11 Business-to-Business Marketing New Product Strategy Haas School of Business UC Berkeley Fall 2008 Week 9 Zsolt Katona

2 Overview Week 3: Pricing Week 5: R&D Week 6: Sales Force Week 7: Differentiation Week 8: Branding Today: New Product Strategy –Case Discussion: Biopure –A few thoughts on PLC –Industrat Decision 7 Week 10: Key Account Management –Case: Wesco

3 Time Sales/ Period Sales Profits IntroductionGrowthMaturityDecline Product Life Cycles (PLC) Beyond idiosyncratic factors, the demand of each category/product/brand follows a systematic (“bell-shaped”) pattern over time.

4 Derived PLC

The spread of products into U.S. households Sources: U.S. Bureau of Census (1970 and various years), Cellular Telecommunications Industry Association (1996), World Almanac and Book of Facts (1997)

6 THE FAST LEARNING PRODUCT LIFE CYCLES THE FAD WITH A SIGNIFICANT RESIDUAL MARKET THE MARKET SPECIALTY THE FASHION CYCLE THE ABORTED INTRODUCTION THE SLOW LEARNING PRODUCT LIFE CYCLE THE FAD THE INSTANT BUST Regrowth periods THE PYRAMID CYCLE Typical patterns

7 Theory behind PLC The diffusion of products, brands and innovations in general is mainly driven by a social process similar to the spread of an epidemic. Key elements: –“innovators” –“imitators” –“word of mouth” communication

8 The Bass model Describes sales, s, at time t as a function of cumulative sales, S: Where: a: innovation coefficient b: imitation coefficient M: market potential

9 Innovator characteristics (consumer goods) wealthier younger more educated “cosmopolitan” mobile risk takers “opinion leaders”

10 Industrial innovators larger firms financially powerful faster growing with high R&D spending with a younger CEO

11 What promotes diffusion? (consumer markets) homogeneity of social system –cultural norms (religion) –language –ethnic homogeneity –social mobility “density” of social system physical and social mobility within the social system wealth

12 What promotes diffusion in industrial markets? homogeneity of customer base industry concentration/globalization “intermediate” level of competition level of professionalization Mobility of employees

13 Takeaway Demand for existing similar products might be significantly different than for a new product Carefully analyze decision makers and segments, when introducing a new product Product Life Cycle largely depends on your customer’s product’s success. Do not naturally expect the typical diffusion curve in B2B

14 Industrat Stock Prices

15 T4 Deal Firm 2 has announced completion of a KOREX prototype based on Technology 4. Product TechnologyProject ResSusBCost - 4PKEA Firm 2 is offering the following standard licensing contract to any interested party: Annual fee: $500,000, royalty: 10%