s Chp 8 New Product 2014-5

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Copyright © 2011 Pearson Education

Chapter 8Developing New Products

and Managing the Product Life-Cycle

Veronica Mak

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New-product Development Strategy

New-product development is the development of original products, product improvements, product modifications, and new brands through the firm’s own product-development efforts.

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New-Product Failures

• Overestimation of market size

• Design problems• Incorrect pricing or

positioning• High development

costs• Competitor reaction

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Each product failure represents squandered dollars and hopes

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The New-product Development Process

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Idea Generation-is the systematic search for new-product ideas.

Internal sources: includes formal research and development. External sources: includes distributors and suppliers; competitors; online collaborative; customers.

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Idea Generation

• Analyze customer questions and complaints to find new products that better solve consumer problems

• Invite customers to share suggestions and ideas

To harness customer new-product input, 3M has opened customer innovation centers, which generate customer-driven new-product ideas and help 3M establish long-term customer relationships

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Crowdsourcing

• Invites customers, employees, independent scientists and researchers, and even the public at large, into the new-product innovation process

When Netflix wanted ideas for improving the accuracy of its online recommendation system, it decided to “open it up to the world,” promising a $1 million prize for the best solution

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Idea screening

Screening new-product ideas in order to spot good ideas and drop poor ones as soon as possible.

Real? Win? Worth It?

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Idea screening- Criteria of Selection

P&G- Successful rate: 50% vs average 25%

Criteria of Choice:DifferentiatedSolve ProblemCompelling Customer Value proposition

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Concept Development and Testing

• Product idea: An idea for a possible product that the company can see itself offering to the market

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Product concept is a detailed version of the new-product idea stated in meaningful consumer terms.

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•Product image: •The way consumers perceive an actual or potential product

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Concept Development

• To develop a new product into alternative product concepts, find out how attractive each concept is to customers, and choose the best one

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Tesla’s initial all-electric roadster, will be followed by more-affordable mass-market models

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Concept Testing

• Testing new-product concepts with a group of target consumers to find out if the concepts have strong consumer appeal– Using a description, picture or model of the product– Asking consumers – about their reactions

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Concept Testing Questions- Would you Buy?

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Marketing Strategy Statement

• Describes the target market, planned value proposition, sales, market share, and profit goals

• Outlines the product’s planned price, distribution, and marketing budget

• Describes the planned long-run sales and profit goals, marketing mix strategy

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Business Analysis

• A review of the sales, costs, and profit projections for a new product to find out whether these factors satisfy the company’s objectives

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Product Development

• Developing the product concept into a physical product to ensure that the product idea can be turned into a workable market offering – Prototypes are made– Consumer tests are conducted

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Test Marketing

• Introducing the product and marketing program in realistic market settings

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Starbucks spent 20 years developing Starbucks VIA instant Coffee and several months testing the product in Starbucks shops in Chicago and Seattle before releasing the product nationally

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Test Marketing

• Standard test markets are usually extensive and costly to use

• Simulated test markets– Researchers measure consumer responses to in laboratory stores or simulated online shopping environments

• Controlled test markets– New products and tactics are tested among controlled panels of shoppers and stores

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Commercialization

• Introducing a new product into the market• Companies must decide:

– When to introduce the product– Where to introduce the product

• Single location, state, region, nationally, internationally

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Managing New-Product Development

• Companies must take a holistic approach to new product development

• This requires:– Customer-centered new-product development– Team-based new-product development– Systematic new-product development

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Customer-Centered New-ProductDevelopment

Customers are urged to submit their own ideas for new products and services on P&G’s crowdsourcing site Connect + Develop

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• New-product development that focuses on finding new ways to solve customer problems and create more customer-satisfying experiences

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Marketing at Work

• Faced with falling sales, LEGO began new-product development by listening to customers and including them in the design process

LEGO’s Design By Me site lets customers download 3D design software, create a LEGO toy, and then order the kit to build it

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Figure 8.2 - Sales and Profits Over the Product’s Life From Inception to Decline

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The Product Life Cycle

• All products do not follow all five stages of the PLC

• Marketers can apply the PLC as a framework for describing how products and markets work

Some products die quickly, while others stay in the mature stage for a long, long time like TABASCO® sauce

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Applying the Product Life-Cycle Concept

• The PLC concept can describe a product class, a product form , or a brand – Product class has the longest life

cycle– Product form tends to the standard

PLC shape– PLCs for brands can change quickly

because of changing competitive attacks and responses

• The PLC concept also can be applied to what are known as styles, fashions, and fads

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Figure 8.3 - Styles, Fashions, and Fads

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Summary of Product Life-Cycle Characteristics, Objectives, and Strategies (pp276)

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Introduction Stage Characteristics

• Sales: Low• Costs: High cost per customer• Profits: Negative or low• Customers: Innovators• Competitors: Few• Marketing objective: Create product

awareness and trial

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Introduction Stage Strategies

• Product: Offer a basic product• Price: Use cost-plus pricing• Distribution: Build selective distribution• Advertising: Build product awareness among

early adopters and dealers• Promotion: Use heavy promotion to entice

product trial

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Growth Stage Characteristics

• Sales: Rapidly rising• Costs: Average cost per customer• Profits: Rising profits• Customers: Early adopters• Competitors: Growing number• Marketing objective: Maximize market share

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Growth Stage Strategies

• Product: Offer product extensions, service, warranty

• Price: Price to penetrate the market• Distribution: Build intensive distribution• Advertising: Build awareness and interest in

the mass market• Promotion: Reduce to take advantage of

heavy consumer demand

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Maturity Stage Characteristics

• Sales: Peak sales• Costs: Low cost per customer• Profits: High profits• Customers: Middle majority• Competitors: Stable number beginning to

decline• Marketing objective: Maximize profits while

defending market share

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Maturity Stage Strategies

• Product: Diversify brand and models• Price: Match or beat competitors• Distribution: Build more intensive distribution• Advertising: Stress brand differences and

benefits• Promotion: Increase to encourage brand

switching

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• Modifying the market– Increase the consumption of the current product

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

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

customers

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• Modifying the product– Changing characteristics such as quality, features,

style or packaging to attract new users and inspire more usage

• How?– Improve durability, reliability, speed, taste– Improve styling and attractiveness– Add new features

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• Modifying the marketing mix– Improving sales by changing one or more

marketing mix elements

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

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• Reinvigorating a mature brand: Kellogg kept its 55-year-old Special K brand growing by turning it into a healthful, slimming lifestyle brand

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Decline Stage Characteristics

• Sales: Declining sales• Costs: Low cost per customer• Profits: Declining profits• Customers: Laggards• Competition: Declining number• Marketing objective: Reduce expenditures

and milk the brand

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Decline Stage Strategies

• Product: Phase out weak items• Price: Cut price• Distribution: Go selective—phase out

unprofitable outlets• Advertising: Reduce to level needed to retain

hard-core loyals• Promotion: Reduce to minimal level

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Summary of Product Life-Cycle Characteristics, Objectives, and Strategies

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Marketing at Work

• Swatch is constantly evolving to meet changing consumer needs

• With Swatch, people started to purchase multiple watches to match their mood or activity.

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Product Decisions and Social Responsibility

• Companies must consider – Public policy issues– Regulations regarding acquiring or dropping products– Patent protection– Product quality and safety, and warranties

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International Product and Services Marketing

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• Companies face challenges in the international market

• They can• Standardize

products across markets

• Adapt products to local tastes

Kit Kat benefits from a coincidental similarity between the bar’s name and the Japanese phrase, kitto katsu, which roughly translates to “Surely you win!”

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Review

• New Product Development• Product Life-Cycle and Marketing Strategies• International product and services marketing• Skip: Social Responsibility in product decisions

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Individual Marketing Plan Proposal• Half-page, includes the following:• Name and brief description of the product

(not yet launched in HK)• Background of the company

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• The End

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s Chp 8 New Product 2014-5