Chapter Nine NewProduct Development and Product LifeCycle Strategies

Chapter Nine New-Product Development and Product Life-Cycle Strategies Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Chapter 9 - slide

New-Product Development and Product Life-Cycle Strategies Topic Outline • • Strategy New-Product Development Process Managing New-Product Development Product Life-Cycle Strategies Additional Product and Service Considerations 9 -2 • New-Product Development

New-Product Development Strategy Two ways to obtain new products: company, a patent, or a license to produce someone else’s product • New product development refers to original products, product improvements, product modifications, and new brands developed from the firm’s own research and development • New products suffer from very high failure rates 9 -3 • Acquisition refers to the buying of a whole

New-Product Development Strategy • New products are a key source of growth for • According to one estimate, 90 percent of all new products fail • Each year, companies lose an estimated $20 billion to $30 billion on failed food products alone • You need a strong new-product planning process to improve your chances of success 9 -4 companies yet innovation can be very expensive and risky

New-Product Development Reasons for New Product Failure • Product is incorrectly positioned in the market • Product is priced too high • Ineffective promotion • A high-level executive might push a favorite idea despite poor marketing research findings 9 -5 • The market size may have been overestimated

• Poor design • Costs of product development are higher than expected • Competitors fight back harder than expected • Wrong timing 9 -6 New-Product Development Reasons for New Product Failure

New-Product Development Process 9 -7 8 Major Stages in New-Product Development

New-Product Development Process Stage 1: Idea Generation new product ideas • Internal sources v R & D (Research & Development v Intrapreneurial programs • External sources v Customers, competitors, distributors, suppliers 9 -8 • Systematic search for

9 -9 3 M’s corporate culture encourages, supports, and rewards new product ideas and innovation

New-Product Development Process • Product development costs increase dramatically in later stages so poor ideas must be dropped as soon as possible. • R-W-W Screening Framework: v Is it Real? v Can we Win? v Is it Worth doing? 9 - 10 Stage 2: Idea Screening

New-Product Development Process • Product idea is an idea for a possible product that the company can see itself offering to the market • Product concept is a detailed version of the idea stated in meaningful consumer terms • Product image is the way consumers perceive an actual or potential product 9 - 11 Stage 3: Concept Development and Testing

New-Product Development Process Stage 3: Concept Development and Testing product concepts with groups of target consumers 9 - 12 • Concept Testing refers to the testing of new-

New-Product Development Process Stage 4: Marketing Strategy Development the initial marketing strategy for introducing the product to the market • Marketing strategy statement includes: v Description of the target market v Value proposition v Sales and profit goals v Marketing mix strategy 9 - 13 • Marketing Strategy Development refers to

New-Product Development Process • Business Analysis involves a review of the sales, costs, and profit projections to find out whether they satisfy the company’s objectives 9 - 14 Stage 5: Business Analysis

New-Product Development Process Stage 6: Product Development testing of one or more physical versions (prototypes) by the R&D or engineering departments v Requires an increase in investment 9 - 15 • Product Development involves the creation and

New-Product Development Process Stage 7: Test Marketing at which the product and marketing program are introduced into more realistic marketing settings • Provides the marketer with experience in testing the product and entire marketing program before full introduction 9 - 16 • Test Marketing is the stage

New-Product Development Process When firms test market • New product requires large investment • Uncertainty about product or marketing program When firms may not test market • Simple line extension • Copy of competitor product • Low costs • Management confidence 9 - 17 Test Marketing

New-Product Development Process Types of Test Markets Controlled test markets Simulated test markets 9 - 18 Standard test markets

Standard Test Markets in a small number of representative test markets (or cities) • Company evaluates product performance using store audits, consumer and distributor surveys, and other measures • Results are used to forecast national sales and profits, discover product problems, and finetune the marketing program 9 - 19 • Company conducts a full marketing campaign

Standard Test Markets v Cost v Time v Competitors can monitor the test v Competitor interference v Competitors gain access to the new product before introduction 9 - 20 • Challenges of standard test markets:

Review Standard Test Markets in a small number of representative test markets (or cities) • Results are used to forecast national sales and profits, discover product problems, and fine-tune the marketing program 9 - 21 • Company conducts a full marketing campaign

Controlled Test Markets have agreed to carry a new product for a fee. Individual consumer behavior for the new product is tracked v Less expensive than standard test markets v Faster than standard test markets v However, competitors still gain access to the new product 9 - 22 • Test in a controlled panel of stores that

Simulated Test Markets shopping environment - Show ads and promotions for a variety of products, including the new product being tested, to a sample of consumers • Give consumers a small amount of money and invite them to a store where they may keep the money or use it to buy the new or any other product items v Provides a measure of trial and the effectiveness of promotion 9 - 23 • Approach where a firm will create a simulated

Simulated Test Markets v Less expensive than other test methods v Faster v Restricts access by competitors • Disadvantages v Not considered as reliable and accurate due to the controlled setting 9 - 24 • Advantages of simulated test markets

New-Product Development Process • Commercialization is the introduction of the new product to the market v When to launch v Where to launch v Planned market rollout 9 - 25 Stage 8: Commercialization

Managing New-Product Development Strategies should be: v Customer-centered v Team-centered v Systematic 9 - 26 • Successful new product development

Managing New-Product Development Strategies new product development focuses on finding new ways to solve customer problems and create more customer satisfying experiences 9 - 27 • Customer-centered

Managing New-Product Development • Sequential new-product development is an approach where company departments work individually to complete each stage of the process before passing it along to the next department or stage v Positive: Increased control in risky or complex projects v Negative: Slow 9 - 28 New-Product Development Strategies

Managing New-Product Development Strategies approach where company departments work closely together in cross-functional teams, overlapping in the product-development process to save time and increase effectiveness • Team-based vs. Sequential: v Team-based can increase tension and confusion v Team-based is faster and more flexible 9 - 29 • Team-based new-product development is an

Managing New-Product Development Strategies development is an innovative development approach that collects, reviews, evaluates, and manages new-product ideas v Creates an innovationoriented culture v Yields a large number of new-product ideas 9 - 30 • Systematic new-product

Product Life-Cycle Strategies product’s sales and profits take over its lifetime • Typical PLC Has Five Stages v Product Development v Introduction v Growth v Maturity v Decline 9 - 31 • Product life cycle (PLC) is the course that a

Product Life-Cycle Strategies 9 - 32 Product Life Cycle

Product Life-Cycle Strategies • • v Sales are zero and investment costs mount Introduction v Slow sales growth and profits are nonexistent Growth v Rapid market acceptance and increasing profits Maturity v Slowdown in sales growth and profits level off or decline Decline v Sales fall off and profits drop 9 - 33 • Product development

9 - 34 Product Life-Cycle Strategies Not all products follow the typical PLC: § Style: Basic and distinctive mode of expression § Fashion: Currently accepted or popular style § Fad: A fashion that enters quickly, is adopted with enthusiasm & declines quickly

9 - 35 Fads are temporary periods of unusually high sales driven by consumer enthusiasm and immediate product popularity

Product Life-Cycle Strategies • Slow sales growth • Little or no profit • Little competition • Innovators are targeted • Marketing Mix Implications: v Basic product is offered v High distribution and promotion expense v Selective distribution 9 - 36 Introduction Stage

9 - 37 At the time of this ad, this product was at the introduction stage

Product Life-Cycle Strategies • Sales increase rapidly • Profits increase • New competitors enter the market • Promotion and manufacturing costs gain economies of scale • Marketing Mix Implications: v Offer product extensions v Penetration pricing v Intensive distribution 9 - 38 Growth Stage

Product Life-Cycle Strategies • Sales peak and slow down • High but declining profits • Middle majority is targeted • Overcapacity, competition declines • Marketing Mix Implications: v Increased promotion and R&D to support sales and profits v Stress brand differences v Use product or market modifying strategies 9 - 39 Maturity Stage

Product Life-Cycle Strategies 3 Maturity Stage Modifying Strategies • Market modifying: Increase the consumption of the v Look for new users and new market segments v Increase usage among present customers • Product modifying: Changing product characteristics to attract new users and to inspire more usage v Quality, features, style, or packaging v Improve the product’s quality and performance v Improve the product’s styling and attractiveness • Marketing mix modifying: Changing mix elements 9 - 40 current product

Product Life-Cycle Strategies • Declining sales & profits • Declining competition • Must decide: v Maintain the product v Harvest the product v Drop the product • Marketing Mix Implications: v Phase out weak items v Selective Distribution v Reduce advertising & sales promotion 9 - 41 Decline Stage

Additional Product and Service Considerations Public policy and regulations regarding developing and dropping products, patents, quality, and safety 9 - 42 Product Decisions and Social Responsibility

Additional Product and Service Considerations • Determining what products and services to introduce in which countries • Standardization versus customization • Packaging and labeling • Customs, values, laws 9 - 43 International Product and Service Marketing—Challenges