Chapter 9 NewProduct Development and Product LifeCycle Strategies

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

Road Map: Previewing the Concepts Explain how companies find and develop new-product ideas. List and define the steps in the newproduct development process. Describe the stages of the product life cycle. Explain how marketing strategies change during the product’s life cycle. 2

New-Product Development Strategy Strategies for Obtaining New-Product Ideas Acquired Companies Original Products Acquired Patents Product Improvements Acquired Licenses Product Modifications New Brands 3

Causes of New-Product Failures One 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, or Competitive actions. 4

Improving New-Product Success New-product success depends on having a: Unique superior product (one with higher quality, features, and value in use), and a Well-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, and develop products that deliver superior value to customers. 5

Major Stages in New-Product Development (Fig. 9 -1) 6

New Product Development Process Step 1. Idea Generation Systematic Search for New Product Ideas Obtained From Employees and Also From: Customers Competitors Distributors Suppliers 7

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. 8

New Product Development Process Step 3. Concept Development 1. Develop New Product Ideas into Alternative Detailed Product Concepts 2. Concept Testing - Test the New-Product Concepts with Groups of Target Customers Product Image is the Way Consumers Perceive an Actual or Potential Product 3. Choose the One That Has the Strongest Appeal to Target Customers 9

Daimler. Chrysler’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. 10

New Product Development Process Step 4. Marketing Strategy Part One Describes Overall: Target Market Planned Product Positioning Sales, Market Share, & Profit Goals Part Two Describes First-Year: Product’s Planned Price Distribution Marketing Budget Part Three Describes Long-Run: Sales & Profit Goals Marketing Mix Strategy 11

Step 5. Business Analysis Step 6. Product Development Business Analysis Review of Product Sales, Costs, and Profits Projections to See if They Satisfy Company Objectives If No, Eliminate Product Concept If Yes, Move to Product Development 12

New Product Development Process Step 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. 13

New Product Development Process Step 8. Commercialization Introducing the New Product into the Market When is the Right Time to Introduce Product? Where to Launch a New Product? 14

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? 15

Step 1 Step 2 Step 3 Step 4 Step 2 Sequential Step 1 Speeding Up New-Product Development Simultaneous (Team-Based) Step 3 Step 4 16

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 17

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). 18

Problems Using the PLC The PLC Concept can be Trouble identifying applied by marketers for Which Stage of the PLC the Product Is describing how products In and markets work, but may also present some Difficult to Forecast the Sales Level, the problems: Length of Each Stage, and Shape of the PLC Strategy is Both a Cause and a Result of the Product’s Life Cycle 19

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 Distribution High distribution expenses Advertising Spending is high to inform consumers 20

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 Product Offer new product features and models Price Remain where they are or fall slightly Distribution Increase number of distribution outlets Educating consumers and meeting competition Advertising 21

Maturity Stage of the PLC Summary of Characteristics, Objectives, & Strategies Sales Begin to slow Costs Low cost per customer Profits Product High profits, then lower profits Maximize profits while defending market share May modify product Price May decline Distribution Build more intensive distribution Advertising Stress brand differences and benefits Marketing Objectives 22

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 23

Decline Stage of the PLC Summary of Characteristics, Objectives, & Strategies Sales Declining sales Costs Low cost per customer Profits Declining profits Marketing Objectives Reduce expenditure and maintain, harvest, or drop the product Phase out weak items Price Cut price Distribution Selective: phase out unprofitable outlets Reduce to level needed to retain hard-core loyal customers Advertising 24

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. 25

Rest Stop: Reviewing the Concepts Explain how companies find and develop new-product ideas. List and define the steps in the newproduct development process. Describe the stages of the product life cycle. Explain how marketing strategies change during the product’s life cycle. 26