1. Copyright © 2008 Pearson Education CanadaPrinciples of Marketing, Seventh Canadian Edition Chapter 10 New-Product Development and Life-Cycle Strategies

2. Copyright © 2008 Pearson Education CanadaPrinciples of Marketing, Seventh Canadian Edition 10-2 Learning Goals 1.Explain how companies find and develop new-product ideas 2.List and define the steps in the new- product development process 3.Describe the stages of the product life cycle 4.Describe how marketing strategies change during the product’s life cycle

3. Copyright © 2008 Pearson Education CanadaPrinciples of Marketing, Seventh Canadian Edition 10-3 Focus on Innovation –Names its culture of continuous innovation “renewal” –Organizes into autonomous units, which helps foster innovation –Large R&D budget of $3 billion with 40% of employees involved in R&D Corporate Results –Annual sales of $36 billion across 130 countries –Global market share of 38%, greater than that of its nearest three rivals combined Case Study Nokia

4. Copyright © 2008 Pearson Education CanadaPrinciples of Marketing, Seventh Canadian Edition 10-4 Learning Goals 1.Explain how companies find and develop new-product ideas 2.List and define the steps in the new- product development process 3.Describe the stages of the product life cycle 4.Describe how marketing strategies change during the product’s life cycle

5. Copyright © 2008 Pearson Education CanadaPrinciples of Marketing, Seventh Canadian Edition 10-5 New-Product Development Strategy New Product Development –The development of original products, product improvements, product modifications, and new brands through the firm’s own R&D efforts.

6. Copyright © 2008 Pearson Education CanadaPrinciples of Marketing, Seventh Canadian Edition 10-6 New-Product Development Strategy New products can be obtained via acquisition or development. New products suffer from high failure rates. Several reasons account for failure.

7. Copyright © 2008 Pearson Education CanadaPrinciples of Marketing, Seventh Canadian Edition 10-7 Discussion Question Think of products you have seen recently in stores. Can you think of any that seem doomed to fail? Why???

8. Copyright © 2008 Pearson Education CanadaPrinciples of Marketing, Seventh Canadian Edition 10-8 Learning Goals 1.Explain how companies find and develop new-product ideas 2.List and define the steps in the new- product development process 3.Describe the stages of the product life cycle 4.Describe how marketing strategies change during the product’s life cycle

9. Copyright © 2008 Pearson Education CanadaPrinciples of Marketing, Seventh Canadian Edition 10-9 Stage 1: Idea Generation –The systematic search for new product ideas –Internal sources: brainstorming, employees from all departments, R & D –External sources: customers, competitors, distributors, suppliers, and others Stages of the New Product Development Process

10. Copyright © 2008 Pearson Education CanadaPrinciples of Marketing, Seventh Canadian Edition 10-10 Stages of the New Product Development Process Stage 2: Idea Screening –The purpose is to identify good ideas and drop poor ones to avoid spending any more money on developing them –Criteria used: Usefulness to consumers Good fit with company objectives and strategies Have the resources Add value

11. Copyright © 2008 Pearson Education CanadaPrinciples of Marketing, Seventh Canadian Edition 10-11 Stages of the New Product Development Process Stage 3: Concept Development and Testing –Concept development creates a detailed version of the idea stated in meaningful consumer terms. –Concept testing asks target consumers to evaluate product concepts.

12. Copyright © 2008 Pearson Education CanadaPrinciples of Marketing, Seventh Canadian Edition 10-12 Stages of the New Product Development Process Stage 4: Marketing Strategy Development 1 st statement describes the target market, product positioning, and sales, share, and profit goals for the first few years. 2 nd statement outlines the product’s price, distribution, and marketing budget for the first year. 3 rd statement describes the long-run sales and profit goals, and the marketing mix strategy.

13. Copyright © 2008 Pearson Education CanadaPrinciples of Marketing, Seventh Canadian Edition 10-13 Stages of the New Product Development Process Stage 5: Business Analysis –Review of the sales, costs, and profit projections for a new product to determine if they will satisfy company objectives Stage 6: Product Development –Developing the product concept into a physical product to ensure that it can be done Requires large investment Building a prototype Testing for safety, durability, and acceptability

14. Copyright © 2008 Pearson Education CanadaPrinciples of Marketing, Seventh Canadian Edition 10-14 Stages of the New Product Development Process Stage 7: Test Marketing, testing the product and marketing program in more realistic market settings: –To determine the target market profile –Assess consumer acceptability, trial, repeat purchase rate –Evaluate trade reception and distribution penetration –Design effective media plans Standard test markets Controlled test markets Simulated test markets Stage 8: Commercialization

15. Copyright © 2008 Pearson Education CanadaPrinciples of Marketing, Seventh Canadian Edition 10-15 Stages of the New Product Development Process Stage 8: Commercialization, introducing a new product into the market –Large investment required –Need to decide on introduction timing and scale of event –Market rollout or full-scale introduction

16. Copyright © 2008 Pearson Education CanadaPrinciples of Marketing, Seventh Canadian Edition 10-16 Online Test Marketing Is It in the Near Future? Levi and Nike have partnered with There for market research data. Levi’s has found that jeans and jean jacket buyers were more likely to be virtual club-goers. They can also track how long people wear a certain jean or jacket in their virtual world. Discussion Question: Do you believe the Internet can supply valuable test marketing data? ??

17. Copyright © 2008 Pearson Education CanadaPrinciples of Marketing, Seventh Canadian Edition 10-17 Organizing for New-Product Development Sequential product development: working on one piece of the new product at a time Simultaneous (team-based) product development: developing multiple pieces of the product at the same time; today’s method due to distributed computing

18. Copyright © 2008 Pearson Education CanadaPrinciples of Marketing, Seventh Canadian Edition 10-18 Learning Goals 1.Explain how companies find and develop new-product ideas 2.List and define the steps in the new- product development process 3.Describe the stages of the product life cycle 4.Describe how marketing strategies change during the product’s life cycle

19. Copyright © 2008 Pearson Education CanadaPrinciples of Marketing, Seventh Canadian Edition 10-19 Stages of the PLC Introduction Growth Maturity Decline

20. Copyright © 2008 Pearson Education CanadaPrinciples of Marketing, Seventh Canadian Edition 10-20 Product Life-Cycle Strategies The product life cycle concept can be applied to a: –Product class (soft drinks) –Product form (diet colas) –Brand (Diet Dr. Pepper) Using the PLC to forecast brand performance or to develop marketing strategies is problematic

21. Copyright © 2008 Pearson Education CanadaPrinciples of Marketing, Seventh Canadian Edition 10-21 Learning Goals 1.Explain how companies find and develop new-product ideas 2.List and define the steps in the new- product development process 3.Describe the stages of the product life cycle 4.Describe how marketing strategies change during the product’s life cycle

22. Copyright © 2008 Pearson Education CanadaPrinciples of Marketing, Seventh Canadian Edition 10-22 Product Life-Cycle Strategies Introduction Stage –Sales start at zero and begin to climb slowly; profits continue to decline due to costs of launching the product –The main promotional goal is to make a big noise to attract attention and to educate buyers about the new product concept –Market pioneers take the most risk but may reap the biggest rewards, eg. Chrysler minivan –Few product variants, no competition to speak of –Pricing strategy: skimming or penetration –Distribution: not all outlets covered as some may not want the risk Growth Stage –Sales of the new product begin to climb quickly as awareness within the target market(s) builds –Profits may become positive as development and launch costs are recovered and the company achieves economies of scale –Competition notices and rushes their versions into production –Product quality can be improved, extra features and versions developed to sustain growth and differentiate from competition –Distribution increases as the product becomes more known –Pressure on pricing as competition increases

23. Copyright © 2008 Pearson Education CanadaPrinciples of Marketing, Seventh Canadian Edition 10-23 Product – Offer a basic product Price – Use cost-plus basis to set Distribution – Build selective distribution Advertising – Build awareness among early adopters and dealers/resellers Sales Promotion – Heavy expenditures to create trial Marketing Strategies: Introduction Stage

24. Copyright © 2008 Pearson Education CanadaPrinciples of Marketing, Seventh Canadian Edition 10-24 Product – Offer product extensions, service, warranty Price – Penetration pricing Distribution – Build intensive distribution Advertising – Build awareness and interest in the mass market Sales Promotion – Reduce expenditures to take advantage of consumer demand Marketing Strategies: Growth Stage

25. Copyright © 2008 Pearson Education CanadaPrinciples of Marketing, Seventh Canadian Edition 10-25 Product Life-Cycle Strategies Maturity Stage –Sales of the new product continue to climb and then peak as the majority of the target market(s) have tried the product –Profits continue to grow and stay positive throughout –Competition is most intense at this stage; many versions and brands –Strategies to prolong this stage: Modify the market Modify the product Modify the marketing mix Decline –Sales of the new product drop quickly as the target market(s) move on to other things –Profits decline as competitive pressures force lower prices and increased promotional spending to maintain share –Competition has declined as weaker brands have left the market –Decisions about the product Maintain spending levels to fight it out for what is left Harvest by cutting spending and riding it out Drop the product and move on to the next thing

26. Copyright © 2008 Pearson Education CanadaPrinciples of Marketing, Seventh Canadian Edition 10-26 Discussion How can marketers help products bounce back from the decline stage???

27. Copyright © 2008 Pearson Education CanadaPrinciples of Marketing, Seventh Canadian Edition 10-27 Learning Goals 1.Explain how companies find and develop new-product ideas 2.List and define the steps in the new- product development process 3.Describe the stages of the product life cycle 4.Describe how marketing strategies change during the product’s life cycle