Page 168 - DMGT408DMGT203_Marketing Management

Unit 7: New Product Development and Product Life Cycle Strategies

crude approximate assumptions about likely sales volume, the selling price, distribution costs, Notes
and production costs. This is not only difficult but also speculative part of the process, and this
stage is particularly difficult for innovative and new-to-the world products.
The evaluation process focuses on answering a number of questions such as: Does the product fit
in with the company’s existing product mix? Is the demand likely to be strong and enduring
enough to justify its introduction in the market? What kind of change with regard to environment
and competition can be anticipated and what is likely to be the impact on product’s future sales,
costs, and profits? Are the R&D, engineering, and manufacturing capabilities of the company
adequate? In case there is need to construct new facilities, how quickly can they be built and
what would be the costs involved? Is the finance available or can it be obtained consistent with
a favourable ROI?
Accurate sales forecasting at this stage is difficult. Companies use break-even analysis to assess
how many units must be sold to customers before any profits start. They also sometimes use
payback analysis to determine the time to recover investments. Companies often use sensitivity
analysis to assess the impact on overall profitability of changes in underlying assumptions.

7.2.5 Product Development

This stage refers to when the new product concept moves to test stage. The company determines
the technical feasibility to produce it at costs low enough to sell it at reasonable price. If the
answer is negative, the costs incurred so far are lost and the company may gain perhaps some
useful information. This phase involves substantial increase in the investment of resources. The
product concept is converted into a prototype/working model to evaluate its acceptability. The
prototype development may take anything between a few days to even years in some rare cases.
Advanced modern virtual-reality technology greatly helps to speed up the development process.
A critical decision at this stage is, how much quality to build into the product. Higher quality
often requires better quality materials and expensive processing. This adds to product costs and
consequently its selling price. It is necessary to ascertain target customers’ views on acceptable
price range of the product. In this regard, the quality of existing competing brands should also
be considered. Product development is expensive and only few products concepts reach
development stage.

The prototype should reveal its tangible and intangible attributes that consumers might associate
with it to meet their needs and wants. Marketing research and concept testing reveal product
attributes that are important from a consumer’s point of view. The product design should be
such that it must communicate these characteristics.
Laboratory and field tests are conducted for the product’s performance, convenience, safety, and
other functional characteristics. Testing consumer responses to intangible elements of a new
product is difficult. This is particularly an issue when developing new services. The product
should be subjected to rigorous and lengthy enough testing for verifying its functional attributes.
The term alpha testing refers to conducting laboratory tests, and beta testing means that a sample
of customers use the product prototype and give their feedback. Many computer companies
offer customers to download a new or modified software for testing, that remains functional for
a limited period of time.

Example: Apple computer subjects its PowerBook to many rigorous tests and one such
test involves heating the computer notebook in ovens to 140 degrees. 200 Gillette employees
test company products such as razors, blades, shaving creams, or aftershave under instructions
of technicians every day and afterwards fill out a questionnaire.

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