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CHAPTER 7
NEW PRODUCT PLANNING
AND
DEVELOPMENT
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Gap Analysis for Scanning and
Idea Generation
The gap is the difference between
existing product offer to consumer and
what the consumer want. If the gap is
filled, organization survives and grows.
 Its broken down into four areas: 1.usage
gap, 2. distribution gap, 3. product gap
and 4. competitive gap.

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Usage Gap
Its between the total potential for the
market and actual current usage by all
the consumer in the market.
 Market potential: maximum number of
consumers including all the segments.
It can be determined by market
research or calculated using secondary
sources. Someone can also study the
numbers using similar products.

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Usage Gap (Cont.)
Existing Usage: total market share. It
can be derived from marketing research
or panel research(A. C. Nielsen). It can
also be collected by government
agencies, or industry bodies.
Usage gap=market potential-current.
usage (market share)
 It is important for the brand leaders, if
they have a significant share(over 30%)

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Distribution Gap
Limitation of distribution by law (beers,
drugs, frozen foods, etc)
 Resistance by channels to carry all the
items. It is difficult to maximize
distribution, if it is not back by
promotion and effective sales force.
Channels are willing to carry the items
that sell well.

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Product Gap
It is related to segment or positioning
gap. If an organization does not have
offering in a particular segment, the
positioning of those products is
excluded from that segment.
 It is a deliberate policy and decided by
the organization.

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Competitive Gap
Effectiveness of marketing strategy
relative to the competitors in the same
product market. Exp.Lexus vs Mercedes
 Price and promotion are important
factors.
Market Gap Analysis:
Gaps in the market, rather than with
products: low market share

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Effects of Gap Analysis
Gap analysis is a tool to help businesses
examine current marketing strategies
and helps them to improve it.
 It may provide information to fresh
product or market strategies.
 It may give you information about
where you stand in the market.
 The organization may be proactive
rather than reactive.

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New Product Innovation and
Introduction
New-to-the-world(10%)
 New product lines(20%)
 Additions to existing lines(26%)
 Improvements/revisions(26%)
 Repositioning(7%)
 Cost reductions: similar performance at
lower cost(11%)

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Product Modification
Feature modification(functional): make
more attractive to consumer.
 Quality modification: continuos quality
improvements.
 Style modifications: most frequent
modification
 Image modification: associated with
style and quality. It concentrates on
changing the non product attributes.

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Creating New Products
New Product ideas can come from
anywhere and should be accepted even if
it is not invented by the proper group.
New Products are characterized:
 Being the first at the market
 Concerning the environment
 Customer inputs
 Imitation of competitors products
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New Product Development
Process

Idea Generation:
» employees
» customers
» competitors
» channels

Idea screening:
» Qualitative

to ensure that the new product will not have any
conflict with overall corporate and marketing
strategies. Unprofitable ideas and ones that firm
does not have resources and technological base must
be eliminated.
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New Product Development
Process (cont)

Idea Screening (cont.)
» There are three risk categories:



strategic risk
– new product idea does not match with strategic
goals of the firm
market risk
– new product idea will not meet market needs
internal risk
– new product will not be developed within the
desired time and budget
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New Product Development
Process (Cont.)

Project Planning/Financial analysis:
» forecast the financial performance of the new
product


Sensitivity analysis: price Vs. demand analysis
Break-even analysis: net operating profit after
deducting fixed and variable expenses should cover
at least initial investment
» Marginal costing:


Marginal revenue=Marginal cost
new product should at least cover the variable costs,
not the fixed expenses. Existing overhead cost would
not apply.
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New Product Development
Process (Cont.)

Product development
» new product is evaluated in terms of
engineering, manufacturing, finance and
marketing.

Concept testing:
» focus group interviews

Test marketing:
» duplication of real world product launch on a
smaller less expensive scale:
» Test city: a specific city is used for a test market
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New Product development
Process (Cont.)

Test marketing (cont.)
» Residential neighborhoods: a supermarket can
be used as a test market
» Test sites: this approach is used by firms selling
industrial goods (Business-to-Business market)
» Lead countries: Test market is used in a general
region of the world: exp. Europe, Japan, etc.



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pseudo sales-surveying potential customers
controllable sales-buyer make a purchase
Full scale-fully market the product in a limited basis
national lunch-make adjustment if necessary
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New Product Development
Process (Cont.)

Decisions made about test market:
» Which test market? Test city versus a TV area
» What will be tested?
» How long a test? repeat purchase effect
» What success criteria? what level of
performance should be achieved

Problems conducting test markets
» replicability: test market is not a representation
of the national market
» competitors warning
» cost: high cost involves
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New Product development
Process (Cont.)

Commercialization(product launch):
» Product replacement: improved version of
existing one. Less risky alternative.
» Risk vs. time: There are two alternatives:
1. Pioneer: first in the market-greater risk
2. Latecomer: followers- risk is minimized
» Japanese style product development
1. Speed: It requires highly trained work force
and close relationship with suppliers
2 . Product churning: quickly decide whether
or not to keep the product
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Causes of New Product failure
Competitors’ reaction
 Poor positioning
 Poor timing
 Poor quality
 Failure of promised benefits
 Too little marketing support
 Poor perceived price/quality

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Causes of New Product Failure
(cont.)
Faulty estimate market potential and
demand
 Faulty estimate of production and
marketing cost
 Improper selection of distribution
channels
 Unexpected change in the economy
after introduction
 Lack of managerial synergy-marketing,

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