New product development tends to happen in stages. Although firms often go back and forth between these idealized stages, the following sequence is illustrative of the development of a new product:

  • New product strategy development. Different firms will have different strategies on how to approach new products. Some firms have stockholders who want to minimize risk and avoid investing in too many new innovations. Some firms can only survive if they innovate frequently and have stockholders who are willing to take this risk. For example, Hewlett-Packard has to constantly invent new products since competitors learn to work around its patents and will be able to manufacture the products at a lower cost.

  • Idea generation. Firms solicit ideas as to new products it can make. Ideas might come from customers, employees, consultants, or engineers. Many firms receive a large number of ideas each year and can only invest in some of them.

  • Screening and evaluation: Some products that after some analysis are clearly not feasible or are not consistent with the core competencies of the firm are eliminated.

  • Business analysis. Ideas are now exposed to more rigorous analysis. Profit projections, risks, market size, and competitive response are considered. If promising, market research may be done.

  • Development: The product is designed and manufacturing facilities are planned.

  • Market testing: Frequently, firms will try to “test” a product in one region to see if it will sell in reality before it is released nationally and internationally. There is a lesser risk if the firm only commits money to advertising and other marketing efforts in one region. Retailers will also be more receptive in other parts of the country and world if it has been demonstrated that the product sold well in one region. The firm may also experiment with different prices for the product.

  • Commercialization: Facilities to manufacture the product on a larger scale are now put into operation and the firm starts a national marketing campaign and distribution effort.