Marketing Management New Product Development and the Product Life Cycle Paul Dishman, Ph.D. Department of Business Management Marriott School of Management Brigham Young University Lecture 14

New-Product Development Strategies 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 failed. 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), & Well-defined product concept (a defined target market, product requirements, and benefits). To create successful new products, the company must: understand its customers, markets and competitors, & develop products that deliver superior value to customers.

Major Stages in New-Product Development (Fig. 9.1) Marketing Strategy Business Analysis Concept Development and Testing Product Development Idea Screening Test Marketing Idea Generation Commercialization

NPD: Idea Screening Process to 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.

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

New Product Development Process Step 4. Marketing Strategy Part One Describes Overall: Target Market Planned Product Positioning Sales & Profit Goals Market Share Part Two Describes First-Year: Product’s Planned Price Distribution Marketing Budget Part Three Describes Long-Term: 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 Meet Company Objectives Step 5. Business Analysis Step 6. Product Development If No, Eliminate Product Concept If Yes, Move to Product Development

Elements that May be Test Marketed by a Company NPD: Test Marketing Test Marketing is the Stage Where the Product and Marketing Program are Introduced into More Realistic Market Settings. Budget Levels Product Packaging Positioning Branding Advertising Elements that May be Test Marketed by a Company Pricing Distribution

NPD: Test Marketing Standard Controlled Test Market Test Market Full marketing campaign in a small number of representative cities. Controlled Test Market A few stores that have agreed to carry new products for a fee. Simulated Test Market Test in a simulated shopping environment to a sample of consumers.

NPD: Commercialization Commercialization is the Introduction of the New Product into the Marketplace. When is the Right Time to Introduce Product? Where to Launch a New Product?

Discussion Connections Suppose that you’re on a panel to nominate the “best new products of the year”. What products would you nominate and why? In groups, apply the new-product development process you’ve just studied, and develop an idea for an innovative new snack food product and sketch out a brief plan for bringing it to market.

Product Life Cycle (Fig. 9.2) Time Losses/ Investments ($) Sales and Profits ($) Product Develop- ment Introduction Growth Maturity Decline Sales Profits Sales and Profits Over the Product’s Life From Inception to Demise

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

Problems Using the PLC The PLC Concept Can Help in Developing Good Marketing Strategies for Different Stages of the Product Life-Cycle, However Some Problems Can Arise: 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 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; use cost-plus formula Distribution High distribution expenses Advertising Build product awareness among early adopters and dealers

Growth Stage of the PLC Sales Costs Profits Marketing Objectives Product Price Rapidly rising sales Average cost per customer Rising profits Maximize market share Offer new product features, extensions, service, and warranty Price to penetrate market Distribution Increase number of distribution outlets Advertising Build awareness and interest in the mass market

Maturity Stage of the PLC Sales Costs Profits Marketing Objectives Product Price Peak sales Low cost per customer High profits, then lower profits Maximize profits while defending market share Diversify brand and models Price to match or best competitors 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 Sales Costs Profits Marketing Objectives Product Price Declining sales Low cost per customer Declining profits Reduce expenditure and maintain, reposition, harvest or drop the product Phase out weak items Cut price Distribution Go selective: phase out unprofitable outlets Advertising Reduce to level needed to retain hard-core loyal customers

Exercise Close your books and forget the examples Get in groups Based on the characteristics of each stage in the PLC, think of four examples of products in each stage and defend your answer Judge

Product Examples Product Development Introduction Growth Maturity Decline