Download New-Product Development Process

A Global Perspective
9
New Product
Development and
Product Life-Cycle
Strategies
Philip Kotler
Gary Armstrong
Swee Hoon Ang
Siew Meng Leong
Chin Tiong Tan
Oliver Yau Hon-Ming
PowerPoint slides adapted by
Peggy Su
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Learning Objectives
After studying this chapter, you should be able to:
1. Explain how companies find and develop new-product
ideas
2. List and define the steps in the new-product
development process and the major considerations in
managing this process
3. Describe the stages of the product life cycle
4. Describe how marketing strategies change during the
product’s life cycle
5. Discuss two additional product and services issues:
socially responsible product decisions and international
product and services marketing
Copyright © 2009 Pearson Education South Asia Pte Ltd
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Chapter Outline
1. New-Product Development Strategy
2. New-Product Development Process
3. Managing New-Product Development
4. Product Life-Cycle Strategies
5. Additional Product and Service
Considerations
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New-Product Development Strategy
A firm can obtain new products through:
• Acquisition
• New-product development
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New-Product Development Strategy
•
Acquisition refers to the buying of a whole
company, a patent, or a license to produce
someone else’s product.
•
New product development refers to
original products, product improvements,
product modifications, and new brands
developed from the firm’s own research and
development.
Copyright © 2009 Pearson Education South Asia Pte Ltd
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New-Product Development Strategy
Reasons for new product failure
•
Overestimation of market size
•
Poor design
•
Incorrect positioning
•
Wrong timing
•
Priced too high
•
Ineffective promotion
•
Management influence
•
High development costs
•
Competition
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New-Product Development Process
1. Idea generation
2. Idea screening
3. Concept development and testing
4. Marketing strategy development
5. Business analysis
6. Product development
7. Test marketing
8. Commercialization
Copyright © 2009 Pearson Education South Asia Pte Ltd
(Exploit for maximal profit, usually by sacrificing quality)
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New-Product Development Process
Idea Generation
• New idea generation is the systematic
search for new product ideas.
• Sources of new-product ideas
• Internal
• External
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New-Product Development Process
Idea Generation
• Internal sources refer to the company’s own
formal research and development, management
and staff, and entrepreneurial programs.
• External sources refer to sources outside the
company such as customers, competitors,
distributors, suppliers, and outside design firms.
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New-Product Development Process
Idea Screening
• Idea screening refers to reviewing new-product
ideas in order to drop poor ones as soon as
possible.
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New-Product Development Process
Concept Development and Testing
• Product idea
is an idea for a possible product that the
company can see itself offering to the market.
• Product concept
is a detailed version of the idea stated in
meaningful consumer terms.
• It is the understanding of the dynamics of the product in order to
showcase the best qualities and maximum features of the product.
Marketers spend a lot of time and research in order to target their
attended audience. Marketers will look into a product concept before
marketing a product towards their customers.
• Product image
is the way consumers perceive an actual or
potential product.
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New-Product Development Process
Concept Development and Testing
• Concept testing
(or market testing) is the process of using
quantitative methods and qualitative methods to evaluate consumer
response to a product idea prior to the introduction of a product to the
market. It can also be used to generate communication designed to alter
consumer attitudes toward existing products.
• These methods involve the evaluation by consumers of product concepts
having certain rational benefits, such as "a cleaner that removes stains but is
gentle on fabrics," or non-rational benefits, such as "a shampoo that lets you
be yourself." Such methods are commonly referred to as concept testing and
have been performed using field surveys, personal interviews and focus
groups, in combination with various quantitative methods, to generate and
evaluate product concepts.
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New-Product Development Process
Marketing Strategy Development
• Marketing strategy development refers to the
initial marketing strategy for introducing the
product to the market.
• Marketing strategy statement
• Business analysis
• Product development
• Test marketing
• Commercialization
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New-Product Development Process
Marketing Strategy Statement
Part 1:
• Description of the target market
• Product positioning, sales, market share, and profit
goals
Part 2:
• Price distribution and budget
Part 3:
• Long-term sales, profit goals, and marketing mix
strategy
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New-Product Development Process
Business Analysis
• Business analysis involves a review of the
sales, costs, and profit forecasts to find out
whether they satisfy the company’s objectives.
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New-Product Development Process
Product Development
• Product development involves the creation and
testing of one or more physical versions by the
R&D or engineering departments.
• Requires an increase in investment
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New-Product Development Process
Test Marketing
• When firms test market
• New product with large investment
• Uncertainty about product or marketing program
• When firms may not test market
• Simple line extension
• Copy of competitor product
• Low costs
• Management confidence
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New-Product Development Process
Commercialization
• Commercialization is the introduction of the
new product
• When to launch
• Where to launch
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Product Life-Cycle Strategies
• Product life-cycle (PLC) is the course that a
product’s sales and profits take over its lifetime.
• Product development
• Introduction
• Growth
• Maturity
• Decline
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Product Life-Cycle Strategies
Sales and profits over the product’s life from inception to decline
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Product Life-Cycle Strategies
• Product development begins when the company
finds and develops a new-product idea.
• During product development, sales are zero, and the
company’s investment costs mount.
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Product Life-Cycle Strategies
Introduction stage is when the new product is first launched.
Introduction stage is a period of slow sales growth as the product is
introduced in the market. Profits are nonexistent in this stage because of the
heavy expenses of product introduction.
Well-known products such as frozen foods and HDTVs lingered for many
years before they entered a stage of more rapid growth.
Promotion spending is relatively high to inform consumers of the new
product and get them to try it. Because the market is not generally ready for
product refinements at this stage, the company and its few competitors
produce basic versions of the product. These firms focus their selling on
those buyers who are the most ready to buy.
• Takes time
• Slow sales growth
• Little or no profit
• High distribution and promotion expenses.
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Product Life-Cycle Strategies
Growth stage is when the new product satisfies the
market. Growth is a period of rapid market acceptance and
increasing profits.
• Sales increase
• New competitors enter
the market
• Price stability or decline
to increase volume
• Consumer education
• Product quality increases
• New features
• New market segments
and distribution channels
are entered
• Profits increase
• Promotion and
manufacturing costs gain
economies of scale
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Growth Stage
If the new product satisfies the market, it will enter a growth stage, in which
sales will start climbing quickly. The early adopters will continue to buy, and
later buyers will start following their lead, especially if they hear favorable
word of mouth.
New competitors will enter the market. They will introduce new product
features, and the market will expand. The increase in competitors leads to
an increase in the number of distribution outlets.
Prices remain where they are or decrease only slightly.
Companies keep their promotion spending at the same or a slightly higher
level.
Educating the market remains a goal, but now the company must also meet
the competition.
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Growth Stage
Profits increase during the growth stage as promotion costs are spread over
a large volume and as unit manufacturing costs decrease.
The firm uses several strategies to sustain rapid market growth as long as
possible. It improves product quality and adds new product features and
models.
The enterprise enters new market segments and new distribution channels.
The company shifts some advertising from building product awareness to
building product persuasion and purchase.
The organization lowers prices at the right time to attract more buyers.
The firm faces a trade-off ( compromise) between high market share and
high current profit. By spending a lot of money on product improvement,
promotion, and distribution, the company can capture a dominant position.
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Product Life-Cycle Strategies
• Maturity stage is a long-lasting stage of a product that
has gained consumer acceptance. Maturity is a period of
slowdown in sales growth because the product has
achieved acceptance by most potential buyers. Profits
stabilize or decline because of increased marketing
outlays to defend the product against competition.
• Slowdown in sales
• Many suppliers
• Substitute products
• Overcapacity leads to competition
• Increased promotion and R&D to support sales
and profits.
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Maturity Stage
This maturity stage normally lasts longer than the previous stages, and it poses
strong challenges to marketing management. Most products are in the maturity stage
of the life cycle, and therefore most of marketing management deals with the mature
product.
The slowdown in sales growth results in many producers with many products to sell.
In turn, this overcapacity leads to greater competition.
Competitors begin marking down prices, increasing their advertising and sales
promotions, and upping their product development budgets to find better versions of
the product. These steps lead to a drop in profit.
Weaker competitors start dropping out, and the industry eventually contains only
well-established competitors.
Many products in the mature stage appear to remain unchanged for long periods.
Most successful products are actually evolving to meet changing consumer needs.
Product managers should do more than simply ride along with or defend their
mature Products. They should consider modifying the market, product, and
marketing mix.
In modifying the market, the company tries to increase consumption by finding new
users and new market segments for its brands.
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Product Life-Cycle Strategies
Decline stage is when sales decline or level off for an
extended time, creating a weak product. Decline is the period
when sales fall off and profits drop.
The sales of most product forms and brands eventually dip. The
decline may be slow, as in the cases of stamps or rapid, as in
the cases of cassette and VHS tapes.
Sales may plunge to zero, or they may drop to a low level
where they continue for many years
Sales decline for many reasons, including technological
advances, shifts in consumer tastes, and increased competition.
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Decline Stage
As sales and profits decline, some firms withdraw from the market. Those
remaining may cut back their product offerings.
Companies may drop smaller market segments and minimal trade channels,
or they may cut the promotion budget and reduce their prices further.
Carrying a weak product can be very costly to a firm, and not just in profit
terms. There are many hidden costs.
A weak product may take up too much of management’s time. It often
requires frequent price and inventory adjustments. It requires advertising
and sales- force attention that might be better used to make “healthy”
products more profitable.
A product’s failing reputation can cause customer concerns about the
company and its other products. The biggest cost may well lie in the future.
Keeping weak products delays the search for replacements, creates a uneven
product mix, hurts current profits, and weakens the company’s position on
the future.
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Decline Stage
companies need to pay more attention to their aging products. A firm’s first
task is to identify those products in the decline stage by regularly reviewing
sales, market shares, costs, and profit trends.
Management must decide whether to maintain, harvest, or drop each of
these declining products.
Management may decide to maintain its brand, repositioning or
reinvigorating it in hopes of moving it back into the growth stage of the
PLC.
Management may decide to harvest the product, which means reducing
various costs (plant and equipment, maintenance, R&D, advertising, sales
force), hoping that sales hold up. If successful, harvesting will increase the
company’s profits in the short run.
Management may decide to drop the product from its line. It can sell it to
another firm or simply liquidate it.
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Not all products follow all five stages of the PLC. Some
products are introduced and die quickly; others stay in the
mature stage for a long, long time. Some enter the decline stage
product performance or developing marketing strategies
presents some practical problems.
For example, in practice, it is difficult to forecast the sales level
at each PLC stage, the length of each stage, and the shape of
the PLC curve.
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Marketers should not blindly push products through the traditional
PLC stages. Instead, marketers often defy the “rules” of the life cycle
and position or reposition their products in unexpected ways.
By doing this, they can rescue mature or declining products and
return them to the growth phase of the life cycle. Or they can
overcome obstacles to slow consumer acceptance and push new
products forward into the growth phase.
The moral of the product life cycle is that companies must continually
innovate or else they risk extinction. No matter how successful its
current product lineup, a company must skillfully manage the life
cycles of existing products for future success. And to grow, it must
develop a steady stream of new products that bring new value to
customers.
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