Chapter 11 Copyright ©2012 by Cengage Learning Inc. All rights reserved 1 Lamb, Hair, McDaniel CHAPTER 11 Developing and Managing Products © imagesource/photolibrary

Chapter 11 Copyright ©2012 by Cengage Learning Inc. All rights reserved 2 Categories of New Products New-to-the-World New Product Lines Product Line Additions Improvements or Revisions Repositioned Products Lower-Priced Products LO 1

Chapter 11 Copyright ©2012 by Cengage Learning Inc. All rights reserved 3 The New-Product Development Process Long-term commitment Company-specific approach Capitalize on experience Establish an environment New Product Success Factors LO 2

Chapter 11 Copyright ©2012 by Cengage Learning Inc. All rights reserved 4 LO 2 Exhibit 11.1 New-Product Development Process

Chapter 11 Copyright ©2012 by Cengage Learning Inc. All rights reserved 5 New-Product Strategy a plan that links the new-product development process with the objectives of the marketing department, the business unit, and the corporation. New-Product Strategy is… LO 2

Chapter 11 Copyright ©2012 by Cengage Learning Inc. All rights reserved 6 Idea Generation Customers Employees Distributors Vendors Competitors R & D Consultants Sources of New-Product Ideas LO 2

Chapter 11 Copyright ©2012 by Cengage Learning Inc. All rights reserved 7 Approaches for New Product Development LO 2 Brainstorming Focus Group The process of getting a group to think of umlimited ways to vary a product or solve a problem. The objective of focus group interviews is to stimulate insightful comments through group interaction.

Chapter 11 Copyright ©2012 by Cengage Learning Inc. All rights reserved 8 Idea Screening LO 2 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. Screening is… a test to evaluate a new-product idea, usually before any prototype has been created. Often successful for line extensions. A Concept Test is…

Chapter 11 Copyright ©2012 by Cengage Learning Inc. All rights reserved 9 Business Analysis Considerations in Business Analysis Stage Demand Cost Sales Profitability LO 2

Chapter 11 Copyright ©2012 by Cengage Learning Inc. All rights reserved 10 Development  Creation of prototype  Sketch marketing strategy  Packaging, branding, labeling  Promotion, price, and distribution strategy  Manufacturing feasibility LO 2

Chapter 11 Copyright ©2012 by Cengage Learning Inc. All rights reserved 11 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. LO 2

Chapter 11 Copyright ©2012 by Cengage Learning Inc. All rights reserved 12 Test Marketing The limited introduction of a product and a marketing program to determine the reactions of potential customers in a market situation. LO 2

Chapter 11 Copyright ©2012 by Cengage Learning Inc. All rights reserved 13 Costs of Test Marketing Often take 1 year or more Can cost over $1 million Exposes new product to competitors Competitors can “jam” testing programs with their own promotions LO 2

Chapter 11 Copyright ©2012 by Cengage Learning Inc. All rights reserved 14 Alternatives to Test Marketing  Single-source research using supermarket scanner data  Simulated (laboratory) market testing  Online test marketing LO 2

Chapter 11 Copyright ©2012 by Cengage Learning Inc. All rights reserved 15 Commercialization LO 2 Production Inventory Buildup Distribution Shipments Sales Force Training Trade Announcements Customer Advertising Ordering Materials

Chapter 11 Copyright ©2012 by Cengage Learning Inc. All rights reserved 16 New-Product 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 LO 2

Chapter 11 Copyright ©2012 by Cengage Learning Inc. All rights reserved 17 Beyond the Book Why New Products Fail NOTE: Supplemental content – not in book. 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

Chapter 11 Copyright ©2012 by Cengage Learning Inc. All rights reserved 18 Diffusion The process by which the adoption of an innovation spreads. Diffusion LO 4

Chapter 11 Copyright ©2012 by Cengage Learning Inc. All rights reserved 19 Laggards Late Majority Early Majority Early Adopters Innovators LO 4 Categories of Adopters

Chapter 11 Copyright ©2012 by Cengage Learning Inc. All rights reserved 20 Trialability Observability Relative Advantage Compatibility Complexity LO 4 Product Characteristics and the Rate of Adoption

Chapter 11 Copyright ©2012 by Cengage Learning Inc. All rights reserved 21 Direct from Marketer Word of Mouth Communication Aids the Diffusion Process LO 4 Marketing Implications of the Adoption Process

Chapter 11 Copyright ©2012 by Cengage Learning Inc. All rights reserved 22 Product Life Cycle (PLC) A concept that provides a way to trace the stages of a product’s acceptance, from its introduction (birth) to its decline (death). LO 5 Product Life Cycle

Chapter 11 Copyright ©2012 by Cengage Learning Inc. All rights reserved 23 LO 5 Exhibit 11.2 Four Stages of the Product Life Cycle

Chapter 11 Copyright ©2012 by Cengage Learning Inc. All rights reserved 24 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 LO 5

Chapter 11 Copyright ©2012 by Cengage Learning Inc. All rights reserved 25 Growth Stage  Increasing rate of sales  Entrance of competitors  Market consolidation  Initial healthy profits  Aggressive advertising of the differences between brands  Wider distribution LO 5

Chapter 11 Copyright ©2012 by Cengage Learning Inc. All rights reserved 26 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 LO 5

Chapter 11 Copyright ©2012 by Cengage Learning Inc. All rights reserved 27 Decline Stage  Long-run drop in sales  Large inventories of unsold items  Elimination of all nonessential marketing expenses  “Organized abandonment” LO 5

Chapter 11 Copyright ©2012 by Cengage Learning Inc. All rights reserved 28 LO 5 Exhibit 11.4 Relationships between the Diffusion Process and the Product Life Cycle Product life cycle curve Diffusion curve