Chapter 1 New-Product Development and Product Life-Cycle Strategies 8 New-Product Development and Product Life-Cycle Strategies

ROAD MAP: Previewing the Concepts Chapter 1 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. Describe how marketing strategies change during the product’s life cycle.

New-Product Development Strategy Chapter 1 New-Product Development Strategy Strategies for Obtaining New-Product Ideas Acquisition of: Companies Patents Licenses New Products: Original Products Improvements Modifications

Chapter 1 New-Product Failures 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%. Why? Overestimation of market size Design problems Incorrectly positioned, priced, or advertised Pushed despite poor marketing research findings Development costs Competition

Major Stages in New-Product Development Chapter 1 Major Stages in New-Product Development

Idea Generation Company Employees Customers Competitors Distributors Chapter 1 Idea Generation Competitors Distributors Suppliers

Chapter 1 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.

Idea Screening Process to spot good ideas and drop poor ones. Chapter 1 Idea Screening 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. Evaluate these findings against set of company criteria for new products.

Concept Development and Testing Chapter 1 Concept Development and Testing 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 Image: the way consumers perceive an actual or potential product.

DiamlerChrysler’s Fuel-Cell-Powered Electric Car Chapter 1 DiamlerChrysler’s Fuel-Cell-Powered 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.

Interactive Student Assignment Chapter 1 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.

Marketing Strategy Development Part One Describes: The Target Market Planned Product Positioning Sales, Market Share, & Profit Goals Chapter 1 Marketing Strategy Development 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

Chapter 1 Business Analysis Involves a review of the sales, costs, and profit projections to assess fit with company objectives. If yes, move to the product development phase.

Product Development Develop concept into physical product Chapter 1 Product Development Develop concept into physical product Calls for large jump in investment Prototypes are made Prototype must have correct physical features and convey psychological characteristics

Click the picture above to play video Chapter 1 Product Development Dunkin’ Donuts takes its product development process very seriously in order to meet consumers’ needs. Click the picture above to play video

Chapter 1 Test Marketing Product and program introduced in more realistic market setting. Not needed for all products. Can be expensive and time consuming, but better than making major marketing mistake.

Chapter 1 Test Marketing Nokia test-marketed its new N-Gage cell phone/mobile game player extensively before introducing it worldwide.

Chapter 1 Commercialization 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 develop a market rollout plan.

The Fiesta Story 1972 . . . Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall

The Fiesta Story 2010. . . Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall

Organizing New-Product Development Chapter 1 Organizing New-Product Development 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.

Sales and Profits Over the Product’s Lifetime Chapter 1 Product Life Cycle Sales and Profits ($) Sales Profits Time Product Develop- ment Introduction Growth Maturity Decline 1). The product development stage begins when the company finds and develops a new product idea. During product development, sales are zero and the company’s investment costs mount. This is a pre-stage. 2). The introduction stage is a period of slow sales growth as the product is being introduced in the market. Profits are nonexistent in this stage because of heavy expenses of product introduction. 3). The growth stage is a period of rapid market acceptance and increasing profits. 4). The maturity stage is a period of slowdown in sales growth because the product has achieved acceptance by most potential buyers. Profits level off or decline because of increased marketing outlays to defend the product against competition. 5). The decline stage is the period when sales fall off and profits drop. Losses/ Investments ($) Sales and Profits Over the Product’s Lifetime

Product Life Cycle Applications Chapter 1 Product Life Cycle Applications 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) 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) 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)

Alternative PLC Shapes Chapter 1 Alternative PLC Shapes

Product life cycle for the stand-alone fax machine for business use: 1970–2006 Slide 11-8

Practical Problems of PLC Chapter 1 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

Introduction Stage of the PLC Chapter 1 Introduction Stage of the PLC Summary of Characteristics, Objectives, & Strategies 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

Chapter 1 Growth Stage of the PLC Summary of Characteristics, Objectives, & Strategies 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

Maturity Stage of the PLC Chapter 1 Maturity Stage of the PLC Summary of Characteristics, Objectives, & Strategies 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

Maturity Stage of the PLC Chapter 1 Maturity Stage of the PLC Modifying the Market: Increase the consumption of the current product. 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

Chapter 1 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. www.wd40.com

Maturity Stage of the PLC Chapter 1 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. How? Improve durability, reliability, speed, taste Improve styling and attractiveness Add new features Expand usefulness, safety, convenience

Crayola has added a steady stream of new colors, forms, and packages Chapter 1 Modifying the Product http://www.crayola.com Crayola has added a steady stream of new colors, forms, and packages

Maturity Stage of the PLC Chapter 1 Maturity Stage of the PLC Modifying the Marketing Mix: Improving sales by changing one or more marketing mix elements. How? Cut prices Launch a better ad campaign Move into larger market channels Offer new or improved services to buyers

Modifying the Marketing Mix Chapter 1 Modifying the Marketing Mix New ads and promotions to reposition and revitalize mature product.

Decline Stage of the PLC Chapter 1 Decline Stage of the PLC Summary of Characteristics, Objectives, & Strategies Sales Costs Profits Marketing Objectives Product Price Declining Low cost per customer Reduce expenditures and milk the brand Phase out weak items Cut price Distribution Selective: phase out unprofitable outlets Promotion Reduce to minimum level

Rest Stop: Reviewing the Concepts Chapter 1 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.

Q: If you were designing a new product, which properties of the product would you consider first? 1. Styling 2. Features 3. Price AK, 7e – Chapter 8

Q: You turn your new line of soda called ZING Q: You turn your new line of soda called ZING! over to a marketing research firm that stocks the product in a group of New York grocery stores and then gathers data about consumers’ reactions to the product and its promotions. The firm is employing a: 1. controlled test market.  2. standard test market.  3. simulated test market.  4. virtual test market. AK, 7e – Chapter 8

Q: Because your test consumers love being wired on ZING Q: Because your test consumers love being wired on ZING!, your firm decides to take a chance on introducing the drink simultaneously in the United States, Western Europe, Japan, and South Korea. The firm is planning a: 1. market rollout.  2. regional rollout.  3. strategic rollout.  4. global rollout. AK, 7e – Chapter 8

Q: If a product concept survives the business test, it moves into: 1. concept testing.  2. market testing.  3. market development.  4. product development. AK, 7e – Chapter 8

Q: Your digital camera gradually gains popularity and seems to have settled into a long maturity, yet you must introduce your camera to new segments of the international market in order to keep sales healthy . In other words, you must: a.modify the product.  b.modify the market.  c.modify the marketing mix.  d.modify the promotion budget. AK, 7e – Chapter 8