9-1

Chapter 9

New-Product Development and Product Life-Cycle Strategies

9-2

Road Map: Previewing the Concepts

Explain how companies find and develop new-product ideas.List and define the steps in the new-product development process.Describe the stages of the product life cycle.Explain how marketing strategies change during the product’s life cycle.

9-3

Original ProductsOriginal Products

ProductImprovements

ProductImprovements

ProductModifications

ProductModifications

NewBrandsNew

Brands

AcquiredCompaniesAcquired

Companies

Acquired Patents

Acquired Patents

AcquiredLicenses

AcquiredLicenses

New-Product DevelopmentStrategy

Strategies for Obtaining New-Product Ideas

9-4

Causes of New-Product FailuresOne study estimated that as many as 80% of new consumer packaged products fail.Only about 40% of new consumer products are around 5 years after introduction.Why?

Overestimation of market size,Product design problems,Product incorrectly positioned, priced, or advertised,Product may have been pushed despite poor marketing research findings,Costs of product development, orCompetitive actions.

9-5

Improving New-Product SuccessNew-product success depends on having a:

Unique superior product (one with higher quality, features, and value in use), and aWell-defined product concept (a defined target market, product requirements, and benefits).

To create successful new products, the company must:

understand its consumers, markets, and competitors, anddevelop products that deliver superior value to customers.

9-6

Major Stages in New-Product Development (Fig. 9-1)

9-7

Customers Competitors Distributors Suppliers

Systematic Search for New Product Ideas Obtained From Employees and Also

From:

New Product Development Process

New Product Development Process Step 1. Idea Generation

9-8

New Product Development Process Step 2. Idea Screening

Helps spot good ideas and drop poor ones as soon as possible. Many companies have systems for rating and screening ideas which estimate:

Market Size Product Price Development Time & Costs Manufacturing Costs Rate of Return

Then, the idea is evaluated against a set of general company criteria.

9-9

1. Develop New Product Ideas into Alternative Detailed

Product Concepts

2. Concept Testing - Test theNew-Product Concepts with Groups of Target Customers

3. Choose the One That Has theStrongest Appeal to Target

Customers

New Product Development Process Step 3. Concept Development

Product Image is the Way Consumers Perceive an Actual or Potential Product

9-10

DaimlerChrysler’s Electric Car

The company’s task is to develop its fuel-cell powered electric car into alternative product concepts, find out how attractive each is to customers, and choose the best one.

9-11

New Product Development Process Step 4. Marketing Strategy

Part One Describes Overall:Target Market

Planned Product PositioningSales, Market Share, & Profit Goals

Part One Describes Overall:Target Market

Planned Product PositioningSales, Market Share, & Profit Goals

Part Two Describes First-Year:Product’s Planned Price

DistributionMarketing Budget

Part Two Describes First-Year:Product’s Planned Price

DistributionMarketing Budget

Part Three Describes Long-Run:Sales & Profit Goals

Marketing Mix Strategy

Part Three Describes Long-Run:Sales & Profit Goals

Marketing Mix Strategy

9-12

If No, Eliminate Product Concept

Business AnalysisReview of Product Sales, Costs, and Profits

Projections to See if They Satisfy Company Objectives

Business AnalysisReview of Product Sales, Costs, and Profits

Projections to See if They Satisfy Company Objectives

Step 5. Business AnalysisStep 6. Product Development

If Yes, Move to Product Development

9-13

New Product Development ProcessStep 7. Test Marketing

Product and marketing program are introduced into more realistic market settings.Can be very expensive and time consuming.

Test the following:Positioning strategy,Advertising,Distribution,Pricing,Branding,Packaging,Budget levels.

9-14

When is the Right Time to

IntroduceProduct?

Where to Launch a

New Product?

Introducing the New Product into the Market

New Product Development Process Step 8. Commercialization

9-15

Form students into groups of three to five. Each group should read the opening vignette to the chapter about Microsoft and the software industry. Each group should then answer the following questions:

Comment on Microsoft’s ability to bring new products to the marketplace. What lies ahead for Microsoft? What secrets has Microsoft learned?

9-16

Step 1

Step 2

Step 3

Step 4

Sequential

Speeding Up New-Product Development

Ste

p 1

Ste

p 2

Step 3

Step 4

Simultaneous (Team-Based)

9-17

Time

ProductDevelop-

ment

Introduction

Profits

Sales

Growth Maturity Decline

Losses/Investments ($)

Sales andProfits ($)

Sales and Profits Over the Product’s Life From Inception to Demise

Product Life Cycle (Fig. 9-2)

9-18

Applications of the Product Life Cycle

Product class which has the longest life cycles (i.e. gas-powered cars), Product form which tends to have the standard PLC shape (i.e. minivans),Brand which can change quickly because of changing competitive attacks and responses (i.e. Ford Taurus),Style which is a basic and distinctive mode of expression (formal clothing),Fashion which is a popular style in a given field (business casual),Fad which is a fashion that enters quickly, is adopted quickly, and declines fast (pet rocks).

9-19

Problems Using the PLCTrouble

identifying Which Stage of the PLC the Product Is In

Difficult to Forecast the Sales Level, the Length of Each Stage, and Shape of the PLCStrategy is Both a

Cause and a Result of the Product’s Life

Cycle

The PLC Concept can be applied by marketers for describing how products and markets work, but may also present some problems:

9-20

SalesSales

CostsCosts

ProfitsProfits

Marketing ObjectivesMarketing Objectives

ProductProduct

PricePrice

Low sales Low sales

High cost per customerHigh cost per customer

Negative or lowNegative or low

Create product awareness and trialCreate product awareness and trial

Offer a basic productOffer a basic product

Usually is highUsually is high

DistributionDistribution High distribution expensesHigh distribution expenses

AdvertisingAdvertising Spending is high to inform consumers

Spending is high to inform consumers

Summary of Characteristics, Objectives, & Strategies

Introduction Stage of the PLC

9-21

SalesSales

CostsCosts

ProfitsProfits

Marketing ObjectivesMarketing Objectives

ProductProduct

PricePrice

Rapidly rising sales Rapidly rising sales

Average cost per customerAverage cost per customer

Rising profitsRising profits

Maximize market shareMaximize market share

Offer new product features and models

Offer new product features and models

Remain where they are or fall slightlyRemain where they are or fall slightly

DistributionDistribution Increase number of distribution outletsIncrease number of distribution outlets

AdvertisingAdvertising Educating consumers and meeting competition

Educating consumers and meeting competition

Summary of Characteristics, Objectives, & Strategies

Growth Stage of the PLC

9-22

SalesSales

CostsCosts

ProfitsProfits

Marketing ObjectivesMarketing Objectives

ProductProduct

PricePrice

Begin to slowBegin to slow

Low cost per customerLow cost per customer

High profits, then lower profitsHigh profits, then lower profits

Maximize profits while defending market share

Maximize profits while defending market share

May modify product May modify product

May declineMay decline

DistributionDistribution Build more intensive distributionBuild more intensive distribution

AdvertisingAdvertising Stress brand differences and benefits

Stress brand differences and benefits

Summary of Characteristics, Objectives, & Strategies

Maturity Stage of the PLC

9-23

Maturity Stage of the PLC

Company tries to increase

consumption of the current product

Changing characteristics such as quality, features, or styles to attract

new users

Company tries to improve sales by

changing one or more marketing mix elements

9-24

SalesSales

CostsCosts

ProfitsProfits

Marketing ObjectivesMarketing Objectives

ProductProduct

PricePrice

Declining salesDeclining sales

Low cost per customerLow cost per customer

Declining profitsDeclining profits

Reduce expenditure and maintain, harvest, or drop the product

Reduce expenditure and maintain, harvest, or drop the product

Phase out weak itemsPhase out weak items

Cut priceCut price

DistributionDistribution Selective: phase out unprofitable outlets

Selective: phase out unprofitable outlets

AdvertisingAdvertising Reduce to level needed to retain hard-core loyal customers

Reduce to level needed to retain hard-core loyal customers

Summary of Characteristics, Objectives, & Strategies

Decline Stage of the PLC

9-25

Pick a soft drink, car, or food product, and trace the product’s life cycle.Project when the product might enter a decline stage and discuss strategies to reverse the decline.

9-26

Rest Stop: Reviewing the Concepts

Explain how companies find and develop new-product ideas.List and define the steps in the new-product development process.Describe the stages of the product life cycle.Explain how marketing strategies change during the product’s life cycle.