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New Product Development


and
Product Life-Cycle
Strategies

Principles of Marketing

Learning Objectives

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After studying this chapter, you should be able to:


Explain how companies find and develop new-product ideas
List and define the steps in the new-product development
process

Describe the stages of the product


life cycle
Describe how marketing strategies
change during the products life
cycle

Prof. Jahanzaib Yousaf

Types of New Products


Innovative

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Enhancements or Different from existing

Imitative

Major Stages in New Product


Development

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Idea generation: systematic search for new ideas


Internal sources: brainstorming
External sources: customers, competitors,
distributors and suppliers

Figure 11.1

Idea screening: identify


good ideas and drop poor ones
Usefulness to consumers
Good for company
Fit with objectives and
strategies
Have the resources
Add value

Prof. Jahanzaib Yousaf

Major Stages in New Product


Development
Concept development: detailed version of the
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product concept in meaningful consumer terms

Concept testing: testing new-product concepts for


consumer appeal

Figure 11.1

Marketing strategy: initial


strategy for product concept:
Target market, positioning,
and sales, market share, and
profit goals
Price, distribution, and
marketing budget
Strategy statement, long-run
sales, profit goals, and
marketing mix
Prof. Jahanzaib Yousaf

Major Stages in New Product


Development

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Business analysis: review of sales, costs, and profit


projections to determine if they meet company
objectives.

Product development:

Figure 11.1

developing the product


concept into a physical
product
Large investment
Building a prototype
Testing for safety,
durability, and
acceptability

Prof. Jahanzaib Yousaf

Major Stages in New Product


Development

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Test marketing: testing the product in more

realistic market settings


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 market

Figure 11.1

Prof. Jahanzaib Yousaf

Copyright 2005 Pearson Education Inc.

Test marketing

Prof. Jahanzaib Yousaf

Major Stages in New Product


Development

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Commercialization: introducing a new product


into the market
Introduction timing
Market rollout or full-scale
introduction

Figure 11.1

Sequential product
development
Simultaneous (teambased) product
development

Prof. Jahanzaib Yousaf

Product Life-Cycle Strategies


Product life cycle (PLC): the course of a products
sales and profits over its life
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Figure 11.2

Prof. Jahanzaib Yousaf

Product Life-Cycle
Strategies
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Introduction Stage

Slow sales growth


Little or no profit
High distribution and promotion
expense

Prof. Jahanzaib Yousaf

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Product Life-Cycle
Strategies
Growth Stage
Sales increase
Increased Consumer awareness
New competitors enter the market
Price stability or decline to increase
volume
Profits increase
Promotion and manufacturing costs
gain economies of scale
Prof. Jahanzaib Yousaf

Copyright 2005 Pearson Education Inc.

Product Life-Cycle
Strategies
Maturity Stage
Slowdown in sales
High Competition & Market
Saturation
Substitute products
Increased promotion and R&D to
support sales and profits
Increased Variants
Prof. Jahanzaib Yousaf

Copyright 2005 Pearson Education Inc.

Product Life-Cycle
Strategies
Maturity Stage Strategies
Market modification (New Segments)
Product modification (New Variants)
Marketing mix modification

Prof. Jahanzaib Yousaf

Copyright 2005 Pearson Education Inc.

Product Life-Cycle
Strategies
Decline Stage
Low Sales Volumes resulting in
decrease in revenues & profits
Cost cuts
Maintain the product
Harvest the product
Drop the product
Prof. Jahanzaib Yousaf

Styles, Fashions, and Fads

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Style: basic and distinctive mode of expression


Fashion: currently accepted or popular style in a
given field

Fad: a fashion the enters quickly, adopted with great


zeal, peaks early, and decline very fast
Figure 11.3

Prof. Jahanzaib Yousaf

Copyright 2005 Pearson Education Inc.

Summary of PLC (Table 11.2)


Characteristics:

Introduction

Growth

Maturity

Decline

Sales
Costs

Low
High cost
per customer
Negative
Innovators
Few

Rapidly rising sales


Average cost
per customer
Rising profits
Early adopters
Growing number

Peak
Low cost
per customer
High profits
Middle majority
Stable number

Declining sales
Low cost
per customer
Declining profits
Laggards
Declining number

Create product
awareness and trial

Maximize market
share

Maximize profit &


defend market share

Reduce expenditure
& milk brand

Product

Offer basic product

Price

Use cost-plus
Build selective
distribution
Build awareness
early adopters/dealers
Heavy sales promotion
to entice trial

Diversify brand and


models
Price to match or
best competitors
Build more
intensive distribution
Stress brand differences
and benefits
Increase to encourage
brand switching

Phase out weak


items
Cut price

Distribution

Offer product
extensions, service
Price to penetrate
market
Build intensive
distribution
Build awareness &
interest mass market
Reduce promotion due
to heavy demand

Profits
Customers
Competitors

Marketing objectives:

Strategies:

Advertising
Sales promotion

Selective; phase out


unprofitable outlets
Reduce to level needed
to retain hard-core loyals
Reduce to minimal
level

Prof. Jahanzaib Yousaf