New-Product Development and Product Life-Cycle Strategies Chapter 9 New-Product Development and Product Life-Cycle Strategies

Road Map: Previewing the Concepts Explain how companies find and develop new-product ideas. List and define the steps in the new-product development process. Describe the stages of the product life cycle. Explain how marketing strategies change during the product’s life cycle.

New-Product Development Strategy Strategies for Obtaining New-Product Ideas Acquired Companies Original Products Acquired Patents Product Improvements Acquired Licenses Product Modifications New Brands

Causes of New-Product Failures One study estimated that as many as 80% of new consumer packaged products fail. Only about 40% of new consumer products are around 5 years after introduction. Why? Overestimation of market size, Product design problems, Product incorrectly positioned, priced, or advertised, Product may have been pushed despite poor marketing research findings, Costs of product development, or Competitive actions.

Improving New-Product Success New-product success depends on having a: Unique superior product (one with higher quality, features, and value in use), and a Well-defined product concept (a defined target market, product requirements, and benefits). To create successful new products, the company must: understand its consumers, markets, and competitors, and develop products that deliver superior value to customers.

Major Stages in New-Product Development (Fig. 9-1)

New Product Development Process New Product Development Process Step 1 New Product Development Process New Product Development Process Step 1. Idea Generation Systematic Search for New Product Ideas Obtained From Employees and Also From: Competitors Customers Distributors Suppliers

New Product Development Process Step 2. Idea Screening Helps spot good ideas and drop poor ones as soon as possible. Many companies have systems for rating and screening ideas which estimate: Market Size Product Price Development Time & Costs Manufacturing Costs Rate of Return Then, the idea is evaluated against a set of general company criteria.

New Product Development Process Step 3. Concept Development 1. Develop New Product Ideas into Alternative Detailed Product Concepts New Product Development Process Step 3. Concept Development 2. Concept Testing - Test the New-Product Concepts with Groups of Target Customers Product Image is the Way Consumers Perceive an Actual or Potential Product 3. Choose the One That Has the Strongest Appeal to Target Customers

DaimlerChrysler’s Electric Car The company’s task is to develop its fuel-cell powered electric car into alternative product concepts, find out how attractive each is to customers, and choose the best one.

New Product Development Process Step 4. Marketing Strategy Part One Describes Overall: Target Market Planned Product Positioning Sales, Market Share, & Profit Goals New Product Development Process Step 4. Marketing Strategy Part Two Describes First-Year: Product’s Planned Price Distribution Marketing Budget Part Three Describes Long-Run: Sales & Profit Goals Marketing Mix Strategy

Step 5. Business Analysis Step 6. Product Development Review of Product Sales, Costs, and Profits Projections to See if They Satisfy Company Objectives Step 5. Business Analysis Step 6. Product Development If No, Eliminate Product Concept If Yes, Move to Product Development

New Product Development Process Step 7. Test Marketing Product and marketing program are introduced into more realistic market settings. Can be very expensive and time consuming. Test the following: Positioning strategy, Advertising, Distribution, Pricing, Branding, Packaging, Budget levels.

New Product Development Process Step 8. Commercialization Introducing the New Product into the Market When is the Right Time to Introduce Product? Where to Launch a New Product?

Interactive Student Assignments Form students into groups of three to five. Each group should read the opening vignette to the chapter about Microsoft and the software industry. Each group should then answer the following questions: Comment on Microsoft’s ability to bring new products to the marketplace. What lies ahead for Microsoft? What secrets has Microsoft learned?

Speeding Up New-Product Development Step 1 Step 2 Step 3 Step 4 Simultaneous (Team-Based) Step 1 Step 2 Step 3 Step 4 Sequential

Product Life Cycle (Fig. 9-2) Time Product Develop- ment Introduction Profits Sales Growth Maturity Decline Losses/ Investments ($) Sales and Profits ($) Sales and Profits Over the Product’s Life From Inception to Demise

Applications of the Product Life Cycle Product class which has the longest life cycles (i.e. gas-powered cars), Product form which tends to have the standard PLC shape (i.e. minivans), Brand which can change quickly because of changing competitive attacks and responses (i.e. Ford Taurus), Style which is a basic and distinctive mode of expression (formal clothing), Fashion which is a popular style in a given field (business casual), Fad which is a fashion that enters quickly, is adopted quickly, and declines fast (pet rocks).

Problems Using the PLC The PLC Concept can be applied by marketers for describing how products and markets work, but may also present some problems: Trouble identifying Which Stage of the PLC the Product Is In Difficult to Forecast the Sales Level, the Length of Each Stage, and Shape of the PLC Strategy is Both a Cause and a Result of the Product’s Life Cycle

Introduction Stage of the PLC Summary of Characteristics, Objectives, & Strategies Sales Costs Profits Marketing Objectives Product Price Low sales High cost per customer Negative or low Create product awareness and trial Offer a basic product Usually is high Distribution High distribution expenses Advertising Spending is high to inform consumers

Growth Stage of the PLC Summary of Characteristics, Objectives, & Strategies Sales Costs Profits Marketing Objectives Product Price Rapidly rising sales Average cost per customer Rising profits Maximize market share Offer new product features and models Remain where they are or fall slightly Distribution Increase number of distribution outlets Advertising Educating consumers and meeting competition

Maturity Stage of the PLC Summary of Characteristics, Objectives, & Strategies Sales Costs Profits Marketing Objectives Product Price Begin to slow Low cost per customer High profits, then lower profits Maximize profits while defending market share May modify product May decline Distribution Build more intensive distribution Advertising Stress brand differences and benefits

Maturity Stage of the PLC Modifiying the Market Company tries to increase consumption of the current product Modifying the Product Changing characteristics such as quality, features, or styles to attract new users Modifying the Marketing Mix Company tries to improve sales by changing one or more marketing mix elements

Decline Stage of the PLC Summary of Characteristics, Objectives, & Strategies Sales Costs Profits Marketing Objectives Product Price Declining sales Low cost per customer Declining profits Reduce expenditure and maintain, harvest, or drop the product Phase out weak items Cut price Distribution Selective: phase out unprofitable outlets Advertising Reduce to level needed to retain hard-core loyal customers

Discussion Question Pick a soft drink, car, or food product, and trace the product’s life cycle. Project when the product might enter a decline stage and discuss strategies to reverse the decline. This is an action-oriented discussion question intended to get the student to apply the information and knowledge gained from the text material to a “real-world” example. The instructor can apply more structure by specifically assigning which product the students will use (the instructor could select from any of the areas mentioned in the question) or the class can be divided into teams and given the assignment. However, the method of administration, the instructor should allow enough time to discuss the results of the project so all students can benefit from the learning experience. Students should carefully follow the life cycle description given in the chapter (See Table 9-2 for a good summary of the stages or Marketing at Work 9-3 for a practical application illustrations). If there is deviation, the student should be asked to explain the rationale for the deviation. In addition, students should be asked how they drew their conclusions on the decline of their chosen product. Factors that contributed to the decline should be discussed. How could the decline be reversed (if at all)?

Rest Stop: Reviewing the Concepts Explain how companies find and develop new-product ideas. List and define the steps in the new-product development process. Describe the stages of the product life cycle. Explain how marketing strategies change during the product’s life cycle.