Understanding the product development process

Transform your business or product idea into commercial reality with our guide to setting up a product development process.

Product development – often called new product development (NPD) or new product management – is the process of creating and launching a new product, service or relaunching an existing service or product.

It’s an approach that is deliberately structured and aims to sidestep the chaos of creativity and ensure that you remain on track transforming an idea into a reality.

There’s an entire industry that has sprung up with processes, structures and frameworks for running a product development process.

While all have merits, it’s possible to use a simple series of steps to help create a successful product or service.

By working through each step, you’ll be better placed to pick the right idea, do the right research and create a product development pipeline that can be used again.

And by sharing your NPD approach with potential investors, you’ll inspire confidence when seeking funding for your start up.

Depending on what you’re developing, there are around eight steps you can follow.

These are usually the same no matter what NPD approach or system you adopt:

  1. Idea generation – The process of coming up with potential ideas for a new product or service, or ideas on how to improve an existing product.
  2. Filtering and screening – How to select the best idea to take forwards into development.
  3. Concept development – Testing the idea with customers.
  4. Commercial and market analysis – The practicality of launching this idea, costs involved and the market.
  5. Development – The technical stage that sets the manufacturing or service delivery process.
  6. Testing – Puts the prototype product or service in the hands of customers to get feedback and refine the product.
  7. Marketing and pricing – How you’ll price and market the new or improved product or service.
  8. Go to market – The strategy and approach you’ll take to put the new product on sale and into the hands of customers.

Each stage is designed as a go/no-go stage.

By following each stage you’ll limit the risk and lessen the investment you need if the idea turns out to not be viable.

Not following a production development process risks going to market with a half-baked business idea that doesn’t appeal to customers, or is challenging to manufacture and sell.

1. Idea generation

Ideas are the lifeblood of any business and you should use a variety of techniques to generate lots of ideas for your new product or service.

Ideas can be captured from all sources but the first step is to use tools such as SWOTopens in new window (Strengths, Weaknesses, Opportunities, Threats) and PESTLE (Political, Economic, Social, Technological, Legal and Environmental) to map out what’s happening in your market and to identify opportunities.

Watch this: Coming up with good ideas is often a challenge. This video by Steven Johnson, the author of The Invention of Air, looks at where good ideas come from:

Other tools to use to help generate ideas include:

  • Brainstorming – There are a variety of techniques and stimulus to help you brainstorm but the aim is to generate a range of ideas framed by the SWOT and PESTLE analysis. Capture each idea on a separate piece of paper. Then list what the idea is, how it would work, what is different about it and what customer need it addresses.
  • Competitor analysisLook at competitors and see what they’re doing. What have they failed or succeeded with? What would you do differently? What are customers complaining about? Use these to come up with ideas that exploit a gap in the market.
  • Suggestions – Ask your staff and customers what they think. From something as simple as a suggestion box to a more formal survey or focus group, talking to your target customers and your staff can generate lots of great ideas.

Once completed, this stage should have generated lots of ideas for new products or improvements to existing ones – the challenge is, you may have too many ideas! The next stage will help narrow down the options.

2. Filtering and screening

You won’t be able to develop every idea you have.

This stage is about filtering out the less viable ideas so you can devote all your resources to the ones with the most potential. To do this:

  • Set criteria – Write down a list of criteria that each idea must be assessed with, such as customer need, potential market size, cost of development, existing competitors, or how it fits with your objectives.
  • Use traffic lights – Set a red, amber and green colour for how attractive the idea is in each criteria. For example, low cost might be green, whereas lots of existing competitors might be coloured red. Ideas with more greens are more attractive to take to the next stage.
  • Filter ruthlessly – You should aim to ditch around two thirds of your ideas, ending up with two or three candidates that you think are viable.

Watch this: Need some help filtering your ideas? The US-based MIT Launch X programme offers up lots of advice for filtering ideas for entrepreneurs and start ups in this useful video:

3. Concept development

Write up each of your candidate ideas as if it was a real product, detailing what it is, what it offers, how much it costs and how it works.

You can use illustrations to bring your ideas to life and into presentable form.

This stage is about asking potential customers how they would rank each of your candidate ideas.

Get a group of customers together and take them through each concept, asking them for their feedback.

Would they need it? Would they buy it? How much would they pay for it? Would they buy it from you? What do they like or dislike about it?

Rank the candidate ideas, making changes based on feedback, and then take one idea through to the next stage.

4. Commercial and market analysis

Now the real work begins.

You’ll need to investigate the commercial and business foundations of the idea – what would it take to manufacturer the product or operate the service.

You’ll need to make assumptions about number of customers, ARPU (average revenue per user) and how much people will pay, your costs and overheads, marketing costs and sales assumptions.

Is the product viable? What are the areas for concern, such as pricing or the volume of customers you’ll need? What demand are you assuming for the product? What evidence is there for this? What is the breakeven point, and what will the competition do if you launched it?

Use spreadsheets and conduct some financial modelling showing how the product or service would sell over the first year, and your costs and assumptions.

Be realistic – Is the idea profitable and can you make it work? If not, then now is the stage to stop and go back to an earlier stage.

5. Development

If you’ve a viable product idea that has tested well with customers and makes commercial sense, then you can roll up your sleeves and move into the development stage.

This is about identifying the specifications and processes you’ll use to either make a product or set-up and deliver a service.

You’ll need to consider the supply chain – how you’ll source materials – as well as the manufacturing methods or infrastructure you’ll need to offer a service.

For example, offering a phone-based service might need a call centre and phone system.

6. Testing

By now, your idea is nearly a ready-to-sell product or service – time to get it back into the hands of potential customers for further polishing and refinement.

Use this stage to put prototype products, packaging examples, marketing materials and service details such as prototype websites into test groups.

Watch how customers interact with these, gather feedback and see how you can refine your product.

These last-minute changes are invaluable for fine-tuning your offering.

7. Marketing and pricing

You’re now ready for the pre-launch stage.

You’ll need to finalise marketing plans and pricing – creating marketing messages and advertising across channels.

Establish any introductory pricing or discounts to encourage early take up by customers and put in place performance goals for your marketing.

Set weekly and monthly marketing targets, such as the number of customers you need to acquire and how much they should spend.

Check this against the expected performance of your business analysis that you created in step 4.

8. Go to market and launch

The stage is now set for your product launch.

Use this final stage to sign off marketing plans and book advertising space, as well as set up the logistics for taking orders or handling customers.

Create a detailed launch plan – How will you announce it and start distributing it? What elements, such as PR, need to be in place and what result should they create?

Align all your marketing channels – such as Pay Per Click advertising and social media – with a launch date for promoting your new product.

During this phase, monitor progress in detail, checking everything is going to plan.

Finally, create an exit strategy.

Even if you’ve completed every step, sometimes a business idea or new product simply doesn’t work.

Put down some red lines that indicate things are not performing well, and be prepared to stop a product that looks like it will fail soon after launch before you incur too many losses.

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Disclaimer: While we make reasonable efforts to keep the information on this page up to date, we do not guarantee or warrant (implied or otherwise) that it is current, accurate or complete. The information is intended for general information purposes only and does not take into account your personal situation, nor does it constitute legal, financial, tax or other professional advice. You should always consider whether the information is applicable to your particular circumstances and, where appropriate, seek professional or specialist advice or support.

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