Chapter 8 ar-fiii

Chapter 8Chapter 8

New-Product Development New-Product Development and Product Life-Cycle and Product Life-Cycle

Strategies Strategies

ObjectivesObjectives Objective 1:Objective 1: Explain how companies find Explain how companies find

and develop new-product ideasand develop new-product ideas

Objective 2:Objective 2: List and define the steps in List and define the steps in the new-product development processthe new-product development process

Objective 3:Objective 3: Describe the stages of the Describe the stages of the product life cycleproduct life cycle

Objective 4:Objective 4: Describe how marketing Describe how marketing strategies change during the product’s life strategies change during the product’s life cyclecycle

DefinitionDefinition

New Product DevelopmentNew Product Development– Development of original products, Development of original products,

product improvements, product product improvements, product modifications, and new brands modifications, and new brands through the firm’s own R & D efforts.through the firm’s own R & D efforts.

Firm HistoryFirm History Steve Jobs’s creativity Steve Jobs’s creativity

led to innovation in led to innovation in user friendliness of user friendliness of computers.computers.

LazerWriters and the LazerWriters and the Macintosh established Macintosh established Apple firmly in desktop Apple firmly in desktop publishing market. publishing market.

Status as market share Status as market share leader and innovator was leader and innovator was lost in the late 1980s after lost in the late 1980s after Jobs left the firm.Jobs left the firm.

Firm RecoveryFirm Recovery Steve Jobs returns in 1997 Steve Jobs returns in 1997

and revitalizes Apple by and revitalizes Apple by first launching the iMac.first launching the iMac.

The Mac OS X next breaks The Mac OS X next breaks ground and acts as a ground and acts as a launching pad for a new launching pad for a new generation of computers generation of computers and software products.and software products.

iPod and iTunes change the iPod and iTunes change the face of music and are the face of music and are the hit of the decade.hit of the decade.

Take Chances, risk seeking Take Chances, risk seeking cultureculture

APPLE COMPUTERAPPLE COMPUTER – Innovation at Work – Innovation at Work

New-Product Development New-Product Development StrategyStrategy

Firms can acquire new products in Firms can acquire new products in two waystwo ways– One is through acquisition (buying a One is through acquisition (buying a

company, a patent, or a license; company, a patent, or a license; – Two is through new-product Two is through new-product

developmentdevelopment

New-Product Development:New-Product Development: developing new products, product developing new products, product improvements, product improvements, product modifications, and new brands within modifications, and new brands within a company’s own R&D effortsa company’s own R&D efforts

To create successful new products, a To create successful new products, a company must understand its company must understand its consumersconsumers, , marketsmarkets, and , and competitorscompetitors and and develop products develop products that deliver superior valuethat deliver superior value to to customerscustomers

Why do products fail?Why do products fail?

See if you can identify the See if you can identify the fatal flaw in the brands fatal flaw in the brands below and at right.below and at right.

Discussion Question

Buttermilk ShampooButtermilk Shampoo Fruit of the Loom Fruit of the Loom Laundry DetergentLaundry Detergent

Ben-Gay AsprinBen-Gay Asprin

Figure 8-1:

Major Stages in New-Product Development

New Product Development Process:New Product Development Process:– Stage 1: Idea GenerationStage 1: Idea Generation

Internal idea sources: Internal idea sources: – R & DR & D

External idea sources: External idea sources: – Customers, competitors, distributors, Customers, competitors, distributors,

supplierssuppliers

New Product Development New Product Development StrategyStrategy

Nike acquired Converse in 2003 for $305 millionNike acquired Converse in 2003 for $305 million

Idea GenerationIdea Generation Idea Generation:Idea Generation: the systematic search for new product the systematic search for new product

ideasideas– Firms typically generate thousands of ideas of which only a few Firms typically generate thousands of ideas of which only a few

make it to productionmake it to production

– Internal Idea Sources:Internal Idea Sources: the company can find new ideas the company can find new ideas through formal research and development; by picking the through formal research and development; by picking the brains of company executives, scientists, engineers, etc.; or brains of company executives, scientists, engineers, etc.; or through an intrapreneurial programthrough an intrapreneurial program

– External Idea Sources:External Idea Sources: good new-product ideas also come good new-product ideas also come from watching and listening to customers, competitors, from watching and listening to customers, competitors, distributors and suppliersdistributors and suppliers

– The search for new product ideas should be systematic and The search for new product ideas should be systematic and companies would benefit from an idea management system companies would benefit from an idea management system that directs the flow of new ideas to a central point where they that directs the flow of new ideas to a central point where they can be collected, reviewed and evaluatedcan be collected, reviewed and evaluated

New Product Development New Product Development Process:Process:– Stage 2: Idea ScreeningStage 2: Idea Screening

Product development costs increase Product development costs increase substantially in later stages. substantially in later stages.

Ideas are evaluated against criteria; Ideas are evaluated against criteria; most are eliminated.most are eliminated.


Idea ScreeningIdea Screening Idea Screening:Idea Screening: the first idea-reducing the first idea-reducing

stage—helps spot good ideas and drop stage—helps spot good ideas and drop poor ones as soon as possiblepoor ones as soon as possible

– Is the product truly useful to consumers and Is the product truly useful to consumers and society?society?

– Is it good for our particular company?Is it good for our particular company?– Does it mesh well with the company’s Does it mesh well with the company’s

objectives and strategies?objectives and strategies?– Do we have the people, skills, and resources to Do we have the people, skills, and resources to

make it succeed?make it succeed?– Does it deliver more value to customers than Does it deliver more value to customers than

do competing products?do competing products?

New Product Development New Product Development Process:Process:– Stage 3: Concept Development Stage 3: Concept Development

and Testingand Testing Product concepts provide detailed Product concepts provide detailed

versions of new product ideas. versions of new product ideas. Concept tests ask target consumers to Concept tests ask target consumers to

evaluate product concepts. evaluate product concepts.


Concept Development and Concept Development and TestingTesting

Concept Development:Concept Development: An attractive idea must be An attractive idea must be developed into a product conceptdeveloped into a product concept

– Product Idea:Product Idea: an idea for a possible product that the an idea for a possible product that the company can see itself offering to the marketcompany can see itself offering to the market

– Product Concept:Product Concept: a detailed version of the idea stated in a detailed version of the idea stated in meaningful consumer termsmeaningful consumer terms

– Product Image:Product Image: the way consumers perceive an actual or the way consumers perceive an actual or potential productpotential product

Concept Testing:Concept Testing: calls for testing new-product concepts calls for testing new-product concepts with groups of target consumerswith groups of target consumers– Exposing the customers, symbolically or physically, to the Exposing the customers, symbolically or physically, to the

concept and gauging their reaction to the conceptconcept and gauging their reaction to the concept

Pair up with another Pair up with another student and assume student and assume that you are in that you are in charge of the charge of the concept testing for concept testing for the product shown at the product shown at right.right.What questions would What questions would you ask of consumers you ask of consumers who are evaluating this who are evaluating this product concept? product concept?

New Product Development Process:New Product Development Process:– Stage 4: Marketing Strategy Stage 4: Marketing Strategy

DevelopmentDevelopment Strategy statements describe:Strategy statements describe:

– The target market, product positioning, and sales, The target market, product positioning, and sales, share, and profit goals for the first few years.share, and profit goals for the first few years.

– Product price, distribution, and marketing budget Product price, distribution, and marketing budget for the first year.for the first year.

– Long-run sales and profit goals and the marketing Long-run sales and profit goals and the marketing mix strategy.mix strategy.


New Product Development New Product Development Process:Process:– Stage 5: Business AnalysisStage 5: Business Analysis

Sales, cost, and profit projectionsSales, cost, and profit projections

– Stage 6: Product DevelopmentStage 6: Product Development Prototype development and testingPrototype development and testing


Business AnalysisBusiness Analysis Business Analysis:Business Analysis: involves a review of the involves a review of the

sales, costs, and profit projections for a new sales, costs, and profit projections for a new product to find out whether they satisfy the product to find out whether they satisfy the company’s objectivescompany’s objectives

It is the evaluation of the business attractiveness It is the evaluation of the business attractiveness of the proposed productof the proposed product

To estimate sales, the company might look at the To estimate sales, the company might look at the sales history of similar products and conduct sales history of similar products and conduct surveys of market opinionsurveys of market opinion

Product DevelopmentProduct Development If the product concept passes muster during the If the product concept passes muster during the

business analysis stage, then we can move the business analysis stage, then we can move the concept into developmentconcept into development

Product Development:Product Development: R&D or engineering R&D or engineering develops the product concept into a physical productdevelops the product concept into a physical product—calls for a large jump in investment—calls for a large jump in investment

R&D hopes to design a prototype that will satisfy and R&D hopes to design a prototype that will satisfy and excite consumers and that can be produced quickly excite consumers and that can be produced quickly and at budgeted costsand at budgeted costs

The prototype must have the required functional The prototype must have the required functional features and also convey the intended psychological features and also convey the intended psychological characteristicscharacteristics

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

New Product Development New Product Development Process:Process:– Stage 7: Test MarketingStage 7: Test Marketing

Standard test marketsStandard test markets Controlled test marketsControlled test markets Simulated test marketsSimulated test markets

– Stage 8: CommercializationStage 8: Commercialization


Test MarketingTest Marketing Test Marketing:Test Marketing: the stage at which the product the stage at which the product

and marketing program are introduced into more-and marketing program are introduced into more-realistic market settingsrealistic market settings

It gives the marketer experience with marketing It gives the marketer experience with marketing the product before going to the great expense of the product before going to the great expense of full introductionfull introduction

The company can test the product and its entire The company can test the product and its entire marketing program—positioning strategy, marketing program—positioning strategy, advertising, distribution, pricing, branding and advertising, distribution, pricing, branding and packaging, and budget levelspackaging, and budget levels

Test MarketingTest Marketing Standard Test Markets:Standard Test Markets:

– The company finds a small number of representative test The company finds a small number of representative test cities, conducts a full marketing campaign in these cities, and cities, conducts a full marketing campaign in these cities, and uses stare audits, consumers and distributor surveys, and uses stare audits, consumers and distributor surveys, and other measures to gauge product performanceother measures to gauge product performance

Controlled Test Markets:Controlled Test Markets: several research firms keep several research firms keep controlled panels of stores that have agreed to carry new controlled panels of stores that have agreed to carry new products for a feeproducts for a fee

Simulated Test Markets:Simulated Test Markets: the company or research firm the company or research firm shows ads and promotions for a variety of products, shows ads and promotions for a variety of products, including the new product being tested, to a sample of including the new product being tested, to a sample of consumers. It gives consumers a small amount of money consumers. It gives consumers a small amount of money and invites them to a real or laboratory store where they and invites them to a real or laboratory store where they may keep the money or use it to buy itemsmay keep the money or use it to buy items

Online Test MarketingOnline Test MarketingIs it in the Near Future?Is it in the Near Future?

Silicon Valley startup Silicon Valley startup called There launched called There launched their site in 2003.their site in 2003.

Users enter a virtual world Users enter a virtual world where they can network, where they can network, hang out, dress up and try hang out, dress up and try new products.new products.

There is catching There is catching marketers’ attention as a marketers’ attention as a tool to test brands and tool to test brands and products.products.

There will also help There will also help marketers identify leaders marketers identify leaders and heavy users of their and heavy users of their products.products.

Click on screenshot for website Source Advertising Age

Test MarketingTest Marketing Product / marketing Product / marketing

program introduced in program introduced in more realistic market more realistic market setting.setting.

Not for all products.Not for all products. Can be expensive and Can be expensive and

time consuming, but time consuming, but better than making a better than making a major marketingmajor marketing mistake.mistake.After 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.

CommercializationCommercialization

Commercialization:Commercialization: introducing the introducing the new product into the marketnew product into the market

The company must decide upon the The company must decide upon the timing of the introduction as well as timing of the introduction as well as where to launch the new productwhere to launch the new product

Organizing for New-Product Organizing for New-Product DevelopmentDevelopment

Sequential Product Development:Sequential Product Development: under this approach, one company under this approach, one company department works individually to complete department works individually to complete its stage of the process before passing the its stage of the process before passing the new product along to the next department new product along to the next department and stageand stage

Simultaneous Product Development:Simultaneous Product Development: under this approach, company under this approach, company departments work closely together through departments work closely together through cross-functional teams, overlapping the cross-functional teams, overlapping the steps in the product development process steps in the product development process to save time and increase effectivenessto save time and increase effectiveness

Sales and Profits Over A Product’s Life

The Typical Product Life Cycle (PLC) The Typical Product Life Cycle (PLC) Has Five StagesHas Five Stages– Product Development, Introduction, Product Development, Introduction,

Growth, Maturity, DeclineGrowth, Maturity, Decline– Not all products follow this cycle: Not all products follow this cycle:

FadsFads StylesStyles FashionsFashions

Product Life-Cycle Product Life-Cycle StrategiesStrategies


Product Life Cycle (PLC):Product Life Cycle (PLC): the course that a product’s sales the course that a product’s sales and profits take over its lifetime—it has five stagesand profits take over its lifetime—it has five stages

Product Development:Product Development: the company finds and develops a the company finds and develops a new product idea—sales are zero and the investment costs are new product idea—sales are zero and the investment costs are highhigh

Introduction:Introduction: a period of slow sales growth as the product is a period of slow sales growth as the product is introduced to the market—profits are non-existentintroduced to the market—profits are non-existent

Growth:Growth: a period of rapid market acceptance and increasing a period of rapid market acceptance and increasing profitsprofits

Maturity:Maturity: a period of slowdown in sales and growth because a period of slowdown in sales and growth because the product has achieved acceptance by most potential buyersthe product has achieved acceptance by most potential buyers

Decline:Decline: the period when sales fall off and profits drop the period when sales fall off and profits drop

Product Life CycleProduct Life Cycle The PLC concept can describe a product class (gas powered The PLC concept can describe a product class (gas powered

automobiles), a product form (SUV) or a brand (the Ford automobiles), a product form (SUV) or a brand (the Ford Explorer)Explorer)

Style:Style: a basic and distinctive mode of expression—a style a basic and distinctive mode of expression—a style as a cycle showing several periods of renewed interestas a cycle showing several periods of renewed interest

Fashion:Fashion: a currently accepted or popular style in a given a currently accepted or popular style in a given field—fashions tend to grow slowly, remain popular for a field—fashions tend to grow slowly, remain popular for a while, then decline slowlywhile, then decline slowly

Fad:Fad: fashions that enter quickly, are adopted with great fashions that enter quickly, are adopted with great zeal, peak early, and decline very quickly—they last only a zeal, peak early, and decline very quickly—they last only a short time and tend to attract only a limited followingshort time and tend to attract only a limited following

Figure 8-3:

Styles, Fashions, and Fads

Companies want their products to enjoy a long life cycle. Hershey’s actively promotes the fact that it has been “unchanged since 1899”

The product life cycle concept can be The product life cycle concept can be applied to a:applied to a:– Product class (soft drinks)Product class (soft drinks)– Product form (diet colas)Product form (diet colas)– Brand (Diet Dr. Pepper)Brand (Diet Dr. Pepper)

Using the PLC to forecast brand performance or Using the PLC to forecast brand performance or to develop marketing strategies is problematicto develop marketing strategies is problematic


The Category Product Life Cycle

To

tal R

etai

l Sal

es

Introduction

GrowthMaturity

Decline

Time

Introduction Growth Maturity DeclineStrategy variable

Target market High-income Middle-income Mass market Low-income

Innovators adapters and laggardsVariety One basic Some variety Greater variety Less variety

offeringDistribution Limited or More retailers More retailers Fewer Intensity extensive retailersPrice Penetrating Wide range Lower prices Lower prices

or skimmingPromotion Informative Persuasive Competitive Limited

Introduction StageIntroduction Stage Starts when the new product is first launchedStarts when the new product is first launched

Profits are negative or low because of the low sales Profits are negative or low because of the low sales and high distribution and promotion expensesand high distribution and promotion expenses

The company must choose a launch strategy that is The company must choose a launch strategy that is consistent with the intended product positioningconsistent with the intended product positioning

It must also realize that the initial strategy is just It must also realize that the initial strategy is just the first step in a grander marketing plan for the the first step in a grander marketing plan for the product’s entire life cycleproduct’s entire life cycle

ProductProduct –– Offer a basic product Offer a basic product PricePrice –– Use cost-plus basis to setUse cost-plus basis to set DistributionDistribution –– Build selective distribution Build selective distribution AdvertisingAdvertising –– Build awareness among Build awareness among

early adopters and dealers/resellersearly adopters and dealers/resellers Sales PromotionSales Promotion –– Heavy expenditures Heavy expenditures

to create trialto create trial

Marketing Strategies: Marketing Strategies: Introduction StageIntroduction Stage

New Product IntroductionNew Product Introduction

Growth StageGrowth Stage If the new product satisfies the market, it will enter a If the new product satisfies the market, it will enter a

growth stage in which sales will start climbing quicklygrowth stage in which sales will start climbing quickly

New competitors may enter the market, new product New competitors may enter the market, new product features may be introduced, number of distribution outlets features may be introduced, number of distribution outlets may increase, ultimately leading to an increase in salesmay increase, ultimately leading to an increase in sales

Profits increase as promotion costs are spread over a large Profits increase as promotion costs are spread over a large volume and as unit manufacturing costs fallvolume and as unit manufacturing costs fall

By spending a lot of money on product improvement, By spending a lot of money on product improvement, promotion, and distribution, the company can capture a promotion, and distribution, the company can capture a dominant position in the market—in doing so, however, it dominant position in the market—in doing so, however, it gives up maximum current profit, which it hopes to make gives up maximum current profit, which it hopes to make up in the next stageup in the next stage

ProductProduct –– Offer product extensions, service, Offer product extensions, service, warrantywarranty

PricePrice –– Penetration pricingPenetration pricing DistributionDistribution –– Build intensive distribution Build intensive distribution AdvertisingAdvertising –– Build awareness and interest in Build awareness and interest in

the mass marketthe mass market Sales PromotionSales Promotion –– Reduce expenditures to Reduce expenditures to

take advantage of consumer demandtake advantage of consumer demand

Marketing Strategies: Marketing Strategies: Growth StageGrowth Stage

Marketing in Action

Product Product developmentdevelopment

IntroductionIntroduction GrowthGrowth MaturityMaturity DeclineDecline

Maturity StageMaturity Stage The stage in which product’s sales growth will slow The stage in which product’s sales growth will slow

downdown

The maturity stage typically last longer than the The maturity stage typically last longer than the previous stagesprevious stages

Most products are in the maturity stage and most of Most products are in the maturity stage and most of marketing management deals with the mature marketing management deals with the mature productproduct

Slowdown in sales growth results in many Slowdown in sales growth results in many producers with many products to sell which leads to producers with many products to sell which leads to greater competitiongreater competition

ProductProduct –– Diversify brand and models Diversify brand and models PricePrice –– Set to match or beat competitionSet to match or beat competition DistributionDistribution –– Build more intensive distribution Build more intensive distribution AdvertisingAdvertising –– Stress brand differences and Stress brand differences and

benefitsbenefits Sales PromotionSales Promotion –– Increase to encourage Increase to encourage

brand switchingbrand switching

Marketing Strategies: Marketing Strategies: Maturity StageMaturity Stage

ProductProduct –– Diversify brand and models Diversify brand and models PricePrice –– Set to match or beat competitionSet to match or beat competition DistributionDistribution –– Build more intensive distribution Build more intensive distribution AdvertisingAdvertising –– Stress brand differences and Stress brand differences and

benefitsbenefits Sales PromotionSales Promotion –– Increase to encourage Increase to encourage

brand switchingbrand switching

Marketing Strategies: Marketing Strategies: Maturity StageMaturity Stage

Reinvigorating a BrandReinvigorating a Brand

In an effort to reclaim its lost market share, Levi's promotes new styles

Modifying the ProductModifying the Product

Gillette’s Fusion razor combines Gillette’s Fusion razor combines a precision trimmer blade (on a precision trimmer blade (on back) with a five blade shaving back) with a five blade shaving surface (on front). The flexible surface (on front). The flexible comfort guard and Enhanced comfort guard and Enhanced Indicator Lubrastrip (containing Indicator Lubrastrip (containing vitamin E and aloe) enhance vitamin E and aloe) enhance shaving comfort.shaving comfort.

http://www.gillette.com/homepage.asp

Product Product developmentdevelopment

IntroductionIntroduction GrowthGrowth MaturityMaturity DeclineDecline

9 - 47

Maturity StageMaturity Stage

Modifying the Market: company tries to increase Modifying the Market: company tries to increase the consumption of the current productthe consumption of the current product

Modifying the Product: changing characteristics Modifying the Product: changing characteristics such as quality, features, or style to attract new such as quality, features, or style to attract new users and to inspire more usageusers and to inspire more usage

Modifying the Marketing Mix: improving sales Modifying the Marketing Mix: improving sales by changing one or more marketing mix by changing one or more marketing mix elementselements

Decline StageDecline Stage The sales of most product forms and brands eventually dipThe sales of most product forms and brands eventually dip

—this is the decline stage—this is the decline stage

Some firms withdraw from the market, some prune their Some firms withdraw from the market, some prune their product offerings, some drop smaller market segments and product offerings, some drop smaller market segments and marginal trade channelsmarginal trade channels

Management may decide to maintain its brand without Management may decide to maintain its brand without change in the hope that competitors will leave the industrychange in the hope that competitors will leave the industry

Management may decide to harvest the product, which Management may decide to harvest the product, which means reducing various casts and hoping that sales hold upmeans reducing various casts and hoping that sales hold up—aiming for short run profits—aiming for short run profits

Management may decide to drop the product from the lineManagement may decide to drop the product from the line—can sell it to another firm or liquidate it at salvage value—can sell it to another firm or liquidate it at salvage value

ProductProduct –– Phase out weak items Phase out weak items PricePrice –– Cut priceCut price DistributionDistribution –– Use selective distribution: Use selective distribution:

phase out unprofitable outletsphase out unprofitable outlets AdvertisingAdvertising –– Reduce to level needed to Reduce to level needed to

retain hard-core loyalistsretain hard-core loyalists Sales PromotionSales Promotion –– Reduce to minimal level Reduce to minimal level

Marketing Strategies: Marketing Strategies: Decline StageDecline Stage

Low-dose Aspirin AdLow-dose Aspirin Ad

click on screenshot for website with products

Baby Aspirin has been in Baby Aspirin has been in the decline stage for the decline stage for over 10 years after over 10 years after discovery that it may discovery that it may have dangerous side have dangerous side effects for children. effects for children.

Recently it has been Recently it has been discovered it helping to discovered it helping to prevent heart attacks in prevent heart attacks in adults and is now adults and is now marketed to this new marketed to this new target.target.

Documents

Chapter 8 ar-fiii