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PRODUCT LIFE CYCLES AND NEW PRODUCT DEVELOPMENT Professor Chip Besio Cox School of Business Southern Methodist University Stages of the Product Life Cycle Sales Intro- Growth Mature duction Time Decline Intro Growth Mature Decline Sales Low Rising Peak, Flattening Declining Cost Highest Average Lowest Depends Profits Negative Rising Higher Declining Intro Customers Growth Mature Innovators Early Middle Adopters Majority Competitors Few Growing Many Decline Laggards Few Introduction Stage ISSUES Supply side – Technological leap-froging – Assume industry-wide start-up costs Demand side – Some uncertainty in market size – Some uncertainty in market tastes – Innovators critical Introduction Stage STRATEGIES Market pioneers – Very risky – Need financial resources • The “bleeding edge” Pricing – Skimming – Penetration Growth Stage STRATEGIES Early followers Emergence of repeat buyers Options – Imitate – Innovate – Differentiate Maturity Stage ISSUES Technical certainty Initial costs covered Experienced, well-informed buyers Replacement sales greater than initial sales Problem - Commoditization Maturity Stage STRATEGIES Pioneer new segment Head-to-head competition with leader Low cost strategy Catch leader asleep Decline Stage STRATEGIES Understanding reasons for decline Options in order... – Maintain – Harvest – Drop What Is A New Product? New to the world New to the company Flankers – Line extensions – Brand extensions Repositioning Model changes Dyson Products Swiffer Products New Product Development New product development is the most important strategic activity of any firm However, it is the most risky venture Most new products fail! New Product Development Risks Study by Assoc. of National Advertisers (2004) --across all types of industries – 27% of line extensions failed – 31% of new brands introduced in categories where company already had a product failed – 46% of new products introduced to new categories failed Only 1 in 7 new product ideas are carried to the commercialization phase Why New Products Fail Poor planning and strategy – Market is not attractive Poor concept Poor execution Poor use of research Poor technology Poor timing – Changes in tastes/environment Bad support from channel How New Products Succeed Top-management commitment Start with the consumer -- not the factory Intelligent use of research Find a competitive advantage Move quickly Know when to get out Accept, but manage risk New Product Success Factors Be close to the market (trends) Set a strategic direction Play to your strengths Strong organizational support Speed to market Why Speed to Market? Markets are getting more specialized Intensified competition Changing technology Changing tastes Rampant copying Gaining shelf space early New Product Development Process –Idea –Generation –Concept –Idea –Development –Screening –and Testing –Commercialization –Test –Product –Business –Development –Marketing –Marketing –Analysis –Strategy New Product Development Process IDEA GENERATION Gaps – Are there unfilled current consumer needs? Growth – Are there unfilled future needs? Synergies – Is there unfilled potential in the firm’s existing product portfolio? New Product Development Process SOURCES OF NEW IDEAS Technology Market needs and user solutions Competitors and other firms Channels of distribution and suppliers Management and employees Environmental changes New Product Development Process CONCEPT TESTING Goal – Use primary market information to better define the product, forecast likely demand, and clarify target buyer Common tools – Focus Groups – Conjoint Analysis – Web-based Panels New Product Development Process BUSINESS ANALYSIS –Review Product Sales, Costs, and Profits Projectio –to See if They Meet Company Objectives – –If No, Eliminate –Product Concept –If Yes, Move to –Product Development –Source: Prentice Hall Business Analysis WHEN TO STOP A BAD IDEA Rule 1: Remember the sunk cost fallacy Rule 2: Set benchmarks for success beforehand and stick to them Rule 3: Be sure to plan research so that it will allow you to diagnose the cause of problems New Product Development Process 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 –Source: Prentice Hall