Building Value into the New Product Development Process

Dr. Eric Reidenbach has been a favorite author, mentor and collaborator with me through recent years. We developed the info-program Driving Market Share where we spent a great deal of time discussing his favorite past time, the subject of value. He has given me the honor of posting his latest article. I have taken the liberty of dividing it into two sections with the first half posted yesterday, Capitalize on the Speed of Value to Insure New Product Success and the second half, Building Value into the NPD Process below.

About Dr. Eric Reidenbach. He is the Director of the Six Sigma Marketing Institute and the author of over 20 books on marketing and market research. Dr. Reidenbach has developed a number of unique approaches for measuring and managing value, the best leading indicator of market share growth. His consulting services are absolutely unique. They are filled with proprietary measurement and management techniques designed to help you grow market share and top line revenues. His most recent books include:

Building Value into the New Product Development Process

The question then becomes, “How do new product development efforts successfully embed value into their new products?” The task is somewhat easier for those organizations that are market focused as opposed to those organizations that are predominantly product focused. Product focused organizations tend to believe that all value is inherent in the product itself. They tend to ignore the role that product support factors such as technical support, parts availability, repair services and warranty play in how the market defines value. In several value analyses that I have done for organizations, a scant 20% of market- defined value was incorporated in the product – the remainder of the value definition (80%), was focused on product support issues. Market focused organizations are more likely to be more sensitive to a holistic value definition.

New product development processes abound. Central to each version is a disciplined process designed to minimize the commercialization of a bad new product. New product development processes typically embrace the following general stages:

Idea generation

    Concept development and testing

        Prototype development

           Financial analysis

              Market testing

                 Commercialization

Within each stage resides an opportunity for the organization to insure that value is built into the resultant new product. If value is divorced from the market it becomes a mere abstraction – meaningless. This means that is critically important to capture information from targeted buyers at each stage and, equally important, obtaining buyer feedback on whether the value is indeed resident.

The Idea Generation Stage

New ideas should be generated around the basic premise of creating value for the targeted buyer. Many new product ideas are generated from a basic organizational capability that exists, regardless of whether the potential new product delivers the requisite value. New product ideas should be submitted to customer scrutiny with the key questions such as the following:

What value do you see in this idea?
Is the value readily identifiable or recognizable?
Is the value distinctly different from other competitive offerings?
What can be done to enhance the value in the idea?

Concept Development and Testing

In this stage the idea is grown into one or more concepts – a more fully developed explication of the idea. This allows the organization to provide a more elaborate understanding of the product’s value proposition. In particular, the proposed product’s critical – to – quality factors can be enumerated and illustrated. To the extent that a proposed price range can be provided, the potential buyer can perform the necessary value calculus. Key questions at this stage might include:

What value do you see in the proposed product?
Is the value readily identifiable or recognizable?
Is there any product you can think of that is similar? If so, does it provide greater value than the one in the concept?
Are there ways in which the value can be enhanced?
Does the proposed pricing strategy enhance the new product’s value proposition?

Prototype Development

Here the surviving concept is translated into a physical product. This stage focuses on the ability of the new product development team to incorporate previous value evaluations into the actual product. There is a possibility that the value that was embedded within the concept does not make the transition to the actual prototype. Again, customer feedback along the lines suggested in the previous stages is extremely helpful at this stage.

Financial Analysis

The financial analysis looks at the dollars and cents of the investment. Here, if market defined value has been successfully incorporated into the new product, the likelihood of revenue flows will be enhanced. The speed of value drives a faster payback period and a quicker breakeven point.

Market Testing

Market testing provides the last opportunity for the firm to get value right. It is also the first time that the product’s value proposition is tested under actual market conditions. Adjustments can be made to enhance or improve any value issues that are surfaced in the testing stage. This also provides an opportunity to confirm the quality price tradeoff that is the essence of value.

Commercialization

Commercialization starts the adoption process and the long term value confirmation process that will determine customer loyalty and recommendation. Will potential buyers be apostles or terrorists? Will the product actually pass the “worth it” test?

Promotion and distribution strategies must emphasize and support the product’s value proposition. In addition, product support systems such as technical support, parts availability, repair processes, etc. must be in place. These product support systems should be understood in the early stages of the development process and are the direct result of a more market centric holistic understanding of value. Organizations with a product orientation will tend to focus solely on the product itself and fail to understand how the targeted market actually defines value.

Value is the lubricant that moves a new product through the adoption process and accelerates new product introductions. Unfortunately, too many organizations rely upon how they think targeted product/markets define value and fail to capture how these product/markets actually define value. This often results in a myopic product-focused definition of value failing to understand that buyers have a more holistic view of value – one that encompasses product support factors as well as product features. Organizations can improve their new product introduction success rate by giving the buyer a seat and a say in the new product development process. Listen to the market!