Developing and Managing Products chapter 9 Prepared by

Developing and Managing Products chapter 9 Prepared by Deborah Baker Texas Christian University © 2003 South-Western 1

Learning Objectives 1. Explain the importance of developing new products and describe the six categories of new products. chapter 9 2. Explain the steps in the new-product development process. Chapter 9 Version 3 e © 2003 South-Western 2

Learning Objectives (continued) 3. Explain the diffusion process through which new products are adopted. 9 chapter 4. Explain the concept of product life cycles. Chapter 9 Version 3 e © 2003 South-Western 3

Learning Objective 1 Explain the importance of developing new products and describe the six categories of new products. Chapter 9 Version 3 e © 2003 South-Western 4

1 New Product A product new to the world, the market, the producer, the seller, or some combination of these. Chapter 9 Version 3 e © 2003 South-Western 5

Categories of New Products 1 New-To-The-World New Product Lines Six Categories of New Products Product Line Additions Improvements/Revisions Repositioned Products Chapter 9 Version 3 e Lower-Priced Products 6 © 2003 South-Western

Learning Objective 2 Explain the steps in the new-product development process. Chapter 9 Version 3 e © 2003 South-Western 7

Successful New-Product Development Process 2 Long-Term Commitment New Product Strategy New Product Success Factors Chapter 9 Version 3 e Capitalize on Experience Establish an Environment © 2003 South-Western 8

New-Product Development Process 2 New-Product Strategy Idea Generation Idea Screening Business Analysis Development Test Marketing Commercialization New Product Chapter 9 Version 3 e © 2003 South-Western 9

2 Idea Generation Customers Employees Distributors Competitors Sources of New-Product Ideas Chapter 9 Version 3 e R&D Consultants Creative Thinking © 2003 South-Western 10

2 Brainstorming The process of getting a group to think of unlimited ways to vary a product or solve a problem. Chapter 9 Version 3 e © 2003 South-Western 11

2 Idea Screening The first filter in the product development process, which eliminates ideas that are inconsistent with the organization’s new-product strategy or are inappropriate for some other reason. Chapter 9 Version 3 e © 2003 South-Western 12

2 Concept Test A test to evaluate a new-product idea, usually before any prototype has been created. Chapter 9 Version 3 e © 2003 South-Western 13

2 Business Analysis Preliminary Demand Considerations in Business Analysis Stage Cost Sales Profitability Chapter 9 Version 3 e © 2003 South-Western 14

2 Development u Creation of prototype u Marketing strategy u Technical production feasibility u Final government approvals if needed Chapter 9 Version 3 e © 2003 South-Western 15

Simultaneous Product Development 2 A new team-oriented approach to new-product development. Chapter 9 Version 3 e © 2003 South-Western 16

2 Test Marketing The limited introduction of a product and a marketing program to determine the reactions of potential customers in a market situation. Chapter 9 Version 3 e © 2003 South-Western 17

Choosing a Test Market 2 u Similar to planned distribution u Relative isolation and free of influences u Advertising availability; multiple media u Diversified cross section u No atypical purchase habits u Representative population/income u Not overly used or easily “jammed” u Year-round sales stability u Available research/audit and retailers Chapter 9 Version 3 e © 2003 South-Western 18

Alternatives to Test Marketing 2 u Single-source research using supermarket scanner data u Simulated (laboratory) market testing Chapter 9 Version 3 e © 2003 South-Western 19

2 Commercialization Production Inventory Buildup Distribution Shipments Steps in Marketing a New Product Sales Training Trade Announcements Customer Advertising Chapter 9 Version 3 e © 2003 South-Western 20

3 Learning Objective Explain the diffusion process through which new products are adopted. Chapter 9 Version 3 e © 2003 South-Western 21

3 Diffusion The process by which the adoption of an innovation spreads. Chapter 9 Version 3 e © 2003 South-Western 22

3 Categories of Adopters Innovators Early Adopters Categories of Adopters in the Diffusion Process Early Majority Late Majority Laggards Chapter 9 Version 3 e © 2003 South-Western 23

3 Percentage of Adopters Categories of Adopters Early Innovators Adopters 2. 5% 13. 5% Early Majority 34% Late Majority 34% Laggards 16% Time Chapter 9 Version 3 e © 2003 South-Western 24

Product Characteristics and the Rate of Adoption 3 Complexity Compatibility Product Characteristics Predict Rate of Adoption Relative Advantage Observability Trialability Chapter 9 Version 3 e © 2003 South-Western 25

Marketing Implications of the Adoption Process 3 Word of Mouth Communication Aids the Diffusion Process Direct from Marketer Chapter 9 Version 3 e © 2003 South-Western 26

Learning Objective 4 Explain the concept of product life cycles. Chapter 9 Version 3 e © 2003 South-Western 27

Product Life Cycle 4 A concept that provides a way to trace the stages of a product’s acceptance, from its introduction (birth) to its decline (death). Chapter 9 Version 3 e © 2003 South-Western 28

4 Product Life Cycle Introductory Growth Stage Maturity Stage Decline Stage Product Dollars Category Sales Product Category Profits 0 Chapter 9 Version 3 e Time © 2003 South-Western 29

Extending the PLC 4 u Change product use u Change product image u Change product positioning Chapter 9 Version 3 e © 2003 South-Western 30

Introductory Stage Full-Scale Launch u High failure rates of New Products u Little competition u Frequent product modification u Limited distribution u High marketing and production costs u Negative profits u Promotion focuses on awareness and information u Intensive personal selling to channels Chapter 9 Version 3 e © 2003 South-Western 4 31

4 Growth Stage Offered in more sizes, flavors, options u Increasing rate of sales u Entrance of competitors u Market consolidation u Initial healthy profits u Promotion emphasizes brand ads u Goal is wider distribution u Prices normally fall u Development costs are recovered Chapter 9 Version 3 e © 2003 South-Western 32

Maturity Stage 4 u Declining sales growth Many consumer products are in Maturity u Saturated markets u Extending product line u Stylistic product changes u Heavy promotions to dealers and consumers u Marginal competitors drop out u Prices and profits fall u Niche marketers emerge Chapter 9 Version 3 e © 2003 South-Western 33

4 Decline Stage Rate of decline depends on change in tastes or adoption of substitute products u Long-run drop in sales u Large inventories of unsold items u Elimination of all nonessential marketing expenses Chapter 9 Version 3 e © 2003 South-Western 34

4 Marketing Strategies for PLC INTRODUCTION Product Strategy Distribution Strategy Promotion Strategy Pricing Strategy Limited models Frequent changes GROWTH MATURITY More models Frequent changes. Limited Expanded Wholesale/ dealers. Longretail distributors term relations Large number Eliminate of models. unprofitable models Extensive. Margins drop. Shelf space Awareness. Aggressive ads. Advertise. Stimulate Promote heavily demand. Sampling demand Higher/recoup development costs Chapter 9 Version 3 e DECLINE Fall as result of competition & efficient production. © 2003 South-Western Prices fall (usually). Phase out unprofitable outlets Phase out promotion Prices stabilize at low level. 35

4 Diffusion Process and PLC Curve Sales Introduction Early majority Growth Decline Maturity Product life cycle curve Late majority Early adopters Innovators Laggards Diffusion curve Chapter 9 Version 3 e © 2003 South-Western 36