Chapter 9 NewProduct Development and Product LifeCycle Strategies

Chapter 9 New-Product Development and Product Life-Cycle Strategies 1

New-Product Development Strategies for Obtaining New Product Ideas Acquired Companies Original Products Acquired Patents Product Improvements Acquired Licenses Product Modifications New Brands 2

Causes of New Product Failures One study estimated that as many as 80% of new consumer packaged products failed. Only about 40% of new consumer products are around 5 years after introduction. Why? n n n 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, or Competitive actions 3

Improving New-Product Success New product success depends on having a: n n Unique superior product (one with higher quality, features, and value in use), & Well-defined product concept (a defined target market, product requirements, and benefits). To create successful new products, the company must: n n understand its customers, markets and competitors, & develop products that deliver superior value to customers. 4

Major Stages in New-Product Development (Fig. 9. 1) Marketing Strategy Concept Development and Testing Idea Screening Idea Generation Business Analysis Product Development Test Marketing Commercializa tion 5

New Product Development Process Step 1. Idea Generation is the Systematic Search for New Product Ideas Obtained Internally From Employees and Also From: Customers Competitors Distributors Suppliers 6

New Product Development Process Step 2. Idea Screening Process to spot good ideas and drop poor ones as soon as possible. Many companies have systems for rating and screening ideas which estimate: n n n Market Size Product Price Development Time & Costs Manufacturing Costs Rate of Return Then, the idea is evaluated against a set of general company criteria. 7

New Product Development Process Step 3. Concept Development 1. Develop New Product Ideas into Alternative Detailed Product Concepts Product Image is the Way Consumers Perceive an Actual or Potential Product 2. Concept Testing - Test the New Product Concepts with Groups of Target Customers 3. Choose the One That Has the Strongest Appeal to Target Customers 8

New Product Development Process Step 4. Marketing Strategy Part One Describes Overall: Target Market Planned Product Positioning Sales & Profit Goals Market Share Part Two Describes First-Year: Product’s Planned Price Distribution Marketing Budget Part Three Describes Long-Term: Sales & Profit Goals Marketing Mix Strategy 9

Step 5. Business Analysis Step 6. Product Development Business Analysis Review of Product Sales, Costs, and Profits Projections to See if They Meet Company Objectives If No, Eliminate Product Concept If Yes, Move to Product Development 10

New Product Development Process Step 7. Test Marketing is the Stage Where the Product and Marketing Program are Introduced into More Realistic Market Settings. Budget Levels Packaging Branding Pricing Product Elements that May be Test Marketed by a Company Positioning Advertising Distribution 11

New Product Development Process Step 7. Test Marketing Standard Test Market Controlled Test Market Full marketing campaign in a small number of representative cities. A few stores that have agreed to carry new products for a fee. Simulated Test Market Test in a simulated shopping environment to a sample of consumers. 12

New Product Development Process Step 8. Commercialization is the Introduction of the New Product into the Marketplace. When is the Right Time to Introduce Product? Where to Launch a New Product? 13

Speeding Up New Product Development Step 2 Step 3 Step 4 Step 2 Step 1 Simultaneous (Team-Based) Step 1 Sequential Step 3 Step 4 14

Discussion Connections Suppose that you’re on a panel to nominate the “best new products of the year”. n What products would you nominate and why? In groups, apply the new-product development process you’ve just studied, and develop an idea for an innovative new snack food product and sketch out a brief plan for bringing it to market. 15

Product Life Cycle (Fig. 9. 2) Sales and Profits ($) Sales Profits Time Product Development Introduction Growth Maturity Decline Losses/ Investments ($) Sales and Profits Over the Product’s Life From Inception to Demise 16

Applications of the Product Life Cycle The PLC concept can describe a: n n n Product class which has the longest life cycles (i. e. gas-powered cars), Product form which tend to have the standard PLC shape (i. e. minivans), Brand which can change quickly because of changing competitive attaches and responses (i. e. Ford Taurus), Style which is a basic and distinctive mode of expression, Fashion which is a popular style in a given field, Fad which is a fashion that enters quickly, is adopted quickly and declines fast. 17

Problems Using the PLC The PLC Concept Can Trouble identifying Help in Developing Good Which Stage of the PLC the Product Is Marketing Strategies for In Different Stages of the Difficult to Forecast Product Life-Cycle, However Some Problems the Sales Level, the Length of Each Stage, Can Arise: and Shape of the PLC Strategy is Both a Cause and a Result of the Product’s Life Cycle 18

Introduction Stage of the PLC Summary of Characteristics, Objectives, & Strategies Sales Low sales Costs High cost per customer Profits Negative or low Marketing Objectives Create product awareness and trial Product Offer a basic product Price Usually is high; use cost-plus formula Distribution High distribution expenses Build product awareness among early adopters and dealers Advertising 19

Growth Stage of the PLC Summary of Characteristics, Objectives, & Strategies Sales Rapidly rising sales Costs Average cost per customer Profits Rising profits Marketing Objectives Maximize market share Offer new product features, extensions, service, and warranty Price to penetrate market Product Price Distribution Advertising Increase number of distribution outlets Build awareness and interest in the mass market 20

Maturity Stage of the PLC Summary of Characteristics, Objectives, & Strategies Sales Peak sales Costs Low cost per customer Profits High profits, then lower profits Product Maximize profits while defending market share Diversify brand models Price to match or best competitors Distribution Build more intensive distribution Advertising Stress brand differences and benefits Marketing Objectives 21

Maturity Stage of the PLC Co mpany tries to increase consumption of the current product. Changing characteristics such as quality, features, or styles to attract new users. Co y tries to improve sales by changing one or more marketing mix elements. 22

Decline Stage of the PLC Summary of Characteristics, Objectives, & Strategies Sales Declining sales Costs Low cost per customer Profits Declining profits Reduce expenditure and maintain, reposition, harvest or drop the product Phase out weak items Marketing Objectives Product Price Distribution Advertising Cut price Go selective: phase out unprofitable outlets Reduce to level needed to retain hard-core loyal customers 23

Review of Concept Connections Explain how companies find and develop new-product ideas. List and define the steps in the newdevelopment process. Describe the stages of the product life-cycle. Describe how marketing strategies change during the product’s life-cycle. 24