© 2002 Pearson Education Canada Inc. 9-1 principles of MARKETING Chapter 9 New Product Development and Life Cycle Strategies

© 2002 Pearson Education Canada Inc. 9-2 Chapter Objectives Explain how to find and develop new product ideas Explain the new-product development process Describe stages of the product life cycle Describe how marketing strategies change over the product life cycle

© 2002 Pearson Education Canada Inc. 9-3 New Product Development: Overview New product development –New to replace aging Life-cycle strategies –Adapt to changing: Two major challenges

© 2002 Pearson Education Canada Inc. 9-4 New Product Development Strategy Two sources of new products –Acquisition - company, patent, licence –New product development internally New product development meaning –Original products, product improvements, or product modifications, and new brands through the firm’s own R & D efforts Risk and failure rates are high

© 2002 Pearson Education Canada Inc. 9-5 New Product Development Strategy: Why Do New Products Fail? Overestimated market Poor design Incorrect positioning Error in pricing Poor marketing communication Production-orientation Cost overrun Competition

© 2002 Pearson Education Canada Inc. 9-6 New Product Development Strategy: Success Factors Unique superior product Well defined product concept from startup Specific criteria Specific strategic role Systematic new- product process

© 2002 Pearson Education Canada Inc. 9-7 New-Product Development Process: Major Stages Idea generation Idea screening Concept development and testing Marketing strategy Business analysis Product development Commercialization Test marketing

© 2002 Pearson Education Canada Inc. 9-8 New-Product Development Process: Idea Generation Major Sources of New-Product Ideas –Internal sources Employees, sales people, R & D, managers Intrapreneurial programs –Customers –Competitors –Distributors and suppliers –Entrepreneurs

© 2002 Pearson Education Canada Inc. 9-9 New-Product Development Process: Idea Generation Systematic process –Idea manager –Multidisciplinary committee –Toll-free number –Staff encouragement –Formal recognition Yields –innovation culture –more ideas

© 2002 Pearson Education Canada Inc New-Product Development Process: Idea Screening Purpose –Identify good ideas drop poor ones fast Challenge –Maintain creativity and stream of ideas Standard format Criteria and rating

© 2002 Pearson Education Canada Inc New-Product Development Process: Concept Development and Testing Product concept –New-product idea in detail stated in meaningful consumer terms Concept development –Expanding the new-product idea into various alternative forms

© 2002 Pearson Education Canada Inc New-Product Development Process: Concept Development and Testing Concept testing –Target consumers exposed to new- product concepts –Word or picture description –Physical presentation of the concept –Question reactions

© 2002 Pearson Education Canada Inc New-Product Development Process: Marketing Strategy Development Marketing Strategy Statement - Part one –Target market –Planned product positioning –Sales, market share and profit goals Marketing Strategy Statement - Part two –Outline price, distribution and first year marketing budget

© 2002 Pearson Education Canada Inc New-Product Development Process: Marketing Strategy Development Marketing Strategy Statement - Part three –Planned long-run sales –Profit goals –Marketing mix strategy

© 2002 Pearson Education Canada Inc New-Product Development Process: Business Analysis Review sales, costs and profit projections Compare projected results to objectives Estimate maximum and minimum sales –Company history and market opinion Assess risk Estimate product costs and profits Analyze attractiveness using sales and costs

© 2002 Pearson Education Canada Inc New-Product Development Process: Product Development Performed by engineering or R & D Transform product concept into a physical product Prototype - functional and psychological Major investment

© 2002 Pearson Education Canada Inc New-Product Development Process: Test Marketing Advantages Reduce uncertainty about product and marketing approach Saves risk and expense of full launch Gain experienceDisadvantages High cost Longer time-to-market

© 2002 Pearson Education Canada Inc New-Product Development Process: Standard Test Markets Use small number of representative test cities Conducts full marketing campaign Store audits, consumer/distributor surveys gauge performance Costly and time consuming Competitor reaction Most popular approach

© 2002 Pearson Education Canada Inc New-Product Development Process: Controlled Test Markets Controlled panel of stores - fee basis Client specifies stores and locations Shelf space/location, displays, promotion and price controlled Sales tracked Less time, lower costs Representativeness and competition

© 2002 Pearson Education Canada Inc New-Product Development Process: Simulated Test Markets Use real or laboratory store Consumers view test and competitive ads Given shopping money to spend or keep Interview on reasons for purchasing or not Phone follow-up on attitudes, purchase plans Costs less, short duration, competition Risk from small sample, artificial situation

© 2002 Pearson Education Canada Inc New-Product Development Process: Commercialization Major investment in manufacturing facilities High initial advertising and promotion expense Introduction timing critical Launch location? Local, regional roll-out, national, or global?

© 2002 Pearson Education Canada Inc New-Product Development: Speeding Up the Process Sequential product development traditional Simultaneous or team- based approaches –Shorter cycle-times –First-mover advantage –Time is money –Higher risk and tension –Watch quality

© 2002 Pearson Education Canada Inc Product Life-Cycle Strategies Profits Sales DevelopmentIntroductionGrowthMaturityDecline Sales Profit ($) Loss ($)

© 2002 Pearson Education Canada Inc Product Life-Cycle Strategies Can describe a: –Product class –Product form –Brand Applicable to: –Styles –Fashion –Fads Sales Time Style Sales Time Fashion Sales Time Fad

© 2002 Pearson Education Canada Inc Product Life-Cycle Strategies

© 2002 Pearson Education Canada Inc Product Life-Cycle Strategies

© 2002 Pearson Education Canada Inc Chapter Review How do companies find and develop new product ideas? What are the steps in the new-product development process? What is the product life cycle? How do strategies change over the product life cycle?