1. New Product Development & Product Life Cycles

2. New Product Development Strategy
How do companies develop and market new products?
Come up with own ideas.
Brand new products
Product improvements & modifications
Acquire companies, patents, licenses.

3. New-Product Failures
Only 10% of new consumer products succeed in the long run.
Why do most products fail?
Don’t fulfill a real need or want
Overestimation of market size
Design problems that compromise functionality
Incorrectly positioned, priced or promoted (4 Ps)
Pushed despite poor marketing research findings
Development costs go over budget
Competitive response (usually unanticipated)

4. Major Stages in New-Product Development Process

5. Where do ideas come from?
Idea Generation
Where do ideas come from?
Internal sources:
Company employees at all levels: “Intrapraneuring”
External sources:
Customers
Competitors
Distributors
Suppliers
Outsourcing partners

6. Idea Screening Keep the good ideas and drop the poor ones.
Often highly subjective and non-scientific.
Strategic fit with core competencies and product expertise.
“Back-of-the-envelope” market size estimates

7. Concept Development and Testing
Develop a working description and visualization of the product idea and concept.
Test ideas with real consumers.
The Concept Board helps companies verbalize and visualize product concepts for consumer testing.

8. Business Analysis Assess economic viability of the concept.
Potential Metrics:
Sales
Contribution (Profit)
NPV, IRR, ROI
ROMI
Project must clear financial hurdles to move to the product development phase.

9. Product Development Develop concept into physical product prototype.
Large jump in investment – “point of no return”.
Test and refine prototype until product passes consumer and legal scrutiny.

10. Test Marketing
Product / marketing program introduced in limited # of real market settings.
Avoids “broad launch” mistakes.
Competitive Retaliation problems
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.

11. Commercialization
Broad launch of product if market test results are positive. “Greenlighting”
Timing of launch is important.
Potential Rollout plans
Local
Regional
National
International
“Wider Test Market” – more scattered sample

12. The Product Life Cycle

13. Product Life-Cycle Lengths
Product need - longest life cycle (e.g., “phone”)
Product form - standard PLC shape (e.g., landline telephone)
Brand – shorter PLC cycles due to competitive attacks and wearout (e.g., T-Mobile, Nokia, Sprint)
Styles and Fashions – very short life cycles (different phone designs)
Fad - fashion with quick adoption, quick decline (e.g., pet rocks) and backlash
The trend towards shorter Product Life Cycles

14. Introduction Stage of PLC
Sales: low
Costs: high cost per customer
Profits: negative
Marketing Objective: create product awareness and trial
Product: offer a basic “core” product
Price: based primarily on cost
Distribution: build selective distribution
Promotion: heavy to entice product trial

15. Growth Stage of PLC Sales: rapidly rising
Costs: average cost per customer
Profits: rising
Marketing Objective: maximize market share
Product: offer peripheral benefits, i.e. service, warranty, packages
Price: penetration strategy
Distribution: start building intensive distribution
Promotion: reduce since demand is naturally growing

16. Maturity Stage of PLC Sales: reach their peak
Costs: lowest cost per customer
Profits: highest ever
Marketing Objective: “defend” high profits and market share
Product: diversify brand and models
Price: match or beat competitors
Distribution: continue building intensive distribution
Promotion: increase to encourage brand switching

17. Maturity Stage of PLC Keeping Consumption High How?
Find new users or new market segments. (McDonald’s goes global)
Reposition the brand to appeal to a different segment. (“Not your father’s Oldsmobile”)
Look for ways to increase or revive usage among present customers. (Arm & Hammer)
Improve/Modify the product (Gilette)
New Ad Campaign (Coke, Pepsi, McDonald’s)
Discounting Price

18. Maturity Stage of PLC
Arm & Hammer gives consumers another use for Baking Soda and avoids decline.

19. Modifying the Product
Gillette: Has mastered the art of improving product.
Fusion razor:
precision trimmer blade
five blade shaving surface flexible comfort guard
Enhanced Indicator Lubrastrip (contains vitamin E and aloe)

20. Decline Stage of PLC Sales: declining
Costs: lower (but not lowest) cost per customer
Profits: declining
Marketing Objective: reduce expenditures and “milk” the brand for residual sales
Product: phase out weak items
Price: cut price or raise price
Distribution: selective - phase out unprofitable outlets
Promotion: reduce to “survival” level

21. Question du Jour
Is the PLC for real?