New-Product Development and Product Life-Cycle Strategies 8

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

8

8-2

ROAD MAP: Previewing the Concepts

•Explain how companies find and Explain how companies find and develop new-product ideas.develop new-product ideas.

•List and define the steps in the List and define the steps in the new-product development process.new-product development process.

•Describe the stages of the product Describe the stages of the product life cycle.life cycle.

•Describe how marketing strategies Describe how marketing strategies change during the product’s life change during the product’s life cycle.cycle.

8-3

New-Product Development Strategy

Strategies for Obtaining New-Product Ideas

Acquisition of:

Companies

Patents

Licenses

Acquisition of:

Companies

Patents

Licenses

New Products:

Original Products

Improvements

Modifications

New Products:

Original Products

Improvements

Modifications

8-4

New-Product Failures

• Only 10% of new products are still on the Only 10% of new products are still on the market and profitable after 3 years.market and profitable after 3 years.

• Failure rate for industrial products is as Failure rate for industrial products is as high as 30%.high as 30%.

• Why?Why?– Overestimation of market sizeOverestimation of market size– Design problemsDesign problems– Incorrectly positioned, priced, or advertisedIncorrectly positioned, priced, or advertised– Pushed despite poor marketing research Pushed despite poor marketing research

findingsfindings– Development costsDevelopment costs– CompetitionCompetition

8-5

Major Stages in New-Product Development

8-6

Company EmployeesCompany Employees

CustomersCustomers

CompetitorsCompetitors

DistributorsDistributors

SuppliersSuppliers

Idea Generation

8-7

Idea Generation

When Heinz asked kids what would make the product more fun, they said, “Change the color!” so, Heinz developed and launched EZ Squirt, now in a variety of colors targeted at kids. The EZ Squirt bottle’s special nozzle also emits a thin stream so tykes can autograph their burgers.

8-8

Idea Screening

• Process to spot good ideas and drop Process to spot good ideas and drop poor ones.poor ones.

• Develop system to estimate: market Develop system to estimate: market size, product price, development size, product price, development time and costs, manufacturing costs, time and costs, manufacturing costs, and rate of return.and rate of return.

• Evaluate these findings against set of Evaluate these findings against set of company criteria for new products.company criteria for new products.

8-9

Concept Development and Testing

• Product IdeaProduct Idea: idea for a possible product : idea for a possible product that the company can see itself offering.that the company can see itself offering.

• Product ConceptProduct Concept: detailed version of the : detailed version of the idea stated in meaningful consumer idea stated in meaningful consumer terms.terms.

• Product ImageProduct Image: the way consumers : the way consumers perceive an actual or potential product.perceive an actual or potential product.

8-10

• The company’s task The company’s task is to develop its is to develop its fuel-cell-powered fuel-cell-powered electric car into electric car into alternative product alternative product concepts, find out concepts, find out how attractive each how attractive each is to customers, is to customers, and choose the and choose the best one.best one.

DiamlerChrysler’s Fuel-Cell-Powered Electric Car

8-11

•Choose a partner and cast yourself Choose a partner and cast yourself back in time. Try to figure out how back in time. Try to figure out how you might convert the idea of a you might convert the idea of a personal computer into a concept personal computer into a concept that could be tested. that could be tested.

Interactive Student Assignment

8-12

Marketing Strategy Development

Part One Describes:The Target Market

Planned Product PositioningSales, Market Share, & Profit Goals

Part One Describes:The Target Market

Planned Product PositioningSales, Market Share, & Profit Goals

Part Two Outlines the First-Year’s:Product’s Planned Price

DistributionMarketing Budget

Part Two Outlines the First-Year’s:Product’s Planned Price

DistributionMarketing Budget

Part Three Describes Long-Run:Sales & Profit Goals

Marketing Mix Strategy

Part Three Describes Long-Run:Sales & Profit Goals

Marketing Mix Strategy

8-13

Business Analysis

• Involves a review of Involves a review of the sales, costs, and the sales, costs, and profit projections to profit projections to assess fit with assess fit with company objectives.company objectives.

• If yes, move to the If yes, move to the product product development phase.development phase.

8-14

Product Development

• Develop concept into Develop concept into physical productphysical product

• Calls for large jump in Calls for large jump in investmentinvestment

• Prototypes are madePrototypes are made

• Prototype must have Prototype must have correct physical correct physical features and convey features and convey psychological psychological characteristicscharacteristics

8-15

Product Development

Click the picture above to play video

Dunkin’ Donuts Dunkin’ Donuts takes its product takes its product development development process very process very seriously in order seriously in order to meet to meet consumers’ consumers’ needs.needs.

8-16

Test Marketing

• Product and program introduced in Product and program introduced in more realistic market setting.more realistic market setting.

• Not needed for all products.Not needed for all products.

• Can be expensive and time Can be expensive and time consuming, but better than making consuming, but better than making major marketing mistake.major marketing mistake.

8-17

Test Marketing

Nokia test-marketed its new N-Gage cell phone/mobile game player extensively before introducing it worldwide.

8-18

Commercialization

• Must decide on Must decide on timingtiming (i.e., when to (i.e., when to introduce the product).introduce the product).

• Must decide on Must decide on wherewhere to introduce to introduce the product (e.g., single location, the product (e.g., single location, state, region, nationally, state, region, nationally, internationally).internationally).

• Must develop a Must develop a market rolloutmarket rollout plan. plan.

8-19

Organizing New-Product Development

• Sequential Approach: each stage Sequential Approach: each stage completed before moving to next completed before moving to next phase of the project.phase of the project.

• Simultaneous Approach: Cross-Simultaneous Approach: Cross-functional teams work through functional teams work through overlapping steps to save time and overlapping steps to save time and increase effectiveness.increase effectiveness.

8-20

TimeProduct

Develop-ment

Introduction

Profits

Sales

Growth Maturity Decline

Losses/Investments ($)

Sales andProfits ($)

Sales and Profits Over the Product’s Lifetime

Product Life Cycle

8-21

Product Life Cycle Applications

• Product classProduct class has the longest life cycle (e.g., has the longest life cycle (e.g., gas-powered cars)gas-powered cars)

• Product formProduct form tends to have the standard PLC tends to have the standard PLC shape (e.g., dial telephone)shape (e.g., dial telephone)

• BrandBrand can change quickly because of changing can change quickly because of changing competitive attacks and responses (e.g., Tide, competitive attacks and responses (e.g., Tide, Cheer)Cheer)

• StyleStyle is a basic and distinctive mode of is a basic and distinctive mode of expression (e.g., formal clothing, Danish expression (e.g., formal clothing, Danish modern furniture)modern furniture)

• FashionFashion is a popular style in a given field (e.g., is a popular style in a given field (e.g., business casual)business casual)

• FadFad is a fashion that enters quickly, is adopted is a fashion that enters quickly, is adopted quickly, and declines fast (e.g., pet rocks)quickly, and declines fast (e.g., pet rocks)

8-22

Alternative PLC Shapes

8-23

Practical Problems of PLC

Hard to identifywhich stage of the

PLC the product is in

Hard to pinpointwhen the product

moves to next stage

Hard to identifyfactors that affect

product’s movementthrough stages

Hard to forecastsales level, length of

each stage, andshape of PLC

Strategy is both acause and result of

the PLC

8-24

SalesSales

CostsCosts

ProfitsProfits

Marketing ObjectivesMarketing Objectives

ProductProduct

PricePrice

LowLow

High cost per customerHigh cost per customer

NegativeNegative

Create product awareness and trialCreate product awareness and trial

Offer a basic productOffer a basic product

Use cost-plus formulaUse cost-plus formula

DistributionDistribution Build selective distributionBuild selective distribution

PromotionPromotion Heavy to entice product trialHeavy to entice product trial

Summary of Characteristics, Objectives, & Strategies

Introduction Stage of the PLC

8-25

SalesSales

CostsCosts

ProfitsProfits


ProductProduct

PricePrice

Rapidly risingRapidly rising

Average cost per customerAverage cost per customer

RisingRising

Maximize market shareMaximize market share

Offer extension, service, warrantyOffer extension, service, warranty

Penetration strategyPenetration strategy

DistributionDistribution Build intensive distributionBuild intensive distribution

PromotionPromotion Reduce to take advantage of demandReduce to take advantage of demand


Growth Stage of the PLC

8-26

SalesSales

CostsCosts

ProfitsProfits


ProductProduct

PricePrice

PeakPeak

Low cost per customerLow cost per customer

HighHigh

Maximize profits while defending market share

Maximize profits while defending market share

Diversify brand and models Diversify brand and models

Match or best competitorsMatch or best competitors

DistributionDistribution Build more intensive distributionBuild more intensive distribution

PromotionPromotion Increase to encourage brand switchingIncrease to encourage brand switching


Maturity Stage of the PLC

8-27


• Modifying the MarketModifying the Market: Increase the : Increase the consumption of the current product.consumption of the current product.

• How?How?– Look for new users and market segmentsLook for new users and market segments– Reposition the brand to appeal to larger Reposition the brand to appeal to larger

or faster-growing segmentor faster-growing segment– Look for ways to increase usage among Look for ways to increase usage among

present customerspresent customers

8-28

Modifying the Market

The WD-40 company’s knack for finding new uses has made this popular substance one of the truly essential survival items in most American homes. www.wd40.com

8-29


• Modifying the ProductModifying the Product: Changing : Changing characteristics such as quality, characteristics such as quality, features, or style to attract new features, or style to attract new users and to inspire more usage.users and to inspire more usage.

• How?How?– Improve durability, reliability, speed, Improve durability, reliability, speed,

tastetaste– Improve styling and attractivenessImprove styling and attractiveness– Add new featuresAdd new features– Expand usefulness, safety, convenienceExpand usefulness, safety, convenience

8-30

Modifying the Product

Crayola has added a steady stream of new colors, forms, and packages

http://www.crayola.com

8-31


• Modifying the Marketing MixModifying the Marketing Mix: : Improving sales by changing one or Improving sales by changing one or more marketing mix elements.more marketing mix elements.

• How?How?– Cut pricesCut prices– Launch a better ad campaignLaunch a better ad campaign– Move into larger market channelsMove into larger market channels– Offer new or improved services to Offer new or improved services to

buyersbuyers

8-32

Modifying the Marketing Mix

New ads and promotions to reposition and revitalize mature product.

8-33

SalesSales

CostsCosts

ProfitsProfits


ProductProduct

PricePrice

DecliningDeclining

Low cost per customerLow cost per customer

DecliningDeclining

Reduce expenditures and milk the brandReduce expenditures and milk the brand

Phase out weak itemsPhase out weak items

Cut priceCut price

DistributionDistribution Selective: phase out unprofitable outletsSelective: phase out unprofitable outlets

PromotionPromotion Reduce to minimum levelReduce to minimum level


Decline Stage of the PLC

8-34

Rest Stop: Reviewing the Concepts

• Explain how companies find and Explain how companies find and develop new-product ideas.develop new-product ideas.

• List and define the steps in the List and define the steps in the new-product development process.new-product development process.

• Describe the stages of the product Describe the stages of the product life cycle.life cycle.

• Explain how marketing strategies Explain how marketing strategies change during the product’s life change during the product’s life cycle.cycle.

Documents

New-Product Development and Product Life-Cycle Strategies 8