New-Product Development and

Product Life-Cycle Strategies

Chapter # 9
New-Product Development Strategy

Every product has to go through a life cycle –

It is born, goes through several phases, and
eventually dies as newer products come along that
better serve consumer needs.

- A firm can obtain new products through:

 Acquisition
 New-product development
New-Product Development Strategy

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.
New-Product Development Strategy

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
New-Product Development Strategy

Marketing Business
Strategy Analysis
Development

Concept
Product
Development
Development
and Testing

Idea Test
Screening Marketing

Idea Commercialization
Generation
New-Product Development Strategy

Idea Generation

The systematic search for new product ideas.

- Internal sources refer to the company’s own formal

research and development, management and staff, and
entrepreneurial programs.

- External sources refer to sources outside the company

such as customers, competitors, distributors, suppliers,
and outside design firms
New-Product Development Strategy

Idea Screening
Idea screening refers to reviewing new-product
ideas in order to spot good ideas and drop poor
ones as soon as possible

- Considering factors while screening:

• Target market and market size
• Product price, development time and cost
• Rate of return and potentiality
New-Product Development Strategy

Concept Development and Testing

Product concept is a detailed version of the idea

stated in meaningful consumer terms. An
attractive idea must be develop into a product
concept.

For instance: Facing the utmost shortage of

transport fuel thinking about an effective
alternative like CNG technology.
New-Product Development Strategy

Concept Development and Testing

Concept testing refers testing the new-product
concepts with a groups of target consumers to
find out whether the product has strong
consumer appeal or not?
- For the concept testing, a word or picture
description might be sufficient. But we can
make a dummy of the product to make it more
practical and reliable to customers.
New-Product Development Strategy

Marketing Strategy Development

Marketing strategy development refers designing

an initial marketing strategy for a new product
based on the product concept

The marketing strategy statement consists of three parts:

1. The first part describes the target market, the planned
product positioning, sales, market share and profit goals
for the first year.
New-Product Development Strategy

Marketing Strategy Development

2. The second part describes the product’s planned price,

distribution and marketing budget for the first year.

3. The third part describe the planned long-run sales, profit

goals and marketing mix strategy.
New-Product Development Strategy

Business Analysis

Business analysis involves a review of the sales, costs,

and profit projections to find out whether they
satisfy the company’s objectives

- To estimate the sales, company might look at the sales

history of similar product and conduct surveys of
market opinion.
New-Product Development Strategy

Business
Business Analysis
Analysis
Review
Review of
of Product
Product Sales,
Sales, Costs,
Costs,
and
and Profits
Profits Projections
Projections to
to See
See ifif
They
They Meet
Meet Company
Company Objectives
Objectives

If No, Eliminate
Product Concept

If Yes, Move to
Product Development
New-Product Development Strategy

Product Development

Product development involves the creation and

testing of one or more physical versions by the
R&D or engineering departments in order to
ensure that the product idea can be turned into a
workable product.
• It requires an increase in investment and direct
involvement of different departments.
New-Product Development Strategy

Test Marketing

Test marketing is the stage at which the product

and marketing program are introduced into more
realistic marketing settings.

- Test marketing provides the marketer with

experience in testing the product and entire
marketing program before full introduction.
 New-Product Development Strategy

Test Marketing is the Stage Where the Product and Marketing

Program are Introduced into More Realistic Market Settings.

Budget
Budget Levels
Levels Product
Product

Packaging
Packaging Elements that Positioning
Positioning
May be Test
Marketed by a
Branding
Branding Company Advertising
Advertising

Pricing
Pricing Distribution
Distribution
New-Product Development Strategy

Test Marketing for Consumer Products

Approaches to test marketing:

• Standard test markets

• Controlled test markets
• Simulated test markets
New-Product Development Strategy

Test Marketing
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
estimate product performance.

- Results are used to forecast national sales and

profits, discover product problems, and fine-tune
the marketing program.
New-Product Development Strategy

Test Marketing
- Characteristics of Standard test markets:
• May be very costly
• Can take long time
• Competitors can monitor the test results
• Competitor interference by cutting price
• Competitors gain access to the new product before
introduction
New-Product Development Strategy

Test Marketing
Controlled test markets are panels of stores
monitored by some research firms that carry new
products for a fee.
- Characteristics of Controlled test markets:
• Less expensive than standard test markets
• Faster than standard test markets
• Competitors gain access to the new product
New-Product Development Strategy

Test Marketing
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.
Ex: Participating in Trade shows and arranging
internal Fair/Exhibitions highlighting the
products.
New-Product Development Strategy

Test Marketing
- Advantages of simulated test markets:
• Less expensive than other test methods
• Faster and direct response
• Restricts access by competitors

- Disadvantages:
• Not considered as reliable and accurate due to the controlled
setting
New-Product Development Strategy

Commercialization

Commercialization is the introduction of the new

product in the mass market. Based on the results from
test marketing marketer decide the following things
while commercialization.
• When to launch?
• Where to launch?
• How to launch?
Managing New-Product Development

Successful new product development should be:

• Customer-centered product development

• Team-centered product development
• Systematic product development
Managing New-Product Development

Customer-centered new-product development

focuses on finding new ways to solve customer
problems and create more customer-satisfying
experiences. Ex. GP’s Community Information
Center (CIC) offering internet services for the
villagers.
• It begins and ends with identifying and solving
customer needs and values. Massive R&D activity
and involvement is needed to do so.
Managing New-Product Development

Team-based new-product development is a

development approach where company’s various
departments work closely together in cross-
functional teams, overlapping in the product-
development process to save time and increase
effectiveness.
Managing New-Product Development

Systematic new-product development is an

innovative development approach that collects,
reviews, evaluates and manages new-product ideas
from the stakeholders.

• It Creates an innovation-oriented culture.

• Company can form a innovative management
system to collect and evaluate ideas.
Product Life-Cycle Strategies

Product Life Cycle (PLC) is the course of a product’s

sales and profits over its lifetime.
- It involves five distinct stages:
• Product development
• Introduction
• Growth
• Maturity
• Decline
 Product Life-Cycle Strategies

Sales and
Profits ($) Sales

Profits

Time
Product Growth Maturity Decline
Introduction
Development

Losses/
Investments ($)

Sales and Profits Over the Product’s Life From Inception to Demise
Product Life-Cycle Strategies

Product Development Stage begins when the

company finds and develops a product idea to
offer to the market.

• During the product development stage, sales are

zero as it is not introduced to the market and the
company’s investment costs increase.
Product Life-Cycle Strategies

Introduction Stage is when the new product is first

launched to the market and made available for
purchase.

- Characteristics of Introduction stage:

• Takes time to be introduced
• Slow sales growth
• Little or no profit
• High distribution and promotion expense needed to make
awareness among customers
Product Life-Cycle Strategies

Growth Stage is when the new product start to satisfy

the markets and the sales climb quickly

- Characteristics of Growth stage:

• Sales increase quickly
• Price stability or decline is needed to increase sale
• New competitors enter the market
• Profits increase with sales volume
• Product quality & features need to increase
• New market segments and distribution channels are
entered to support the demand
Product Life-Cycle Strategies

Maturity Stage is a long-lasting stage of a product that

has gained consumer acceptance

- Characteristics of Maturity stage:

• Rate of sales growth slowdown
• Many suppliers/competitors enter to market
• Substitute products are also available
• Increased promotion and R&D to support sales and profits
Product Life-Cycle Strategies

Modifying Strategies in Maturity Stage

• Market modifying
• Product modifying
• Marketing mix modifying
Product Life-Cycle Strategies

Modifying Strategies

Market Modifying Strategy is when a company

tries to increase the consumption of the current
product.
• Increase usage rate of existing users
• Searching for new users
• New market segments
Product Life-Cycle Strategies

Modifying Strategies

Product Modifying Strategy is when a company

tries to change the characteristics of a current
product.
• Changing quality & features
• Adding new tastes & packaging
• Offering different sizes, model
Product Life-Cycle Strategies

Modifying Strategies

Marketing Mix Modifying Strategy is when a

company changes one or more of the marketing
mix elements
• Price
• Promotion
• Distribution channels
• Increasing support services
Product Life-Cycle Strategies

Decline stage refers when sales decline or level off

for an extended time because of technological
advancement, shift in consumer demand and
increased competition.
- Options to marketer while Decline stage:
• Maintain the product
• Harvest the product
• Drop the product
Introduction Stage of Product Life-Cycle (PLC)

Summary of Characteristics, Objectives, & Strategies

Sales
Sales Low
Low sales
sales
Costs
Costs High
High cost
cost per
per customer
customer
Profits
Profits Negative
Negative or
or low
low
Marketing
Marketing Objectives
Objectives Create
Create product
product awareness
awareness and
and trial
trial
Product
Product Offer
Offer aa basic
basic product
product
Price
Price Usually
Usually is
is high;
high; use
use cost-plus
cost-plus formula
formula
Distribution
Distribution High
High distribution
distribution expenses
expenses
Advertising Build
Build product
product awareness
awareness among
among early
early
Advertising adopters
adopters and
and dealers
dealers
Growth Stage of Product Life-Cycle (PLC)

Summary of Characteristics, Objectives, & Strategies

Sales
Sales Rapidly
Rapidly rising
rising sales
sales
Costs
Costs Average
Average cost
cost per
per customer
customer
Profits
Profits Rising
Rising profits
profits
Marketing
Marketing Objectives
Objectives Maximize
Maximize market
market share
share
Offer
Offer new
new product
product features,
features, extensions,
extensions,
Product
Product service,
service, and
and warranty
warranty
Price
Price Price
Price to
to penetrate
penetrate market
market
Distribution
Distribution Increase
Increase number
number of
of distribution
distribution outlets
outlets
Advertising Build
Build awareness
awareness and
and interest
interest in
in the
the
Advertising mass
mass market
market
Maturity Stage of Product Life-Cycle (PLC)

Summary of Characteristics, Objectives, & Strategies

Sales
Sales Peak
Peak sales
sales
Costs
Costs Low
Low cost
cost per
per customer
customer
Profits
Profits High
High profits,
profits, then
then lower
lower profits
profits
Marketing
Marketing Objectives
Objectives Maximize
Maximize profits
profits while
while defending
defending
market
market share
share
Product
Product Diversify
Diversify brand
brand and
and models
models
Price
Price Price
Price to
to match
match or
or best
best competitors
competitors
Distribution
Distribution Build
Build more
more intensive
intensive distribution
distribution
Advertising
Advertising Stress
Stress brand
brand differences
differences and
and benefits
benefits
END OF CHAPTER # 9