product-development

New Product Development (NPD): New Product Development Process In A Nutshell

Product development, known as new product development process comprises a set of steps that go from idea generation to post-launch review, which helps companies analyze the various aspects of launching new products and bringing them to market. It comprises idea generation, screening, testing; business case analysis, product development, test marketing, commercialization, and post-launch review.

Why product development matters

In an increasingly connected world, average product life-cycles are incredibly short.

To remain competitive, businesses must continually innovate by developing new products. And yet most of them fail.  

So how do businesses maximize their chances of success? It starts by adopting a systematic and strategic product development process.

The process should also have a clear understanding of consumers, competitors, and the market in which the product might be released.

The New Product Development (NPD) process is one such way that a new product idea can graduate beyond the concept stage.

Here is a more detailed look at this eight-step process, which turns a market opportunity into a product that is available for sale, thus enabling a sustainable business model.

Understanding product management

Product management involves the strategic direction of each stage of the product lifecycle – from research to testing and positioning – to create feasible products that satisfy both business objectives and user needs.

Product management expert Martin Eriksson defined the role more succinctly, noting that it was at:

the intersection between business, technology, and user experience… A good product manager must be experienced in at least one, passionate about all three, and conversant with practitioners in all.”

Product management can trace its roots back to the 1930s and the so-called “brand-man” who was responsible for the product from start to finish.

Over the years, the role of product manager (PM) has evolved into one characterized by cross-functional communication with key stakeholders such as C-level executives and the marketing and sales departments.

The role itself also varies according to the size of the company.

Smaller companies, in a nod to the past, tend to employ a single product manager who is required to wear multiple hats.

In larger companies, there may be multiple PMs who specialize in a specific area such as marketing or operational ownership. 

Product manager responsibilities

From the above, we can see that what a product manager focuses on varies from one company to the next.

Nevertheless, here are a few of what we consider the core responsibilities.

Business 

Product management is predominantly a business function focused on maximizing product value.

Product managers must be obsessed with product optimization to achieve business objectives and deliver an attractive return on investment.

Based on business objectives, user research, and technical viability, product managers must define the product vision with a roadmap.

This roadmap in turn clarifies product objectives, development milestones, and KPIs.

Technology 

There is no requirement that product managers need to code, but they must understand the technology stack and the level of required effort to make the correct decisions.

This is especially true in Agile contexts where they spend most of their time with the development team.

User experience 

Product managers must prioritize user experience.

They need to involve themselves in hands-on testing, liaise with users to gather direct feedback, and importantly, advocate for their needs within the organization.

Alignment and empowerment of the team

Product managers need to be able to align the team around shared goals.

This can be difficult in product teams because there are many different roles and each sometimes has needs or priorities that conflict with others.

PMs ensure that every member of the team – from product designer to test engineer – is behind their vision for the product.

They also ensure each individual understands why the product is being built in the first place. In other words, what are the goals of the business and the user?

Three types of product management roles

While the core responsibilities of a PM apply to most companies or roles, it is important to be aware of several nuances that lend themselves to different roles:

Growth product manager

These PMs focus on a specific metric the company has defined as essential to growth.

As a result, they tend to work closely with marketing teams to ensure their efforts are expanding the reach of the product.

Technical product manager

These PMs have a background in development or engineering and work to enhance the company’s tech stack or core functionality of the product itself.

Data product manager

Product managers who love numbers tend to find themselves collaborating with data scientists and analytics teams to create use cases that measure new product and feature releases.

Often, this involves tracking customer interactions across a product interface to analyze user experience.

1. Idea Generation 

Every great product starts with an even better idea. Ideas can be generated from a variety of internal and external sources.

Internal sources include ideas stemming from market research conducted by the Research and Development team.

Much internal creativity can also be attributed to employees, with a PricewaterhouseCoopers study suggesting they are responsible for at least 45% of creative ideas.

External sources of idea generation, on the other hand, are derived from distributors and even from competitor analysis.

But perhaps the most useful ideas come from the consumers themselves.

Since the consumer is the sole person who will define the success or failure of the finished product, businesses must understand their needs, wants, and desires above all.

2. Idea Screening

As you might have guessed, the idea generation step will generate ideas for a lot of potential products. Unfortunately, not all will be commercially viable.

How do we sort the wheat from the chaff, as it were?

Each idea should be evaluated on its own merits according to some key constraints:

Compatibility

Is the idea compatible with the objects of the business?

Relevance

Is the idea relevant to the niche the business occupies and to the goals of the business itself?

Assumptions

Are the assumptions that the idea is based on valid?

That is, is there enough scope or confidence to move past the screening step?

Constraints

What (if any) are the internal and external impediments that would potentially prohibit the idea becoming a real product?

Feasibility

Is the idea feasible, given the resources available?

Value

An important step that predicts an idea’s return on investment (ROI).

Risks

Similar to constraints in that internal and external risks can delay idea development.

Importantly, the screening process prevents two types of errors.

The first is called a drop error – or the dismissal of a good idea.

The second, a go error, involves proceeding with a bad idea.

3. Concept Testing

In this third step, an idea evolves into a tangible concept that has been refined by screening.

Another way to think about a concept is that it is a presentable idea. For example, an idea may be a new barbershop.

A product concept, however, might be a barbershop that caters to middle-aged professionals who enjoy a beer or glass of whiskey while their hair is cut.

Indeed, businesses should be crystal clear on the potential target audience of the product and the value the product would provide.

In other words, does the consumer understand the product or service? Do they even need or want it? Often, the best way to find out is to ask them or have them order it.

4. Business Case Analysis

By the time a business reaches this fourth step, they hopefully have a product that has been the subject of internal and external review.

A business case analysis involves making sales, costs, and profit projections to determine how valuable the potential product or service is in dollar terms.

Accurate sales projections can be gleaned by considering the sales figures of direct competitors.

From this data, a business can clarify how many units they must sell to break even or better still, make a profit.

Of course, there is more to new product development than profit and loss. The business case analysis must also consider the cost of developing the product itself.

Research and development, manufacturing, finance, and marketing are all expenditures that must be accurately forecasted.

5. Product development

Up until this point, the potential product has existed in 2-D form on a piece of paper.

Now, in the fifth step, it is time to turn the concept into three-dimensional reality.

This is achieved by the development of several prototypes – with each representing various physical versions of the product.

Prototypes help businesses avoid putting all their eggs in one basket because with more iterations, there is more chance that at least one prototype will be successful.

Such prototypes will then need to be tested for safety, durability, and functionality while still living up to customer expectations.

This brings us to the next step!

6. Test marketing

Test marketing is where it all starts to come together. A prototype is launched with its marketing plan to a specific pilot market segment.

This allows businesses to track the effectiveness of the overall package without spending vast sums of money on a full rollout. 

Test marketing is a validating process and allows for product refinement if required. It also allows for changes to be made to the marketing strategy – whether that be in pricing, branding, positioning, or advertising.

Businesses can use a few different test markets, including:

Standard test markets

Small representative markets that are subject to a full marketing campaign.

The response of the smaller market is extrapolated outward to gauge the potential success of a broader campaign.

Control test markets

Some businesses will agree to showcase new, untested products in their stores for a fee.

Control test markets are generally less expensive and more efficient than the standard test market.

But there is also the risk that competitors gain access to the new product before it has been commercialized.

Simulated test markets

As the name suggests, businesses simulate a shopping environment and analyze consumer behavior around the new product.

Simulated test markets have the benefit of incorporating customer interviews for deeper research around buying preferences.

7. Commercialization

Commercialization is the process that consumers are undoubtedly most familiar with.

The new products are being mass-produced and distributed widely.

But behind the scenes, businesses must decide when to launch a product and where it will be launched.

Early in the commercialization process, there may also be teething problems.

It is important to monitor supply chain logistics and ensure that product shelves do not become bare.

Marketing departments must also develop advertising campaigns that keep their new products top-of-mind with consumers who are ready to buy.

Primarily, this can be achieved by sales promotions or introductory pricing.

8. Post Launch Review

Once the product is well established in the market, it is important to plan ahead.

Businesses should develop long-term marketing plans and ensure that competent sales and distribution teams are in place to cater for demand.

Prices should also be reviewed regularly, particularly after the expiration of introductory promotions.

As customers are introduced to the product, the marketing team must endeavor to turn them into brand evangelists. The business must also balance these customer retention strategies with profits and staying one step ahead of the competition.

Each NPD process should always be reviewed, irrespective of whether the product was a success.

This enables mistakes to be addressed and then corrected for next time, increasing the success rate and improving productivity.

New product development examples

In this section, we’ll discuss two general examples of how new product development is approached at Netflix and Revolut.

Netflix

netflix-business-model
Netflix is a subscription-based business model making money with three simple plans: basic, standard, and premium, giving access to stream series, movies, and shows. Leveraging on a streaming platform, Netflix generated over $29.6 billion in 2021, with an operating income of over $6 billion and a net income of over $5 billion. 

Fundamental to the Netflix product development process is consumer science.

This is a term the company uses to describe the process of testing new ideas with real customers at scale and then using data to look for statistically significant differences between each.

The company is primarily concerned with tracking monthly retention, but it also looks for measurable improvements in growth and monetization.

Consumer science is undertaken via this three-step process:

  1. First, the product development team starts with a hypothesis that is usually related to increasing user engagement and retention.
  2. In the second step, a test is created to either validate or invalidate the hypothesis with a prototype that captures the essence of the product concept. Note that real Netflix customers are involved in the validation process.
  3. In the final step, the test is conducted and the prototype is rolled out to users. In some cases, there may be hundreds of thousands of participants organized into various cohorts to test different solution variations. Testing ideas in this way allows Netflix to make decisions based on real customer value and innovate effectively.

There are also two additional components to Netflix’s product development:

  • Personalization – Netflix leverages artificial intelligence and machine learning to create personalized content recommendations for its users based on their viewing history. This is a critical part of its strategy, increasing customer satisfaction, retention, and engagement.
  • Content – the trajectory of the company’s core product changed forever in 2013 when the television series House of Cards was released. This was the first Netflix-produced series on the platform and proved to be the first of many award-winning shows. Original content on Netflix increases the subscriber base and resultant revenue, which the company then reinvests into producing more content.
binge-watching
Binge-watching is the practice of watching TV series all at once. In a speech at the Edinburgh Television Festival in 2013, Kevin Spacey said: “If they want to binge then we should let them binge.” This new content format would be popularized by Netflix, launching its TV series all at once.

Revolut

Revolut is a fintech company that was founded in 2015 by Nikolay Storonsky and Vlad Yatsenko.

The London-headquartered company offers a plethora of banking services such as personal accounts, free currency exchange, stock trading, and debit cards, to name a few. 

Revolut also offers a prepaid card account for children aged between 7 and 17.

The account, named Revolut Junior, helps kids learn essential financial skills and integrates directly with the core Revolut app.

Product development in this example focused on two key areas:

  1. Brand platform development to identify how to position the product in the market, and
  2. The definition of a minimum viable product for kids and their parents to test functionality.

Work on the brand platform involved a workshop where relevant stakeholders identified characteristics such as personality, long-term product direction, values, and the target audience.

To define the visual aesthetics of the app and associated bank cards, the team used Miro’s three-hour brand sprint template.

To develop the MVP, on the other hand, Revolut used the Double Diamond framework. In short, this consisted of the following stages:

  1. Discovery – competitor and market research was conducted to help the company identify four important user groups: kids aged 6-10, 11-15, 16-18, and parents. A user persona was created for each so that the groups could be referenced during product development.
  2. Definition – app features were then brainstormed and ranked according to their perceived effort and customer value. From this, a feature map for the parents’ app and the information architecture for the children’s app was born. Initially, the feature map was divided into the two parts of future releases and a MVP.
  3. Development – in the third stage, the development team devised several solutions for the MVP which underwent usability testing with the youngest group of kids and their parents.
  4. Delivery – this entailed close liaison with the engineering team during app development and preparing the product for launch. The launch itself was attended by friends, family, employees, and their children who received the first Revolut Junior cards.

Key takeaways 

  • Product management is a business function that encompasses the planning, developing, launching, and managing of a product or service.
  • Some of the core responsibilities of a product manager include maximizing product value while meeting business objectives, possessing knowledge of the tech stack, being ultra-focused on the user experience, and uniting product teams behind a vision.
  • The core responsibilities of a PM apply to most companies or roles, but several nuances lend themselves to defined roles. These include growth product managers, technical product managers, and data product managers.
  • The New Product Development process is certainly high risk, but the rewards of a successful product campaign can be similarly immense.
  • However, businesses that fail to bring new products to the market can also learn from their mistakes, emerging stronger as a result.
  • In both cases, the NPD process represents a formalized, repeatable process that allows businesses the best chance of creating one of the 5% of products that gain commercial success and build a viable business model.

Key Highlights:

  • Product Development Process Overview:
    • Product development, also known as the new product development (NPD) process, involves a series of steps from idea generation to post-launch review.
    • The process includes: idea generation, idea screening, concept testing, business case analysis, product development, test marketing, commercialization, and post-launch review.
  • Importance of Product Development:
    • In a rapidly changing world, product life cycles are short, requiring continuous innovation.
    • Most new products fail, making a systematic product development process crucial for success.
    • Understanding consumers, competitors, and the market is vital for launching successful products.
  • Product Management Role and Responsibilities:
    • Product management involves guiding a product’s lifecycle to align with business goals and user needs.
    • Responsibilities vary but include business optimization, technology understanding, and user experience prioritization.
    • Product managers must align teams, advocate for users, and define clear product visions.
  • Types of Product Management Roles:
    • Growth Product Manager: Focuses on key metrics driving growth, often collaborating with marketing teams.
    • Technical Product Manager: Specializes in technology aspects, enhancing tech stack or core product functionality.
    • Data Product Manager: Collaborates with data teams to measure new features’ impact through user interactions.
  • The Eight-Step NPD Process:
    1. Idea Generation: Gathering ideas from various sources, including consumers, employees, and competitors.
    2. Idea Screening: Evaluating ideas based on compatibility, relevance, feasibility, value, and more.
    3. Concept Testing: Refining ideas into tangible concepts that resonate with potential target audiences.
    4. Business Case Analysis: Assessing profitability, cost, and resources required for product development.
    5. Product Development: Creating prototypes and refining physical versions of the product.
    6. Test Marketing: Launching prototypes in pilot markets to assess effectiveness and gather feedback.
    7. Commercialization: Mass-producing and distributing the product while refining marketing strategies.
    8. Post Launch Review: Monitoring the product’s performance, refining strategies, and learning from the process.
  • Examples of NPD in Action:
    • Netflix: Utilizes consumer science, personalization, and original content to drive growth and engagement.
    • Revolut: Focuses on brand platform development and MVP creation for its products, like Revolut Junior.
  • Key Takeaways:
    • Product development involves a structured process to move from idea to successful product launch.
    • Successful product management requires understanding user needs, aligning teams, and optimizing for business goals.
    • Different product management roles (growth, technical, data) cater to specific aspects of the product lifecycle.
    • The NPD process helps businesses succeed by systematically creating valuable products and learning from both successes and failures.

Connected Business Frameworks

New Product Development

product-development
Product development, known as the new product development process comprises a set of steps that go from idea generation to post-launch review, which help companies analyze the various aspects of launching new products and bringing them to market. It comprises idea generation, screening, testing; business case analysis, product development, test marketing, commercialization, and post-launch review.

BCG Matrix

bcg-matrix
In the 1970s, Bruce D. Henderson, founder of the Boston Consulting Group, came up with The Product Portfolio (aka BCG Matrix, or Growth-share Matrix), which would look at a successful business product portfolio based on potential growth and market shares. It divided products into four main categories: cash cows, pets (dogs), question marks, and stars.

Ansoff Matrix

ansoff-matrix
You can use the Ansoff Matrix as a strategic framework to understand what growth strategy is more suited based on the market context. Developed by mathematician and business manager Igor Ansoff, it assumes a growth strategy can be derived by whether the market is new or existing, and the product is new or existing.

User Experience Design

user-experience-design
The term “user experience” was coined by researcher Dr. Donald Norman who said that “no product is an island. A product is more than the product. It is a cohesive, integrated set of experiences. Think through all of the stages of a product or service – from initial intentions through final reflections, from first usage to help, service, and maintenance. Make them all work together seamlessly.” User experience design is a process that design teams use to create products that are useful and relevant to consumers.

Cost-Benefit Analysis

cost-benefit-analysis
A cost-benefit analysis is a process a business can use to analyze decisions according to the costs associated with making that decision. For a cost analysis to be effective it’s important to articulate the project in the simplest terms possible, identify the costs, determine the benefits of project implementation, assess the alternatives.

Empathy Mapping

empathy-mapping
Empathy mapping is a visual representation of knowledge regarding user behavior and attitudes. An empathy map can be built by defining the scope, purpose to gain user insights, and for each action, add a sticky note, summarize the findings. Expand the plan and revise.

Perceptual Mapping

perceptual-mapping
Perceptual mapping is the visual representation of consumer perceptions of brands, products, services, and organizations as a whole. Indeed, perceptual mapping asks consumers to place competing products relative to one another on a graph to assess how they perform with respect to each other in terms of perception.

Value Stream Mapping

value-stream-mapping
Value stream mapping uses flowcharts to analyze and then improve on the delivery of products and services. Value stream mapping (VSM) is based on the concept of value streams – which are a series of sequential steps that explain how a product or service is delivered to consumers.

8 Dimensions of Quality

dimensions-of-quality
The 8 dimensions of quality are used at a strategic level to analyze the product or service quality characteristics. They were first described by Harvard Business School Professor David A. Garvin in 1987. Instead of defensive measures to pre-empt quality control, Garvin proposed that American companies take a more aggressive stance where quality itself would be the basis of product differentiation and a competitive strategy to secure market share.

Product-Process Matrix

product-process-matrix
The product-process matrix was introduced in two articles published in the Harvard Business Review in 1979. Developed by Robert H. Hayes and Steven C. Wheelwright, the matrix assesses the relationship between: The stages of the product life cycle (from ideation to growth or decline), and The stages of the process (technological) life cycle.

Premium Pricing Strategy

premium-pricing-strategy
The premium pricing strategy involves a company setting a price for its products that exceeds similar products offered by competitors.

Fast Follower Strategy

fast-follower
A fast follower is an organization that waits for a competitor to successfully innovate before imitating it with a similar product.

Brand Marketing

brand-marketing
Brand marketing describes the process of an organization building a relationship between its brand and customers from the target audience. Instead of marketing the features of a particular product or service, brand marketing promotes the whole brand by mentioning how those products and services support the brand’s promise.

Promotional Channels

promotional-channels
Promotional channels, sometimes referred to as marketing channels, are used by an organization to advertise its products and services and communicate with the target audience. News coverage is one of the most difficult promotional channels to secure, but it is also one of the most valuable. Editors are bombarded with pitches daily, so the brand needs a compelling and ideally topical story to tell. Other promotional channels include guest posting, influencer outreach, advertorial, and native LinkedIn feed advertising.

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