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.

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 

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.

Connected Business Frameworks

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