The 8 Stages of New-Product Development

Posted on April 23, 2024 by Martin Hahn, One of Thousands of Career Coaches on Noomii.

Entrepreneurs and small entrepreneurial companies don’t have monopolies on new ideas and innovation. Innovation plays a crucial role in helping all firms, not just small ones, to survive and expand. What is innovation actually? Innovation does not just mean inventing something new. Many new inventions end up withering on some research and development department’s shelf.

Innovation means something more. Innovation means uncovering a valuable need, inventing a new or improved product or service to fill that need, and then developing and introducing the new product or service so that it succeeds in the marketplace.

● Innovation in Practice

For example, IBM’s employees produced more U.S. patents than any other company between 1993 and 2005, at a cost of about $6 billion per year in research and development expenditures alone. Even a company as large as IBM could not afford this unless it led to saleable products. Innovation at IBM therefore requires applying those technologies to critical customer problems

and then bringing them to market in a form that customers can easily use

Innovation is therefore not just a job for engineers, inventors, and entrepreneurs. It also requires effective management, for instance, in identifying the need, developing and testing the new idea, and making sure that the structure and people are in place to get the product to market. The process of innovation is more complicated than it might appear at first.

For example, ideally, companies can’t just wait to react to what customers say they want. Suppose customers don’t yet realize what they need? And waiting till the need is obvious may give competitors the time to innovate the same (or better) new-product ideas. The preferred approach is to anticipate the customers’ needs, often before the customers realize that they have such needs. For example, when Procter & Gamble engineers invented the Swiffer mop, they identified the need and invented a whole new way to mop floors by anticipating rather than reacting to its customers’ needs.

As small entrepreneurial companies evolve into large multinational ones, they must guard against losing their entrepreneurial flair. Growth can bring bureaucracy, for instance, in terms of stratified, compartmentalized, slow-moving decisions. Many once-successful entrepreneurial companies, including Polaroid, Kodak, and Xerox, basically became, for a time, victims of their own success. Growth led to misplaced self-confidence and a dramatic reduction in these firms’

The Eight-Stage New-Product Development Process

To help ensure they have a steady stream of new and innovative products, managers often establish a formal new-product development process for their companies, often under the guidance of a new-product development (R&D) officer and department. This new-product development process typically consists of eight main stages.

1. In the first stage, idea generation, the company uses consumer research and creativity to produce the ideas that become the raw material of the new-product development process.

2. It may take thousands of new-product ideas to produce just one saleable new product. Most companies do not have the resources to put thousands of new-product development ideas into development. The purpose of the second stage, idea screening, is to reduce the many possible new-product ideas down to a more manageable few. Managers here might ask questions such as, Does this product really makes sense for our customers?

3. In the third stage, concept development and testing, the new-product development department translates each surviving new-product idea into a more tangible concept and then tests it. For example, Gillette researchers may have an idea for a new razor that combines the simplicity of a manual razor with some of the advantages of an electric one. In this concept development and testing stage, Gillette’s development experts translate this raw idea into a more workable product concept which is a cross between a five-blade manual razor and a simple battery-driven device, one that vibrates the razor’s head. Gillette then tests this product concept. For instance, it asks consumers questions such as, How do you like this battery-driven razor compared with the manual razor you’re using now?

4. Having an idea which even one that seems to appeal to the markets is only the beginning of the process of innovating a successful new product. The best idea will fail if the company isn’t successful in introducing it to the market. Therefore, marketing strategy development is the fourth step in the process. Marketing strategy development means laying out a marketing plan for the potential new product. This plan includes the target customers (for instance, in terms of age, income, and education) and the probable target price, sales, and market share and profit goals.

5. In the fifth stage, business analysis, the manager examines the target market and the potential new product’s pricing, sales, market share, and pricing goals to determine how likely it is that this new product will succeed.

6. Assuming the answer is yes, the new-product process moves into its sixth stage, product development. In creating the very successful RAZR cell phone, Motorola scientists and engineers worked with production engineers and marketing specialists to create the actual prototypes for the product. The product development stage should answer the question, Can we turn this product idea into a workable, saleable new product?

7. For most companies, the vast expense involved in gearing up to produce and sell the new product means it is planning to test-market it first. Test marketing is the seventh new-product development stage. For example, Kraft Foods might test-market a new cheese in one or two small U.S. cities before rolling out full production and marketing nationwide. This gives Kraft managers an opportunity to test and improve physical characteristics of the product. It also lets the manager test aspects of the marketing plan for the product, such as whether the price is too high, too low, or just right.

8. Now the manager is just about set to introduce the new product. In this eighth stage, commercialization, the manager actually implements the marketing plan by introducing the new product into the market. If the manager has done his or her homework, the commercialization will be successful. The company will have successfully innovated, from idea, to development, to commercialization.