New-Product Developmentand Product Life-Cycle

Strategies

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Road Map: Previewing theConcepts

Explain how companies find and developnew-product ideas.List and define the steps in thenew-product development process.Describe the stages of the product lifecycle.Describe how marketing strategieschange during the product’s life cycle.

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New-Product DevelopmentStrategy

• Strategies for ObtainingNew-Product Ideas:

Acquisition of companies, patients,licensesOriginal products, improvements,modifications

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New-Product Failures

Only 10% of new products still on the marketand profitable after 3 years.Failure rate for industrial products as high as30%.Why?

Overestimation of market sizeDesign problemsIncorrectly positioned, priced, or advertisedPushed despite poor marketing research findingsDevelopment costsCompetition

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Major Stages in New-ProductDevelopment

• Idea generation

• Idea screening

• Concept development and testing

• Marketing strategy development

• Business analysis

• Product development

• Test marketing

• Commercialization

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Idea Generation

• Company employees• Customers• Competitors• Distributors• Suppliers

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Idea Screening

Process to spot good ideas and droppoor ones.Develop system to estimate: market size,product price, development time andcosts, manufacturing costs, and rate ofreturn.Evaluate these findings against set ofcompany criteria for new products.

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Concept Development andTesting

Product Idea: idea for a possible productthat the company can see itself offering.Product Concept: detailed version of theidea stated in meaningful consumerterms.Product Image: the way consumersperceive an actual or potential product.

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Marketing StrategyDevelopment

• Part One Describes:The target market, planned productpositions, sales, market share, and profitgoals

• Part Two Outlines the First Year’s:Product’s planned price, distribution, andmarketing budget

• Part Three Describes Long-Run:Sales and profit goals, marketing mixstrategy

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Business Analysis

Involves a review of the sales, costs,and profit projections to assess fitwith company objectives.

If yes, move to the productdevelopment phase.

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Product Development

Develop concept into physicalproductCalls for large jump in investmentPrototypes are madePrototype must have correctphysical features and conveypsychological characteristics

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Test Marketing

Product and program introduced inmore realistic market setting.Not needed for all products.Can be expensive and timeconsuming, but better than makingmajor marketing mistake.

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Commercialization

Must decide on timing (i.e., when tointroduce the product).Must decide on where to introducethe product (e.g., single location,state, region, nationally,internationally).Must develop a market rollout plan.

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Organizing New-ProductDevelopment

Sequential Approach: each stagecompleted before moving to nextphase of the project.

Simultaneous Approach:Cross-functional teams workthrough overlapping steps to savetime and increase effectiveness.

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The Product Life Cycle

• Product development• Introduction• Growth• Maturity• Decline

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Product Life CycleApplications

Product class has the longest life cycle (e.g.,gas-powered cars)Product form tends to have the standard PLC shape(e.g., dial telephone)Brand can change quickly because of changingcompetitive attacks and responses (e.g., Tide, Cheer)Style is a basic and distinctive mode of expression(e.g., formal clothing, Danish modern furniture)Fashion is a popular style in a given field (e.g.,business casual)Fad is a fashion that enters quickly, is adopted quickly,and declines fast (e.g., pet rocks)

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Practical Problems of PLC

• Hard to identify which stage of the PLC theproduct is in.

• Hard to pinpoint when the product moves tothe next stage.

• Hard to identify factors that affect product’smovement through stages.

• Hard to forecast sales level, length of eachstage, and shape of PLC.

• Strategy is both a cause and result of the PLC.

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Introduction Stage of PLC

• Sales: low• Costs: high cost per customer• Profits: negative• Marketing Objective: create product

awareness and trial• Product: offer a basic product• Price: use cost-plus formula• Distribution: build selective distribution• Promotion: heavy to entice product trial

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Growth Stage of PLC

• Sales: rapidly rising

• Costs: average cost per customer

• Profits: rising

• Marketing Objective: maximize market share

• Product: offer extension, service, warranty

• Price: penetration strategy

• Distribution: build intensive distribution

• Promotion: reduce to take advantage ofdemand

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Maturity Stage of PLC

• Sales: peak

• Costs: low cost per customer

• Profits: high

• Marketing Objective: maximize profits whiledefending market share

• Product: diversify brand and models

• Price: match or best competitors

• Distribution: build more intensive distribution

• Promotion: Increase to encourage brandswitching

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Maturity Stage of the PLC

Modifying the Market: Increase theconsumption of the current product.How?

Look for new users and market segmentsReposition the brand to appeal to larger orfaster-growing segmentLook for ways to increase usage amongpresent customers

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Maturity Stage of the PLCModifying the Product: Changingcharacteristics such as quality, features, orstyle to attract new users and to inspire moreusage.How?

Improve durability, reliability, speed, tasteImprove styling and attractivenessAdd new featuresExpand usefulness, safety, convenience

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Maturity Stage of the PLC

Modifying the Marketing Mix: Improvingsales by changing one or moremarketing mix elements.How?

Cut pricesLaunch a better ad campaignMove into larger market channelsOffer new or improved services to buyers

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Decline Stage of PLC

• Sales: declining

• Costs: low cost per customer

• Profits: declining

• Marketing Objective: reduce expenditures andmilk the brand

• Product: phase out weak items

• Price: cut price

• Distribution: selective--phase out unprofitableoutlets

• Promotion: reduce to minimal level

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Rest Stop: Reviewing the Concepts

Explain how companies find and developnew-product ideas.List and define the steps in thenew-product development process.Describe the stages of the product lifecycle.Explain how marketing strategies changeduring the product’s life cycle