Stage Gate New Product Development

In the 1940s, stage gate processes were introduced to build new, complex chemical plants. The stages started with research and were followed by an economic study, a pilot plant and finally the construction of the plant itself. The gates provided decision points at which time a decision could be made to go forward or not. New product development is often the responsibility of technical and production teams and so it was natural for them to adopt the stage gate approach pioneered by their colleagues.

Great care is required during the launch of new products. A product that goes to market and fails will incur significant costs in its development and marketing. It is important therefore that the new product’s potential success is fully evaluated before the launch. This has led to the development of a stage gate process with a go/no-go decision required at each stage.

The model begins with ideation and is followed by five stage gates.

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• Idea screen: The process begins with the brainstorming of new product ideas. These may originate from the technical department, the sales team or new product development specialists. It is not unusual at this early stage to have a large number of ideas that are screened according to whether it is cost effective to make and whether there is a unmet need. 100 new product ideas at this early stage will probably be reduced to just a dozen or so that go forward to the first stage gate.

• Stage 1: Concept creation. After the initial screening the new product idea is turned into a concept to see if there is a reasonable chance of success if it was to reach the market. The concept will be turned into a picture or graphic so that it can be shown and described to people in order to test their reaction. Potential customers give first impressions of the concept and say whether they see it as truly innovative and beneficial. They would also be asked their likelihood of purchasing such a product if it was available on the market.

• Stage 2: Business case. An idea that gets through to stage 2 requires a business case for it to proceed. This includes the assessment of the size of the opportunity, the competitive environment, the likely price that could be achieved for the product, the revenue potential, the costs and feasibility of manufacturing, and the profit potential. Market research plays a role here as it does at every stage. A PEST analysis would prove useful in assessing the forces shaping the market. There should also be an assessment of the market size and potential.

• Stage 3: Product development. In this third stage a prototype product is made. The prototype can be shown to potential customers in focus groups to find out their reaction.

• Stage 4: Test and validation.  Stage 4 is an extension of the previous stage. More prototypes are made, possibly in a pre-production run. The products are tested with customers in greater numbers and feedback will show the need for modifications. Customer reactions will prepare the marketing team for the positioning of the new product during the launch.

• Stage 5: Launch and monitor. If the new product is assiduously reviewed at each of the gates, its launch should be a success. A business plan will be prepared for the launch covering the 4Ps. A tracking study may be commissioned to monitor the success of the new product. 

When setting up a stage gate process, it should be agreed at the outset as to what measures are acceptable in order that the new product can move to the next gate.

Market research plays an important role in the stage gate process, measuring people’s attitudes to the new product. A critical question which will be repeated during each of the stages from concept through to test and validation is:

Assuming the product was offered at a price considered acceptable by your company, which of the following best describes your intent to purchase it?

• Definitely would buy 

• Probably would buy 

• Might or might not buy

• Probably would not buy

• Definitely would not buy

Typically 25% or more of a target audience will be required to say they "definitely would buy" for the product to pass through the stage gates.

The stage gate process is a flexible tool that can be easily adapted. A company can adopt a light touch stage gate for a product with minor modifications and use heavier and stricter criteria for a new product involving a major investment. Whether major or minor, it is important that metrics and criteria are agreed at the outset that will determine whether the product moves on to the next stage.

Some things to think about:

• Use the stage gate process when launching new products. It is designed to screen out products that will not be successful in the market and whose launch would be a costly mistake.

  
  

• When setting up a stage gate process for new products, measures should be agreed at the outset as to what is needed to move to the next gate.

  
  

• People who dream up new ideas are extremely valuable in any business. However, like parents of children, they can be very defensive of their ideas. It is why independent research is important in deciding whether the idea can move forward from one gate to the next.