NPD, NSD and PSS

New products and services are the lifeblood of all businesses. Investing in their development isn’t an optional extra – it is crucial to business growth and profitability.

But embarking on the development process is risky. It needs considerable planning and organisation. Identifying where products or services are in their lifecycle is central to your profitability. Effective research into your markets and competitors will help you do this.

The “seat-of-the-pants” approach is also mainly used by new companies, especially in situations where the company’s leadership is weak when it comes to organizational development and management. This approach poses problems with regard to prioritizing resources.

The business planning approach is another strategic approach and involves creating a business plan. This approach can be adopted when a current product is being expanded or needs to be improved, when a new product is being developed or bought, or when investor funding is being sought for product development.

Another approach is, the business development approach, which involves high-level planning and research. This model can involve elements of the business planning approach, but its main purpose is to seek out and explore opportunities for providing new products to both current and new markets to allow the company to maximize its profits.

The various stages in the NPD process are

• customers – In a market-led approach, the company has to identify the target audience for its product.
• needs and wants – To determine the needs and wants of customers, the marketing department engages in surveys and focus groups.
• marketing function – The marketing section collates the information and presents the results in the form of an outline specification.
• outline specification – This outline specification for the new product will give the designers working specifications to base their work on.
• designers – The designers interpret and then begin to shape or form the outline to create a detailed operational specification.
• operation specification – The operation specification is an actual blueprint for the production process.
• operations function – The operations function interprets the operations specification, allowing the production process to take place.
• product or service – The finished product or service is finally created and is ready to be sold to the customer.

You can extend the lifecycle of a product or service by investing in an “extension strategy”. You could:

• increase your promotional spending
• introduce minor innovations – perhaps by adding extra features or updating the design
• seek new markets

But ultimately this only delays a product or service’s decline.

Ideally, you should always have new products or services to introduce as others decline so that at least one part of your range is showing a sales peak.

Developing your ideas

There’s a lot at stake when developing a new product or service. To minimise risks and allocate investment and resources wisely, you should consider a number of factors:

• Will your new product or service meet customers’ specifications? For example, consider its design, ease of use and performance benefits.
• How technologically feasible is the product or service? Can you meet the design, resource and manufacturing requirements?
• Are you clear about what you hope to achieve with the new product or service? Does it meet the strategy outlined in your business plan and play to your business’ strengths?

The clearer you are about your plans, the better you can analyse the risks involved.

The following tips may also be helpful:

• consult member of your team about your development plans – they may contribute insights that you’ve overlooked
• seek the views of suppliers and other business associates – their specialist expertise could be invaluable
• test lots of ideas at the start of a project – it costs relatively little to assess which are most promising, but make sure you stop work on ideas that don’t meet your criteria before committing a lot of time and resources
• ask your best customers what they think of your plans
• consider the regulatory framework within which your new product or service will operate
• don’t overlook the environmental impact of your plans
• look beyond a new product or service’s immediate potential and consider the longer term

At this stage, someone has an idea for a new product or service. Ideas can come from many sources, for example:

• Complaints from current customers (see Customer Service and Customer Satisfaction)
• Requests for Proposals from large businesses, government agencies, etc.
• Modifications to current products (see Innovation)
• Suggestions from employees, customers, suppliers, etc. (see Creative Thinking)

Protecting Your Ideas – It’s likely that someone else will think your idea is a good one, too! Therefore, it’s important to protect your idea as much as possible, for example, by getting copyrights, trademarks or patents.

Match products and services to market needs

New products and services have to offer benefits that meet your customers’ needs. You need to discover what these are.

Market research, using techniques such as surveys and focus groups, will help you do this.

Remember that although the end user of your product or service might be your most important customer, you may have to take the needs of other parties into account.

For example, if you were planning a new DIY product, you would need to consider how retailers would stock it as well as how it would benefit professional decorators. If you’re creating a toy, you should consider what parents as well as children will think of it.

Not only must you meet your customers’ needs, you have to do so in a way that is better than the alternatives offered by the competition.

Your new product or service needs a unique selling proposition – a feature or property that makes it stand out in the marketplace. Before entering the market you need to determine:

• how customer needs are currently met
• why customers would choose your product or service rather than the competition’s, both now and in the future
• what risks you are prepared to take to launch your product or service into this market

At this point, you will benefit from understanding the basics of marketing, particularly how to conduct market research and a competitive analysis. If your idea still seems like a good one, then it’s important to know how you will position and identify your new product to the market. You’ll certainly want to know how much you might charge for it (that is, its price to the customer). The following links will guide you through these considerations.

• Marketing Research (is there a need for your new product? by whom? how do they want it?)
• Competitive Analysis (who are your competitors? what are they selling? can you compete?)
• Pricing (how to come up with a price, based on development costs, etc.)
• When Is The Right Time To Create A Product?
• What Is Your Product Saying to Consumers?

Pricing service or product

Establishing a pricing strategy for a new product or service is an important part of the development process. You should consider pricing the moment you decide to take an idea forward as it will determine how much you can afford to invest in the project.

You will need to take the following factors into account:

• The benefits – or value – to the customer of your product or service compared with what the competition has to offer. Will the price be one that customers are prepared to pay?
• Whether or not you’re first to market. Is your product or service revolutionary or are you following a market trend?
• The selling channels you want to use, which will affect your promotional spending and distribution costs.
• The speed with which you want to establish your product or service.
• The expected lifecycle of your product or service.
• Whether you are covering your costs.

Product Development

At this point, you’ve concluded that your idea can become a viable product. Now you’re faced with actually building the product itself. The particular process you use to build your product or service, depends very much on the nature of the product or service. The following links might help you as you develop your unique process to build your product.

Again, the particular processes you use repeatedly to produce your products and services depend very much on the nature of your product or service. The following links will help you to develop the new product or service, including regularly tracking how many versions you have produced.

NPD

Product development, also called new product management, is a series of steps that includes the conceptualization, design, development and marketing of newly created or newly rebranded goods or services. The objective of product development is to cultivate, maintain and increase a company’s market share by satisfying a consumer demand. Not every product will appeal to every customer or client base, so defining the target market for a product is a critical component that must take place early in the product development process. Quantitative market research should be conducted at all phases of the design process, including before the product or service is conceived, while the product is being designed and after the product has been launched.

Models – Conceptual models have been designed in order to facilitate a smooth process. The concept adopted by IDEO, a successful design and consulting firm, is one of the most researched processes in regard to new product development and is a five-step procedure. These steps are listed in chronological order

• Understand and observe the market, the client, the technology, and the limitations of the problem;
• Synthesize the information collected at the first step;
• Visualise new customers using the product;
• Prototype, evaluate and improve the concept;
• Implementation of design changes which are associated with more technologically advanced procedures and therefore this step will require more time.

One of the first developed models that today companies still use in the NPD process is the Booz, Allen and Hamilton (BAH) Model, published in 1982. This is the best known model because it underlies the NPD systems that have been put forward later. This model represent the foundation of all the other models that have been developed afterwards. Significant work has been conducted in order to propose better models, but in fact these models can be easily linked to BAH model. The seven steps of BAH model are: new product strategy, idea generation, screening and evaluation, business analysis, development, testing, and commercialization.

A pioneer of NPD research in the consumer goods sector is Robert G. Cooper. Over the last two decades he conducted significant work in the area of NPD. The Stage-Gate model developed in the 1980s was proposed as a new tool for managing new products development processes. This was mainly applied to the consumer goods industry. The 2010 APQC benchmarking study reveals that 88% of U.S. businesses employ a stage-gate system to manage new products, from idea to launch. In return, the companies that adopt this system are reported to receive benefits such as improved teamwork, shorter cycle time, improved success rates, earlier detection of failure, a better launch, and even shorter cycle times – reduced by about 30%. These findings highlight the importance of the stage-gate model in the area of new product development. Over the last few years, the Lean Startup movement has grown in popularity, challenging many of the assumptions inherent in the stage-gate model.

Product development frameworks – Although product development is creative, the discipline requires a systematic approach to guide the processes that are required to get a new product to market. Organizations such as the Product Development and Management Association (PDMA) and the Product Development Institute (PDI) provide guidance about selecting the best development framework for a new product or service. A framework helps structure the actual product development.

FFE Approach – Some frameworks, like the fuzzy front end (FFE) approach, define what steps should be followed, but leave it up to the team to decide which order makes most sense for the specific product that is being developed. The five elements of FFE product development are:

• Identification of design criteria — involves brainstorming possible new products. Once an idea has been identified as a prospective product, a more formal product development strategy can be applied.
• Idea analysis — involves a closer evaluation of the product concept. Market research and concept studies are undertaken to determine if the idea is feasible or within a relevant business context to the company or to the consumer.
• Concept genesis — involves turning an identified product opportunity into a tangible concept.
• Prototyping — involves creating a rapid prototype for a product concept that has been determined to have business relevance and value. Prototyping in this front-end context means a “quick-and-dirty” model is created, rather than the refined product model that will be tested and marketed later on.
• Product development — involves ensuring the concept has passed muster and has been determined to make business sense and have business value.

Design Thinking – Other frameworks, like design thinking, have iterative steps that are designed to be followed in a particular order to promote creativity and collaboration. The five components of design thinking are:

• Empathize — Learn more about the problem from multiple perspectives.
• Define — Identify the scope and true nature of the problem.
• Ideate — Brainstorm solutions to the problem.
• Prototype — Weed out unworkable or impractical solutions.
• Test — Solicit feedback.

This composite new product development (NPD) framework for manufactured goods has eight important components:

• Idea generation is the continuous and systematic quest for new product opportunities, including updating or changing an existing product.
• Idea screening takes the less attractive, infeasible and unwanted product ideas out of the running. Unsuitable ideas should be determined through objective consideration.
• Concept development and testing is vital. The internal, objective analysis of step two is replaced by customer opinion in this stage. The idea, or product concept at this point, must be tested on a true customer base. The testers’ reactions can then be leveraged to adjust and further develop the concept according to the feedback.
• Market strategy/business analysis is comprised of four P’s, which are product, price, promotion and placement.
• Product: The service or good that’s been designed to satisfy the demand of a target audience.
• Price: Pricing decisions affect everything; profit margins, supply and demand, and market strategy.
• Promotion: The goals of promotion are to present the product to the target audience, increasing demand by doing so, and to illustrate the value of the product. Promotion includes advertisements, public relations and marketing campaigns.
• Placement: The transaction may not occur on the web, but in today’s digital economy, the customer is generally engaged and converted on the internet. Whether the product will be provided in bricks-and-mortar or clicks-and-mortar shops, or available through an omni-channel approach, the optimal channel, or channels, for placement must be determined if the targeted potential customers are to become actual customers.
• Feasibility analysis/study yields information that is critical to the product’s success. It entails organizing private groups that will test a beta version, or prototype, of the product, then evaluate the experience in a test panel. This feedback communicates the target market’s level of interest and desired product features, as well as determines whether the product in development has the potential to be profitable, attainable and viable for the company, while satisfying a real demand from the target market.
• Product technical design/Product development integrates the results of the feasibility analyses and feedback from beta tests from stage five into the product. This stage consists of turning that prototype or concept into a workable market offering; ironing out the technicalities of the product; and alerting and organizing the departments involved with the product launch, such as research and development, finance, marketing, production or operations.
• Test marketing, or market testing, differs from concept or beta testing in that the prototype product and whole proposed marketing plan, not individual segments, are evaluated. The goal of this stage is to validate the entire concept — from marketing angle and message to packaging to advertising to distribution. By testing the entire package before launch, the company can vet the reception of the product before a full go-to-market investment is made.
• Market entry/commercialization is the stage in which the product is introduced to the target market. All the data obtained throughout the previous seven stages of this approach are used to produce, market and distribute the final product to and through the appropriate channels.

NSD

NSD (New Service Development) concerns all the activities involved in realizing new service opportunities, including product or service design, business model design, and marketing.

When splitting service development into two parts, we have “service” and “development. ” The first things that come into mind when looking at service are: economics, finance, managerial activities, competition, prices, and marketing. All of these keywords are related to risk and entrepreneurship and clearly indicate the primary scope of the term “service development. “

Development is very abstract and can be linked with some of the following keywords: technological improvement, cost reduction, general welfare, improved relations, and movement in a positive direction. Service development is mostly seen as growing an enterprise through a number of techniques. The mentioned techniques differ, but in fact all of them are about traditional marketing. The two main questions necessary to this approach are: How do we find, reach, and approach customers? How do we keep these customers satisfied with new possible services?

When supplying a solution, it is important to focus on the total offering you give instead of only focusing on the product or service. An offering is a package consisting of different proportions of a physical product, service, advice, delivery, and the costs.

Drawing on contingency theory, an idea central to new service development is that different service, market, and technology combinations can require different marketing strategies and business models to make them a success. To chart the factors that are involved and create synergy between them, new service development draws heavily upon the fields of technology and business networks. The new service development process involves recognizing chances and opportunities in a fast changing technological environment. For example, car manufacturers should recognize that rising gas prices are an opportunity to create fuel efficient cars .

New service development process/ stages

• Front End Planning: The first Step is to review the vision and mission of the company.
• New Service Strategy Development: The product portfolio strategy and a defined organizational structure for new product / service development are critical for the foundation of success. (Possibility in terms of markets, types of services, time horizon, profit criteria). The framework allows an organization to identify possible directions for growth. Offerings are some of the most common approaches includes – there should be formal mechanism for ensuring an ongoing stream of new service possibilities and the mechanism may include a formal new service development department with responsibility for generating new ideas, suggestion boxes for employees, customers, new service development teams to identify new services.
• Idea Generation: Formal brainstorming, solicitation of ideas from employees and customers, lead-user researchers and learning about competitors.
• Service Concept development and evaluation: After clear definition of the concept, it is important to produce a description of the service that represents its specific features and then to determine initial customer and employee responses to the concept.
• Business Analysis: Assuming the service concept is favorably evaluated by customers and employees at the concept development stage, the next step is to determine its feasibility and potential profit implications. This stage will involve preliminary assumptions about the costs of hiring and training personnel delivery system enhancements, facility changes. The organization will pass the results of the business analysis through its profitability and feasibility screen to determine whether the new service idea meets the minimum requirements.
• Service development and testing: It involves construction of product prototype and testing for consumer acceptance. During this phase, the concept is refined to the point where a detailed service blueprint representing the implementation plan for the service can be produced.
• Market testing: The new service may be offered to employees of the organization and their families for a time to assess their responses to variations in marketing mix.
• At this stage, pilot study has to be done for the service, to be sure that the operational details are functioning smoothly.
• Commercialization: At this stage, the service goes live and introduced to the market place. The first is to build and maintain acceptance of the new service among large numbers of service delivery personnel who will be responsibility day-to-day for service quality. To monitor all aspects of the service during introduction and through the complete service cycle.
• Post introduction evaluation: At this stage, the information gathered during commercialization of the service can be viewed and changes made to the delivery process, staffing or marketing –mix variables on the basis of actual offering to the market response.

PSS

Product-service systems (PSS) are business models that provide for cohesive delivery of products and services. PSS models are emerging as means to enable collaborative consumption of both products and services, with the aim of pro-environmental outcomes.

Product service systems, put simply, are when a firm offers a mix of both products and services, in comparison to the traditional focus on products. As defined “a marketable set of products and services capable of jointly fulfilling a user’s needs”. PSSes can be realized by smart products.

The initial move to PSS was largely motivated by the need on the part of traditionally oriented manufacturing firms to cope with changing market forces and the recognition that services in combination with products could provide higher profits than products alone. Faced with shrinking markets and increased commoditization of their products, these firms saw service provision as a new path towards profits and growth.

While not all product service systems result in the reduction of material consumption, they are more widely being recognized as an important part of a firm’s environmental strategy. In fact, some researchers have redefined PSS as necessarily including improved environmental improvement. For example,(Mont)defines PSS as “a system of products, services, supporting networks, and infrastructure that is designed to be competitive, satisfy customers’ needs, and have a lower environmental impact than traditional business models” Mont elaborates her definition as follows: A PSS is pre-designed system of products, service, supporting infrastructures, and necessary networks that is a so-called dematerialized solution to consumer preferences and needs. It has also been defined as a “self-learning” system, one of whose goals is continual improvement.

This view of PSS is similar to other concepts commonly seen in the environmental management literature, such as “dematerialization” and “servicizing.”

PSS has been used to create value for customer beyond selling products as functions. Typically, there are four approaches for PSS design.

• Function-based PSS: add new functions to increase product value in the competing market. For example, GM added OnStar in 1992 to product emergency services for customers. It integrated GPS with vehicle sensory system for telematics-based on-demand services.
• Value-added PSS: companies added new features to increase value of a product to expand its value to customers and user. Some earlier work on teleservice system has been done during the 1990s. For example, Otis Elevator added Remote Elevator Maintenance (REM) system to its fleet system to monitor their elevators to reduce failures. GE Healthcare (formerly GE Medical Systems) developed InSite to remotely monitor its medical equipment to reduce service costs and increase user benefits.
• Evidence-based Service: companies use big data analytics to provide the actual saving and further develop a service contract for customer to pay for part of the saving. For example, GE Aviation Power by the Hour On-Wind Support system to reduce the fuel of aircraft engine and reduce maintenance costs through a Long-Term Service Contract (LTSC).

There are many methodologies on PSS design. One of these is called Dominant Innovation system. It uses an Innovation Matrix to identified gaps from customer’s fear, not needs based on scenario-based path finding. A new value-chain ecosystem can be further developed to link these gaps between two invisible spaces. For example, John Deere developed Agric Service business based on the customers’ worries on soil related issues. It integrates sensors with GPS to develop cognitive site map about soil content to optimize the yield of crops production. In addition, Komatsu Japan used remote maintenance system (Komtrax) system and further integrated with intelligent analytics for proactive maintenance.

In recent years, PSS has been further integrated with big data analytics for accelerated innovation. Other technologies such as Prognostics and Health Management and Cyber Physical Systems have further created service innovation technologies for PSS. For example, Alstom Transport System has been developing Train Tracer technologies since 2006. Currently, it is implementing Health Hub system for its transport fleets. In addition, NSF Industry/University Cooperative Research Center on Intelligent Maintenance Systems (IMS) has been developing predictive analytics for aircraft engines, machine tools, robots, as well as wind turbines etc. for expanded e-maintenance or cyber maintenance systems.

Servicizing – “Servicizing” is a transaction through which value is provided by a combination of products and services in which the satisfaction of customer needs is achieved either by selling the function of the product rather than the product itself, or by increasing the service component of a product offer. The concept is based on the idea that what customers want from products is not necessarily ownership, but rather the function that the product provides or the service the product can deliver. This means that the provider of “servicizing solutions” may get paid by the unit-of-service (or product function) delivered, as opposed to the (more traditional) unit-of-products sold.

One type of servicizing solutions is based on transactions where payment is made—not for the “product”—but for the “product-service package” (part of PSS) which has been sold to the customer. This serviced purchase extends the buying transaction from a one-time sale (product acquisition), to a long-term service relationship (such as in the case of a long-term maintenance-free service contract).

Another type of servicizing may be a strategy for providing access to services for people who cannot afford to buy products outright. For example, in the case where auto ownership is economically unfeasible, creative servicizing offers at least three possible solutions: one in which transportation can be achieved simultaneously (as in car-pooling); one in which transportation can be achieved sequentially (as in car-sharing); and one in which transportation can be achieved eventually (rent-to-own)..

PSS Types – There are various issues in the nomenclature of the discussion of PSS, not least that services are products, and need material products in order to support delivery, however, it has been a major focus of research for several years. The research has focused on a PSS as system comprising tangibles (the products) and intangibles (the services) in combination for fulfilling specific customer needs. The research has shown that manufacturing firms are more amenable to producing “results”, rather than solely products as specific artifacts, and that consumer are more amenable to consuming such results. This research has identified three classes of PSS:

• Product Oriented PSS: This is a PSS where ownership of the tangible product is transferred to the consumer, but additional services, such as maintenance contracts, are provided.
• Use Oriented PSS: This is a PSS where ownership of the tangible product is retained by the service provider, who sells the functions of the product, via modified distribution and payment systems, such as sharing, pooling, and leasing.
• Result Oriented PSS: This is a PSS where products are replaced by services, such as, for example, voicemail replacing answering machines.

Van Ostaeyen et al. criticize this typology for failing to capture the complexity of PSS examples found in practice. They propose an alternative that categorizes PSS types according to two distinguishing features: the performance orientation of the dominant revenue mechanism and the degree of integration between product and service elements. According to the first distinguishing feature, a PSS can be designated as input-based (IB), availability-based (AB), usage-based (UB) or performance-based (PB). The performance-based type can be further subdivided into three subtypes:

• Solution oriented (PB-SO) PSS: (e.g. selling a promised level of heat transfer efficiency instead of selling radiators)
• Effect oriented (PB-EO) PSS: (e.g. selling a promised temperature level in a building instead of selling radiators)
• Demand-fulfillment oriented (PB-DO) PSS: (e.g. selling a promised level of thermal comfort for building occupants instead of selling radiators)

According to the second distinguishing feature, a PSS can be designated as segregated, semi-integrated, and integrated, depending on to what extent the product and service elements (e.g. maintenance service, spare parts) are combined into a single offering.

Examples

The following existing offerings illustrate the PSS concept:

• Xerox’ pay-per-copy model for selling office equipment
• Rolls-Royce’s Power-by-the-Hour service package for aircraft engines, whereby maintenance, repair and overhaul services are charged per hour of flight
• Atlas Copco’s Contract Air service, whereby air compressors are sold per m³ of compressed air delivered
• Philips’ pay-per-lux model for selling lighting equipment, whereby customers pay for a promised level of luminance in a building
• Michelin’s fleet management solution whereby truck tires are sold per kilometer driven