1. C HAPTER 8 New-Product Development and Product Life-Cycle Strategies

2. Copyright 2007, Prentice-Hall Inc.8-2  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. Roadmap: Previewing the Concepts

3. Copyright 2007, Prentice-Hall Inc.8-3 Firm History  Steve Jobs’s creativity led to innovation in user friendliness of computers.  LazerWriters and the Macintosh established Apple firmly in desktop publishing market.  Status as market share leader and innovator was lost in the late 1980s after Jobs left the firm. Firm Recovery  Steve Jobs returns in 1997 and revitalizes Apple by first launching the iMac.  The Mac OS X next breaks ground and acts as a launching pad for a new generation of computers and software products.  iPod and iTunes change the face of music and are the hit of the decade. APPLE COMPUTER – Innovation at Work

4. Copyright 2007, Prentice-Hall Inc.8-4  Strategies for obtaining new-product ideas: –Acquisition of companies, patents, licenses. –New product development, product improvements and modifications. New-Product Development Strategy

5. Copyright 2007, Prentice-Hall Inc.8-5 New-Product Failures  Only 10% of new consumer products are still on the market and profitable after 3 years.  Industrial products failure rate as high as 30%.  Why do products fail? –Overestimation of market size –Design problems –Incorrectly positioned, priced, or advertised –Pushed despite poor marketing research findings –Development costs –Competition

6. Copyright 2007, Prentice-Hall Inc.8-6 Figure 8-1 Major Stages in New-Product Development Process

7. Copyright 2007, Prentice-Hall Inc.8-7 Idea Generation  Internal sources: –Company employees at all levels  External sources: –Customers –Competitors –Distributors –Suppliers –Outsourcing

8. Copyright 2007, Prentice-Hall Inc.8-8 Generating New Product Ideas The Industrial Scientific Corporation uses its Web site to solicit new product ideas from customers or other visitors. Visit the Web site to see what information is solicited. Marketing in Action http://www.indsci.co m/sup_NewProd.asp

9. Copyright 2007, Prentice-Hall Inc.8-9 Idea Screening  Process used to spot good ideas and drop poor ones. –Executives provide a description of the product along with estimates of market size, product price, development time and costs, manufacturing costs, and rate of return. –Evaluated against a set of company criteria for new products.

10. Copyright 2007, Prentice-Hall Inc.8-10  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. Concept Development and Testing

11. Copyright 2007, Prentice-Hall Inc.8-11 Concept Testing The Concept Board is a consulting firm that assists clients such as Mott’s, Citibank, HBO, IBM, Post, and others in verbalizing / visualizing product concepts for consumer testing. Marketing in Action http://theconceptboard. com/index.html

12. Copyright 2007, Prentice-Hall Inc.8-12 Pair up with another student and assume that you are in charge of the concept testing for the product shown at right. What questions would you ask of consumers who are evaluating this product concept? Let’s Talk!

13. Copyright 2007, Prentice-Hall Inc.8-13  Part One (Marketing Strategy Statement): –Describes the target market, planned product positions, sales, market share, and profit goals.  Part Two: –Outlines the product’s planned price, distribution, and marketing budget.  Part Three: –Describes the long-run sales and profit goals, marketing mix strategy. Marketing Strategy Development

14. Copyright 2007, Prentice-Hall Inc.8-14 Marketing Strategy Statement for Daimler Fuel-Cell=Powered Car The target market is younger, well-educated, moderate-to-high-income individuals, couples, or small families seeking practical, environmentally responsible transportation. The car will be positioned as more economical to operate, more fun to drive, and less polluting than today’s internal combustion engine or hybrid cars. It is also less restricting than batter- powered electric cars, which must be recharged regularly. The company will aim to sell 100,000 cars in the first year, at a loss of not more than $15 million. In the second year, the company will aim for sales of 120,000 cars and a profit of $25 million. Marketing in Action

15. Copyright 2007, Prentice-Hall Inc.8-15  Involves a review of the sales, costs, and profit projections to assess fit with company objectives.  If results are positive, project moves to the product development phase. Business Analysis

16. Copyright 2007, Prentice-Hall Inc.8-16  Develop concept into physical product.  Calls for large jump in investment.  Prototypes are made.  Prototype must have correct physical features & convey psychological characteristics. Product Development eGo bikes developed prototypes which were subjected to extensive product testing by consumers. Video Snippet

17. Copyright 2007, Prentice-Hall Inc.8-17 Test Marketing  Product / marketing program introduced in more realistic market setting.  Not for all products.  Can be expensive and time consuming, but better than making a major marketing mistake. 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.

18. Copyright 2007, Prentice-Hall Inc.8-18  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. Commercialization

19. Copyright 2007, Prentice-Hall Inc.8-19  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. Organizing New-Product Development

20. Copyright 2007, Prentice-Hall Inc.8-20 Figure 8-2 Sales and Profit over the Product’s Life from Inception to Decline

21. Copyright 2007, Prentice-Hall Inc.8-21  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) Product Life-Cycle Applications

22. Copyright 2007, Prentice-Hall Inc.8-22 Figure 8-3 Styles, Fashions, Fads

23. Copyright 2007, Prentice-Hall Inc.8-23  Hard to identify which stage of the PLC the product is in.  Hard to pinpoint when the product moves to the 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. Practical Problems of PLC

24. Copyright 2007, Prentice-Hall Inc.8-24  Sales: low  Costs: high cost per customer  Profits: negative  Marketing Objective: create product awareness and trial  Product: offer a basic product  Price: use cost-plus formula  Distribution: build selective distribution  Promotion: heavy to entice product trial Introduction Stage of PLC

25. Copyright 2007, Prentice-Hall Inc.8-25  Sales: rapidly rising  Costs: average cost per customer  Profits: rising  Marketing Objective: maximize market share  Product: offer extension, service, warranty  Price: penetration strategy  Distribution: build intensive distribution  Promotion: reduce to take advantage of demand Growth Stage of PLC

26. Copyright 2007, Prentice-Hall Inc.8-26  Sales: peak  Costs: low cost per customer  Profits: high  Marketing Objective: maximize profits while defending market share  Product: diversify brand and models  Price: match or beat competitors  Distribution: build more intensive distribution  Promotion: increase to encourage brand switching Maturity Stage of PLC

27. Copyright 2007, Prentice-Hall Inc.8-27  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. Maturity Stage of PLC

28. Copyright 2007, Prentice-Hall Inc.8-28 Modifying the Market WD-40 invites visitors to its Web site to join the fan club. Fan club members can access a list of 2,000 uses for WD-40, and are invited to share their own stories. Marketing in Action http://fanclub.wd40.com /login_home.cfm

29. Copyright 2007, Prentice-Hall Inc.8-29  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. Maturity Stage of PLC

30. Copyright 2007, Prentice-Hall Inc.8-30 Modifying the Product Gillette’s Fusion razor combines a precision trimmer blade (on back) with a five blade shaving surface (on front). The flexible comfort guard and Enhanced Indicator Lubrastrip (containing vitamin E and aloe) enhance shaving comfort. Marketing in Action http://www.gillette.com/ homepage.asp

31. Copyright 2007, Prentice-Hall Inc.8-31 Maturity Stage of PLC  Modifying the Marketing Mix: –Improving sales by changing one or more marketing mix elements.  How? –One method is to launch aggressive sales promotion programs, such as rebates.

32. Copyright 2007, Prentice-Hall Inc.8-32  Modifying the Marketing Mix, cont.: –Improving sales by changing one or more marketing mix elements.  How Else Can This Be Accomplished? –Cutting prices. –Launching a better ad campaign. –Moving into larger market channels, including mass merchandisers. –Offering new or improved services to buyers. Maturity Stage of PLC

33. Copyright 2007, Prentice-Hall Inc.8-33  Sales: declining  Costs: low cost per customer  Profits: declining  Marketing Objective: reduce expenditures and milk the brand  Product: phase out weak items  Price: cut price  Distribution: selective--phase out unprofitable outlets  Promotion: reduce to minimal level Decline Stage of PLC

34. Copyright 2007, Prentice-Hall Inc.8-34  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. Rest Area: Reviewing the Concepts