How to Expand Your Business Through New Product Development
Adding new products or services to your current offerings can serve as the catalyst that drives your business to higher levels of success. New product development doesn't have to be a long and costly endeavor.
� WHAT TO EXPECT
New product development can be a long and costly endeavor, but it doesn't have to be. This Business Builder will provide you with a fundamental process that will help you successfully develop and bring new products to market without jeopardizing the financial stability of your business.
WHAT YOU SHOULD KNOW BEFORE GETTING STARTED
The decision to develop a new product can mark the beginning of an extremely difficult process for many businesses. Adding new products or services to your current offering can serve as the catalyst that drives your business to higher levels of success. In fact, new product development is often considered to be the cornerstone for building any successful business. Without it, businesses tend to stagnate, then eventually decline. This is particularly true for businesses that primarily focus on the short-term bottom line.
To successfully develop new products or services for your business, you will need to coordinate your new product development activities as effectively as possible. By productively performing each of these activities, you will be able to develop new products or services from concept to market introduction sooner than you thought possible.
Here are a few things to keep in mind as you get started:
A systematic approach is the best way to design and develop a new product. Without it, you can waste a lot of precious resources. The following steps will effectively and efficiently guide you through the new product development process:
STEP 1: DEVELOP A CONCEPT
All new products start with a concept. If you don't already have a concept for a new product, then you will need to develop one. This step will provide you with a fundamental approach to developing a new product concept.
Identify A Need
Most good concepts begin with either a perceived, or a measured need. Ways to identify needs are:
A need exists for a great tasting, low-fat sandwich that would appeal to customers who are concerned about maintaining a healthy diet. This sandwich would also appeal to customers that were not health conscious as long as it didn't taste "healthy."
Summarized: "A need exists for a sandwich, low in fat, tastes great but not 'healthy.'"
After you have thoroughly defined the need, summarize it and post it where most of your product development work will be conducted. Review the summarized need regularly as you develop your new product. This will keep you focused on the customer throughout the development process.
Develop A Concept
Next, you will need to develop a concept for a product that will meet the need. Again, your customers' and employees' inputs are valuable here. Most likely, when you are soliciting feedback on needs, they will offer suggestions on products and services that will meet those needs.
In addition to your customers and employees, other organizations may be sources for new product ideas. Such resources include patents, concepts, or ideas that you may want to license or develop further:
Now, describe each of your prospective products and include the following:
Going back to the ABC Sandwich Shop, they came up with the following three potential sandwiches based on the identified need —
STEP 2: SCREEN AGAINST ESTABLISHED CRITERIA�
You can't work on every great idea so you'll have to decide on criteria to help narrow your selection. There is no standard set of criteria that is best in all cases. You need to establish your own to suit your own company's needs. The following questions may help decide what criteria are best for you:
Company's Strengths
Source: Adapted from Starting Up Your Own Business — Expert Advice from the U.S. Small Business Administration�
After you've determined your criteria for your new product development process, test your prospective products. This is your company's acid test. Be objective. Narrow down your choices until you have one prospective product on which you will focus you product development efforts.
For example, after considering their own special needs, Wacky Widgets developed the following criteria for their new product:
Market — Product had to be used by industrial firms. Retail was inappropriate and the government was out of the question.
Product — At least 50 percent of the manufacturing costs had to utilize current equipment. New product must have patent or be patentable.
Price — Since they were known as a low-cost supplier, the company's new widget must fit within their current price ranges.
Volume — More than 10 million pieces sold by third year.
Finance — The budget available is $75,000.
Now, take some time to determine your new product criteria and choose the product that your company plans to develop.
STEP 3: PLAN YOUR DEVELOPMENT PROCESS
It is wise to plan your development process before you become too attached to your new product concept. If you fall in love with a new product concept before you have a development plan, then you may not make sound business choices as you work through the development process. This is not to say that you shouldn't feel emotional or passionate about a new product, but establish some guidelines early in the process so that you don't lose sight of your objective — to develop a new product or service as cost effectively as possible. This plan will keep you focused throughout the new product development process. Use the information in this Business Builder as a guideline for developing a plan. This Business Builder should also help you to estimate the amount of time and money you should invest in each of the development steps. The plan should include:
Creating a timeline
A timeline will provide the impetus to complete your product development in a timely, cost-effective manner. Product development efforts that have no schedule for completion tend to be unnecessarily long and extremely costly. If you don't have a product release date that you must meet, then estimate the amount of time it should take to complete each step, and add the steps sequentially to the timeline. This will give you a good idea of when you should be able to release the product to market. If you are developing a product that must be released by a certain date, then develop your timeline by working backward from that date.
Now, create a timeline for your new product development. Include target dates and milestones.
Estimating your resource needs
Estimate the number of work hours and the amount of money you will need to invest in each step. Be sure to include any outside services (i.e., marketing and research consultants) that you may need. Estimating resource needs will give you some idea on the types of resource strains you can anticipate throughout the project. It will also serve as the basis for developing a budget for your development efforts.
Developing your budget
Your plan should include a budget for the entire development process. Budgeting your resources (time, money and people) will help you maintain fiscal responsibility during the development process. Use the resource needs estimate as the basis for your budget.
| CONCEPT DEVELOPMENT | $ |
| Employee time (10 hrs @ 6.50/hr) | 65 |
| Materials (miscellaneous supplies) | 50 |
| Outside services (needs survey) | 200 |
| Total | $315 |
| CONCEPT TESTING | $ |
| Employee time (20 hrs @ 6.50/hr) | 130 |
| Materials (miscellaneous supplies) | 100 |
| Outside services (test survey) | 300 |
| Total | $530 |
| PRODUCT DESIGN (developing the recipe) | $ |
| Employee time (30 hrs @ 6.50/hr) | 195 |
| Materials (sandwich ingredients) | 200 |
| Outside services | 0 |
| Total | $395 |
| SCALING UP | $ |
| Employee time (20 hrs @ 6.50/hr) | 130 |
| Training cost | 75 |
| Materials (ingredients) | 300 |
| Outside services | 0 |
| Total | $505 |
| MARKETING | $ |
| Employee time (30 hrs @ 6.50/hr) | 195 |
| Materials (ingredients) | 300 |
| Outside services | 0 |
| Total | $570 |
| TOTAL ESTIMATED COST | $2315 |
Develop your budget. Remember to include estimates for all the resources that you plan on using.
STEP 4: TEST YOUR CONCEPT
It is important to test your concept before you invest a great deal of time and money in the development process. Testing the concept should give you some solid indications about the product's technical feasibility (Is it technically viable and can it be produced?) and commercial feasibility (Will people buy it?). At any time in this testing process you may decide to scrap a concept and look for a better one.
Technical feasibility
Testing for technical feasibility requires a review of your own operational capabilities as well as whether the product/service technically does what it is supposed to do.
Depending on the nature and complexity of your product/service, technical feasibility could be a series of controlled experiments or just a few tests. Whatever the case, this testing should help you determine if you can make the product with your current capabilities, or if you need to invest in new production equipment or service capabilities. These types of considerations could be very critical to your decision to go ahead with the new product concept. After you are satisfied that you can produce and deliver a new product, you need to determine if it is a product that your customers will buy.
Commercial feasibility
Testing for commercial feasibility, or marketability, in another critical step in testing your product concept. The results of this testing should confirm whether there is a market for your new product or service.
There are various methods for testing your customer base to determine if enough interest exists to make a new product marketable:
The amount of concept testing that you employ depends on your available resources and the amount of substantiation you require to make a commitment to develop the new product. Find a middle ground that will meet your needs. Not enough testing could cause you to spend time and money developing a product that is not feasible or not marketable. Too much testing could cause you to miss the opportunity to get a good product or service into development and onto the market in a timely manner. This could result in a competitor beating you to product release, or a missed release for a seasonal product.
Decide on your plan to determine technical and commercial feasibility for your product.
STEP 5: DESIGN THE PRODUCT/SERVICE
Assuming that your concept testing revealed that you have a potential winner on your hands, the next step is to design the product. Once again, the length of time and the resources required to design the new product depends on the nature of the product and the size of your organization. Now is the time to review your development plan to help you assign the necessary resources to the design process.
Your new product design activities will, of course, be driven by the nature of the product. However, in most cases, your design should include all the specifications needed to produce the product. For instance, if your new product requires discrete parts assembly, then you will need to have detailed engineering drawings, parts specifications, and assembly instructions. If your product is food related, then you will need to develop a recipe and preparation instructions.
IMPORTANT: It is critical that throughout the design phase you review your progress so that you can:
• Verify that the product design is being driven by the customer needs. Identify and resolve any resource issues such as increased funding or manpower requirements. Identify any capacity constraints that could restrain you from introducing the product or service onto the market by your targeted introduction date.
• Develop a working prototype that can be examined and tested by potential customers. Make sure the prototype meets your requirements for quality, customer satisfaction and cost. It may take several tries before you get it right. However, if your design activities are thorough and well coordinated, you may only need to develop a few prototypes before you have a finished design.
• Consider production techniques and costs when you design your product. If you can design the product so that it can be produced with fewer process steps, then you will be simplifying your process and decreasing the cost of production. It is essential that you DO NOT release your new product from design to production before it is ready. Rushing a new product onto the market before it is ready could turn a potential winner into a bomb very quickly. After the product has been released and is on the market, it is very difficult and costly to change customer perception of your product. It is better to delay the release, if possible, and deliver a quality product.
If you are offering a new service, the same advice holds true. Do not offer your new service to your customers on a large scale until the design is complete. This includes making sure any equipment or supplies you may need to perform the service are available when you offer it.
List the critical design specifications for your new product or service. What is the current status of your design efforts? Are you on track with your development plan?
Step 6: Develop a Marketing Plan
While you are designing your new product, you will need to develop a good marketing plan for promoting your new product and delivering it to the market. This step should be performed simultaneously with your design efforts. Your marketing plan should focus on three key areas:
Pricing your new product
Your pricing strategy can have a strong impact on how well your new product performs on the market. If you are competing with some established products, then you may need to introduce your product at a lower price. The results of your concept testing should help you determine your pricing strategy. If you need more information to develop your pricing strategy, you may need to do some additional market research. This will give you a better idea of where the competition is and how you should position your new product in the existing market.
Promoting your new product
Develop a marketing plan that explains how you will introduce and promote your new product to the target market.
Effective techniques for promoting a new product include introductory offers such as giveaways, contests and coupons. Do some early promotions before the product is released so that customers know that it will be on the market soon. If done effectively, this can build consumer anticipation and result in a successful release.
Delivering your product to the customer
You will need to develop a delivery plan for getting your products to the customer. If you sell to retailers, then you will need to have their orders and establish a delivery method ahead of time. If you are offering a new service, make sure your employees are trained well enough to deliver the service effectively. In short, create a detailed plan addressing all the logistics of delivering your new product to the market.
Review the preliminary market data you've gathered so far and decide what's missing. Create your marketing plan which details your pricing strategy, promotional activities, and delivery logistics.
STEP 7: SCALE-UP
After you have designed your new product or service, it is time to scale it up for market introduction. If you have involved all crucial functions in your organization during the development process, then this transfer should go smoothly. Your marketing plan should already be in effect and you should have orders for the new product before you schedule the first production run or offer your service for the first time. Make sure you have all the equipment and materials available to meet the early production demands. Problems early on could leave a permanent scar on your customers.
Consider establishing a product-or service-based process that is based on actual orders rather than forecasts. By doing so, you can reduce your finished product inventories or service support materials to a minimum. Establishing a streamlined process for a new product or service up front is much easier than trying to reengineer an existing process after it's designed.
As you get ready to scale-up, what do you need to do to make the transition a smooth one? What materials, supplies and equipment are needed for full-scale startup? Are you staffed appropriately? List what you need to do before you provide your first product or service to your customer.
STEP 8: CONTINUALLY IMPROVE YOUR NEW PRODUCT
As you begin to capture market share with your new product, you must remember to stay focused on meeting your customers' needs. Conduct customer surveys to find out what they like and dislike about your product. Talk to them personally and ask them what they think. If your business is driven by a desire to continually improve your products so they meet your customers' needs, then you will always be successful.
Now, outline your plan to determine your customers' ongoing and future needs. Will you use surveys, interviews? How often will you collect this information?
Measure your success by applying standard business measures to the performance of your new product. You should be tracking your sales, market share, profit and loss, and all other key measures that apply to this product. Use this information along with customer and employee feedback to improve the quality of the product. Learn from your new product development efforts so you can improve the process when you develop future products.
When you have completed this Business Builder, you should have a general understanding of the following key elements:
___ The process for identifying an existing need
___ Techniques for developing a new product concept
___ The process for designing a new product and scaling it up
___ Marketing requirements for introducing a new product to the market
___ The importance of establishing a continuous improvement program for your new products and your new product development process
Books
How to Set Up Your Own Small Business, 9th edition, by Max Fallek. (American Institute of Small Business, 2003).
Bringing Your Product to Market by Don Debelak. (John Wiley & Sons, 1997).
Lightning Strategies for Innovation: How the World's Best Firms Create New Products by Willard I. Zangwill. (Lexington Books, 1993).
Internet Sites
"Innovation Factor: A Field Guide to Innovation," by Leigh Buchanan et al. Inc. 24:8 (August 2002), 63 (7).
"Where Great Ideas Come From," by Susan Greco. Inc. 20:5 (April 1998), 76+.
Product Development. Entrepreneur.com.
"Lesser Royals: the Customer May be King, but too Often He's Given Less than the Royal Treatment," by Richard Osborne. Industry Week 251:3 (April, 2002), 65 (3).
"Transfer Technology To Boost Your Business," by Bari Faye Siegel. StartUp Journal. WSJ.com.
Writer: Glen Greene
All rights reserved. The text of this publication, or any part thereof, may not be reproduced in any manner whatsoever without written permission from the publisher.
This In-Depth Business Builder was originally published in 1995, revised in 2003.
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