Generating and Evaluating New Product Ideas

From brainstorming to screening new ideas all the way through developing prototypes and evaluating their success, every step of the product development life cycle is crucial.

New products can be categorized into:

Products that create a new market or niche segment. Paper disposable diapers are a good example of an entirely new-to-the-world product that, when introduced, created an entirely new and explosively large growth segment for infant care.
Additions or line extensions to existing products. New flavors and new sizes of existing products are examples of line extensions. For example, new Life Savers flavors continue to proliferate, continually refreshing a brand name and product line over several decades.
Product improvements. Cars are a good example of products where continuous improvements are made each year, with increased safety, road handling, driver/rider comfort, entertainment feature improvements, etc., that competitors strive to quickly copy.
Repositioned products. Tums (the anti-acid stomach product) has successfully repositioned itself to feature its high calcium content as a benefit primarily for women's health needs, along with its original antacid claims.

The first step in product development for all companies, large or small, is to generate new business ideas that are unique. Are there any opportunities for your company's products to be refreshed in the marketplace by being repositioned, improved, or brought out in a new size, flavor, or package?

Many techniques can be used to generate new product ideas:

periodically screening your products and comparing them with competitors' products, with an eye toward:
- improving attributes of products
- combining the features/benefits of several separate products into a single new product
examining users' needs that are not being met by current competitive products
using idea-generating methods like brainstorming

Continually Benchmark Your Current Product Line To Better Meet Customer Needs

Lack of time, resources, funds, and awareness of the real market situation prevent small companies from consciously pursuing product development and review of current products. At a minimum, small companies should compare the competitive strengths of their products against those of their direct and indirect competitors' products at least once a year. However, this review should not focus merely on competitors but should also examine the overall market situation.

Many food product companies are reexamining their older product lines for possible improvements in fat reduction, calorie reduction, and ways to feature nutritional values that may not have been considered valuable in the past.

Much of this product development activity is a direct result of consumers' concern with health and nutritional values of food. Consumers' awareness of the food content of fat, saturated fat, sodium, calories, protein, and other values is the result of 1993 legislation mandating nutritional labeling on all food products in companies doing over $100,000/year in sales of an item.

Even companies who are legally exempt from having to provide nutritional labeling may decide to provide it as a preferred feature of doing business with retailers and competing with other companies in their categories.

Cost-Effective Methods of Bench-Marking Your Product Line

Here are some ways that you can reevaluate your existing products, without spending more time and money than you can afford:

Screen your existing products with an "expert panel" of internal company personnel (or your family and friends, if you have no employees) plus external product users. An expert panel may also consist of industry experts, consultants, and end users. Use a written evaluation form to keep track of results from year to year.
- your company's mission, ethics and philosophy, and strategies
- your company's operational expertise and distribution methods
- future company business goals and product categories
- company customer and buyer profiles
- company sales volume, share, and profitability objectives
- company ability to invest in new technology or marketing spending

Add competitors' products to the evaluation with your expert panel of users and compare evaluations between your company's products and competitors' products, paying particular attention to:

differentiation of your products' features and positioning compared to competitive products
ability of the competition to develop similar, stronger products
cost of pioneering a new product compared to a less-expensive "me-too" introduction
your ability to introduce products in the marketplace compare to a competitor's ability to defend markets

Be Prepared to Implement Changes as a Result of the Screening

If the results of the screening are not 100 percent positive, you must decide if your company needs to make improvements. It may be that you want to conduct additional market research before investing in product improvement. Decide if qualitative and quantitative market research is necessary, depending upon the technology and expense to retool and introduce an improved product. In other words, what is the magnitude of risk?

When making a decision to invest in product changes, a key question to ask yourself is "will improvements in your products affect your sales?" If the answer is "yes," the next step is to outline an action plan with an affordable budget. Obviously, you won't want to take any action that will not positively affect sales of your products vs. competition.

Examine Your Customers' Needs to Generate New Product Ideas

In their never-ending quest to keep the product development pipeline flowing, larger companies will periodically conduct usage and attitude studies, diary panel studies, product perception mapping studies, and other product development monitoring devices. They may also employ special researchers to scan patents and new product technology publication sources and talk with industry attorneys, consultants, research firms, and industry/trade experts to keep tabs on target user needs and wants.

However, small companies are often discouraged about finding ideas for product development because of the perceived difficulty, time, and expense ("...only really big companies can afford to do it!"). Sometimes it is as easy as:

Staying close to your customers. How often do you ask your customers what they want/need that they are not getting from anyone?
Staying close to the ultimate product user. How often do you talk with the end users of your product?
Staying close to your sales force. If you have a sales force, when was the last time you asked anyone in sales if they have seen anything that is better or that they like better?
Staying close to your suppliers. Suppliers are often the closest to the latest technology, materials, ingredients, international advances, and competitive improvements.

Take Every Opportunity for Informal Customer Research

You can often accomplish more than you think with an informal but continuous effort to listen to every daily contact source:

Visit with buyers of your company's products or services. Those who sell directly to the end users of a product do this every day. If you aren't providing goods and services directly to the end users, you should visit with key buyers at least each quarter.
Visit with end users of your company's products or services. This is important even if you are not providing goods and services directly to the end user.
Make it a point to write down one or two questions on target users, new product satisfaction, feedback, etc., for each discussion with sales personnel. This will help heighten their awareness about target users in their daily work.
Ask what your suppliers know about key questions on new product satisfaction, likes, dislikes, etc. You may be surprised at the wealth of information suppliers possess on both general category target users and competitive products.

Have Confidence You Can Generate New Ideas

Good ideas can come from anywhere. Really. But can one foster creativity and new ideas on demand? Certain successful companies and creative experts suggest that it is not as hard as most people think. Everyone can be more creative with technique, practice, and motivation. Perhaps "a leap of faith" is also required for the skeptical.

3M, along with many other successful new product development companies, found that good ideas do come from everywhere, not just from formal R&D. In fact, 3M encourages employees to spend at least 10 percent of their paid company time to work on business-related subjects that really interest them, even outside their assigned job definition. And it works.

More Knowledge Means More Ideas

You cannot be creative in a vacuum. In order to generate new ideas, you need to be attuned to what is happening in your industry and in the world around you. And, you must know how these ideas and trends affect your customers and shape what they want from products or services like yours.

A trend that many businesses—from car dealerships to coffee shops—have capitalized upon is the wi-fi hotspot. Fewer than five years ago, the idea of surfing the net or even conducting business while waiting for an oil change was radical. Now, many consumers make the choice of where to go based on the availability of wi-fi. However, the advent of smart phone technology is already proving a disruptor to this business model. The savvy business owner is now exploring how to draw traffic to his through the location-based social apps, such as Groupon or Foursquare.

To gain the knowledge you'll need to create, try the following:

Interview industry and technology experts. These people are generally futurists in terms of knowing and evaluating the latest products, ingredients, trends, and technologies.
Find and interview new product pioneer users. Category users who are the first to adopt and use new products are usually months to years ahead of the average category users. They are often one to three generations of product use ahead of the average user's products (e.g., computers).
Conduct a feature/benefit analysis of your company's products and competitive products. You may be surprised to find out how your products do compared to the competition. Often there is room to incorporate more important features by deleting those that are less important. Significant benefits may result.
Conduct group "brainstorming" sessions. Alex Osborn developed techniques to foster group creativity by temporarily changing the rules of group behavior.

Brainstorming and Watching the Competition Can Generate New Product Ideas

Brainstorming is a way of generating a lot of new ideas, quickly. The objective of brainstorming is to solve a specific problem (e.g., "how to create a new hot and cold thermos that has a self-closing, non-leaking, mechanism"). Everyone in the group has the chance to state whatever ideas come to mind, and the wilder the ideas, the better. Once you have a long list of possibilities to work from, you can begin to evaluate each idea from a more practical standpoint.

The brainstorming techniques pioneered by Alex Osborn include:

a moderator who also functions as a "policeman" for the session;
a small group of six to 10 people;
one-hour sessions; and
rules for the brainstorming process.

The moderator acts as official encourager, policeman against improper group or individual behavior, and recorder of all ideas on large sheets of paper or a whiteboard visible to the group. The moderator must write down short phrases exactly as given. For a brainstorming session to be successful, all participants must adhere to the following rules:

Criticism is not permitted in any form--verbal or non-verbal.
All ideas are recorded as they are stated, in short phrases or words.
Bits and pieces of ideas are encouraged.
No idea is rejected at this point.
A large quantity of ideas is encouraged.
Combining and using pieces of other ideas from the group is encouraged.

Editing Ideas After the Session

Ideas are edited after the session by the primary user of the creative information, which will usually be you. Unusable ideas or incomplete ideas are discarded. In longer sessions, group participants may break into smaller groups and be asked to provide a shorter list of ideas (or combined ideas) that they unanimously recommend.

A small company of even one person can gather a group to practice informal brainstorming. All that is needed is an easel or two (or even a large memo pad) to record ideas. Individuals alone will seldom, if ever, produce the volume or creative range of ideas of a group of people together, practicing brainstorming techniques.

Ideas Can Come from Seeking to Improve a Competitor's Product

Sometimes the best, least expensive, fastest, and least risky way to introduce new products is to copy or improve upon a competitor's new product introduction. Many companies, large and small, consciously adapt a strategy to "follow the leader" when it comes to new product introduction, pricing, and other business changes. It saves scarce funds for expensive R&D and for educating the target buyers.

For example, a small, local, snack food company could bring out a less-expensive version of a new baked tortilla chip, following the lead of Guiltless Gourmet and Frito-Lay in introducing a baked (not fried) tortilla chip. Or an independent, local car repair shop could institute a 20-minute "quick lube" oil change service at a slightly lower price than national chain shops.

However, to successfully adopt this strategy, you must:

compete in product categories where innovation does not necessarily depend upon proprietary technology, large capital improvements, and preemptive patents to protect new ideas;
be able to move quickly to commit company resources to capitalize on a competitor's products;
often settle for less sales potential than the innovator; and
be careful of losing marketing focus and spreading the company too thinly over too many segments of the market.

Screen New Product Concepts to Select Most Viable

Ideally, you will generate a significant number of ideas for potential new or enhanced products or services. However, small companies, unlike large ones, cannot afford to incur costly product development failures as part of "the normal course of business." A small company often survives on its reputation with key customers, which can be threatened or weakened with product development failures. Moreover, even one product failure in a small company may threaten its survival if a large amount of time, scarce resources, and personnel are committed to it. Therefore, it's essential to pursue only those ideas that are likely to be successful.

Fortunately, the risks of product development failure can be reduced with carefully constructed marketing strategies, even for small companies. Reducing risks begins with screening ideas to select the most promising idea. Each potential new product should be screened:

against your company's marketing strategy
against your company's sales and profitability minimums
with key customers

Screen Ideas Against Your Marketing Strategies

"To your own self be true" is not only good advice from a personal standpoint, it's an essential fact to remember in your business as well. Each possible new product or enhancement must be measured against your company's marketing strategy. Making sure the product aligns with your corporation strategy reinforces company focus and helps ensure the best use of scarce resources to successfully introduce new products.

A good overall company marketing strategy acts as a guideline for action. The marketing strategy should:

define the target buyer, demographically and by lifestyle, if appropriate
translate the company mission into a measurable annual objective
tell how the goal will be accomplished in terms of:
- marketing spending vs. competition in the category
- brand positioning
- pricing actions
- product quality
establish new product introduction standards
- frequency
- achievement of overall marketing objective
- response to competitive new product introductions

If the new product concept does not fit the company's overall marketing strategy, you should not pursue the new product concept, unless you feel that it is worth changing the company marketing strategy (and mission statement) to do so.

Screen Ideas Against Sales and Profitability Minimums

A new product must have the potential to generate minimum sales and profitability goals for the company with the right pricing structure. Many large consumer goods companies have minimum sales goals of $20 to $50 million per year, with a minimum gross margin before spending an overhead of 60 percent (i.e., cost of goods = 40 percent).

If a small company is competing with much larger companies, knowledge of these large company new product minimums can provide the basis for a successful new product development and marketing strategy. Most small companies would be very pleased with dominating niche market segments that amount to $5 to $20 million in total competition sales per year.

Screen Your New Product Concept with Key Customers

Obtaining input and evaluation of new product ideas from your key customers at an early stage is often neglected, which can have unfortunate results. Business owners or managers may become so committed to a favorite new product development concept that they proceed to full development of a product prototype before outside input is obtained. Qualitative and quantitative consumer studies can be invaluable in this stage, as well as in earlier development stages.

Prototype and Test Each Component Throughout Development Cycle

Successfully creating a real-life product that mirrors your new product concept and meets your company's cost parameters is difficult. It takes months and years, even for smaller companies to accomplish. Many low- and high-tech products lend themselves to measurable quantitative instrument testing to see how well the product really works and to "benchmarking" against current competitor's products already in the marketplace. Even informal taste-tests of prototype products in food businesses can be done in-house prior to real consumer exposure.

Stirring the magic cauldron of product development requires dedication, commitment, and often courage to find ways to meet the promises of a good concept. What's more, you may find that your requirements for the new product change as you move along.

Folgers Coffee spent years, a small fortune, and three tries at bringing out a freeze-dried coffee that "tasted, smelled, and looked like fresh-brewed coffee." Each time, consumers voted thumbs down, saying, "It just doesn't taste enough like fresh-brewed coffee." Finally, the third (and last) product development project and market testing was completed with improved, state-of-the-art, freeze-dried coffee crystals that looked and tasted like fresh-brewed coffee, and even real coffee aroma captured in the jar. It was discovered that the key target consumer group, freeze-dried coffee users, were accustomed to their instant coffee and really didn't know or like actual fresh-brewed coffee.

Preliminary Checklist for Product Prototype Development

Key target consumers or buyers can validate that product features and benefits in your prototype conform to the original concept and meet the customer's needs as well. You'll need to be sure that:

Packaging, pricing, and brand positioning meet the accepted concept targets.
Manufacturing, sales, and distribution are achievable and manageable with your company's resources.
Your company has at least the minimum resources needed to successfully introduce the new product into the competitive environment and targeted market segment.
New product features and benefits can be accurately communicated to the target buyer group.
Your company can enjoy new product exclusivity long enough to recoup development investment and achieve company growth, sales, and profit objectives for the new product.

Test Packaging, Price, and Ads In Addition to Actual Product

Many companies, large and small, spend years successfully developing a new product with great market promise but do not adequately test their packaging, pricing, and advertising prior to introduction.

Package Testing

New products and their packaging should be tested under real-life conditions for:

storage under varying temperature, lighting, and humidity
shipping through all distribution channels, with roughest handling
retail environment tests under sun and fluorescent lighting conditions
shelf life studies for age deterioration

Price Testing

New product pricing should be examined for:

competitive advantage (i.e., how is your product a better value than the competitor's?)
parity vs. competitors (i.e., are you getting as much for your product as your competitor?)
premiums vs. competitors with similar products or substitutes (i.e., are your customers paying more for the extra value they receive?)
adequate margins for:
- distributor and wholesaler pricing
- marketing spending support
- profits
consistency with brand positioning (i.e., products positioned as "upscale" should be more expensive than similar products positioned as "mass market.")

What About Service Companies?

Service companies are subject to the same examinations of the "packaging of their services" and pricing. While service companies do not always have physical packaging to test, they may "bundle" their services in unique ways to gain a competitive advantage.

For example, financial planning companies often bundle their services together to enable them to compete with other personal service businesses (e.g., tax preparers, lawyers, investment brokers, and insurance agents). Full-service financial planning practices offer a large menu from which clients may choose. You can have them prepare your taxes, plan your estate, design your insurance protection package, manage your investment portfolio, and even prepare and annually update a comprehensive financial plan for you and your family. Indeed, they can also handle the insurance, pensions, and cash management for your small business.

If you had such a firm do only your tax returns, they would probably charge the same as your local CPA. If you asked them to do only an estate plan, the fee would be close to that charged by your local attorney. But since they must gather and process similar data for tax return preparation and estate planning purposes, they could provide a package combining both services at a better price than the total of what your local CPA and attorney would charge for the same services. Not only could they offer you a better price, they can promise you a better "product" since they will have a much better understanding of your overall situation and goals. And if you added insurance and investment services to the mix, you'd realize further savings.

Take Time to Evaluate Success of New Products

Once you've introduced a new product or service or developed significant improvements to existing ones, you'll naturally want to do some follow-up to measure the success of the project. Whether the introduction is ultimately successful or not, you need to be able to learn from the process to achieve more success down the line.

Most small companies cannot afford the complex and costly consumer tracking studies used by larger, more sophisticated competitors:

usage and attitude studies that examine consumer usage and attitude about products, advertising, brand awareness, and brand image at a given point in time
trial and repeat purchase tracking studies that record weekly purchases of similar products by target consumers, as well as the reasons for buying or not buying the products (this type of study is sometimes called a diary panel)
simulated test marketing called "experimental primary lab research," which is usually conducted in store malls under controlled conditions
controlled field testing called "experimental primary field research," which is usually conducted in a controlled group of stores
advertising awareness and recall studies that examine the efficacy of print and electronic advertising on target buyers, often conducted by the Burke, Starch, or ACNielsen market research companies

But you can conduct low-cost or free qualitative research:

Talk to buyers and consumers about product satisfaction and purchases. From a marketing research standpoint, this is biased, qualitative research without standard interview controls. But it is timely information and may be actionable. And it places you at point-of-purchase, close to your buyers (e.g., retailers) and end users.
Conduct a test of advertising spending levels in different test markets or, with a single business in one location, over different time periods. It is relatively easy to vary introductory spending in each market, if you are testing a number of geographical markets. However, one should have significant spending differences of at least +/- 50 percent in each market for each spending variable. Small companies (e.g., one store) may have to vary spending levels over matched periods of time and compare sales results. For example, try increasing your local newspaper advertising spending 50 percent over the same quarter of the previous year.
Examine weekly company sales receipts for new account sales, compared to receipts for reorders. This is an indirect, but free, way to measure initial purchase vs. reorder sales.