New Product Development & Product Life Cycles

New Product Development Strategy How do companies develop and market new products? Come up with own ideas. Brand new products Product improvements & modifications Acquire companies, patents, licenses.

New-Product Failures Only 10% of new consumer products succeed in the long run. Why do most products fail? Don’t fulfill a real need or want Overestimation of market size Design problems that compromise functionality Incorrectly positioned, priced or promoted (4 Ps) Pushed despite poor marketing research findings Development costs go over budget Competitive response (usually unanticipated)

Major Stages in New-Product Development Process

Where do ideas come from? Idea Generation Where do ideas come from? Internal sources: Company employees at all levels: “Intrapraneuring” External sources: Customers Competitors Distributors Suppliers Outsourcing partners

Idea Screening Keep the good ideas and drop the poor ones. Often highly subjective and non-scientific. Strategic fit with core competencies and product expertise. “Back-of-the-envelope” market size estimates

Concept Development and Testing Develop a working description and visualization of the product idea and concept. Test ideas with real consumers. The Concept Board helps companies verbalize and visualize product concepts for consumer testing.

Business Analysis Assess economic viability of the concept. Potential Metrics: Sales Contribution (Profit) NPV, IRR, ROI ROMI Project must clear financial hurdles to move to the product development phase.

Product Development Develop concept into physical product prototype. Large jump in investment – “point of no return”. Test and refine prototype until product passes consumer and legal scrutiny.

Test Marketing Product / marketing program introduced in limited # of real market settings. Avoids “broad launch” mistakes. Competitive Retaliation problems After test marketing the “Go Active” meal (an adult happy meal) in 150 markets in Indiana, McDonald’s decided to sell it across the U.S.

Commercialization Broad launch of product if market test results are positive. “Greenlighting” Timing of launch is important. Potential Rollout plans Local Regional National International “Wider Test Market” – more scattered sample

The Product Life Cycle

Product Life-Cycle Lengths Product need - longest life cycle (e.g., “phone”) Product form - standard PLC shape (e.g., landline telephone) Brand – shorter PLC cycles due to competitive attacks and wearout (e.g., T-Mobile, Nokia, Sprint) Styles and Fashions – very short life cycles (different phone designs) Fad - fashion with quick adoption, quick decline (e.g., pet rocks) and backlash The trend towards shorter Product Life Cycles

Introduction Stage of PLC Sales: low Costs: high cost per customer Profits: negative Marketing Objective: create product awareness and trial Product: offer a basic “core” product Price: based primarily on cost Distribution: build selective distribution Promotion: heavy to entice product trial

Growth Stage of PLC Sales: rapidly rising Costs: average cost per customer Profits: rising Marketing Objective: maximize market share Product: offer peripheral benefits, i.e. service, warranty, packages Price: penetration strategy Distribution: start building intensive distribution Promotion: reduce since demand is naturally growing

Maturity Stage of PLC Sales: reach their peak Costs: lowest cost per customer Profits: highest ever Marketing Objective: “defend” high profits and market share Product: diversify brand and models Price: match or beat competitors Distribution: continue building intensive distribution Promotion: increase to encourage brand switching

Maturity Stage of PLC Keeping Consumption High How? Find new users or new market segments. (McDonald’s goes global) Reposition the brand to appeal to a different segment. (“Not your father’s Oldsmobile”) Look for ways to increase or revive usage among present customers. (Arm & Hammer) Improve/Modify the product (Gilette) New Ad Campaign (Coke, Pepsi, McDonald’s) Discounting Price

Maturity Stage of PLC Arm & Hammer gives consumers another use for Baking Soda and avoids decline.

Modifying the Product Gillette: Has mastered the art of improving product. Fusion razor: precision trimmer blade five blade shaving surface flexible comfort guard Enhanced Indicator Lubrastrip (contains vitamin E and aloe)

Decline Stage of PLC Sales: declining Costs: lower (but not lowest) cost per customer Profits: declining Marketing Objective: reduce expenditures and “milk” the brand for residual sales Product: phase out weak items Price: cut price or raise price Distribution: selective - phase out unprofitable outlets Promotion: reduce to “survival” level

Question du Jour Is the PLC for real?