Insert Chapter Picture Here Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved Chapter 10 1 Designed by Eric Brengle B-books, Ltd. CHAPTER 10 Developing and Managing Products Prepared by Deborah Baker Texas Christian University Marketing Lamb, Hair, McDaniel 9

Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved Chapter 10 2 Learning Outcomes Explain the importance of developing new products and describe the six categories of new products Explain the steps in the new-product development process Explain why some products succeed and others fail LO I LO 2 LO 3

Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved Chapter 10 3 Learning Outcomes Discuss global issues in new-product development Explain the diffusion process through which new products are adopted Explain the concept of product life cycles LO 5 LO 6 LO 4

Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved Chapter 10 4 Explain the importance of developing new products and describe the six categories of new products The Importance of New Products LO I

Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved Chapter 10 5 New Product A product new to the world, the market, the producer, the seller, or some combination of these. LO I New Product

Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved Chapter10 6 LO I Market Development Diversification Increase market share among existing customers Attract new customers to existing products Introduce new products into new markets Create new products for present markets Categories of New Products New-to-the-World New Product Lines Product Line Additions Improvements or Revisions Repositioned Products Lower-Priced Products

Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved Chapter 10 7 LO I New Product for Starbucks  Starbucks recently marketed the film “Akeelah and the Bee”.  It says the film is a natural extension of the Starbucks experience.  Critics say the pervasive chain is overextending its welcome. SOURCE: Janet Adamy, “Lights, Camera, Action at Starbucks,” Wall Street Journal, April /2006, A2.

Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved Chapter 10 8 REVIEW LEARNING OUTCOME Developing New Products LO I

Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved Chapter 10 9 Explain the steps in the new-product development process The New Product Development Process LO 2

Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved Chapter LO 2 The New-Product Development Process Long-term commitment Company-specific approach Capitalize on experience Establish an environment New Product Success Factors

Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved Chapter LO 2 New-Product Development Process New-Product Strategy Idea Generation Idea Screening Business Analysis Development Test Marketing Commercialization New Product

Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved Chapter10 12 LO 2 Diversification Idea Generation Customers Employees Distributors Competitors Vendors R & D Consultants Sources of New-Product Ideas Online

Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved Chapter10 13 LO 2 Tips for New Product Development  Disperse R & D around the globe  Keep teams small and empower employees  Flatten hierarchy  Encourage generation of crazy new ideas  Welcome mistakes

Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved Chapter Brainstorming The process of getting a group to think of unlimited ways to vary a product or solve a problem. LO 2 Brainstorming

Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved Chapter Screening LO 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.

Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved Chapter LO 2 Concept Test A test to evaluate a new-product idea, usually before any prototype has been created.

Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved Chapter LO 2 Business Analysis Considerations in Business Analysis Stage Demand Cost Sales Profitability

Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved Chapter LO 2 Development  Creation of prototype  Marketing strategy  Packaging, branding, labeling  Promotion, price, and distribution strategy  Manufacturing feasibility  Final government approvals if needed

Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved Chapter LO 2 Simultaneous Product Development Simultaneous Product Development Simultaneous Product Development A new team-oriented approach to new-product development where all relevant functional areas and outside suppliers participate in the development process.

Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved Chapter LO 2 Test Marketing The limited introduction of a product and a marketing program to determine the reactions of potential customers in a market situation. Test Marketing Online

Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved Chapter LO 2 Alternatives to Test Marketing  Single-source research using supermarket scanner data  Simulated (laboratory) market testing  Online test marketing Online

Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved Chapter 10 Biz Flix October Sky 22 LO 2

Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved Chapter10 23 LO 2 Commercialization Production Inventory Buildup Distribution Shipments Sales Training Trade Announcements Customer Advertising

Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved Chapter REVIEW LEARNING OUTCOME New-Product Development Process LO 2

Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved Chapter Explain why some products succeed and others fail Why Some Products Succeed and Others Fail LO 3

Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved Chapter LO 3 Why New Products Fail  No discernible benefits  Poor match between features and customer desires  Overestimation of market size  Incorrect positioning  Price too high or too low  Inadequate distribution  Poor promotion  Inferior product

Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved Chapter10 27 LO 3 Success Factors Match between product and market needs Different from substitute products Factors in Successful New Products Benefit to large number of people

Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved Chapter10 28 LO 3 Success Factors Listening to customers Producing the best product Vision of future market Strong leadership Commitment to new- product development Project-based team approach Getting every aspect right

Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved Chapter REVIEW LEARNING OUTCOME Why Products Succeed and Others Fail LO 3

Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved Chapter Discuss global issues in new-product development Global Issues in New-Product Development LO 4

Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved Chapter LO 4 Global Issues  Develop product for potential worldwide distribution  Build in unique market requirements  Design products to meet regulations and key market requirements

Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved Chapter REVIEW LEARNING OUTCOME Global Issues in New-Product Development LO 4 Single product worldwide Modification of products Multiple products in multiple countries

Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved Chapter Explain the diffusion process through which new products are adopted The Spread of New Products LO 5

Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved Chapter LO 5 Diffusion The process by which the adoption of an innovation spreads.

Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved Chapter10 35 LO 5 Categories of Adopters Laggards Late Majority Early Majority Early Adopters Innovators

Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved Chapter10 36 LO 5 Product Characteristics and the Rate of Adoption Trialability Observability Relative Advantage Compatibility Complexity Online

Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved Chapter LO 5 Sales of New Audio Products

Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved Chapter LO 5 Marketing Implications of the Adoption Process Direct from Marketer Word of Mouth Communication Aids the Diffusion Process

Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved Chapter REVIEW LEARNING OUTCOME Diffusion Process for New Products LO 5

Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved Chapter Explain the concept of product life cycles Product Life Cycles LO 6

Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved Chapter LO 6 Product Life Cycle A concept that provides a way to trace the stages of a product’s acceptance, from its introduction (birth) to its decline (death).

Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved Chapter LO 6 Product Life Cycle Time Dollars Profits SalesIntroductoryStageGrowthStageMaturityStageDeclineStage 0

Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved Chapter LO 6 Product Life Cycles for Styles, Fashions, and Fads

Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved Chapter LO 6 U.S. Sales of Televisions

Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved Chapter LO 6 Introductory Stage  High failure rates  Little competition  Frequent product modification  Limited distribution  High marketing and production costs  Negative profits with slow sales increases  Promotion focuses on awareness and information  Communication challenge is to stimulate primary demand

Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved Chapter LO 6 Introductory Stage in Europe

Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved Chapter LO 6 Growth Stage  Increasing rate of sales  Entrance of competitors  Market consolidation  Initial healthy profits  Aggressive advertising of the differences between brands  Wider distribution

Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved Chapter LO 6 Maturity Stage  Sales increase at a decreasing rate  Saturated markets  Annual models appear  Lengthened product lines  Service and repair assume important roles  Heavy promotions to consumers and dealers  Marginal competitors drop out  Niche marketers emerge

Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved Chapter LO 6 Decline Stage  Long-run drop in sales  Large inventories of unsold items  Elimination of all nonessential marketing expenses  “Organized abandonment”

Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved Chapter10 50 LO 6 Diffusion Process and PLC Curve Innovators Early adopters Early majority Late majority Laggards Product life cycle curve Diffusioncurve Introduction Growth Maturity Decline Sales

Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved Chapter REVIEW LEARNING OUTCOME LO 6 Product Life Cycles Time INTRODUCTIONGROWTHMATURITYDECLINE Product Strategy Distribution Strategy Promotion Strategy Pricing Strategy Limited models Frequent changes More models Frequent changes. Large number of models. Eliminate unprofitable models Limited Wholesale/ retail distributors Expanded dealers. Long- term relations Extensive. Margins drop. Shelf space Phase out unprofitable outlets Awareness. Stimulate demand.Sampling Aggressive ads. Stimulate demand Advertise. Promote heavily Phase out promotion High to recoup development costs Fall as result of competition & efficient produc- tion. Prices fall (usually). Prices stabilize at low level. Sales