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New Product Development

Planning & Testing

Causes of New Product Failures

Overestimation of Market Size Product Design Problems Product Incorrectly Positioned, Priced or Advertised Costs of Product Development Competitive Actions

To create successful new products, the company must:

understand its customers, markets and competitors develop products that deliver superior value to customers.

New Product Development Process

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

New Product Development Process

Step 1. Idea Generation

Systematic Search for New Product Ideas

Internal sources

Distributors Suppliers

New Product Development Process

Step 2. Idea Screening

Process to spot good ideas and drop poor ones Criteria

Market Size Product Price Development Time & Costs Manufacturing Costs Rate of Return

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

New Product Development Process

Step 4. Marketing Strategy Development Marketing Strategy Statement Formulation
Part One - Overall:
Target Market Planned Product Positioning Sales & Profit Goals Market Share

Part Two - Short-Term:

Products Planned Price Distribution Marketing Budget

Part Three - Long-Term:

Sales & Profit Goals Marketing Mix Strategy

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

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.

Product Life Cycle

Sales and Profits ($) Sales

Profits Time

Product Development
Losses/ Investments ($)





Introduction Stage of the PLC

Sales Costs Profits
Marketing Objectives

Low sales High cost per customer Negative Create product awareness and trial Offer a basic product Use cost-plus Build selective distribution Build product awareness among early adopters and dealers

Product Price Distribution Advertising

Growth Stage of the PLC

Sales Costs Profits

Marketing Objectives

Rapidly rising sales Average cost per customer Rising profits Maximize market share Offer product extensions, service, warranty Price to penetrate market Build intensive distribution Build awareness and interest in the mass market

Product Price Distribution Advertising

Maturity Stage of the PLC

Sales Costs Profits

Marketing Objectives

Peak sales Low cost per customer High profits Maximize profit while defending market share Diversify brand and models Price to match or best competitors Build more intensive distribution Stress brand differences and benefits

Product Price Distribution Advertising

Decline Stage of the PLC

Sales Costs Profits

Marketing Objectives

Declining sales Low cost per customer Declining profits Reduce expenditure and milk the brand Phase out weak items Cut price Go selective: phase out unprofitable outlets Reduce to level needed to retain hard-core loyal customers

Product Price Distribution Advertising


Market Testing I: Pseudo-Sales Methods

What Is Market Testing?

Market testing is not test marketing! Test marketing is one of many forms of market testing -- others include simulated test market, informal sale, minimarket, rollout. Test marketing is also a much less common form now due to cost and time commitments and other drawbacks.

Where We Are Today in Market Testing

Scanner systems allow for immediate collection of product sales data. Mathematical sales forecasting models are readily available that can run on a relatively limited amount of data. We are building quality in, testing the marketing components of the product at early stages (ads, selling visuals, service contracts, package designs, etc.) rather than testing the whole product at the end. Increased competition puts greater pressure on managers to accelerate product cycle time. Market testing is a team issue, not solely the responsibility of the market

research department.

Decision Matrix on When to Market Test

High Low Scope of Learning and Accuracy

Cost and Time Savings

Low Stages of the product development cycle


How Market Testing Relates to the Other Testing Steps

Two Key Values Obtained from Market Testing

Solid forecasts of dollar and unit sales volume. Diagnostic information to allow for revising and refining any aspect of the launch.

Deciding Whether to Market Test

Any special twists on the launch? (limited time or budget, need to make high volume quickly) What information is needed? (expected sales volumes, unknowns in manufacturing process, etc.) Costs (direct cost of test, cost of launch, lost revenue that an immediate national launch would have brought) Nature of marketplace (competitive retaliation, customer demand) Capability of testing methodologies (do they fit the managerial situation at hand)

Types of Information That May Be Lacking

Manufacturing process: can we ramp-up from pilot production to full scale easily? Vendors and resellers: will they do as they have promised in supporting the launch? Servicing infrastructure: adequate? Customers: will they buy and use the product as expected? Cannibalization: what will be the extent?

Methods of Market Testing, and Where Used

Pseudo Sales Tests

Speculative Sale STM (Simulated Test Market)

Speculative Sale

Often used in business-to-business and consumer durables, similar to concept and product use tests. Give full pitch on product, answer questions, discuss pricing, and ask:

If we make this product available as I have described it, would you buy it?

Often conducted by regular salespeople calling on real target customers.

Conditions for Speculative Sale

Where industrial firms have very close downstream relationships with key buyers. Where new product work is technical, entrenched within a firm's expertise, and only little reaction is needed from the marketplace. Where the adventure has very little risk, and thus a costlier method is not defendable. Where the item is new (say, a new material or a completely new product type) and key diagnostics are needed. For example, what set of alternatives does the potential buyer see, or what possible applications come to mind first.

Simulated Test Market (STM)

Create a false buying situation and observe what the customer does. Follow-up with customer later to assess likely repeat sales. Often used for consumer nondurables.

Simulated Test Market Procedure

Mall intercept. Self-administered questionnaire. Advertising stimuli. Mini-store shopping experience. Post-exposure questionnaire. Receive trial package. Phone followup and offer to buy more.

Possible Drawbacks to STMs

Mathematical complexity False conditions Possibly faulty assumptions on data, such as number of stores that will make the product available May not be applicable to totally new-to-the-market products, since no prior data available. Does not test channel member response to the new product, only the final consumer