New Product Development &Product Life Cycles

• How do companies develop and market new products?– Come up with own ideas.• Brand new products• Product improvements & modifications

– Acquire companies, patents, licenses.

New Product Development Strategy

New-Product Failures

• Only 10% of new consumer products succeed in the long run.

• Why do most products fail?

– Don’t fulfill a real need or want– Overestimation of market size– Design problems that compromise functionality– Incorrectly positioned, priced or promoted (4 Ps)– Pushed despite poor marketing research findings– Development costs go over budget– Competitive response (usually unanticipated)

Major Stages in New-Product Development Process

Idea Generation

Where do ideas come from?• Internal sources:– Company employees at all levels: “Intrapraneuring”

• External sources:– Customers– Competitors– Distributors– Suppliers– Outsourcing partners

Idea Screening

• Keep the good ideas and drop the poor ones.– Often highly subjective and non-scientific.– Strategic fit with core competencies and product

expertise.– “Back-of-the-envelope” market size estimates

• Develop a working description and visualization of the product idea and concept.

• Test ideas with real consumers.

Concept Development and Testing

The Concept Board helps companies verbalize and visualize product concepts for consumer testing.

• Assess economic viability of the concept.• Potential Metrics:– Sales– Contribution (Profit)– NPV, IRR, ROI– ROMI

• Project must clear financial hurdles to move to the product development phase.

Business Analysis

• Develop concept into physical product prototype.

• Large jump in investment – “point of no return”.

• Test and refine prototype until product passes consumer and legal scrutiny.

Product Development

Test Marketing• Product / marketing

program introduced in limited # of real market settings.

• Avoids “broad launch” mistakes.

• Competitive Retaliation problemsAfter test marketing the “Go Active”

meal (an adult happy meal) in 150 markets in Indiana, McDonald’s decided to sell it across the U.S.

• Broad launch of product if market test results are positive. “Greenlighting”

• Timing of launch is important.• Potential Rollout plans– Local– Regional– National– International– “Wider Test Market” – more scattered sample

Commercialization

The Product Life Cycle

• Product need - longest life cycle (e.g., “phone”)• Product form - standard PLC shape (e.g., landline telephone)• Brand – shorter PLC cycles due to competitive attacks and

wearout (e.g., T-Mobile, Nokia, Sprint)• Styles and Fashions – very short life cycles (different phone

designs)• Fad - fashion with quick adoption, quick decline (e.g., pet rocks)

and backlash

• The trend towards shorter Product Life Cycles

Product Life-Cycle Lengths

• Sales: low• Costs: high cost per customer• Profits: negative• Marketing Objective: create product awareness and

trial• Product: offer a basic “core” product• Price: based primarily on cost• Distribution: build selective distribution• Promotion: heavy to entice product trial

Introduction Stage of PLC

• Sales: rapidly rising• Costs: average cost per customer• Profits: rising• Marketing Objective: maximize market share• Product: offer peripheral benefits, i.e. service,

warranty, packages• Price: penetration strategy• Distribution: start building intensive distribution• Promotion: reduce since demand is naturally growing

Growth Stage of PLC

• Sales: reach their peak• Costs: lowest cost per customer• Profits: highest ever• Marketing Objective: “defend” high profits and

market share• Product: diversify brand and models• Price: match or beat competitors• Distribution: continue building intensive distribution• Promotion: increase to encourage brand switching

Maturity Stage of PLC

• Keeping Consumption High • How?

– Find new users or new market segments. (McDonald’s goes global)– Reposition the brand to appeal to a different segment. (“Not your

father’s Oldsmobile”)– Look for ways to increase or revive usage among present customers.

(Arm & Hammer)– Improve/Modify the product (Gilette)– New Ad Campaign (Coke, Pepsi, McDonald’s)– Discounting Price

Maturity Stage of PLC

Arm & Hammer gives consumers another use for Baking Soda and avoids decline.

Maturity Stage of PLC

Modifying the Product

Gillette: Has mastered the art of improving product.

Fusion razor:precision trimmer bladefive blade shaving surface flexible comfort guardEnhanced Indicator Lubrastrip (contains vitamin E and aloe)

• Sales: declining• Costs: lower (but not lowest) cost per customer• Profits: declining• Marketing Objective: reduce expenditures and “milk”

the brand for residual sales• Product: phase out weak items• Price: cut price or raise price• Distribution: selective - phase out unprofitable

outlets• Promotion: reduce to “survival” level

Decline Stage of PLC

Question du Jour

Is the PLC for real?