1. New-Product Development and Product Life-Cycle Strategies
Chapter Nine
New-Product Development and Product Life-Cycle Strategies

2. New-Product Development and Product Life-Cycle Strategies
Topic Outline
New-Product Development Strategy
New-Product Development Process
Managing New-Product Development
Product Life-Cycle Strategies
Additional Product and Service Considerations

3. New-Product Development Strategy
Two ways to obtain new products
Acquisition refers to the buying of a whole company, a patent, or a license to produce someone else’s product New product development refers to original products, product improvements, product modifications, and new brands developed from the firm’s own research and development efforts
Note to Instructor
New products are important—to both customers and the marketers who serve them. For companies, new products are a key source of growth. For customers, they bring new solutions and variety to their lives. Yet, innovation can be very expensive and very risky. New products face tough odds. According to one estimate, 90 percent of all new products in America fail. Each year, companies lose an estimated $20 billion to $30 billion on failed food products alone.

4. New-Product Development Reasons for new product failure
Overestimation of market size
Poor design
Incorrect positioning
Wrong timing
Priced too high
Ineffective promotion
Management influence
High development costs
Competition
Note to Instructor
If you are running a marketing plan project in your class, this is a good time to ask why their project ideas might fail in the real market. You can then ask what they plan to do to prevent failure.

5. New-Product Development Process
Major Stages in New-Product Development

6. New-Product Development Process
Idea Generation
Idea generation is the systematic search for new-product ideas
Sources of new-product ideas
Internal
External
Ex. IBM recently held an
“Innovation Jam”
Generated46,000 ideas,Of which IBM planned to develop only 10
Note to Instructor
Discussion Question
In groups of four come up with one ideas for a new products.
It might be helpful if you assign each group a category including kitchen products, office supplies, laptop accessories, dessert products, bathroom accessories, children’s toys, baby products, etc. Students will realize this is very difficult.

7. New-Product Development Process
Idea Generation
Internal sources refer to the company’s own formal research and development, management and staff, and intrapreneurial programs External sources refer to sources outside the company such as customers, competitors, distributors, suppliers, and outside design firms
Note to Instructor
It is not difficult to find examples of companies that are running contests where they ask consumers to send in ideas for new products. Dorito’s recently asked consumers to come up with a new flavor and new advertising. The Classic Mini Cooper brand was running Mini Mania’s the “Awesome New Product” Idea Contest. The grand prize winner received a 25 percent off promo code! Two second place winners will receive 15 percent off promo codes.

8. New-Product Development Process
Idea Screening
Identify good ideas and drop poor ideas
R-W-W ( real, win, worth it )Screening Framework:
Is it real?
Can we win?
Is it worth doing?
The company should be able to answer yes to all the questions before developing the new product idea further

9. New-Product Development Process
Concept Development and Testing
Product idea is an idea for a possible product that the company can see itself offering to the market Product concept is a detailed version of the idea stated in meaningful consumer terms Product image is the way consumers perceive an actual or potential product

10. New-Product Development Process
Concept Development and Testing
Concept testing refers to testing new-product concepts with groups of target consumers
Note to Instructor
This Web link ties to a concept testing survey at Questionpro. It is helpful to point out to students that there are many online Web survey sites, which offer free surveys for market research. In this example, they supply a template for concept testing.

11. New-Product Development Process
Marketing Strategy Development
Marketing strategy development refers to the initial marketing strategy for introducing the product to the market
Marketing strategy statement includes:
Description of the target market
Value proposition( the product planned price, distribution and marketing budget for the year
Sales and profit goals

12. New-Product Development Process
Marketing Strategy Development
Business analysis involves a review of the sales, costs, and profit projections to find out whether they satisfy the company’s objectives _ if they do , the product can move to the product development stage

13. New-Product Development Process
Marketing Strategy Development
Product development involves the creation and testing of one or more physical versions by the R&D or engineering departments
Requires an increase in investment
Ex. Gillette uses employee-volunteers to test new shaving products.
Note to Instructor
Many companies use their employees for product testing. Students might have worked at various consumer packaged goods companies, perhaps Quaker Oats, where they had to test cereal every day at lunch.
The text gives the example:
At Gillette, almost everyone gets involved in new-product testing. Every working day at Gillette, 200 volunteers from various departments come to work unshaven, troop to the second floor of the company’s gritty South Boston plant, and enter small booths with a sink and mirror. There they take instructions from technicians on the other side of a small window as to which razor, shaving cream, or aftershave to use. The volunteers evaluate razors for sharpness of blade, smoothness of glide, and ease of handling. In a nearby shower room, women perform the same ritual on their legs, underarms, and what the company delicately refers to as the “bikini area.” “We bleed so you’ll get a good shave at home,” says one Gillette employee.

14. New-Product Development Process
Marketing Strategy Development
Test marketing is the stage at which the product and marketing program are introduced into more realistic marketing settings
Provides the marketer with experience in testing the product and entire marketing program before full introduction

15. New-Product Development Process
Marketing Strategy Development
For example : KFC test marketed its new kentucky grilled chicken product for three years before rolling it out widely. Says the chain’s president, “ we had to get it right “
Note to Instructor
Here is a list of the top 10 test markets
1. ALBANY—SCHENECTADY—TROY, NY
2. ROCHESTER, NY
3. GREENSBORO—WINSTON—SALEM—-HIGH POINT, NC
4. BIRMINGHAM, AL
5. SYRACUSE, NY
6. CHARLOTTE—GASTONIA—ROCK HILL, NC/SC
7. NASHVILLE, TN
8. EUGENE—SPRINGFIELD, OR
9. WICHITA, KS
10. RICHMOND—PETERSBURG, VA
Source: Acxiom Corp., June 2004

16. New-Product Development Process
Types of Test Markets
Standard test markets
Controlled test markets
Simulated test markets
Note to Instructor
Standard test markets are small representative markets where the firm conducts a full marketing campaign and uses store audits, consumer and distributor surveys, and other measures to gauge product performance. Results are used to forecast national sales and profits, discover product problems, and fine-tune the marketing program.
Controlled test markets are panels of stores that have agreed to carry new products for a fee. In general they are less expensive than standard test market, faster than standard test markets, but competitors gain access to the new product.
Simulated test markets are events where the firm will create a shopping environment and note how many consumers buy the new product and competing products. Provides measure of trial and the effectiveness of promotion. Researchers can interview consumers.

17. New-Product Development Process
Types of Test Markets
Standard test markets are small representative markets where the firm conducts a full marketing campaign and uses store audits, consumer and distributor surveys, and other measures to gauge product performance. Results are used to forecast national sales and profits, discover product problems, and fine-tune the marketing program.
Controlled test markets are panels of stores that have agreed to carry new products for a fee. In general they are less expensive than standard test market, faster than standard test markets, but competitors gain access to the new product.

18. New-Product Development Process
Types of Test Markets
Simulated test markets are events where the firm will create a shopping environment and note how many consumers buy the new product and competing products. Provides measure of trial and the effectiveness of promotion. Researchers can interview consumers

19. New-Product Development Process
Marketing Strategy Development
Advantages of simulated test markets
Less expensive than other test methods
Faster
Restricts access by competitors
Disadvantages
Not considered as reliable and accurate due to the controlled setting

20. New-Product Development Process
Marketing Strategy Development
When firms test market
New product with large investment
Uncertainty about product or marketing program
When firms may not test market
Simple line extension
Copy of competitor product
Low costs
Management confidence
Note to Instructor
This Web link takes you to Decision Insight—a company involved with online market testing. You can click at many examples they offer of clients as well as their virtual shopping testing products.

21. New-Product Development Process
Marketing Strategy Development
Commercialization is the introduction
of the new product into the market
When to launch “ Timing”
Where to launch” Location”
Planned market
rollout over time.

22. New-Product Development Process
Marketing Strategy Development
An example of the commercialization when Microsoft recently did this with windows Vista operating system. Microsoft used the advertising to lunch Vista in more than 30 markets worldwide.

23. Managing New-Product Development
Successful new-product development should be:
Customer centered
Team centered
Systematic

24. Managing New-Product Development
New-Product Development Strategies
Customer-centered new product development focuses on finding new ways to solve customer problems and create more customer satisfying experiences
Begins and ends with solving customer problems

25. Customer-centered new product development
An example of this when engineers and marketers from Black & Decker’s division, the division that makes power tools used by professional contractors, spend a great deal of time at job sites , generating ideas by talking to the end users. Then once prototypes of new products have been completed, those same people take them to the same job sites, leave the tools , and come back a week or so later to collect information on how they perform.

26. Managing New-Product Development
New-Product Development Strategies
Sequential new-product development is a development approach where company departments work closely together individually to complete each stage of the process before passing it along to the next department or stage
Increased control in risky or complex projects
Slow

27. Managing New-Product Development
New-Product Development Strategies
Team-based new-product development is a development approach where company departments work closely together in cross-functional teams, overlapping in the product-development process to save time and increase effectiveness _ creates more organizational tension and confusion than the more orderly sequential approach.

28. Managing New-Product Development
New-Product Development Strategies
Systematic new-product development is an innovative development approach that collects, reviews, evaluates, and manages new-product ideas
Creates an innovation-oriented culture
Yields a large number of new-product ideas
Ex. Google is both successful & wildly innovative. At Google, innovation is more than just a process. Its in the air , in the spirit of the place

29. Product life cycle
The course of a product’s sales and profits over its lifetime. It involves five distinct stages: product development , introduction, growth , maturity and decline.

30. Product Life-Cycle Strategies
Note to Instructor
Discussion Question
Name a product at each stage of the PLC.
This concept is very new to students. See if they can identify products or product categories that are in each stage of the model. Introduction might include online movie viewing software, growth might include MP3 players, maturity might include bottled water, and decline could include soda (actually in a decline) or videotape players.

31. Product life cycle ( PLC)
The product life cycle begins when the company finds and develops a new product idea. During product development, the company accumulates increasing investment costs. After the company launches the product, sales pass through an introductory period, then through a period of strong growth, followed by maturity and eventual decline. Meanwhile profits go from negative to positive, peak in the growth or mature sales stages, and then decline

32. Product Life-Cycle Strategies
Product development
Sales are zero and investment costs mount
Introduction
Slow sales growth and profits are nonexistent
Growth
Rapid market acceptance and increasing profits.
Maturity
Slowdown in sales growth and profits level off or decline
Decline
Sales fall off and profits drop

33. Product Life-Cycle Strategies
Style : a basic and distinctive mode of expression for example , styles appear in homes , clothing and art. Once a style is invented , it may last for generations.
Fashion: a currently accepted or popular style in a given field.
Fashion tend to grow slowly, remain popular for a while and then decline slowly

34. Product Life-Cycle Strategies
Fads are temporary periods of unusually high sales driven by consumer enthusiasm and immediate product or brand popularity

35. Product Life-Cycle Strategies
Note to Instructor
Style is a basic and distinctive mode of expression.
Fashion is a currently accepted popular style in a given field.

36. Product life cycle stages:
1. Introduction: A period of slow sales growth as the product is introduced in the market, profit nonexistent because of the heavy expenses of product introduction.
2. Growth: A period of rapid market acceptance & substantial profit improvement.
3. Maturity: A slowdown in sales growth because the product has achieved acceptance by most potential buyers, profit stabilize or decline because of increased competition.
4. Decline: Sales show a downward drift & profit erode.

37. Introduction Stage of the PLC
Product Life-Cycle Strategies
This CTR relates to the material on pp. 289 and 293.
Introduction Stage of the PLC
Sales
Low sales
Product Life Cycle Strategies
Costs
High cost per customer
Introduction. In this stage marketers spend heavily on promotions to inform the target market about the new product's benefits. Low or negative profits may encourage the company to price the product high to help offset expenses. companies can concentrate on skimming strategies to generate high profits now or on penetration strategies to build market share and dominant the market for larger profits once the market stabilizes.
Profits
Negative
Marketing Objectives
Create product awareness
and trial
Product
Offer a basic product
Price
Use cost-plus
Distribution
Build selective distribution
Advertising
Build product awareness among early adopters and dealers

38. Growth Stage of the PLC Sales Costs Profits Product Price Distribution
Product Life-Cycle Strategies
This CTR relates to the material on pp and 293.
Growth Stage of the PLC
Sales
Rapidly rising sales
Product Life-Cycle Strategies
Growth. In this stage the company experiences both increasing sales and competition. Promotion costs are spread over larger volume and strategic decisions focus on growth strategies. Strategies include adding new features, improving quality, increasing distribution, and entering new market segments.
Costs
Average cost per customer
Profits
Rising profits
Marketing Objectives
Maximize market share
Product
Offer product extensions, service, warranty
Price
Price to penetrate market
Distribution
Build intensive distribution
Advertising
Build awareness and interest in the mass market

39. Strategies for Sustaining Rapid Market Growth
Improve product quality, add new features, and improve styling
Add new models and flanker products
Enter new market segments
Increase distribution coverage
Shift from product-awareness advertising to product-preference advertising
Lower prices to attract the next layer of price-sensitive buyers

40. Maturity Stage of the PLC
Product Life-Cycle Strategies
This CTR relates to the material on pp and 293.
Maturity Stage of the PLC
Sales
Peak sales
Costs
Low cost per customer
Product Life Cycle Strategies
Maturity. In this stage the company must manage slower growth over a longer period of time. Strategic decisions made in the growth stage may limit choices now. Marketing managers must proactively seek advantage by either market modification to increase consumption, product modification to attract new users (quality, feature, and style improvements), or marketing mix modification in an attempt to improve competitive position.
Profits
High profits
Marketing Objectives
Maximize profit while defending
market share
Product
Diversify brand and models
Price
Price to match or best competitors
Distribution
Build more intensive distribution
Advertising
Stress brand differences and benefits

41. Maturity Stage: Strategies
Marketers can extend the life of the brand by the following methods:
Market modification: converting nonusers & entering new market segments.
Product modification: quality and features improvements.
Marketing-mix modification: Price, distribution, advertising, sales promotion, services.

42. Ways to Increase Sales Volume
Convert nonusers
Enter new market segments
Attract competitors’ customers
Have consumers use the product on more occasions
Have consumers use more of the product on each occasion
Have consumers use the product in new ways

43. Decline Stage of the PLC
Product Life-Cycle Strategies
This CTR relates to the material on pp
Decline Stage of the PLC
Sales
Declining sales
Costs
Low cost per customer
Product Life Cycle Strategies
Decline. In this stage the costs of managing the product may eventually exceed profits. Rate of decline is a major factor in setting strategy. Management may maintain the brand as competitors drop out, harvest the brand by reducing costs of support for short term profit increases, or drop the product (divest) altogether.
Profits
Declining profits
Marketing Objectives
Reduce expenditure and milk the brand
Product
Phase out weak items
Price
Cut price
Distribution
Go selective: phase out unprofitable outlets
Advertising
Reduce to level needed to retain
hard-core loyal customers

44. Product in Decline

45. Decline Stage: Strategies
Increasing the firm's investment ( to dominate the market or strengthen its competitive position.)
Maintaining the firm’s investment level until the uncertainties about the industry are resolved.
Decreasing the firm’s investment level selectivity, by dropping unprofitable customers, while simultaneously strengthening the firm’s investment in lucrative niches.
Harvesting the firm’s investment to recover cash quickly.
Divesting the business quickly by disposing of its assets as advantageously as possible.

46. Additional Product and Service Considerations
Product Decisions and Social Responsibility
Public policy and regulations regarding developing and dropping products, patents, quality, and safety

47. Additional Product and Service Considerations
International Product and
Service Marketing—Challenges
Determining what products and services to introduce in which countries
Standardization versus customization
Packaging and labeling
Customs, values, laws
Kit kat which translates in japanese as “ you will surely win”
( Kitto Katsu)

48. Additional Product and Service Considerations
International Product and
Service Marketing—Challenges
For examples , names , labels , and colors may not translate easily from one country to another. A firm using yellow flowers in its logo might fare well in Canada but meet with disaster in Mexico , where a yellow flower symbolizes death or disrespect.