MRK 4248 - INNOVATION AND NEW PRODUCT
DEVELOPMENT
Concept Evaluation – Concept Testing
Prepared for
Associate Prof. Dr. Banu DEMİREL Dokuz Eylül University
Prepared by
Gülnur KÜÇÜK- 2015432054 Ahmet KESKİNER- 201543246 Didem HİMMETLİ- 2016432042 Pelin Zühre KARABACAK- 2015432039
TABLE OF CONTENTS
Page
•Abstract………... 2 •Evaluation System for New Products ProcessScreening... 2-4 •Product Line Considerations in Concept Evaluation... 4-5 •A-T-A-R Model... 5-9 •Planning the Evaluation System... 10-13 •Concept Testing... 13-14 •Product Use Testing... 14 • Conclusion………... 15 • References………... 16
Table………... 6,8 Graphic………. 9 Figure………... 6,7
Abstract
New products actually build up the way rivers do. Great rivers are systems with tributaries that have tributaries. Goods that appear complex are just collections of metal shapes, packaging material, fluids, prices, and so on. A good analogy is the production of automobiles, with a main assembly line supported by scores of subsidiary assembly lines scattered around the world, each of which makes a part that goes into another part that ultimately goes onto a car in that final assembly line.
If you can imagine the quality control people in auto parts plants evaluating each part before releasing it to the next step, you have the idea of a new product evaluation system. The new product appears first as an idea, a concept in words or pictures, and we evaluate that first. As workers turn the concept into a formed piece of metal, or software, or a new factory site preparation service, that good or service is then evaluated. When a market planner puts together a marketing plan, its parts are evaluated separately (just as minor car parts are) and then evaluated again in total, after it is added to the product. The fact that we evaluate the product and its marketing plan as separate and divisible pieces is what lets us telescope the development process into shorter periods of time. There was an era when we went through a new product’s development step by step, nothing ahead of its time. But today we may be working on a package before we actually have finished the product, we may be filming part of a commercial before the trademark has been approved and finalized, or we may be preparing the trailer to promote an upcoming movie long before the final edits are completed.1
This sometimes causes some backtracking, but the cost of that is less than the costs of a delayed introduction. It does require, however, that we have thought through carefully the item’s overall development needs and decided which of those needs are crucial, and which are not crucial. Any evaluation system must cover the crucial ones.
Evaluation System for NP Process Screening
Third-Generation New Products Process
As taking hard Go and No Go decisions can be particularly burdensome between the phases of the new products process, so called “On decisions” can be taken. This is part of the “Third-Generation New Products Process”. This flexible process allows overlapping the 5 phases of the new products process and a conditional Go, in order to prevent slowing down the process. Especially if some key information is still lacking, an On decision allows the new products process to go on while the necessary
information to resolve the “fuzzy gate” is collected. The flexibility gained through the third-generation new products process is particularly important in the development of
new-to-the-world products (categories of new products).
The Phases of the New Products Process
5 Phases of the New Products Process – Steps to develop new Products
Phase 1: Opportunity Identification and Selection
The first one of the 5 phases of the new products process creates the basis for the development of a successful product. At this stage, an active and passive generation of new product opportunities takes place. For instance, new product suggestions, changes in the marketing plan, resource changes, or new needs and wants in the marketplace may be sources of promising opportunities.
The identified opportunities should be researched, evaluated, validated and ranked. However, bare in mind that we are still talking about opportunities, not specific product concepts or ideas.
Phase 2: Concept Generation
In this stage, a high potential or urgent opportunity is selected. Also, customer involvement begins: make sure to understand how the customer wants the existing problem to be solved. Based on that, you can collect available new product concepts that fit the opportunity and generate new concepts as well.
Phase 3: Concept/Project Evaluation
In the third of the 5 phases of the new products process, the new product concepts from stage 2 are evaluated on technical, marketing and financial criteria. Based on the evaluation outcome, the concepts can be ranked and the best two or three ones can be selected.
Phase 4: Development
In phase 4, the development of the product, and everything that goes with it, begins. This includes for instance the designing of prototypes, testing and validation of prototypes against protocol, and the designing of the production process for the best prototype. For product and market testing, production can slowly be scaled up.
The development phase combines both technical and marketing tasks. While technical tasks include the designing of prototypes and the production process, marketing tasks involve the product strategy, tactics, the marketing plan, the augmented product and so on.
Clearly, the development phase involves serious investments. Therefore, careful considerations at all earlier decision points during the phases of the new products process are crucial.
Phase 5: Launch
In the final phase of the process, the product is commercialized. In other words, the plans and prototypes from the development phase are launched. This means the begin of distribution and sale of the new product, which may be on a limited basis at the beginning. The product launch program should be carefully managed to achieve the goals and objectives set at the beginning of the new products process and in the business plan.
Product Line Considerations in Concept Evaluation
Keep in mind that any one product being evaluated is not alone. Most organiza- tions have several products under development, sometimes scores or even hundreds of them. Managers often think in terms of a portfolio of products and evaluate new product projects in terms of how well they would fit with corporate strategy.
Especially at the early phases of the new product process, there are risks involved in making project selection decisions. Depending on the evaluation mechanism chosen, the firm may let through too many bad ideas or reject good ideas. There is no one right way to optimize project evaluation, but some experience can help set the best rules for a given firm or industry. For example, a firm that needs new product help fast may skip early checkpoints and narrow down to just one or two alternative formats during development. They will tend to put in one major check late in the process to make sure the market- ing plan communicates and the distribution system is in place. In an industry like pharmaceuticals, a firm might bring two or more ideas through to development: With more potential products, there is a greater chance that one will be a winner, and the payoff for winning is large enough to offset the extra costs incurred in developing more products. Having hurdles that are too high may reduce failure rate, but contribute to major, costly delays in new product launch. If a firm makes products with very short cycle times (such as computer games), it has to control the number of products it has in the process queue at any given time so that prod- ucts receive development funds in a timely manner.
A-T-A-R Model
What is ATAR model ?
The ATAR forecast model estimates the percent of sales based on a given market size. We use these estimates to determine the potential success of a new product or service. The ATAR model (Awareness, Trial, Availability, Repeat), is based on the concept of ‘Diffusion of Innovation.’ For someone to be
considered a reliable buyer of a new product or service, they must first know it exists (Awareness). Once someone is aware of the existence of the new product, they need to opt to try it out (Trial). After someone has opted to try it out, they need to be able to actually purchase the product (Availability). If they are happy with the experience, they may adopt the product and become repeat buyers (Repeat).
The ATAR forecasting model essentially breaks down the overall target market
progressively, using the four inputs of awareness – trial – availability – repeat/rebuy – to estimate the size of the
ongoing customer base.
• 5,000,000 consumers (in the target market = buying units)
• 10% awareness
• 20% trial
• 10% availability
• 40% repeat/rebuy
By multiply each of these ATAR components, this would work out to be:
• Start with 5,000,000 consumers
• 500,000 consumers aware of the new product(5,000,000 X 10%)
• 100,000 million consumers willing to trial the products (500,000 X 20%)
• 10.000 consumers finding the product “available” in a store and trailing the product (100.000 X 10%)
Further data inputs required to complete the ATAR forecast
While these four letters (ATAR) these are the core
assumptions and inputs into the sales forecasting model, the ATAR model requires further inputs to calculate the sales and profit projections.
The additional information required is:
• The number of consumers/buying units in the marketplace
• The loyalty rate of your customer base over time
• The average purchase quality per buying unit/consumer
• The average price and cost per unit – to determine margin per unit
• Expected promotional spend/budget
Planning the Evaluation System - Everything Is Tentative
It’s easy to imagine that building a new product is like building a house—first the foundation, then the frame, then the first floor, and so on. Unfortunately, product aspects are rarely locked in that way. Occasionally they are, as when a technical process dominates development, or when a semi finished product is acquired from someone else, or when legal or industry requirements exist.
Everything is tentative, even up through marketing. Form can usually be changed, and so can costs, packaging, positioning, and service contracts; so can the marketing date and the reactions of government regulators. So can customer attitudes, as companies with long development times have discovered.
This means two long-held beliefs in new product work are actually untrue. One is that everything should be keyed to a single Go/No Go decision. Granted, one decision can be critical—at times, for example, when a firm must invest millions of dollars in one large facility or when a firm acquires a license that commits it to major financial outlays. But many firms are finding ways to avoid such commitments by transferring risk: by having another supplier produce the product for a while before a facilities commitment, or by negotiating a tentative license, or by asking probable customers to join a consortium to ensure the volume needed to build the facility.
The other fallacy is that financial analysis should be done as early as possible to avoid wasting money on poor projects.
Still another tentative matter is the marketing date. Marketing actually begins very early in the development process.Roll outs are now so common it is hard to tell when all-out marketing begins. No one pulls a switch and marketing instantly begins.
Potheles
One critical skill of product developers is the ability to anticipate major difficulties, the potholes of product innovation.We should carefully scan for the really damaging problems and keep them in mind when we decide what evaluating we will do. If the pothole is deep enough, the development team may have to seriously consider the risk avoidance option: Drop the project!
For example, when Campbell Soup Company undertakes the development of a new canned soup, odds are in its favor. But experience has shown two points in the process when it may fail, and if it does, the product won’t sell. The first is manufacturing cost— not quality, as that’s one of the company’s key strengths. But there is always a question about whether the chosen ingredients can be put together to meet market-driven cost targets. The second is whether consumers think it tastes good. So the company’s evaluation system is set never to overlook these two points.
In fact, if a manager thinks through the matter of potholes carefully, there are more benefits than just to the evaluation system.
The People Dimension
Product developers also have to remember they are dealing with people, and people cause problems. For example, although R&D workers are quite enthusiastic early in the life of a new product, the idea may have little support outside of R&D; it is fragile and easy to kill. Late in the development cycle, more people have bought in on the concept and are supportive because they have played a role in getting it to where it is.
This means that an evaluation system should contain early testing that is supportive. In fact, concept testing is sometimes called concept development to reinforce the idea of helping the item, not just killing it off. Later in the cycle, hurdles should usually be tough and demanding, not easily waved aside.
People problem relates to personal risk. All new product work has a strong element of risk—risk to jobs, promotions, bonuses, and so on. Consequently, some people shy away from new product assignments. We’re always under the gun from someone—an ambitious boss, a dedicated regulator, an aggressive competitor, a power-hungry distributor, an early critic who was overruled within the company, and more. A good
evaluation system, built on a thorough understanding of the road the new item will follow as it winds its way through development, protects developers from these pressures. The system should be supportive of people and offer the reassurance that players need.
Surrogates
The timing of factual information does not often match our need for it. For ex-ample, we want to know customer reactions early on, even before we develop the product, if possible. But we can’t really know their reactions until we make some of the product and give it to them to try out. So, we look for surrogate questions to give us pieces of information that can substitute for what we want to learn but can’t. Here are four questions to which we badly need answers and four other questions that can be answered earlier :
Note that each response has little value except to help answer a critical question that cannot be answered directly. Surrogates often change at different times in the evaluation process.
The last tool that we use for designing an evaluation system for each new project as it comes along is based on how we forecast sales and profit on a new item. The calculation is much like a pro forma income statement.
Concept Testing
Concept testing is the process of using surveys to evaluate consumer acceptance of a new product idea prior to the introduction of a product to the market. Qualitative techniques are used to obtain target customer reactions you a new idea or product.
Concept testing fails , like when the prime benefit is a personal sense, such as the aroma of a perfume or the taste of a new food or concepts embodying new art and entertainment are tough to test.
The Purposes of Concept Testing
Concept testing is part of the prescreening process, preparing a management team to do the full screening of the idea by providing input into the full screen just before beginning serious technical work. The first purpose of a concept test is to identify the very poor concept so it can be eliminated. If the concept passes the first hurdle, a second purpose is to estimate the sales or trial rate that the product would enjoy. The buying intention question appears in almost every concept test.The most common format for purchase intentions is the classic five-point question: How likely would you buy a product like this, if we made it?
1. Definitely would buy. 2. Probably would buy. 3. Might or might not buy. 4. Probably would not buy. 5. Definitely would not buy.
The number or percentage of people who definitely would buy or probably would buy are usually combined and used as an indicator of group reaction.
Product Use Testing
Product use tests are frequently used in business to business markets. A small group of potential customers are selected to use the product for limited period of time. The manufacturer’s technical people watch how these customers use the product. From
this test the manufacturer learns about customer training and servicing requirements. Following the test the customer is asked detaile questions about the product including intent to purchase.Product testing seeks to ensure that consumers can understand what
products will do for them and which products are the best value. Product testing is a strategy to increase consumer protection by checking the claims made
during marketing strategies such as advertising, which by their nature are in the interest of the entity distributing the service and not necessarily in the interest of the consumer. The advent of product testing was the beginning of the modern consumer movement.
Conclusion
In this report,we looked at the factors that aid in designing an evaluation system for the basic new products process, designed to provide pieces of information that guide the project in its journey to the market. First came the cumulative expenditures curve, the risk/payoff matrix, and the decay curve. Then we looked at several descriptors of most situations, the primary one being that almost everything about a process situation is tentative. The product itself is still evolving, at least until it sells successfully; the actual date of marketing is increasingly unclear as firms adopt limited marketing approaches; evaluation actually begins with the innovation charter well before ideation; and a product is an assemblage of many parts, each requiring its own evaluation.
Lastly, we introduced the A-T-A-R model, which tells us some of the critical steps, how our information about them can be used to forecast sales and profits, and how to design an evaluation system accordingly.
References
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