Copyright © 2005 Pearson Education Canada Inc. New Product Development and Product Life-Cycle...

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New Product Development and Product Life-Cycle Strategies

•Chapter 11

•Powerpoint slides

•Extendit! version

•Instructor name

•Course name

•School name

•Date

Principles of Marketing: 6th Canadian Edition


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Learning Objectives

• After studying this chapter, you should be able to:– 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

– Describe how marketing strategies change during the product’s life cycle


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Opening Vignette: Microsoft

• Began life with MS-DOS by Bill Gates approximately 30 years ago

• Market share: 97% of PC operating system software, 90% of Office software market, 40% of business server market

• Not initially known for innovation, but have changed dramatically

• Spent $5.2 billion on R&D in 2003

• Founder of the company now focusing on new product development instead of CEO duties

• Innovation strategy based around Internet

• Future of software: providing services for use by consumers; convergence of media and information

• In the face of rapid technological change, new products will be their lifeblood


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Why New Product Development?

• New-product development: – The development of original products, product improvements,

modifications, and new brands

– Through the firm’s own R&D efforts

• Importance based on:

– Remaining competitive

– Keeping up with technological change

– Changing consumer tastes

– Following market trends

– Diversifying the product offering to lower risk

• The challenge is to overcome the high rate of new product failure


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New Product Hall of Shame

• Robert McMath’s New Product Showcase and Learning Center:

– Gallery of 80,000 new product failures

– Represents $5.2 billion in new product investment

• Lessons learned from failure:– Offer real value: such as what

customers really want

– Cherish thy brand: brands are a matter of trust; do not abuse this trust

– Be different: me-too marketing usually fails

– But not too different: need to relate to the target customer

– Accentuate the positive: people do not buy things to feel bad


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Major Stages in New Product Development

• Idea generation: the systematic search for new product ideas

– Internal sources: brainstorming, employees from all departments

– External sources: customers (could involve several competitors), competitors, distributors, suppliers, and others

• Idea screening: the purpose is to identify good ideas and drop poor ones to avoid spending any more money on developing them

– Criteria used:• Usefulness to consumers

• Good fit with company objectives and strategies

• Have the resources

• Add value

Figure 11.1


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• Concept development: detailed version of the product concept in meaningful consumer terms; used for testing purposes (around the different target markets or usefulness of the product)

• Concept testing: testing new-product concepts for consumer appeal (physical specimen or words) – questionnaire 11.1

• Marketing strategy: designing an initial strategy for a product concept:– Target market, positioning, and sales,

market share, and profit goals– Price, distribution, and marketing

budget– Strategy statement, long-run sales,

profit goals, and marketing mix

Figure 11.1


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• Business analysis: review of the sales, costs, and profit projections for a new product to determine if they will satisfy company objectives

– Estimating potential sales is more difficult than estimating costs to produce and market

• Product development: developing the product concept into a physical product to ensure that it can be done

– Requires large investment

– Building a prototype

– Testing for safety, durability, and acceptability

Figure 11.1


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• Test marketing: testing the product and marketing program in more realistic market settings

– To determine the target market profile– Assess consumer acceptability, trial,

repeat purchase rate– Evaluate trade reception and

distribution penetration– Design effective media plans

Different test marketing approaches– Standard test markets:

• Choose a small number of representative test cities

• Conduct a full marketing campaign within these markets

• Measure results

Figure 11.1


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• Controlled test markets: – Using controlled panels of stores that agree to carry new products

for a fee; use scanner data to measure results from selected shoppers (can results be representative of all target market?)

• Simulated test markets: – Simulating the shopping

environment to measure consumer interest in a new product

– May involve virtual reality store shopping

• The greater control exerted, the cheaper but less realistic the situation, which may influence the validity of the findings; trade-off with reliability

Figure 11.1


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• Commercialization: introducing a new product into the market– Large investment required– Need to decide on introduction timing and scale of event

– Market rollout (depends on budget) or full-scale introduction (high tech products)

Sequential product development: working on one piece of the new product development at a time

Simultaneous (team-based) product development: developing multiple pieces of the product development at the same time; today’s method due to distributed computing

Figure 11.1


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Product Life-Cycle Strategies

• Product life cycle (PLC): the course of a product’s sales and profits over its life; five distinct stages

• The PLC can describe a product class, form, or brand

• Not all products follow this exactly Figure 11.2• Competition

and rate of technology change can influence the length of a PLC

• Useful for planning purposes


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Product Development Stage

• The stage where the product is being developed, as discussed

• Sales are zero, profits are negative which is the money spent on development

• Products will vary in development costs; eg. pharmaceuticals

Figure 11.2

• Products should meet a need that is not being addressed in the marketplace

• The marketing mix is still to be determined

• There is no competition at this point

• Length of time in this stage will vary by product


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Styles, Fashions, and Fads

• Style: basic and distinctive mode of expression (classical, art deco)

• Fashion: currently accepted or popular style in a given field (long hair)

• Fad: a fashion the enters quickly, adopted with great zeal, peaks early, and decline very fast

Figure 11.3


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Introduction Stage

• The new product is introduced to the market

• Sales start at zero and begin to climb slowly; profits continue to decline due to costs of launching the product

• The main promotional goal is to make a big noise to attract attention and to educate buyers about the new product concept

Figure 11.2

• Market pioneers take the most risk but may reap the biggest rewards, eg. Chrysler minivan

• Few product variants, no competition to speak of

• Pricing strategy: skimming or penetration

• Distribution: not all outlets covered as some may not want the risk


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Growth Stage

• Sales of the new product begin to climb quickly as awareness within the target market(s) builds

• Profits may become positive as development and launch costs are recovered and the company achieves economies of scale

• Competition notices and rushes their versions into production

Figure 11.2

• Product quality can be improved, extra features and versions developed to sustain growth and differentiate from competition

• Distribution increases as the product becomes more known

• Pressure on pricing as competition increases


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Maturity Stage

• Sales of the new product continue to climb and then peak as the majority of the target market(s) have tried the product

• Profits continue to grow and stay positive throughout

• Competition is most intense at this stage; many versions and brands

Figure 11.2

• Strategies to prolong this stage:

– Reach new target markets

– Modify the product

– Modify the marketing mix

• Some products stay in this stage for an indefinite period, eg. Catsup

• Others are replace by new technology and fade rapidly


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Decline Stage

• Sales of the new product drop quickly as the target market(s) move on to other things

• Profits decline as competitive pressures force lower prices and increased promotional spending to maintain share

• Competition has declined as weaker brands have left the market

Figure 11.2

• Companies need to make decisions about what to do with the declining product

– Maintain spending levels to fight it out for what is left

– Harvest by cutting spending

– Drop the product and move on to the next thing


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In Conclusion…

• The learning objectives for this chapter were:– 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

– Describe how marketing strategies change during the product’s life cycle

Copyright © 2005 Pearson Education Canada Inc. New Product Development and Product Life-Cycle...

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