Rethinking the Product Development Funnel


Rethinking the Product Development FunnelAs originally envisioned, the product development funnel implied that a well-defined product development process exists. However, the original funnel, and others that have followed, are increasingly seen as lacking. This article proposes a new funnel that addresses these missing elements.

The icon of a funnel has been in use for several decades now as a visual depiction of the new product development (NPD) process. It works well because it implies that product development is, in fact, a refinement process that takes us from the earliest stages of a project – with a lot of fuzzy ideas and fuzzy thinking – to the final stage of new product launch. However, in reviewing the many funnels that have been proposed and used over the years, there is a growing realization that most are lacking in a few important ways. In this article, we will review some of these funnels, discuss their strengths and weaknesses, and ultimately propose a new one that addresses these weaknesses.

Evolution of the Product Development Process

One of the earliest attempts to create a “flowchart” diagram of the product development process appeared in Urban and Hauser’s 1980 textbook, Design and Marketing of New Products1. (See Exhibit 1.)

Exhibit 1: New Product and Development Service Process

New Product and Development Service Process

Source: Urban and Hauser “Design and Marketing of New Products” (1980)

Having been close to these authors at the time of their writing, it is evident that most of the real world examples that led to this flowchart came from the world of consumer packaged goods (CPG), a realm in which ideas were plentiful and most did not require any particular technical expertise to imagine – e.g. a new flavor of soup, a new brand of toothpaste, or a new dishwashing liquid. In this world, most of the action deals with marketing issues such as the screening of ideas, product positioning, advertising and messaging, and sales forecasting. The creation of prototypes to test was usually neither prohibitively expensive nor technically daunting, and so the process almost always included real world “test marketing”, i.e. launching the product in a small geographic area in order to test its viability before the major investment of a national or international launch. In this world, little attention was paid to the idea generation process.

Next, in 1986, Robert Cooper published the first edition of his popular book, Winning at New Products2. In it, he presents a diagram of the product development process that breaks it into five stages preceded by a process he calls “discovery,” a process that includes idea screening. Only two years later did he give this process a name: Stage Gates®3, a name that he actually trademarked and is now in use at companies worldwide. (See Exhibit 2.)

EXHIBIT 2: Stage Gates® NPD Process

Stage Gates NPD Process

Source: Cooper “Winning at New Products” (1986, 1993, 2001)

Cooper’s “client” for this process diagram was usually either the research and development (R&D) director or a high-level NPD manager who needed to deal with a portfolio of products, all at different stages of development. What he advocated was a formal management review process in which product development teams were required to come before this high-level management committee to present their project so that management could make an informed decision, using consistent criteria, as to whether to promote a project onto the next stage of development or to kill it.

Notice, however, that Cooper’s discovery process – which includes idea generation and screening – precedes the main Stage Gate process. At this earliest stage of new product development, little budget is required, and in many cases, no team has even been assigned to work on the project.

The earliest use of a literal “funnel” that I was able to find appeared in Wheelwright and Clark’s 1992 textbook, Revolutionizing Product Development4. (See Exhibit 3.)

EXHIBIT 3: Earliest Use of a Literal Funnel to Describe NPD Process*

Earliest Use of a Literal Funnel to Describe NPD Process

Source: Wheelwright & Clark “Revolutionizing Product Development” (1992)

Their diagram consists of three major stages, which they label Investigations, Development, and Shipping of Products5. As with the previous two, the emphasis at the start is on screening of ideas. Little is said as to where the ideas come from or how they are generated.

At approximately the same time, Michael McGrath, one of the founders of the consulting firm PRTM, published his book, Setting the PACE in Product Development6. McGrath’s first stage deals with Concept Development, usually a piecing together of ideas into a full product description. Similar to Cooper, McGrath advocates a periodic management review process that he calls Phase Reviews.But in almost every other way, they are the equivalent of Stage Gates. (See Exhibit 4.)

EXHIBIT 4: McGrath’s PA CE® NPD Funnel

McGrath’s PA CE® NPD Funnel

Source: McGrath “Setting the PACE in Product Development” (1992)

One other noteworthy thing about McGrath’s process is that he includes the development of a formal “business case” as a major phase before the project moves onto formal development. As with Cooper, his focus is with a portfolio of projects which need to be weeded through periodically. And again, little is said about where the ideas come from. They clearly precede the entrance to his funnel.

A similar diagram was put forth in 2005 by MIT’s Center for Innovation in Product Development (CIPD)7. It has some of the characteristics of all of the preceding diagrams – a literal funnel, with multiple projects proceeding in parallel. But once again, the “discovery” process falls outside the funnel in a stage called “Opportunity Identification and Idea Generation” with little advice about how to go about it. (See Exhibit 5.)

EXHIBIT 5: MIT ’s CIPD Take on NPD

MIT ’s CIPD Take on NPD

Source: MIT Center for Innovation in Product Development (CIPD, 2005)

What’s Missing?

All of these diagrams represent important contributions to the field of NPD. But all are lacking in at least one important respect: They begin just after the point in the process where the idea has already been generated. Once the idea has been put forth, they all deal quite well with the process of concept generation and evaluation, design and engineering, etc.

Unfortunately, it is in these earliest stages of the NPD process that practitioners have the greatest difficulty and where researchers have placed their greatest emphasis in recent years. In fact, they have given this segment of the process a particularly colorful name: The “Fuzzy Front End” of NPD. Certainly these stages have become less fuzzy during the past decade, but they are still the most challenging and least subject to a clear “one-size-fits-all” process.

As stated earlier, the purpose of this article is to propose a new funnel – one that gives greater emphasis and better definition to the “Fuzzy Front End.” Many of these activities require some form of market research. The validity of that conclusion should not be lessened by the fact that the focus of my work over the years has been in this area.

A “New” New Product Development Funnel

The process that has evolved in my work and that of my firm during the past decade or so consists of five major stages: Discovery, Definition, Design, Development, and Delivery. In each stage of this process, the product developer is faced with the need to answer a series of difficult questions listed below.

Discovery

  • What is the opportunity that we might want to pursue?
  • Who is the customer that we want to target?
  • What are their major problems, from a high-level perspective, in achieving the task they have chosen to undertake?

Definition

  • What detailed needs must we satisfy?
  • How should we measure how well we’re satisfying them: that is, to what specifications should we design?

Design

  • How can we satisfy those needs: that is, can we come up with better features and solutions than those that already exist?
  • How do we describe these features and solutions to our customers such that they will find them compelling and believable?

Development

  • Which of these prospective features or solutions are actually worth investing in?
  • Which should we actually include in the final product?
  • If we do, how much will people be willing to pay for them?

Delivery

  • The final shakedown process: Can we reliably produce it, sell it, maintain it, and make money doing it?

Our funnel, shown in Exhibit 6, focuses on the activities that product developers must go through in order to answer these questions satisfactorily. Many of these activities are quite daunting. They require strong analytical skills, technical skills, discipline, intellectual honesty (with oneself), creativity, and of course, a little luck!

EXHIBIT 6: A “New” New Product Development Funnel

A “New” New Product Development Funnel

Source: Visions Author Gerry Katz, Applied Marketing Science Inc.

Navigating Through The Funnel

The new funnel shown in Exhibit 6 lays out a series of activities that companies typically go through and that I believe is more representative of what really happens. The most important difference between this funnel and the ones presented earlier is that we have added two new levels at the top. Together, these two levels attempt to better describe the “Fuzzy Front End” and attempt to more explicitly define what it takes to get through them.

Discovery
The discovery process comprises four key elements:

1. Exploratory Research

Exploratory research is usually a completely informal activity. It can involve informal discussions with customers, attending conferences or trade shows, and especially poring over previous studies that are likely to be sitting on shelves gathering dust. Most companies have a wealth of information already in their possession that no one has paid any attention to for years. This is usually a good starting point, because it is likely that someone in the organization has dealt with problems in this arena before, and exploring past thinking often provokes new thinking for the current environment.

2. Secondary Sources

The goal of secondary source research, as described by Abbie Griffin, is to “get smart inexpensively.” Until about 15 years ago, this almost always required library research. But the web has completely revolutionized this step. It is remarkable how quickly you can assemble a great deal of useful information from secondary sources, most of it completely for free. There are also many syndicated studies available – i.e., reports written by various consultants or industry associations that cover an entire industry or market segment in great detail – often for a very reasonable price. Again, the underlying assumption is that somebody, somewhere has researched this question before, and if you can assemble enough facts that no one else has quite pieced together just yet, you can often find some great opportunities. Web research is a skill that requires some experience, and ironically the people who have the most are usually your youngest employees, because they’ve been doing it since they were in the third grade! In general, the younger you are, the better you are at web-based secondary source research.

3. Ethnography

Ethnography, in a nutshell, is research by observation – watching customers actually use products and services to accomplish various tasks. While there are many uses for ethnography, the most common and useful is as a form of discovery. Some practical constraints that must be dealt with, but if you can get around them, ethnography is often highly instructive. These constraints may involve issues of privacy (e.g. defense-related industries, healthcare, or personal care), or they may involve the so-called “Hawthorne Effect,” the phenomenon that observation may alter behavior. But until about 20 years ago, most product developers rarely if ever got to see their products in actual use – a fact that is hard to believe in today’s world.

4. Online Communities

The use of online communities has exploded in the past few years. They go by many names: social networks, communities of interest, communities of enthusiasts, user-generated content (UGC), etc. While many question their value as sources of new ideas, they have already proven to be great sources for problem identification. By following what customers are talking about online, companies can get great insights regarding what problems they ought to consider addressing. If you are in a widely used consumer product category, there is likely to be more content already available than you could ever wade through. But if you are in a business-to-business category, the available content might be quite limited. For those cases where the amount of content is overwhelming, there have been many attempts to use artificial intelligence algorithms to try to wade through and make sense of the data. The jury is still out as to their usefulness. But even a cursory reading of what is being talked about on-line can be a great form of discovery.

Definition
The definition process comprises three key elements:

1. Target Definition

Once a company has completed its discovery process, it is time to put a stake in the ground. This usually begins by explicitly identifying what market or population it wishes to target for a prospective new product or service. This target definition can be extremely broad or extremely narrow, but it is important to
be as explicit as possible, because this will drive almost all of the development activities going forward. For instance, we could define our target as “users of home office printers who generate fewer than 500 pages per month” or “physicians who treat at least 20 diabetic patients per month.” The target definition usually involves some form of market segmentation, although the segments could be based on personal demographics, company characteristics, geography, products used, technology maturity, or any of several other criteria.

2. Needs Assessment

This is the stage where Voice of the Customer (VOC) research is called for. The acronym VOC has become badly bastardized in the past five years. For many, it has become a euphemism for almost any kind of customer contact or market research. Many now use the term as a synonym for Customer Satisfaction Measurement (CSM) or Customer Relationship Management (CRM) techniques. In truth, the term came specifically from the field of NPD. It is defined as the process of gathering, organizing, and prioritizing customer wants and needs. To the naïve, this simply means asking customers what they want. But such an approach almost always backfires, because it assumes that the customer will be able to tell you about the exact features or solutions you ought to include in your new product. Unfortunately, most customers aren’t all that creative, and so they simply play back all of the features and solutions that already exist in the marketplace, which rarely leads to anything more than a me-too product. Experienced practitioners in this area make a clear distinction between needs and solutions to those needs. The need is the benefit that the customer is trying to derive when using the product or service – the job or task he or she is trying to accomplish. The solution is the way in which the product delivers that benefit. If asked using the proper techniques, the customer is usually able to articulate the former quite well. It is only the company’s job to come up with the latter.

3. Design Specifications

One of the most difficult challenges in NPD arises from the natural tension that often exists between marketing and engineering. It usually plays out when someone from marketing describes a customer need, and the engineer says, “Just give us the spec!” The problem is that customers speak in soft
customer language, and engineers need to design to hard technical specifications: that is, something that is measurable and controllable in the design such that they can objectively decide which of several alternative designs will best deliver on the customer need. This dilemma requires that the need be “translated” into a technical specification. Customers can give us clues as to how they evaluate these things, but this process usually requires a good deal of technical expertise. So for example, if the customer says he or she needs a “powerful computer”, shall we try to increase the level of MIPS, RAM, or some new spec? To do this intelligently, we must get a really detailed understanding of how customers define soft concepts like “powerful.” Quality Function Deployment (QFD) deals with this exact phenomenon. But whether you use a rigorous technique like this or not, this translation into design specs is something that your engineers will need one way or another.

Design
This stage involves the structure of the product or service.

1.Ideation

Whereas all of the earlier funnels started with ideation, in our funnel, ideation takes place only after navigating through the “Fuzzy Front End.” The reason for this is that ideation works better when it is focused on the right problems. Rather than just asking almost anyone – employees or customers – for new product ideas, when a company has given careful attention to all of the activities in the “Fuzzy Front End,” they begin ideation focused on an empirically identified set of unmet or poorly met customer needs. In this way, the brainstorming can be focused on particular problems, whether they are about technical issues, engineering problems, business process improvement issues, marketing, maintenance, or manufacturing. For example, if customers identify the issue of their windshield wipers failing to work well in icy conditions, a team could ideate on new solutions to this problem, such as the use of different materials on the wipers, or ways to melt ice off of the windshield or the blades.

Clearworks - Customers, Connections, Clarity

The brainstorming process has been the subject of a great deal of innovation in the past five to 10 years, mostly due to the advantages afforded by the web. Whereas traditional brainstorming has always been a face-to-face process, the web obviates the need for co-location, allows for anonymity (which removes politics from the process), and lets the process proceed asynchronously, providing “soak time” – i.e., the ability for participants to think before having to respond. Another area of innovation in brainstorming is the use of creative incentive systems that reward both creative thought and collaboration. Contests, games, and other forms of reward have been shown to add a combination of competition and fun to the process8.

2. Concept Development

Once ideation has been completed, the company is ready to piece together the best ideas into one or more “concepts.” A concept is simply a description of a new product or service that the company might consider creating. A concept can be conveyed in many forms, ranging from a simple one-sentence description to a multi-paragraph description to a photo, a drawing, a model, or even a working prototype. While many concepts look like a primitive form of advertisement, the emphasis is on facts, features, and benefits, rather than on creative marketing communication. The goal is to convey what is new and different about the envisioned product in a way that is compelling and believable to customers. The chosen form is usually dictated by what it will take to explain the features and benefits of the new concept. In general, the more complex the concept, the more detail will be needed to convey it.

3. Concept Evaluation

Now that we have one or more concepts, it is time to take them to customers for evaluation. The first question is whether to do this qualitatively or quantitatively – or both. This decision is based on many factors, some dealing with practicalities and others with personal preference. In general, B2B products are evaluated qualitatively, while B2C products are more often evaluated quantitatively. But there is significant value to both approaches. Much of this decision has to do with the difficulty and expense of recruiting a sufficient number of customers to participate in market research. Most consumer products simply have larger populations from which to choose.

Development
Finally, we come to the development process.

1. Feature Trade-off

Once team members have settled on the details of the product they would like to build, it is time for bench engineering and IT development to begin. We have now settled on a target market and population, identified the key unmet needs, decided what specifications to design to, brainstormed on the features and solutions that would best address those needs, and evaluated those ideas with real customers.

But there is at least one major decision that remains before the company can decide on whether the major investment in design and engineering is warranted: If we are actually able to create these features and solutions, will it be worth it? And to answer this question, we need to try to figure out how much people will pay for a given feature, solution, or benefit. Many product developers like to simply ask customers how much they would pay for a given feature. But this technique has always proven to be of little validity, because customers usually “game” the system by “low-balling” their answers. After all, if a car dealer were to ask you how much you’d be willing to pay for a given vehicle, would you actually tell them the truth? The best way to answer this question is with the use of a market research technique called conjoint analysis, created by Paul Green and V. Srinivasan at the University of Pennsylvania’s Wharton School in the mid-1960s. The term is actually a contraction of the words considered jointly.

The underlying idea is this: If you were to ask customers whether they wanted this or that feature or benefit in a new product, they would likely tell you that they wanted everything and all at the highest possible level. But that is not how product choices are actually made. In the real world, people are forced to make trade-offs. So, in conjoint analysis, people are given choices between several different configurations of the product that explicitly force them to make these trade-offs. And if we give people enough different choices using a carefully constructed experimental design, we can determine the weight they put on each attribute. For instance, if you were asked to choose between a sport utility vehicle (SUV) that gets 17 miles per gallon of gasoline and costs $30,000 versus a sedan that gets 26 miles per gallon and costs $25,000, you are implicitly being forced to make trade-offs between body style (SUV vs. sedan), mileage (17 mpg vs. 26 mpg), and price ($30,000 vs. $25,000).

Many people use conjoint analysis as an elaborate way to determine the importance of various customer needs. But this is not really what Green and Srinivasan had in mind. Conjoint was intended to be used to determine the importance of various product features – including price. In fact, conjoint analysis is probably the only valid method in all of market research to determine how much someone would pay for a given level of a given feature. And its best use is after needs assessment and ideation have been completed. The goal here is to determine how much people would pay for a new feature or solution. Taken together with cost and volume estimates, this is the key piece of information needed to decide whether to invest in this new feature or solution.

2. Prototype Evaluation

Once R&D and engineering have developed a working model of the product, we need to put it into the hands of some real customers to determine whether it works and whether they like it. Most companies do this in several stages. First they might conduct alpha testing: i.e., putting it in the hands of some of their employees or a handful of highly trusted customers. The goal here is to get some initial feedback without revealing the product to the world just yet. If successful, then the next stage is called beta testing. Here we distribute the product more broadly to get more extensive feedback for fine tuning, a practice that is particularly popular with software manufacturers. Finally, we do gamma testing, the equivalent of what the packaged goods companies call test marketing: i.e., real sales of the product, but in a limited fashion in terms of geography or some other characteristic.

Delivery
This stage of NPD, involving positioning and launch of the new product, is more critical than it may seem. Many companies falter here. (See the Visions article on a study by Booz & Company in the March 2011 issue9.)

The product is almost ready to go to market now, and this is where messaging and marketing communications become critical. How will we communicate to potential customers about the availability of our new product? What makes it different and better than existing solutions? When we do go into actual production, can we produce the product at an acceptable level of quality and reliability? And can we provide the needed level of service to maintain the product once it’s in customers’ hands?

Strengths and Caveats

What makes this funnel different from the ones we examined earlier is that this one attempts to give greater definition and emphasis to NPD’s “Fuzzy Front End.” It also puts ideation in its proper place. Rather than assuming that it somehow just happens before the product development process even begins, this funnel strongly suggests that ideation shouldn’t even be attempted until after a needs assessment has been completed. This helps to focus the process on ideating about the right things – the key unmet needs in the eyes of customers. Furthermore, if conjoint analysis is to be employed to evaluate pricing and feature trade-offs, it is placed “deeper” in the funnel where it was originally intended to be used.

Admittedly, there is a deliberate emphasis here on activities that are best addressed with market research. But such a bias is not out of place given the high degree of risk in NPD and market research’s proven role as a way to mitigate that risk.

One Final Note: Just as there have been more advances in the early stages of the product development process, it is becoming increasingly clear that “Product Launch” has become the new stepchild of NPD. There is still relatively little hard research on this final stage of the process, and perhaps greater attention should now be paid to the “Fuzzy Back End” of NPD.

Endnotes
1. Urban, Glen and John R. Hauser, 1980. Design and Marketing of New Products, p. 33. Englewood Cliffs, NJ: Prentice-Hall, Inc.
2. Cooper, Robert G., 2001. Winning at New Products, p. 130. Cambridge, MA: Perseus Publishing.
3. Stage-Gate® is a registered trademark of the Product Development Institute in the USA; see www.pro-dev.com.
4. Wheelwright, Steven C. and Kim B. Clark, 1992. Revolutionizing Product Development, p. 112.New York, NY: The Free Press.
5. Wheelwright and Clark’s three-stage process is most similar to the process used today in the PDMA’s Body of Knowledge, although the latter refers to them as Discovery, Development, and Commercialization.
6. McGrath, Michael E., 1996. Setting the PACE® in Product Development, p. 38. Boston, MA: Butterworth-Heinemann.
7. Hauser, John R., 2008. Note on Product Development, p. 3. Cambridge, MA: MIT Sloan Courseware.
8. Toubia, Olivier, 2006. “Idea Generation, Creativity, and Incentives,” Marketing Science 25, 5, September-October: p. 411-425.
9. Jaruzelski, Barry and Kevin Dehoff. How the top innovators keep winning. Visions, Vol. 35, No. 1,
p. 12. March 2011.

image credit: www.mathmarketing.com

Link to the original post: Rethinking the Product Development Funnel

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