New products are launched in droves every year and the simple reason is that nothing sells like ‘new’. New product development (NPD) should form a key part of your annual marketing strategy, with the need for new ideas and innovation to keep your business competitive.
This post will help you through the new product development process, to ensure you create new product that complements your current portfolio, fulfils a consumer needs and meets profitability expectations.
What is a New Product?
Well to start off cryptically, a new product doesn’t always have to be new at all. Further, there are few products that are truly ‘new’; most are a new version of something else that already exists. (I’m telling you that to take the pressure off a bit).
New products can be:
- An existing product with a new feature or twist
- E.g. GHD Hair straightener, now cordless
- A product line extension
- E.g. Cherry Ripe being extended into a Cherry Ripe Sundae
- A redesign of an existing product
- E.g. Mazda 6 2011 model vs 2009 model
- (and least commonly) A new product
- E.g. The rain triggered awning for your clothes line
Identifying a Need for New Products
In an ideal world, small business would have enough time to mimic its corporate sized comrades and spend a month every year, undertaking a complete review of marketing and promotions strategy and developing a marketing plan for the following year.
We know however that in small business, time is consumed doing business and not necessarily developing business. The likelihood of you sitting down to an annual review is slim (if you can find the time, check out our service plan in Get Competitive with your Competitors) so you may find that for your business, identifying new products happens on an ad hoc basis.
Reasons why you may need a new product can include:
- Sales of existing products are dipping (see Product Lifecycle Management)
- A competitor has taken significant market share from you (see Get Competitive with your Competitors)
- Your customers keep asking you for a product that you don’t offer
- You have a successful product that you want to extend (see Product Lifecycle Management)
- Your market research has uncovered a white space opportunity (see Jargon 101)
- You’ve had a brilliant idea!
New Product Development (NPD) Process
In my last corporate role, I spent three years as Brand Manager working 80% on NPD. It would take up to 18 months from initial idea to development to product to the product appearing in store. The problem with big business is that there are so many people who have to sign off, that things can move very slowly. The motivation here for you and your small business is that with a good idea, you can be quicker to market; and with less overheads, be more profitable too.
5 Steps for Small Business NPD
1.Identify the market need
- It is not enough to want to launch a new product because competitors are closing you out of the market or because your current product is slowly declining. You need to identify a market need. What can your new product bring to the market that consumers want or need?
2.Develop a prototype and cost it
- A prototype can be as simple as drawing a picture with measurements and specifications, or sewing up a sample, or mixing up a batch, to as complex as working with a factory and paying to have a sample produced.
- Developing a prototype is usually the step that precedes costing; once the prototype reflects what the product needs to look and perform like, you are then able to compile the cost to produce it.
- When costing up your product, if it something you plan to make yourself, make sure you include a labour cost into your calculation. You may not pay yourself for every batch of cupcakes you make, but one day you might expand and need to pay someone, in which case you want that built into your cost.
3.Analyse your profitability
- Once you have developed your prototype and costed it, you now need to set a retail price and assess profitability
- You will want to set a retail price that allows you to wholesale it profitably. Again at first it may not be your plan, but you want to make sure you can profitably take this path if the occasion arises. Have a look at How to Measure Your Success for tips on how to calculate Gross Margin and Wholesale Price.
- A tip is to calculate your Gross Margin using the Retail Price, to give you an idea of how much you will make when you sell direct and then calculate using the Whole Price to calculate how much you will make if you wholesale. You want to be profitable at both points. Generally you should make around 50% gross margin when you wholesale, although as a small business you may be prepared to accept less.
4.Refine your new product
- Based on the profitability you may need to remove elements from your prototype, seek out cheaper materials or brainstorm new ways to produce your product to have a profitable new product.
- You should test your new product idea, if you can, with your target market to ensure it does meet a need and the purchase price is accepted. This can be through your Facebook page or design a survey through Survey Monkey and incentivise competition e.g. Complete the survey for your chance to win a $20 voucher.
5.Plan your launch
- Assess if you need to run any existing products out, before launching your new product
- Create a plan to tell everyone about your new product. It is essential you shout about your new news; use your social media accounts, send an email to your subscriber list, feature it on your homepage, send out media releases.
- Run a promotion that benefits all your products, using the new product to boost overall sales. E.g. 50% off any other product when you buy our new personalised coffee plunger
New product development is an important part of your marketing strategy. ‘New’ brings consumers back to your brand giving them something different to look at; it keeps you competitive and growing and most importantly, it can have a halo effect on existing products.
Are you planning any new products for 2012, how did they come about?
Until next week, N is for New and also for planning your New Year ahead