1.  Copyright 1999 Prentice Hall 9-1 Chapter 9 New Product Development and Product Life-Cycle Strategies PRINCIPLES OF MARKETING Eighth Edition Philip Kotler and Gary Armstrong

2.  Copyright 1999 Prentice Hall 9-2 New-Product Development Strategies Strategies for Obtaining New Product Ideas Original Products Original Products Product Improvements Product Improvements Product Modifications Product Modifications New Brands New Brands Acquired Companies Acquired Companies Acquired Patents Acquired Patents Acquired Licenses Acquired Licenses Strategies for Obtaining New Product Ideas

3.  Copyright 1999 Prentice Hall 9-3 Causes of New Product Failures Overestimation of Market Size Product Design Problems Product Incorrectly Positioned, Priced or Advertised Costs of Product Development Competitive Actions To create successful new products, the company must: – understand it’s customers, markets and competitors – develop products that deliver superior value to customers.

4.  Copyright 1999 Prentice Hall 9-4 New Product Development Process Idea Generation Idea Screening Concept Development and Testing Marketing Strategy Business Analysis Product Development Test Marketing Commercialization

5.  Copyright 1999 Prentice Hall 9-5 CUSTOMERSCUSTOMERS CUSTOMERSCUSTOMERS COMPETITORSCOMPETITORS COMPETITORSCOMPETITORS DISTRIBUTORSDISTRIBUTORS DISTRIBUTORSDISTRIBUTORS SUPPLIERSSUPPLIERS SUPPLIERSSUPPLIERS New Product Development Process Step 1. Idea Generation Idea Generation is the Systematic Search for New Product Ideas Obtained Internally and From:

6.  Copyright 1999 Prentice Hall 9-6 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. New Product Development Process Step 2. Idea Screening

7.  Copyright 1999 Prentice Hall 9-7 New Product Development Process Step 3. Concept Development & Testing 1. Develop Product Ideas into Alternative Product Concepts 1. Develop Product Ideas into Alternative Product Concepts 2. Concept Testing - Test the Product Concepts with Groups of Target Customers 2. Concept Testing - Test the Product Concepts with Groups of Target Customers 3. Choose the Best One

8.  Copyright 1999 Prentice Hall 9-8 New Product Development Process Step 4. Marketing Strategy Development Part Two Describes Short-Term: Product’s Planned Price Distribution Marketing Budget Part Two Describes Short-Term: Product’s Planned Price Distribution Marketing Budget Part Three Describes Long-Term: Sales & Profit Goals Marketing Mix Strategy Part Three Describes Long-Term: Sales & Profit Goals Marketing Mix Strategy Marketing Strategy Statement Formulation Part One Describes Overall: Target Market Planned Product Positioning Sales & Profit Goals Market Share Part One Describes Overall: Target Market Planned Product Positioning Sales & Profit Goals Market Share

9.  Copyright 1999 Prentice Hall 9-9 New Product Development Process Step 5. Business Analysis Step 6. Product Development New Product Development Process Step 5. Business Analysis Step 6. Product Development Business Analysis Review of Product Sales, Costs, and Profits Projections to See if They Meet Company Objectives Business Analysis Review of Product Sales, Costs, and Profits Projections to See if They Meet Company Objectives If Yes, Move to Product Development If Yes, Move to Product Development If No, Eliminate Product Concept If No, Eliminate Product Concept

10.  Copyright 1999 Prentice Hall 9-10 New Product Development Process Step 7. Test Marketing Standard Test Market Full marketing campaign in a small number of representative cities. Standard Test Market Full marketing campaign in a small number of representative cities. Simulated Test Market Test in a simulated shopping environment to a sample of consumers. Simulated Test Market Test in a simulated shopping environment to a sample of consumers. Controlled Test Market A few stores that have agreed to carry new products for a fee. Controlled Test Market A few stores that have agreed to carry new products for a fee.

11.  Copyright 1999 Prentice Hall 9-11 New Product Development Process Step 8. Commercialization When? Where? To Whom? To Whom? How? Commercialization is the Introduction of the New Product into the Marketplace.

12.  Copyright 1999 Prentice Hall 9-12 Speeding Up Development Step 1 Step 2 Step 3 Step 4 Step 1 Step 2 Step 3 Step 4 SequentialSimultaneous

13.  Copyright 1999 Prentice Hall 9-13 Product Life Cycle Time Product Develop- ment Introduction Profits Sales GrowthMaturityDecline Losses/ Investments ($) Sales and Profits ($) Sales and Profits Over the Product’s Life From Introduction to Decline

14.  Copyright 1999 Prentice Hall 9-14 Introduction Stage of the PLC Summary of Characteristics, Objectives, & Strategies Sales Costs Profits Marketing Objectives Product Price Low sales High cost per customer Negative Create product awareness and trial Create product awareness and trial Offer a basic product Use cost-plus Distribution Build selective distribution Advertising Build product awareness among early adopters and dealers

15.  Copyright 1999 Prentice Hall 9-15 Growth Stage of the PLC Summary of Characteristics, Objectives, & Strategies Sales Costs Profits Marketing Objectives Product Price Rapidly rising sales Average cost per customer Rising profits Maximize market share Offer product extensions, service, warranty Price to penetrate market Distribution Build intensive distribution Advertising Build awareness and interest in the mass market

16.  Copyright 1999 Prentice Hall 9-16 Maturity Stage of the PLC Summary of Characteristics, Objectives, & Strategies Sales Costs Profits Marketing Objectives Product Price Peak sales Low cost per customer High profits Maximize profit while defending market share Maximize profit 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

17.  Copyright 1999 Prentice Hall 9-17 Decline Stage of the PLC Summary of Characteristics, Objectives, & Strategies Sales Costs Profits Marketing Objectives Product Price Declining sales Low cost per customer Declining profits Reduce expenditure and milk the brand Phase out weak items Cut price Distribution Go selective: phase out unprofitable outlets Advertising Reduce to level needed to retain hard-core loyal customers Reduce to level needed to retain hard-core loyal customers