such attempts fail
E.g. Pepsi cola led a precarious existence for
decades before establishing itself as the major
competitor to Coca-cola
FACTORS ACCOUNTING
NEW PRODUCT SUCCESS
 New Product success is greater -

 The deeper the company’s understanding of customer needs
 The higher the performance-to-cost ratio
 Product introduction earlier than the competition
 The greater the expected contribution margin
 More spent on announcing & launching of product
 The greater the top management support
 The greater the cross-functional teamwork
 General Criteria for Launch of New Product, an

e.g.:
To be introduced within five years
Has a Market potential of 5 Crores and 15% growth
rate
Would provide at least 30% return on sales and 40%
on investment
Would achieve technical and market leadership
BUDGETING FOR
 General criteria for Investment :

Financing as many projects as possible, hoping
to achieve few winners
Apply a conventional %age of sales figures or
spending what the competition spends
How many successful products they need and
work backwards to estimate the reqd.
investment.
BUDGETING FOR
 E.g. 3M(Minnesota Mining & Mfg.):

 failed mining operation in 1906 ended up making
sandpaper our of the grit and wastage. Today makes
more than 60000 products including adhesives,
computer diskettes, contact lenses Post-it notes.
 15% rule (spend time on project of personal interest)
 Expects some failures and learns from them – Slogan
“You have to kiss lot of frogs to find a prince”
 Awards venture teams for their sales performance
within 3 years of its commercial introduction
ORGANISING
 Several ways of handling NP Development:

1. Product Managers:
 Busy managing existing lines
 Lack specific skills and knowledge to develop NP.
1. New-Product Managers:
 Like PMs they also tend to think modifications and line
extensions limited to their product mkt.
1. New-Product committees:
 High level Mg. committee for reviewing and approving
proposals
ORGANISING
 Several ways of handling NP Development:

4. New-Product Departments:
 Dept. head who has substantial authority and access to top
management.
 Responsibilities include Generating and screening new ideas
 Working with R&D dept.
 Carrying out field testing and commercialisation
4. New-Product Venture teams:
 A venture team of “intrapreneurs” within the various depts in the
org.
 They are given a budget, a time frame and a “skunkworks”
setting. (Skunkworks are informal workplaces)
e.g: 3M, General Mills
THE NEW PRODUCT DEVELOPMENT
PROCESS Lay
Future
plans
Yes Yes Yes Yes Yes Yes Yes
Yes
1. Idea 2. Idea screening 3. Concept 4. Marketing 5. Business 6. Product 7. Market 8.

generation Development & Strategy Analysis development testing Commercialis
Is the project testing Development ation
Will this Have we Have
Is the idea Idea compatible
Can we find a Can we find a product developed a product Are product
worth with company
good concept for cost effective, meet our technically sales met sales meeting
considering? objectives,
the product that affordable profit goal? and expectations expectations?
strategies, and
consumers say marketing commercially ?
resources ?
they would try? strategy? sound
product?
No No
Yes
Would it
No No No No No Should
help to Yes
we send
modify the
the idea
product or
back for
No marketing
product
program ?
develop
ment?
No No
DROP THE PRODUCT

PROCESS
1. IDEA GENERATION:
 Search for New Ideas (Brain storming)
 Marketing Plan : Top Managers define the product and
market scope and the NP Objectives
 Develop Breakthrough products (Sildenafil-Pfizer,
Voveron Tab-NSAID-Ciba/Novartis-Aggressive scientific
promotion-British Med Journal/American journal)
 Modifying existing products (Eg. Scored tablets)
 Copying competitor’s products (Samsung)
PROCESS
1. IDEA GENERATION:
 Ideas can come from
 Customers
 Scientists
 Competitors
 Employees
 Channel members
 Top management
PROCESS
1. IDEA GENERATION:
 E.g. 3Ms Traditional soap pads vs Scotch-Brite Never
scratch soap pad – Sales exceeded by 25%
 Alkem-Cepholosporin-Taxim – 1st to launch (30-40 Cr
brand)
 Toyota employees submit 2 million ideas annually – 35
per employee – 85% are implemented.
 Kodak give monetary, holiday, or recognition awards for
best ideas.
 Source of ideas: Sales reps & intermediaries, Top
management, Market research firms, Indl. Consultants,
Indl. Publications/Journals, advertising agencies, patent
attorneys, Trade shows(CPHI India 1-3 Dec’10), etc.
PROCESS
1. IDEA GENERATION:
 Some ways to get Great New-Product Ideas
i. Run Informal sessions where group of customers meet
with co. engineers and designers
ii. Allow time off for technical people to putter on their own
pet projects
iii. Make a customer brainstorming session
iv. Survey your customers – Know their likes and dislikes –
Ranbaxy-Revital(Vit+Ginseng)-now OTC-Advt.
v. Undertake camping out research with customers (done by
Hewlett Packard), SAMMY(S-Adenosyl Methionine
Tablets)-Cartilage Regenerator(ortho)-now also used in
Neuro.
PROCESS
1. IDEA GENERATION:
 Some ways to get Great New-Product Ideas
vi. Set up a key word search that routinely scans trade
publications in multiple countries.
- Oxalgin Tabs (Oxaphinbutazone – NSAID banned –
replaced with new formula Diclo+Para, made use of
Brand equity. Further introduced Oxalgin Nano gel for
better absorption and penetration for faster relief
vi. Treat trade shows as intelligence missions
vii. Have your technical and marketing people visit your
supplier’s labs and spend time with their technical
people to find out what’s new
viii. Set up an idea vault – make it open and easily
accessed. Allow employees to review the ideas and add
constructively to them.
PROCESS
2. IDEA SCREENING
 The Company shud motivate its employees to submit ideas to idea
Manager
 Reviewed by Idea Committee
 Should avoid two types of errors
1. A DROP ERROR
Eg SEARS dismissed the importance of discounting, Walmart and
Kmart did not.
Too many drop errors would mean the co’s standards are too
conservative
2. A GO ERROR – occurs when the co. permits poor ideas into
development and commercialisation
PROCESS
2. IDEA SCREENING
There are three types of product failures under GO ERROR:
1. Absolute product failure – loses money, its sales do not
cover variable costs
2. Partial product failure – loses money but its sales cover
all its variable costs and some of fixed costs
3. Relative product failure – yields a profit but less than
the target
The purpose of screening is to drop poor ideas as early as
possible
PROCESS
2. IDEA SCREENING
Estimation of products overall probability of success:
Overall Probability Probability of Probability of

Probability of = of technical X commercialisation X economic
Success completion given technical success given
completion commercialisation
0.24* .50 .65 .74
*The company then has to judge whether this probability is high enough to warrant
continued development.
PROCESS
2. IDEA SCREENING
Product-Idea Rating Device( To promote Systematic product-idea evaluation &
discussion) :
(Not for Management decision)
Relative Product Product
Weight Score Rating
Product Success Requirements (a) (b) (c= a x b)
Unique or superior product .40 .8 .32
High performance-to-cost-ratio .30 .6 .18
High marketing dollar support .20 .7 .14
Lack of strong competition .10 .5 .05
Total: 1.00 .69*
*Rating scale: .00-.30 poor; .31-.60 fair; .61-.80 good. Minimum acceptance rate: .61
PROCESS
3. CONCEPT DEVELOPMENT & TESTING:

 Attractive ideas must be refined into testable product concepts.
 Concept Development:
 Consumers do not buy product ideas, they buy product
concepts(the thoughts behind the idea). E.g. adding
powder to milk for nutrition. It is a product idea.
 Concept 1: An instant breakfast drink for adults who want
a quick nutritious breakfast.
 Concept 2: A tasty snack drink for children as a midday
refreshment.
 Concept 3: A health supplement for older adults to drink
before bed.
PROCESS

 Concept Testing:
 Involves presenting the product concept to
appropriate target consumers and getting
their reactions
 Physical prototypes were costly – now with
the help of CAD, it is simpler
PROCESS
E.g of Milk with powder – Give the details of the idea – instant mix / good taste /
flavours / high convenience
Question Product Dimension Measured.
1. Are the benefits clear to you and Communicability and believability. If the
believable scores are low, the concept must be
refined or revised.
2. Do you see the product solving Need Level. The stronger the need, the higher the a
problem or filling a need for you? expected consumer interest.
3. Do other products currently meet Gap Level. The greater the gap, the higher the
this need and satisfy you expected consumer interest
4. Is the price reasonable in relation Perceived Value. The higher the perceived value the
to the value higher the expected consumer interest
5. Would you (definitely, probably, Purchase Intention.
probably not, definitely not) buy
the product ?
6. Who would use this product, and User targets, purchase occasions, and purchasing
when and how often will the frequency
product be used ?
PROCESS
4. MARKETING STRATEGY DEVELOPMENT(Marketing Plan):

 After concept testing – Preliminary Mktg. Strategy Plan is
introduced.
 The Plan consists of 3 parts:
i. The first part describes:
- Market Size, Structure, Behaviour;
- The Planned Product positioning (e.g. higher price, higher
quality end of instant-breakfast-drink category),
- The Sales, Market share & profit goals for first few years
(e.g. instant-breakfast-drink category – aim to sell 5L cases or
10% of Mkt with a loss in 1st year not > $1.3mill, 2nd yr will aim
for 7L cases or 14% of Mkt with a planned profit of $2.2mill.)
PROCESS

introduced.
ii. The second part outlines:
Planned price, Distribution strategy, Mktg. budget
- the product will be offered in 3 flavours 1 x 6 packets in a box at an MRP of
$2.50 per box.
- Shipper of 1x6x48 per case.
- Free samples door to door,
- Coupons of 20c off will appear in newspapers.
- Total Sales Promotion Budget $2.9mill.
- Advt. Budget $6mill split bet. 50:50 National and Local – 2/3 for TV 1/3 in
Newspaper – Advtg. Concept – small boy drinking instant breakfast and
growing strong.
PROCESS

introduced.
iii. The third part describes:
Long-run sales and profit goals,
Marketing mix (Product, Price, Promotion, Place) strategy over time.
- e.g. Co. intends to capture 25% Mkt. Share – after tax ROI of 12%
- product quality will be high – to be improved thru technical research
- Price will be high initially – lowered gradually to capture the mkt.
- Total prom. Budget will be boosted to 20% each year
- Advtg.-sales promotion initially 65:35, eventually 50:50.
- Mkt. Research Exp. will be reduced by $60K/year after 1st year
PROCESS

 Show Typical Pharma company Marketing Proposal/Plan.
PROCESS
5. BUSINESS ANALYSIS:
 To evaluate the Proposal’s business attractiveness
 Prepare Sales, Cost and Profit projections to determine whether
they satisfy company objectives
Estimating Total Sales:
a. It is a sum of Estimated first-time sales, Replacement sales and
Repeat Sales
b. Estimation will depend upon whether the product is
i. One-time purchase (e.g. a retirement home, engagement ring)
ii. Infrequent purchase (e.g. automobiles, indl. equipments)
iii. Frequent purchase (e.g. consumer & indl. Nondurables,
FMCG)
PRODUCT LIFE CYCLE
FOR THREE TYPE OF PRODUCTS
a) One-time purchase b) Infrequently c) Frequently

product purchased product purchased product
Repeat Purchase
sales
Sales
Sales
Sales
Replacement
sales
Time Time Time

PROCESS
Estimating Costs & Profits:
a. Costs are estimated by the R&D, Mfg. Mktg.
and Finance dept.
b. Next slide illustrates Projected sales revenue over the 5year
period. ( Behind this sales projection is a set of assumptions
about Mktg. Growth, Cos. Mkt. Share, and the factory-realised
price)
FIVE-YEAR PROJECTION OF SALES, COST AND PROFITS FOR
INSTANT BREAKFAST DRINK
Year 0 Year 1 Year 2 Year 3 Year 4 Year 5
1. Sales revenue 0 11889 15381 19654 28253 32491
2. Costs of goods sold (33%) 0 3981 5150 6581 9461 10880
3. Gross Margin 0 7908 10231 13073 18792 21611
4. Developments costs -3500 0 0 0 0 0

(Incl. Prod. Dev. Costs,
Mktg. Res. Costs & Mfg.-
Dev. Costs)
5. Marketing costs 0 8000 6460 8255 11866 13646

(Advt., Sales Prom.,
Mkt. Res. Costs + amt
allocated for sales force
coverage & Mktg. admin.)
6 Allocated overhead 0 1189 1538 1965 2825 3249

(Salaries, heat, light, etc)
7. Net Contribution -3500 -1281 2233 2853 4101 4716
8. Discounted contribution (15%) -3500 -1113 1691 1877 2343 2346
9. Cumulative discounted cash flow -3500 -4613 -2922 -1405 1298 3644
(P B P)
Unit: $
PROCESS
Estimating Costs & Profits:
c. Other financial measures to evaluate the merit of a new-product
proposal is the
- simplest Break-even analysis (estimates how many units need
to be sold to break even with the given price and cost structure)
and
- The most complex method of estimating profit is Risk analysis
(Optimistic, pessimistic and most likely)
PROCESS
6. PRODUCT DEVELOPMENT:
 After the product concept passes thru business test, it moves to
R&D or engineering.
 Involves large investments
 At this stage the company determines whether the idea is
technically or commercially feasible
 The target customer’s requirement is taken care of by QFD. –
Customers Attributes(CAs) are converted into list of
Engineering Attrubutes (EAs)
E.g. Proposed truck acceleration rate – Engineers convert into
required horsepower.
 QFD is a communication point between Marketer, Engineers
and Mfg. People.
PROCESS
 Developing certain features takes time – Even a new taste formula.
E.g Maxwell House – consumers wanted “bold, vigorous, and deep
tasting coffee. The Lab took 4 months time to make the various blends
– turned out to be too expensive to produce – company compromised
on taste – eventually did not sell.
 Lab scientists must not only design product’s functional characteristics
but also communicate psychological aspects thru physical cues.
E.g. case of Mouthwash– yellow color supports an “antiseptic”claim
(Listerine) – red color supports a refreshing claim(Lavoris) – green or
blue color supports “cool” claim (Scope)
E.g. Tamoxifen – failed contraceptive – new uses discovered -
successful in reducing risk of breast cancer by 50%.
PROCESS
 When prototypes are ready – must go thru rigorous Functional test and
Customer tests.
 Alpha testing – Testing the product within the firm – in different
applications
 Beta testing – Enlists set of customers to use and give feedback
on their experiences – Most useful where the potential customers
are heterogeneous.
 Functional tests: E.g. Gillette – 200 volunteers from various
depts to work unshaven each day – enter small booths with a sink
and mirror – use razor, shaving cream or aftershave as per the
technicians instructions – fill questionnaires.
An employee quips “We bleed so you’ll get a good shave at
home”
In Pharma Industry: Stability studies are undertaken – can take
few months.
PROCESS
 E.g.s of Functional tests: Shaw (Carpet Mfg.) – Temps are
paid to walk for 8 hours a day on the carpet to and fro to
determine the time taken for wear and tear (20000 steps) of
the carpet over the years.
 Customer tests: Can take a variety of forms – Samples to
use at home, In home placements are common viz. new
appliances etc.
Consumer preferences measured in several ways.
E.g A, B, C (3 cameras, 3 insurance plans or 3 Advt.s)
a) Rank order Method: To be ranked in order of preference
b) Paired comparison method: Presented with pairs eg. AB,
AC, and BC – he prefers A to B, A to C and B to C. to
conclude A > B > C. It is easy to state their preference
between two items – focussing on 2 items at a time
PROCESS
E.g A, B, C (3 cameras, 3 insurance plans or 3 Advt.s)
c) Monadic-rating Method: To be rated on a 7-point scale.
1=Intense dislike
4=Indifference
7=Intense like
If A=6, B=5, C=3, then we can conclude the individual’s
preference order is A>B>C.
PROCESS
7. MARKET TESTING:
 After satisfying functional and psychological performance – the product
is ready for Branding and Packaging.
 It is put to a Market Test.
 Market Test yields valuable information viz.
 Information about buyers, dealers
 Marketing program effectiveness
 Market Potential
 High-Investment, high risk products must be market tested. – Market
test cost is insignificant compared to the total project cost.
 Products with novel features warrants more market testing. (e.g. first
fluoride toothpaste brand)
PROCESS
7. MARKET TESTING:
 Procter & Gamble spent 2 years market testing its new no-
calorie fat substitute Olestra.- FDA approved the product –
however 2% experienced stomach problems (side effect)
Co. modified the product and successfully tested the product in
market
However, FDA still insisted that the label should bear the
following statement:
“Olestra may cause abdominal cramping and loose stools. ….”
 Market testing may not happen if there is an urgency to launch
a highly successful product – for not to lose on on distribution
and market penetration.
PROCESS
7. MARKET TESTING:
 Consumer-Goods Market Testing:
The Co. seeks to estimate 4 variables
i) trial,
ii) first repeat (many try but few re-buy it),
iii) adoption
iv) purchase frequency (permanently adopt the product
but low purchase frequency. Eg. Frozen foods)
PROCESS
7. MARKET TESTING:
The major methods of consumer-goods market testing (least to
most costly -
i) Sales-Wave Research
- Consumers who initially try the product are re-offered the
product at slightly reduced price
- Re-offered as many as 3 – 4 times (sales waves)
- Co. notes down how many customers selected the co.’s
product again and their reported level of satisfaction.
- It can also include exposing consumers to one or more
advtg concepts – see the impact of that advt on repeat
purchase.
PROCESS
7. MARKET TESTING:
ii. Simulated Test Marketing: (Imitate or pretend to feel)
- 30 – 40 qualified shoppers are questioned about brand
familiarity and preferences in specific product category.
- They are invited to a brief screening of both well-known
and new commercials.
- Consumers receive a small amount of money – invited
into a store to buy any items.
- Co. notes how many buy the new brands and competing
brands.
This measures the ad’s effectiveness vs the competing
ads in stimulating trial – Gives fairly accurate results.
PROCESS
7. MARKET TESTING:
iii. Controlled Test Marketing:
- A panel of stores are identified to carry new products for
a fee.
- The Co. specifies the no. of stores and geographic
locations for test
- The research firm controls shelf position/displays and
POP promotions; and pricing.
- Sales is measured.
- It also evaluates the impact of local advt and promotions
during the test.
- However, this technique exposes the product and its
features to competitors’ scrutiny.
PROCESS
7. MARKET TESTING:
iv. Test Markets:
- It is full-blown test market.
- Co. chooses a few representative cities
- The sales force tries to give a good shelf exposure
- The Co. puts a full advt and promotion campaign in these
markets
A full-scale test can be very costly depending upon the no.
of test cities, the test duration and amount of data required.
PROCESS
7. MARKET TESTING:
iv. Test Markets:
The Management faces several questions:
1. How many test cities? 2 – 6 cities
2. Which cities ? ..Metros + other cities
3. Length of test ? ..few months – a year
PROCESS
7. MARKET TESTING:
iv. Test Markets:
4. What Information?
- Warehouse shipment data – will show gross inventory
buying
- Store audits – will show retail weekly sales and competitor’s
mkt share
- Consumer panels – will indicate the Brands bought, loyalty
and switching rates.
- Buyer surveys – will yield consumer attitude, usage and
satisfaction
PROCESS
7. MARKET TESTING:
iv. Test Markets:
5. What action to take?
- If test market shows High trial & repurchase rates: Launch
nationally
- High trial rate and low repurchase rate: Customers are not
satisfied; product shud be redesigned for dropped.
- Low trial rate and high repurchase rate: Product is
satisfying but more people have to try it. Means more advt and
sales promotion.
- Trial and Repurchase both low: Product should be
abandoned.
PROCESS
7. MARKET TESTING:
 Business-Goods Market Testing:
 Expensive Indl. Goods and new technologies
normally undergo alpha testing (within the co.) and
beta-testing (with outside customers).
 The test can influence product design, pricing, etc.
 The next common method is introducing the new
products at trade shows – draws large no. of buyers
– they view many products in a few concentrated
days.
 Can observe how much interest buyers show in new
products, its features, etc and how much express
purchase intentions or place orders.
PROCESS
7. MARKET TESTING:
 Business-Goods Market Testing:
 Disadvantage of Tradeshows is, they reveal the
product to competitors – hence the vendor should be
ready to launch the product soon after the trade
show.
 New Indl. Products can be tested in distributor and
dealer display rooms possibly standing next to the
competition products.
PROCESS
8. COMMERCIALISATION:
 If Co. goes for commercialization, it will face the largest costs to
date
 The Co. can manufacture the product in-house or outsource(LL
or 3rd party Mfg.)
 Marketing is one of the major costs apart from others. – Mktg.
Expenses roughly around 57% of sales (New food products)
during the first year.
 “Size does matter” – Eg. Sony Pictures. – “Godzilla” - Spent
huge amount – movie was a big flop. – After initial screening by
top brass spent even more money on marketing. – Big success.
 “Me-too Market” – Muscle Power (Finance) works to sustain in
the highly competitive market.
PROCESS
 WHEN (Timing):
Market entry timing is essential.
The Company faces 3 choices while facing competition:
1. First entry: “First mover advantage” – locking up key
distributors and customers – gaining leadership.
But if hurriedly launched without thoroughly debugging –
can spoil reputation.
2. Parallel entry: Coinciding the launch with the competition –
Market may pay more attention – two co.s are advtg. NP.
3. Late entry: Firm might delay the launch – Competitor wud
have borne the cost of educating the market – may reveal
faults which late entrant can avoid.
PROCESS
 WHERE (Geographic Strategy):
1. Single Locality
2. A Region
3. Several Regions
4. National Market
5. International Market
- Co. size is important factor in selection of above. Small
co.s select Cities one at a time. Large companies select
one whole region at a time.
Coca-Cola’s Citra (caffeine-free) was introduced in about
half of US.
PROCESS
 TO WHOM (Target-Market Prospects):
- Initial Distribution & Promotion to the best prospect groups
- The Prime prospects could be reached at low cost:
a) The Early adopters
b) Heavy users,
c) Opinion leaders
- The aim is to generate strong sales / motivate the sales force / attract
future prospects.
- Who really buys the product and why ?
- e.g Microwave oven sales grew when Microwave Oven Popcorn was
developed. –
- e.g. Households > purchase of PCs when CD-ROM multimedia
feature was introduced.
PROCESS
 HOW (Introductory Market Strategy):
- Co. must develop an Action Plan for introducing the product
into the markets.
- To co-ordinate the many activities make use of Network
planning techniques viz. CPS (Critical Path Scheduling)
It is an estimate of how much time each activity takes to
complete the entire project.
If the Launch must be completed earlier – search for ways to
reduce time along the critical path
PROCESS
THE CONSUMER ADOPTION PROCESS:

 How do potential customers learn about NPs, try
them, adopt or reject ?
 Adoption is an individual’s decision to become a
regular user of product
 Consumer adoption process is later followed by
Consumer-Loyalty process.
PROCESS

 STAGES IN THE ADOPTION PROCESS:
Adopters of NPs move through 5 stages:
1. Awareness: The consumer is aware of innovation but lacks
information
2. Interest: He is stimulated to seek information about the Innovation
3. Evaluation: He considers whether to try the Innovation
4. Trial : He tries the innovation and estimates his own value
5. Adoption: He decides to make full and regular use of the
Innovation.
Many would be interested to buy but hold due to uncertainty & high
investment cost – Credit terms (EMI) helps.
PROCESS
 FACTORS INFLUENCING THE ADOPTION PROCESS:
1. People Differ in Readiness to Try NPs:
In each product area, there are consumption pioneers and early
adopters.
Some Drs are the first to prescribe new medicines,
Some farmers are first to adopt new farming methods
There are 5 Adopter groups:
i) Innovators:
- Are venturesome; willing to try new ideas. E.g. New models of
Car, mobile phone, etc
- Are likely to be better educated, well informed and more
efficient.
- Usually higher in social status.
PROCESS
ii) Early Adopters:
- Are guided by respect; are opinion leaders in their
community
- adopt new ideas early but carefully
- younger in age, higher social status
- are more informed than the later adopters
iii) Early majority:
- They adopt new ideas before the average person
- although they are rarely leaders
PROCESS
iv) Late majority:
- Are sceptical
- adopt innovation only after majority have tried it
v) Laggards:
- Are tradition bound people
- Are suspicious of change
- Adopt innovation only when it takes a measure of tradition
itself
TIME OF ADOPTION OF INNOVATIONS
2 ½%
Innovators
13 ½ % 34% 34% 16%

Early Adopters Early Majority Late Majority Laggards
PROCESS
2. Personal Influence Plays a Role:
- It is the effect of ones influence on another’s attitude or
purchase probability.
- Has more influence on late adopters than early
adopters.
PROCESS
3. Characteristics of the Innovation Affect Rate of Adoption:
- Some product catch on immediately – others take a long time
to gain acceptance (e.g. diesel-engine autos)
- Five characteristics influence the rate of adoption of
innovation.
i) Relative Advantage: The degree to which the innovation
appears superior to existing products. E.g. PC for Accounts
ii) Compatibility: The degree to which the innovation matches
the values and experiences of the individuals. E.g. PC highly
compatible with upper middle class lifestyles
iii) Complexity: The degree to which the innovation is relatively
difficult to understand or use. E.g. PCs are complex.
PROCESS
- Five characteristics influence the rate of adoption of
innovation.
iv) Divisibility: The degree to which the innovation can be tried
on a limited basis. Eg. Rental for PC increases adoption.
v) Communicability: The degree to which the beneficial
results of use are observable or describable to others.
PROCESS
Other characteristics that influence adoption are cost, risk and
uncertainty, scientific credibility and social approval.
- The NP Marketer shud research all these factors and then
give max attention to the key ones in designing the NP and
Mktg. program
PROCESS
4. Organisations also vary in readiness to Adopt Innovation:
Other forces come into play when trying to get a product
adopted in org. that receive bulk of funding from the Govt., viz.
public schools.
A controversial or innovative product can be stopped by
negative public opinion.
E.g. Introduction of TV station in schools not adopted earlier;
opposed by parents – later Channel One managed to do so
after listening to teachers and parents.
PROCESS
 SHOW THE NPD PROCESS IN A TYPCIAL

PHARMA COMPANY
TYPICAL NPD PROCESS – PHARMA
NEW PRODUCT IDENTIFICATION (MEDICO-MKTG):

1. DESK RESEARCH:
 MIMS/SIMS/PHARMACOPAEL
 MARTINDALE ( U.S.)
 MEDICAL TEXT / JOURNALS “www. ebsco.com”
 CLINICAL SITES: “www.adisinsight.com”,
 IMS-ORG:
- Has a Sales Base – Value terms (Panel of Stockists – Around
4500 – Universe of around 18000) – Around 85% accuracy
 CMARC:
- Rx Base – No. of Prescriptions (Panel of Drs. Around 7000 –
Universe of 250000)

1. DESK RESEARCH:
 In the case of Nutrition – Low Stockists are covered.
 If you are looking out for a New Combination product –
Find out Market for each molecule – know the
prescription / sales
 Pharma News at healthcare@isourceupdates.com

2. CUSTOMER REQUIREMENTS:
 Through Customer’s own experience / reading, etc
2. MARKET DEMAND & OPPORTUNITY:
 Safety, No Side effects, Cheaper
2. COMPETITION DYNAMICS:
 Observation of Competition movements
SOURCING, SHADOW COSTING & CONTRIBUTION

DETERMINATION (PURCHASE, FINANCE & MKTG):
 Shadow Costing is identified by through Finance Dept.
 Cost sheet from Purchase / CMS called for raw materials
 Check the ingredient whether falling under List of Controlled
Drugs (NPPA-National Pharmaceutical Pricing Authority)
 Margins on Scheduled Drugs 16% to Retailers & 8% to
Traders (Stockists)
 Margins for Non-Scheduled Drugs (20% & 10%)
SOURCING, SHADOW COSTING & CONTRIBUTION

DETERMINATION (PURCHASE, FINANCE & MKTG):
 Product under Price ceiling by NPPA – No Increase
E.g (DPN based formulas)
 Cannot increase > 10% in a year for Non-scheduleD drugs
 Scheduled drugs may or may not have ceiling price.
 One can change the formulation by replacing with non-
scheduled drug having similar efficacy – and change the
Brand name with new suffix.
 Excise on Medicines 4.12%
Cosmetics, Alcohol 10%
MODVAT – one excise is claimable on sale
THANK YOU

NPD 24 11 10 4 2

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New Product Development

NEW PRODUCT DEVELOPMENT

 Who should ultimately design the product ?

 Once a company has carefully

 Four ways of Segmentation

 Every company must develop NEW PRODUCTS

 Each year over 16000 new products (including

 Companies that fail to develop new products are

 At the same time NPD is risky:

 New Product success is greater -

 General Criteria for Launch of New Product, an

 General criteria for Investment :

 E.g. 3M(Minnesota Mining & Mfg.):

 Several ways of handling NP Development:

 Several ways of handling NP Development:

1. Idea 2. Idea screening 3. Concept 4. Marketing 5. Business 6. Product 7. Market 8.

DROP THE PRODUCT

Overall Probability Probability of Probability of

0.24* .50 .65 .74

3. CONCEPT DEVELOPMENT & TESTING:

3. CONCEPT DEVELOPMENT & TESTING:

4. MARKETING STRATEGY DEVELOPMENT(Marketing Plan):

4. MARKETING STRATEGY DEVELOPMENT(Marketing Plan):

4. MARKETING STRATEGY DEVELOPMENT(Marketing Plan):

4. MARKETING STRATEGY DEVELOPMENT(Marketing Plan):

a) One-time purchase b) Infrequently c) Frequently

Time Time Time

Year 0 Year 1 Year 2 Year 3 Year 4 Year 5

1. Sales revenue 0 11889 15381 19654 28253 32491

2. Costs of goods sold (33%) 0 3981 5150 6581 9461 10880

3. Gross Margin 0 7908 10231 13073 18792 21611

4. Developments costs -3500 0 0 0 0 0

5. Marketing costs 0 8000 6460 8255 11866 13646

6 Allocated overhead 0 1189 1538 1965 2825 3249

7. Net Contribution -3500 -1281 2233 2853 4101 4716

8. Discounted contribution (15%) -3500 -1113 1691 1877 2343 2346

THE CONSUMER ADOPTION PROCESS:

THE CONSUMER ADOPTION PROCESS:

13 ½ % 34% 34% 16%

 SHOW THE NPD PROCESS IN A TYPCIAL

NEW PRODUCT IDENTIFICATION (MEDICO-MKTG):

NEW PRODUCT IDENTIFICATION (MEDICO-MKTG):

NEW PRODUCT IDENTIFICATION (MEDICO-MKTG):

SOURCING, SHADOW COSTING & CONTRIBUTION

SOURCING, SHADOW COSTING & CONTRIBUTION

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