New Product Development and Product Life-Cycle Strategies

New Product Development New product development (NPD): the development of: Original products (“new-to-the world”), Product modifications Product category extensions Product line extensions through the firm’s own R&D efforts New products can also come from acquisition of other companies, patents, or licenses NPD is important to: Follow changing market demands Remain competitive Keep up to changing technology Replace dying products Diversify product offering to reduce risk

Consumers’ perspectives on Newness (Exhibit 10-1, page 255) Dynamically Continuous Innovation Major change Discontinuous Innovation Breakthrough Continuous Innovation Ongoing alteration 2

Did your mother make you drink milk when you were young Did your mother make you drink milk when you were young? Do you still drink it today? If you do not, what happened to make you stop? For many, a sign of maturity was when you could order something to drink other than milk at a restaurant. Sodas, water, juices, and just about any other liquid has had greater appeal for children for several decades. This may, however, be about to change if Mac Farms of Burlington, Vermont has anything to say about it. Responding to research efforts on what kids like to drink, Mac Farms has developed E-Moo. E-Moo is a carbonated, milk-based product that is designed to give a healthy alternative to sodas. E-Moo may just make it “cool” to drink milk. E-Moo is loaded with vitamins, low in cholesterol and sodium, and comes in three flavors—Orange Creamsicle, Bubble Gum, and Raspberry. Is this a drink for the children born to the Internet age?. What about P.B. Slices?

Stages in New Product Development Amount of investment Idea generation - Idea screening Business analysis Product development Stages in New Product Development Commercialization 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. + Figure 9-1

New Product Development at Gillette Founded in 1901, its success has been driven by new product innovation, to remain competitive Dominates razor and blade markets, but also competes in batteries, toiletries, cosmetics, stationery products, dental care, and electrical appliances Company-wide culture that supports innovation Investment in NPD is large, $1.5 billion on the Mach3 razor system, with 35 patents Company employees shave at work as part of new product testing Same attitude towards innovation applies to promotional efforts

Characteristics of Success Relative Advantage Compatibility with Existing Consumption Patterns Trialability – The Opportunity for Buyer Testing Observability – The Chance to See the Newness Simplicity of Usage http://arstechnica.com/hardware/news/2007/09/hd-dvd-and-blu-ray-deadlock-to-continue-into-2009-at-least.ars http://en.wikipedia.org/wiki/High_definition_optical_disc_format_war http://www.futureshop.ca/catalog/class.asp?logon=&langid=EN&catid=25320 Blu-Ray

see http://www.yoplait.com/products_gogurt.aspx Question #3. Yoplait’s recent entry in the highly competitive $2 billion a year yogurt market—a tubular yogurt called Go-Gurt—seems to be a hit with the lunchbox set. Why tubular yogurt? Children like yogurt but are not impressed with it. Some believe yogurt is “old people food.” Not so with Go-Gurt. With flavors like Chill-Out Cherry and Rad Raspberry, Go-Gurt can be eaten like regular yogurt, frozen like a frozen pop, or carried in a shirt pocket. see http://www.yoplait.com/products_gogurt.aspx Can this product be expanded to an adult market? Devise a plan for testing the product concept for 25 to 45 year-old adults. What factors would be critical to your test? What types of test subjects would you want for your test? As noted in the chapter, the first step to undertake would be to perform a concept test. See the questions posed in Table 9-1 for an example of questions (used for the electric car example found in the text). This could be the beginning point to design a concept test. Be specific at this stage. Could the concept be tested over the Internet (see New Directions 9-1)? Explain and show product concept. Ask participants: Do you understand the concept of portable, tubular yogurt? What do you believe are the benefits of tubular yogurt relative to conventional yogurt? What improvements in the Go-Gurt product would you suggest? In what circumstances might you prefer tubular yogurt to conventional yogurt packaging alternatives? What would be a reasonable price? Would you say you would definitely, probably, probably not or definitely not buy Go-Gurt? From understanding how the concept test might be done and why it is important to the eventual conclusions (market expansion), one should proceed to the more formal market test with the older adults. Again, refer to the reading notes in the text for direction. In this case, test marketing would prove critical. Talk to actual target market subjects to get a sense of the likelihood of acceptance. If this group will not accept the product, is it doomed to eventual failure? Why or why not? How should ads be changed to address the needs of this target market? Think of innovative ways to link this new product to success.

Why do new products fail? Insufficient superiority or uniqueness Inadequate/inferior planning Poor execution Technical problems Poor timing New products fail at a high rate. Why? Market size may have been overestimated Poor quality or design Incorrect positioning, pricing, or promotion Pushed despite poor market research findings Production costs higher than expected Greater than expected competition 21

New Product Adoption Processes Awareness Interest Evaluation Trial Adoption http://www.gizmocafe.com/tv-video/guide-blu-ray-pros.aspx 31

The diffusion process (EXHIBIT 10-7, PAGE 272)

Product Life-Cycle Strategies Profits Sales Development Introduction Growth Maturity Decline Profit ($) Loss Development – No customers, no profits, heavy spending. Introduction – Early adopter customers, no profits, high launch costs. Growth – Early majority customers, rapid sales growth and revenues. Maturity – Late majority customers, flat sales, declining profits. Decline – Laggard customers, declining sales, replaced by new products. Which product life-cycle stage do you think is the most important? Almost any stage may be deemed the most important, however, most agree that the introduction or growth stages are probably more critical to the success of a new product than the others. Which stage has the highest risk? The highest risk is also generally to be found in the introduction stage (because of the unknowns and the ability to have the market accept the product) and the growth stage (because of the intensity of the competition). Which stage seems to hold the greatest profit potential? The greatest profit seems to be found in the maturity phase though growth also is known to be profitable for most companies. Figure 9-2

Alternative PLC Curves Examples of fads? Chapter 9, page 361 Style a basic and distinctive mode of expression (e.g. formal clothing, Danish modern furniture). Once accepted, popularity will vary over time Fashion a popular style in a given field (e.g. business casual). Tend to go in cycles with generations Fad a fashion that enters quickly, is adopted quickly and declines fast (e.g. pet rocks). Tend to attract limited market Products that are novel and do not address basic needs

Summary of PLC/Marketing Mix

Maturity Stage Strategy Modify the market. Increase the consumption of the current product (eg. Baking soda, Bounce) Modify the product Changing characteristics such as quality, features or style to attract new users and to inspire more usage (eg. Tide, Crayola) Modify the marketing mix Improving sales by changing one or more marketing mix elements. Modify the market 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. Modify the product Improve durability, reliability, speed, taste. Improve styling and attractiveness. Add new features. Expand usefulness, safety, convenience. Modify the marketing mix Cut prices. Launch a better ad campaign. Move into larger market channels. Offer new or improved services to buyers