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principles of MARKETING

Chapter 9Chapter 9

New Product Development and

Life Cycle Strategies

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Chapter Objectives

• Explain how to find and develop new product ideas

• Explain the new-product development process

• Describe stages of the product life cycle

• Describe how marketing strategies change over the product life cycle

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New Product Development:Overview

• New product development– New to replace aging

• Life-cycle strategies– Adapt to changing:

Two major challenges

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New Product Development Strategy

• Two sources of new products– Acquisition - company, patent, licence– New product development internally

• New product development meaning– Original products, product improvements, or

product modifications, and new brands through the firm’s own R & D efforts

• Risk and failure rates are high

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New Product Development Strategy:Why Do New Products Fail?

• Overestimated market• Poor design• Incorrect positioning• Error in pricing• Poor marketing

communication• Production-orientation• Cost overrun• Competition

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New Product Development Strategy:Success Factors

• Unique superior product

• Well defined product concept from startup

• Specific criteria• Specific strategic role• Systematic new-

product process

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New-Product Development Process:Major Stages

Idea generation

Idea screening

Conceptdevelopmentand testing

Marketingstrategy

Businessanalysis

Productdevelopment

Commercialization

Test marketing

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New-Product Development Process:Idea Generation

• Major Sources of New-Product Ideas– Internal sources

• Employees, sales people, R & D, managers

• Intrapreneurial programs

– Customers– Competitors– Distributors and suppliers– Entrepreneurs

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New-Product Development Process:Idea Generation

• Systematic process– Idea manager

– Multidisciplinary committee

– Toll-free number

– Staff encouragement

– Formal recognition

• Yields– innovation culture

– more ideas

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New-Product Development Process:Idea Screening

• Purpose– Identify good ideas

drop poor ones fast

• Challenge– Maintain creativity and

stream of ideas

• Standard format• Criteria and rating

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New-Product Development Process:Concept Development and Testing• Product concept

– New-product idea in detail stated in meaningful consumer terms

• Concept development– Expanding the new-product idea into various

alternative forms

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New-Product Development Process:Concept Development and Testing• Concept testing

– Target consumers exposed to new-product concepts

– Word or picture description

– Physical presentation of the concept

– Question reactions

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New-Product Development Process:Marketing Strategy Development

• Marketing Strategy Statement - Part one– Target market– Planned product positioning– Sales, market share and profit goals

• Marketing Strategy Statement - Part two– Outline price, distribution and first year

marketing budget

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New-Product Development Process:Marketing Strategy Development• Marketing Strategy Statement - Part three

– Planned long-run sales– Profit goals– Marketing mix strategy

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New-Product Development Process:Business Analysis

• Review sales, costs and profit projections

• Compare projected results to objectives

• Estimate maximum and minimum sales– Company history and market opinion

• Assess risk

• Estimate product costs and profits

• Analyze attractiveness using sales and costs

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New-Product Development Process:Product Development

• Performed by engineering or R & D

• Transform product concept into a physical product

• Prototype - functional and psychological

• Major investment

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New-Product Development Process:Test Marketing

AdvantagesAdvantages• Reduce uncertainty

about product and marketing approach

• Saves risk and expense of full launch

• Gain experience

DisadvantagesDisadvantages• High cost• Longer time-to-market

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New-Product Development Process:Standard Test Markets

• Use small number of representative test cities

• Conducts full marketing campaign• Store audits, consumer/distributor

surveys gauge performance• Costly and time consuming• Competitor reaction• Most popular approach

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New-Product Development Process:Controlled Test Markets

• Controlled panel of stores - fee basis• Client specifies stores and locations• Shelf space/location, displays,

promotion and price controlled• Sales tracked• Less time, lower costs• Representativeness and competition

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New-Product Development Process:Simulated Test Markets

• Use real or laboratory store

• Consumers view test and competitive ads

• Given shopping money to spend or keep

• Interview on reasons for purchasing or not

• Phone follow-up on attitudes, purchase plans

• Costs less, short duration, competition

• Risk from small sample, artificial situation

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New-Product Development Process:Commercialization

• Major investment in manufacturing facilities

• High initial advertising and promotion expense

• Introduction timing critical

• Launch location?

• Local, regional roll-out, national, or global?

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New-Product Development:Speeding Up the Process

• Sequential product development traditional

• Simultaneous or team-based approaches– Shorter cycle-times

– First-mover advantage

– Time is money

– Higher risk and tension

– Watch quality

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Product Life-Cycle Strategies

Profits

Sales

Development Introduction Growth Maturity Decline

SalesProfit($)

Loss($)

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Product Life-Cycle Strategies

• Can describe a:– Product class– Product form– Brand

• Applicable to:– Styles– Fashion– Fads

Sal

es

Time

Style

Sal

es

Time

Fashion

Sal

es

Time

Fad

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Product Life-Cycle Strategies

Characteristics Introduction Growth Maturity Decline

Sales Low Rapidly rising Peak Declining

Costs High per customer Average percustomer

Low per customer Low percustomer

Profits Negative Rising High Declining

Customers Innovators Early adopters Middle majority Laggards

Competitors Few Growing number Stable numberbeginning todecline

Declining number

MarketingObjectives

Create productawareness and trial

Maximize marketshare

Maximize profitwhile defendingmarket share

Reduceexpenditures andmilk the brand

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Product Life-Cycle StrategiesStrategies Introduction Growth Maturity DeclineProduct Offer basic product Offer product

extensions, service,warranty

Diversify brand andmodels

Phase out weak items

Price Use cost-plus Price to penetratemarket

Price to match or bestcompetitors

Cut price

Distribution Build selective Build intensive Build more intensive Go selective, phase outunprofitable outlets

Advertising Build productawareness among earlyadopters and dealers

Build awareness andinterest in the massmarket

Stress branddifferences andbenefits

Reduce to level neededto retain hard-coreloyals

SalesPromotion

Use heavy salespromotion to enticetrial

Reduce to takeadvantage of heavyconsumer demand

Increase to encouragebrand switching

Reduce to minimallevel

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Chapter Review

• How do companies find and develop new product ideas?

• What are the steps in the new-product development process?

• What is the product life cycle? How do strategies change over the product life cycle?