CHAPTER NINE DEVELOPING AND MANAGING PRODUCTS Prepared by

THE IMPORTANCE OF NEW PRODUCTS n n n Sustain corporate growth and profits Replace obsolete items Improve quality of life Take advantage of new technology Better satisfy the needs of current and future consumers Brand extensions © 2001 South-Western College Publishing 2

CATEGORIES OF NEW PRODUCTS n n n New-to-the-world (discontinuous Innovations) New product lines Additions to existing product lines Improvements or revisions of existing products Repositioned products Lower priced products © 2001 South-Western College Publishing g. When first introduced, would include items like… g. Telephone g. FAX machines g. Music CDs 3

CATEGORIES OF NEW PRODUCTS n n n New-to-the-world (discontinuous Innovations) New product lines Additions to existing product lines Improvements or revisions of existing products Repositioned products Lower priced products © 2001 South-Western College Publishing g. Levi Company adding product lines such as… g. Shoes g. Hats g. Belts 4

CATEGORIES OF NEW PRODUCTS n n n New-to-the-world (discontinuous Innovations) New product lines Additions to existing product lines Improvements or revisions of existing products Repositioned products Lower priced products © 2001 South-Western College Publishing g. Hallmark greeting cards for. . . g. Pets g. Scented candles g. Design your own card kiosks 5

CATEGORIES OF NEW PRODUCTS n n n New-to-the-world (discontinuous Innovations) New product lines Additions to existing product lines Improvements or revisions of existing products Repositioned products Lower priced products © 2001 South-Western College Publishing g. Tissues with lotion g. Turkeys with pop-out thermometers g. Low fat microwave popcorn 6

CATEGORIES OF NEW PRODUCTS n n n New-to-the-world (discontinuous Innovations) New product lines Additions to existing product lines Improvements or revisions of existing products Repositioned products Lower priced products © 2001 South-Western College Publishing g. Arm & Hammer Baking Soda for your… g. Refrigerator g. Sock drawer 7

CATEGORIES OF NEW PRODUCTS n n n New-to-the-world (discontinuous Innovations) New product lines Additions to existing product lines Improvements or revisions of existing products Repositioned products Lower priced products © 2001 South-Western College Publishing g. In Computer technology… g. Color printers for under $200 g. Digital Video Cameras for under $100 8

THE NEW PRODUCT DEVELOPMENT PROCESS g New-Product Strategy Links the new-product development process with objectives of the. . . g Marketing Department g The Business unit g The Corporation g © 2001 South-Western College Publishing 9

THE NEW PRODUCT DEVELOPMENT PROCESS g Idea Generation g New-product ideas come from many sources, such as. . . g. Customers g. Employees g. Distributors g. Competitors g. R & D g. Consultants g. Brainstorming, Focus Groups and Computer Simulations © 2001 South-Western College Publishing 10

THE NEW PRODUCT DEVELOPMENT PROCESS g Idea Screening g Concept tests Compatibility with corporate goals and objectives g Compatibility with other company product lines; Cannibalization potential g Does it possess the characteristics of a successful product? g © 2001 South-Western College Publishing 11

THE NEW PRODUCT DEVELOPMENT PROCESS g Business Analysis Estimated. . . g g demand g costs g sales g profitability resource requirements g return on investment g © 2001 South-Western College Publishing 12

THE NEW PRODUCT DEVELOPMENT PROCESS Business Analysis (continued) g g. Questions asked during this phase include… g Potential market share? g. Cannibalization? g. Impact on total product mix? g. New facilities and personnel needed? g. Competitive response? g. Downside risk of failure? © 2001 South-Western College Publishing 13

THE NEW PRODUCT DEVELOPMENT PROCESS g Development Creation of prototype g Packaging g Branding g Labeling g Promotion strategy g Pricing g Distribution g Technical production processes on a mass scale g Final government approvals if needed g © 2001 South-Western College Publishing 14

THE NEW PRODUCT DEVELOPMENT PROCESS Development through field testing. . . g Similar to planned distribution outlets g Relative isolation from other cities g Appropriate demographics g Not easily jammed by competitors g Availability of cooperative supply chain partners g Representative of total field environment g g. Alternatives to field testing? © 2001 South-Western College Publishing 15

THE NEW PRODUCT DEVELOPMENT PROCESS g Commercialization g Full scale production and distribution g Local, regional, national or international rollout g Measurement and feedback of results against forecasts and benchmarks © 2001 South-Western College Publishing 16

PRODUCT LIFE CYCLE Introduction Growth Maturity Decline Sales Style Profits Fashion Fad Time Innovators - Early Adopters - Early Majority - Late Majority - Laggards © 2001 South-Western College Publishing 17

STAGES IN THE PRODUCT LIFE CYCLE n Introductory n n n n High marketing costs Low Volume Aimed at Innovators Profits may be negative Promotion emphasizes product awareness Growth n n Growth (continued) n n Maturity n n Sales grow at increasing rate Competition enters Profits rise and reach peak Brand advertising Distribution key n © 2001 South-Western College Publishing Usually longest stage Prices and profits fall Heavy promotional advertising 18

STAGES IN THE PRODUCT LIFE CYCLE n Decline n n n Sales of fads drop off rapidly Sales of fashion taper off Sales of styles rise and fall over long cycles Profits become very small Demand drops © 2001 South-Western College Publishing 19

IMPLICATIONS OF THE PRODUCT LIFE CYCLE TO MARKETING MANAGEMENT n The stage in the product life cycle and the rate of movement through the four stages of the adoption process provide vital clues to marketing managers concerning the best marketing mix to implement at any point in time! © 2001 South-Western College Publishing 20

THE SPREAD OF NEW PRODUCTS n Managers have a better chance of successfully marketing products if they understand how consumers learn about and adopt products. This process is usually referred to as the “Diffusion of Innovation” © 2001 South-Western College Publishing 21

THE DIFFUSION OF INNOVATION n n n An innovation is a product perceived as new by a potential adopter A person who buys a new product never before tried may ultimately become an adopter if pleased by the purchase Diffusion is the process by which the adoption of an innovation spreads. © 2001 South-Western College Publishing 22

THE DIFFUSION OF INNOVATION n Laggards (16%) n Late Majority (34%) n Late Majority

MARKETING IMPLICATIONS OF THE ADOPTION PROCESS n Diffusion occurs at different rates among different customers based upon word-of mouth communication or communication directly from the marketer to potential adopters © 2001 South-Western College Publishing 24