New-Product Development and Product Life-Cycle Strategies

Chapter 10

Objectives
Understand how companies find and develop new-product ideas. Learn the steps in the new-product development process. Know the stages of the product life cycle. Understand how marketing strategies change during the products life cycle.
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Microsoft c
$50 billion in profits over 27 years Early new product development relied heavily on copying the competition $4.2 billion annually invested in R & D Innovation is critical to Microsofts future success Much of R & D efforts are Internet related Many new products and services are in development
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Definition
New Product Development
Development of original products, product improvements, product modifications, and new brands through the firms own R & D efforts.
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New-Product Development Strategies

Strategies for Obtaining New Product Ideas
Acquired Companies Acquired Patents Acquired Licenses Original Products Product Improvements Product Modifications New Brands
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New Product Development Process

Marketing Strategy Concept Development and Testing Idea Screening Idea Generation Business Analysis Product Development

Test Marketing Commercialization

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New Product Development Strategy

New Product Development Process:
Stage 1: Idea Generation

Internal idea sources:

R&D

External idea sources:

Customers, competitors, distributors, suppliers
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3Ms corporate culture encourages, supports, and rewards new product ideas and innovation

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Using the Web to Solicit Product Ideas

Procter and Gamble

To see how P&G solicits ideas from customers, visit the Procter and Gamble home page, click on the Resources and Offers button, then select the Share Your Thoughts listing.

Procter & Gamble

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New Product Development Process

Step 2. Idea Screening
Many companies have systems for rating and screening ideas which estimate: Process to spot good ideas and drop poor ones as soon as possible. Market Size Product Price Development Time & Costs Manufacturing Costs Rate of Return Then, the idea is evaluated against a set of general company criteria.
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New Product Development Process

Step 3. Concept Development & Testing
1. Develop Product Ideas into Alternative Product Concepts

2. Concept Testing - Test the Product Concepts with Groups of Target Customers

3. Choose the Best One

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New Product Development Process

Step 4. Marketing Strategy Development

Marketing Strategy Statement Formulation

Part One Describes Overall:
Target Market Planned Product Positioning Sales & Profit Goals Market Share

Part Two Describes Short-Term:

Products Planned Price Distribution Marketing Budget

Part Three Describes Long-Term:

Sales & Profit Goals Marketing Mix Strategy
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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

If No, Eliminate Product Concept

If Yes, Move to Product Development
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BusinessNow
Sensable Video Clip
Computer modeling is being used to aid in product design

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Daimler is currently road-testing its prototype NECAR 5 (New Electric Car)

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New Product Development Strategy

IRI BehaviorScan
provides an inmarket laboratory for testing new products and marketing programs

IRI BehaviorScan

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New Product Development Process

Step 7. Test Marketing

Test Marketing is the Stage Where the Product and Marketing Program are Introduced into More Realistic Market Settings.
Budget Levels Packaging Product Positioning

Branding Pricing

Elements that May be Test Marketed by a Company

Advertising Distribution
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New Product Development Process

Step 7. Test Marketing
Standard Test Market
Full marketing campaign in a small number of representative cities.

Controlled Test Market

A few stores that have agreed to carry new products for a fee.

Simulated Test Market

Test in a simulated shopping environment to a sample of consumers.

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Where is a good test market?

I. Factors to consider
- Size - Demographics - Isolation from other cities - Media availability and cost - Retailer support 2. Popular cities - Big cities: Detroit, St. Louis, Columbus, Philadelphia - Small cities: Nashville, Jacksonville, Toledo, Wilmington
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New Product Development Process

Step 8. Commercialization

Commercialization is the Introduction of the New Product into the Marketplace.

When?

Where?

To Whom?

How?

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LIFE IS SHORT AND THEN YOU INTRODUCE A NEW PRODUCT

Product lifetimes are shrinking, as competitors pressure innovators by offering imitations of successful, high-margin products. Panasonic now replaces electronic consumer products on a 90-day cycle (with older models going to discounters) the big Japanese car makers are aiming to offer new models every two years. (from the New York Times)

Speeding Up Development
Sequential Simultaneous

Step 1

Step 1 Step 3
Step 4
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Step 2

Step 3

Step 4

Step 2

Discussion Question
Why do products fail?
See if you can identify the fatal flaw in the brands below and at right.

Ben-Gay Asprin

Buttermilk Shampoo

Fruit of the Loom Laundry Detergent

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Causes of New Product Failures

Overestimation of Market Size Product Design Problems Insignificant difference Product Incorrectly Positioned, Priced or Advertised Costs of Product Development Competitive Actions No access to the market Bad timing To create successful new products, the company mus understand its customers, markets and competitors develop products that deliver superior value to customers.

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Alternatives to Development:

Acquire new Products Develop "me-too" products. Revive old products

Product Life-Cycle Strategies

The Typical Product Life Cycle (PLC) Has Five Stages
Product Development, Introduction, Growth, Maturity, Decline Not all products follow this cycle:
Fads Styles Fashions

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Figure 10-2:

Sales and Profits Over A Products Life

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Product Life Cycle

length style - comes, goes, comes back fashion - come, goes away slowly fad - comes and goes way quickly

Figure 10-3:

Styles, Fashions, and Fads

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Companies want their products to enjoy a long life cycle. Hersheys actively promotes the fact that it has been unchanged since 1899
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Product Life-Cycle Strategies

Additional marketing investments can move a product back into the growth stage, as in the case of Cracker Jack.

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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
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Problems Using the PLC

The PLC Concept Can Help in Developing Good Marketing Strategies for Different Stages of the Product Life-Cycle, However Some Problems Can Arise:
Trouble identifying Which Stage of the PLC the Product Is In Difficult to Forecast the Sales Level, the Length of Each Stage, and Shape of the PLC

Strategy is Both a Cause and a Result of the Products Life Cycle

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Product Life-Cycle Strategies

PLC Stages Product development Introduction Growth Maturity Decline
Begins when the company develops a newproduct idea Sales are zero Investment costs are high Profits are negative
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Product Life-Cycle Strategies

PLC Stages Product development Introduction Growth Maturity Decline
Low sales High cost per customer acquired Negative profits Innovators are targeted Little competition
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Product Life-Cycle Strategies

PLC Stages Product development Introduction Growth Maturity Decline
Rapidly rising sales Average cost per customer Rising profits Early adopters are targeted Growing competition
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Product Life-Cycle Strategies

PLC Stages Product development Introduction Growth Maturity Decline
Sales peak Low cost per customer High profits Middle majority are targeted Competition begins to decline
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Product Life-Cycle Strategies

PLC Stages Product development Introduction Growth Maturity Decline
Declining sales Low cost per customer Declining profits Laggards are targeted Declining competition
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