New-Product Development and Product Life-Cycle Strategies 8

8-2 ROAD MAP: Previewing the Concepts Explain how companies find and develop new-product ideas. Explain how companies find and develop new-product ideas. List and define the steps in the new- product development process. List and define the steps in the new- product development process. Describe the stages of the product life cycle. Describe the stages of the product life cycle. Describe how marketing strategies change during the product’s life cycle. Describe how marketing strategies change during the product’s life cycle.

8-3 New-Product Development Strategy Strategies for Obtaining New-Product Ideas Acquisition of: Companies Patents Licenses Acquisition of: Companies Patents Licenses New Products: Original Products Improvements Modifications New Products: Original Products Improvements Modifications

8-4 New-Product Failures Only 10% of new products are still on the market and profitable after 3 years. Only 10% of new products are still on the market and profitable after 3 years. Failure rate for industrial products is as high as 30%. Failure rate for industrial products is as high as 30%. Why? Why? –Overestimation of market size –Design problems –Incorrectly positioned, priced, or advertised –Pushed despite poor marketing research findings –Development costs –Competition

8-5 Major Stages in New-Product Development

8-6 Company Employees Customers Competitors Distributors Suppliers Idea Generation

8-7 Idea Generation When Heinz asked kids what would make the product more fun, they said, “Change the color!” so, Heinz developed and launched EZ Squirt, now in a variety of colors targeted at kids. The EZ Squirt bottle’s special nozzle also emits a thin stream so tykes can autograph their burgers.

8-8 Idea Screening Process to spot good ideas and drop poor ones. Process to spot good ideas and drop poor ones. Develop system to estimate: market size, product price, development time and costs, manufacturing costs, and rate of return. Develop system to estimate: market size, product price, development time and costs, manufacturing costs, and rate of return. Evaluate these findings against set of company criteria for new products. Evaluate these findings against set of company criteria for new products.

8-9 Concept Development and Testing Product Idea: idea for a possible product that the company can see itself offering. Product Idea: idea for a possible product that the company can see itself offering. Product Concept: detailed version of the idea stated in meaningful consumer terms. Product Concept: detailed version of the idea stated in meaningful consumer terms. Product Image: the way consumers perceive an actual or potential product. Product Image: the way consumers perceive an actual or potential product.

8-10 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. 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. DiamlerChrysler’s Fuel-Cell- Powered Electric Car

8-11 Choose a partner and cast yourself back in time. Try to figure out how you might convert the idea of a personal computer into a concept that could be tested. Choose a partner and cast yourself back in time. Try to figure out how you might convert the idea of a personal computer into a concept that could be tested. Interactive Student Assignment

8-12 Marketing Strategy Development Part One Describes: The Target Market Planned Product Positioning Sales, Market Share, & Profit Goals Part One Describes: The Target Market Planned Product Positioning Sales, Market Share, & Profit Goals Part Two Outlines the First-Year’s: Product’s Planned Price Distribution Marketing Budget Part Two Outlines the First-Year’s: Product’s Planned Price Distribution Marketing Budget Part Three Describes Long-Run: Sales & Profit Goals Marketing Mix Strategy Part Three Describes Long-Run: Sales & Profit Goals Marketing Mix Strategy

8-13 Business Analysis Involves a review of the sales, costs, and profit projections to assess fit with company objectives. Involves a review of the sales, costs, and profit projections to assess fit with company objectives. If yes, move to the product development phase. If yes, move to the product development phase.

8-14 Product Development Develop concept into physical product Develop concept into physical product Calls for large jump in investment Calls for large jump in investment Prototypes are made Prototypes are made Prototype must have correct physical features and convey psychological characteristics Prototype must have correct physical features and convey psychological characteristics

8-15 Product Development Click the picture above to play video Dunkin’ Donuts takes its product development process very seriously in order to meet consumers’ needs.

8-16 Test Marketing Product and program introduced in more realistic market setting. Product and program introduced in more realistic market setting. Not needed for all products. Not needed for all products. Can be expensive and time consuming, but better than making major marketing mistake. Can be expensive and time consuming, but better than making major marketing mistake.

8-17 Test Marketing Nokia test-marketed its new N-Gage cell phone/mobile game player extensively before introducing it worldwide.

8-18 Commercialization Must decide on timing (i.e., when to introduce the product). Must decide on timing (i.e., when to introduce the product). Must decide on where to introduce the product (e.g., single location, state, region, nationally, internationally). Must decide on where to introduce the product (e.g., single location, state, region, nationally, internationally). Must develop a market rollout plan. Must develop a market rollout plan.

8-19 Organizing New-Product Development Sequential Approach: each stage completed before moving to next phase of the project. Sequential Approach: each stage completed before moving to next phase of the project. Simultaneous Approach: Cross-functional teams work through overlapping steps to save time and increase effectiveness. Simultaneous Approach: Cross-functional teams work through overlapping steps to save time and increase effectiveness.

8-20 Time Product Develop- ment Introduction Profits Sales GrowthMaturityDecline Losses/ Investments ($) Sales and Profits ($) Sales and Profits Over the Product’s Lifetime Product Life Cycle

8-21 Product Life Cycle Applications Product class has the longest life cycle (e.g., gas- powered cars) Product class has the longest life cycle (e.g., gas- powered cars) Product form tends to have the standard PLC shape (e.g., dial telephone) Product form tends to have the standard PLC shape (e.g., dial telephone) Brand can change quickly because of changing competitive attacks and responses (e.g., Tide, Cheer) Brand can change quickly because of changing competitive attacks and responses (e.g., Tide, Cheer) Style is a basic and distinctive mode of expression (e.g., formal clothing, Danish modern furniture) Style is a basic and distinctive mode of expression (e.g., formal clothing, Danish modern furniture) Fashion is a popular style in a given field (e.g., business casual) Fashion is a popular style in a given field (e.g., business casual) Fad is a fashion that enters quickly, is adopted quickly, and declines fast (e.g., pet rocks) Fad is a fashion that enters quickly, is adopted quickly, and declines fast (e.g., pet rocks)

8-22 Alternative PLC Shapes

8-23 Practical Problems of PLC Hard to identify which stage of the PLC the product is in Hard to pinpoint when the product moves to next stage Hard to identify factors that affect product’s movement through stages Hard to forecast sales level, length of each stage, and shape of PLC Strategy is both a cause and result of the PLC

8-24 Sales Costs Profits Marketing Objectives Product Price Low High cost per customer Negative Create product awareness and trial Offer a basic product Use cost-plus formula Distribution Build selective distribution Promotion Heavy to entice product trial Summary of Characteristics, Objectives, & Strategies Introduction Stage of the PLC

8-25 Sales Costs Profits Marketing Objectives Product Price Rapidly rising Average cost per customer Rising Maximize market share Offer extension, service, warranty Penetration strategy Distribution Build intensive distribution Promotion Reduce to take advantage of demand Summary of Characteristics, Objectives, & Strategies Growth Stage of the PLC

8-26 Sales Costs Profits Marketing Objectives Product Price Peak Low cost per customer High Maximize profits while defending market share Diversify brand and models Match or best competitors Distribution Build more intensive distribution Promotion Increase to encourage brand switching Summary of Characteristics, Objectives, & Strategies Maturity Stage of the PLC

8-27 Maturity Stage of the PLC Modifying the Market: Increase the consumption of the current product. Modifying the Market: Increase the consumption of the current product. How? How? –Look for new users and market segments –Reposition the brand to appeal to larger or faster-growing segment –Look for ways to increase usage among present customers

8-28 Modifying the Market The WD-40 company’s knack for finding new uses has made this popular substance one of the truly essential survival items in most American homes.

8-29 Maturity Stage of the PLC Modifying the Product: Changing characteristics such as quality, features, or style to attract new users and to inspire more usage. Modifying the Product: Changing characteristics such as quality, features, or style to attract new users and to inspire more usage. How? How? –Improve durability, reliability, speed, taste –Improve styling and attractiveness –Add new features –Expand usefulness, safety, convenience

8-30 Modifying the Product Crayola has added a steady stream of new colors, forms, and packages

8-31 Maturity Stage of the PLC Modifying the Marketing Mix: Improving sales by changing one or more marketing mix elements. Modifying the Marketing Mix: Improving sales by changing one or more marketing mix elements. How? How? –Cut prices –Launch a better ad campaign –Move into larger market channels –Offer new or improved services to buyers

8-32 Modifying the Marketing Mix New ads and promotions to reposition and revitalize mature product.

8-33 Sales Costs Profits Marketing Objectives Product Price Declining Low cost per customer Declining Reduce expenditures and milk the brand Phase out weak items Cut price Distribution Selective: phase out unprofitable outlets Promotion Reduce to minimum level Summary of Characteristics, Objectives, & Strategies Decline Stage of the PLC

8-34 Rest Stop: Reviewing the Concepts Explain how companies find and develop new-product ideas. Explain how companies find and develop new-product ideas. List and define the steps in the new- product development process. List and define the steps in the new- product development process. Describe the stages of the product life cycle. Describe the stages of the product life cycle. Explain how marketing strategies change during the product’s life cycle. Explain how marketing strategies change during the product’s life cycle.