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9-1 PRINCIPLES OF MARKETING Chapter 5 New Product Development and Product Life-Cycle Strategies Causes of New Product Failures • Overestimation of Market Size • Product Design Problems • Product Incorrectly Positioned, Priced or Advertised • Costs of Product Development • Competitive Actions • To create successful new products, the company must: – understand it’s customers, markets and competitors – develop products that deliver superior value to customers. 9-2 9-3 New Product Development Process • • • • • • • Idea Generation and Screening Concept Development and Testing Marketing Strategy Business Analysis Product Development Test Marketing Commercialization New Product Development Process Step 1. Idea Generation Systematic Search for New Product Ideas Internal sources Customers Competitors Distributors Suppliers 9-4 New Product Development Process Step 2. Idea Screening • Process to spot good ideas and drop poor ones • Criteria – – – – – Market Size Product Price Development Time & Costs Manufacturing Costs Rate of Return 9-5 New Product Development Process Step 3. Concept Development & Testing 1. Develop Product Ideas into Alternative Product Concepts 2. Concept Testing - Test the Product Concepts with Groups of Target Customers 3. Choose the Best One 9-6 New Product Development Process Step 4. Marketing Strategy Development Marketing Strategy Statement Formulation Part One - Overall: Target Market Planned Product Positioning Sales & Profit Goals Market Share Part Two - Short-Term: Product’s Planned Price Distribution Marketing Budget Part Three - Long-Term: Sales & Profit Goals Marketing Mix Strategy 9-7 New Product Development Process Step 5. Business Analysis Step 6. Product Development Business Analysis Review of Product Sales, Costs, and Profits Projections to See if They Meet Company Objectives If No, Eliminate Product Concept If Yes, Move to Product Development 9-8 New Product Development Process Step 7. Test Marketing Standard Test Market Full marketing campaign in a small number of representative cities. Controlled Test Market A few stores that have agreed to carry new products for a fee. Simulated Test Market Test in a simulated shopping environment to a sample of consumers. 9-9 9-10 Product Life Cycle Sales and Profits ($) Sales Profits Time Product Development Losses/ Investments ($) Introduction Growth Maturity Decline Introduction Stage of the PLC Sales Low sales Costs High cost per customer Profits Negative Create product awareness and trial Marketing Objectives Product Offer a basic product Price Use cost-plus Distribution Build selective distribution Advertising Build product awareness among early adopters and dealers 9-11 Growth Stage of the PLC Sales Rapidly rising sales Costs Average cost per customer Profits Rising profits Marketing Objectives Maximize market share Product Price Offer product extensions, service, warranty Price to penetrate market Distribution Build intensive distribution Advertising Build awareness and interest in the mass market 9-12 Maturity Stage of the PLC Sales Peak sales Costs Low cost per customer Profits High profits Marketing Objectives Maximize profit while defending market share Product Price Distribution Advertising Diversify brand and models Price to match or best competitors Build more intensive distribution Stress brand differences and benefits 9-13 Decline Stage of the PLC Sales Declining sales Costs Low cost per customer Profits Declining profits Marketing Objectives Reduce expenditure and milk the brand Product Phase out weak items Price Cut price Distribution Go selective: phase out unprofitable outlets Reduce to level needed to retain hard-core loyal customers Advertising 9-14