Download New-Product Development Process

Developing New Products
and
Managing the Product Life-Cycle
Chapter
8
Chapter Outline
 New-Product Development Strategy
 The New-Product Development
Process
 Managing New-Product Development
 Product Life-Cycle Strategies
 Product Decisions and Social
Responsibility
 International Product and Services
Marketing
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Previewing the Concepts
1.
2.
3.
4.
Explain how companies find and develop newproduct ideas.
List and define the steps in the new-product
development process and the major
considerations in managing this process.
Describe the stages of the product life cycle
and how marketing strategies change during
the product’s life cycle.
Discuss two additional product and services
issues: socially responsible product decisions
and international product and services
marketing.
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New-Product Development
A firm can obtain new products
through:
1)
Acquisition
2)
New-product development
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New-Product Development
• Acquisition refers to the buying of a
whole company, a patent, or a
license to produce someone else’s
product.
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New-Product Development
The development of original
products, product improvements,
product modifications, and new
brands through the firm’s own
research & development efforts.
New product development and innovation is
very expensive and very risky.
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New-Product Failures
 Why do new products fail?
– Overestimation of market size.
– Product design problems.
– Incorrectly positioned, priced, or
advertised.
– Pushed by high level executive despite
poor marketing research findings.
– Excessive development costs.
– Competitive reaction.
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Figure 8.1:
Major Stages in
New-Product Development
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New-Product Development Process
 Idea generation:
– Internal sources:
• Company employees
at all levels.
• Example: Samsung
built a special Value
Innovation Program
Center in which firm
engineers, designers,
and researchers
comingle to come up
with creative newproduct ideas.
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New-Product Development Process
 Idea generation:
– External sources:
• Customers
• Competitors
• Distributors
• Suppliers
• Outsourcing (design
firms, product
consultancies, online
collaborative communities)
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Fuel for Thought
Consumers are often excellent sources of
new product ideas.
What type of new product would you like
to see commercialized?
Think about the products you use now—
can they be changed or improved? What
do you wish you could buy that currently is
not available?
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New-Product Development Process
 Idea screening:
– Process used to spot good ideas and
drop poor ones.
– Executives provide a description of the
product along with estimates of market
size, product price, development time
and costs, manufacturing costs, and rate
of return.
– Evaluated against a set of company
criteria for new products.
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New-Product Development Process
 Concept development and testing:
– Product idea:
• Idea for a possible product that the company can
see itself offering to the market.
– Product concept:
• Detailed version of the new-product idea stated
in meaningful consumer terms.
– Concept testing:
• Testing new-product concepts with groups of
target consumers to find out if the concepts have
strong consumer appeal.
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Concept Testing Questions
Battery-Powered Electric Car
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New-Product Development Process
 Marketing strategy development:
– Part One:
• Describes the target market, planned
value proposition, sales, market share, and
profit goals.
– Part Two:
• Outlines the product’s planned price,
distribution, and marketing budget.
– Part Three:
• Describes the planned long-run sales and
profit goals, marketing mix strategy.
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Marketing Strategy
Development
Marketing Strategy Statement
Step 1
• Target
market
• Planned
value
proposition
• Sales
• Market
share
• Profit goals
Step 2
• Price
• Distribution
• Marketing
budget
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Step 3
• Long-run
sales
• Profit goals
• Marketing
mix
strategy
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New-Product Development Process
 Business analysis:
– Involves a review of
the sales, costs, and
profit projections to
assess fit with
company objectives.
– If results are positive,
project moves to the
product development
phase.
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New-Product Development Process
 Product development:
–
–
–
–
Develops concept into a physical product.
Calls for a large jump in investment.
Prototypes are made.
Prototypes must have correct physical features
and convey psychological characteristics.
– Prototypes are subjected to physical tests.
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Marketing in Action
Gillette uses employee-volunteers
to test new shaving products.
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New-Product Development Process
 Test Marketing:
– Product and marketing program are
introduced in a more realistic market setting.
– Provides the marketer with experience in
testing the product and entire marketing
program before full introduction.
– Not needed for all products.
– Can be expensive and time consuming, but
better than making a major marketing
mistake.
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New-Product Development Process
Test Marketing
When firms test
market
When firms may not
test market
• New product with
large investment
• Uncertainty about
product or
marketing program
• Simple line
extension
• Copy of competitor
product
• Low costs
• Management
confidence
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Marketing in Action
Test marketing is
appropriate when a large
investment is required,
when the risk is high, or
when management is not
sure of the product or
marketing program.
KFC test-marketed its
new Kentucky Grilled
Chicken for three years
before rolling it out
nationally.
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New-Product Development Process
Commercialization involves introducing a
new product into
the market.
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New-Product Development Process
 Commercialization:
– Must decide on timing (i.e., when to
introduce the product).
– Must decide on where to introduce the
product (e.g., single location, state,
region, nationally, internationally).
– Must develop a market rollout plan.
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Customer-Centered
New-Product Development
Focuses on finding new ways
to solve customer problems
and create more satisfying
customer experiences –
begins and ends with solving
customer problems
New product development must focus on
creating customer value.
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Managing New-Product
Development
 Team-based new-product development:
– Various company departments work closely
together, overlapping the steps in the product
development process to save time and increase
effectiveness.
 Systematic new-product development:
– The new-product development process should be
holistic and systematic rather than
compartmentalized and haphazard.
– Innovation management systems collect, review,
evaluate, and manage new-product ideas.
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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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Figure 8.2:
Sales and Profits Over the Product’s Life
from Inception to Decline (PLC Curve)
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Marketing in Action
Some products die
quickly, while others
stay in the mature stage
for a long, long time.
TABASCO® sauce is
“over 130 years old and
yet still able to whup
your butt!”
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Applying the Product Life-Cycle
 Product class has the longest life cycle.
 Product form tends to have the standard PLC
shape.
 Brand can change quickly because of changing
competitive attacks and responses.
 Style is a basic and distinctive mode of
expression.
 Fashion is a popular style in a given field.
 Fads result in a temporary period of unusually
high sales driven by consumer enthusiasm. Fads
decline quickly.
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Figure 8.3:
Styles, Fashions, and Fads
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Practical Problems of PLC
 When used carefully, the PLC may help
develop good marketing strategies.
 However, in practice, it is difficult to:
– Forecast sales level, length of each stage, and
shape of PLC.
– Develop marketing strategy because strategy
is both a cause and result of the PLC.
 Marketers should avoid blindly pushing
products to next stage and instead seek
ways to rescue products and growth sales.
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Introduction Stage of PLC
Introduction stage is when the new
product is first launched.





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 of PLC
 Marketing 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 of PLC
Growth stage is when the new
product satisfies the market.





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 of PLC
 Marketing 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 of PLC
Maturity stage is a long-lasting stage of a
product that has gained consumer
acceptance.
 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 of PLC
 Marketing Strategies:
– Product: Diversify brand and models.
– Price: Match or best competitors.
– Distribution: Build more intensive
distribution.
– Advertising: Stress brand differences and
benefits.
– Promotion: Increase to encourage brand
switching.
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Maturity Stage of the PLC
 Strategies used to manage the PLC
during maturity include:
– Modifying the market
– Modifying the product
– Modifying the marketing mix
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Maturity Stage of the PLC
 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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Maturity Stage of the PLC
 Modifying the product:
– Changing characteristics such as quality,
features, or style to attract new users
and to inspire more usage.
 How?
– Improve durability, reliability, speed,
taste.
– Improve styling and attractiveness.
– Add new features.
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Maturity Stage of the PLC
 Modifying the marketing mix:
– Improving sales by changing one or
more marketing mix elements.
 How?
– Cut prices.
– Launch a better ad campaign.
– Move into new market channels.
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Marketing in Action
As part of its market
modification efforts,
101-year old card
marketer American
Greetings created
Kiwee.com to reach out
to younger consumers.
The site makes use of
social-networking
widgets, instant
messaging channels
and more!
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Decline Stage of PLC
Decline stage is when sales decline or
level off for an extended time,
creating a weak product.





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 of PLC
 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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Summary of Product Life-Cycle
Characteristics, Objectives, and Strategies
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Additional Considerations
 Product decisions and social
responsibility:
– Consider public policy issues, regulations
regarding acquiring or dropping
products, patent protection, product
quality and safety, and warranties.
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Additional Considerations
 International product and service
marketing:
– Must determine which products and
services to introduce in which countries,
and how much to standardize or adapt
the offering.
– Packaging presents new challenges for
international marketers.
– Many services businesses are global.
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Marketing in Action
The Kit Kat chocolate bar 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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Reviewing the Concepts
1.
2.
3.
4.
Explain how companies find and develop newproduct ideas.
List and define the steps in the new-product
development process and the major
considerations in managing this process.
Describe the stages of the product life cycle
and how marketing strategies change during
the product’s life cycle.
Discuss two additional product and services
issues: socially responsible product decisions
and international product and services
marketing.
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8 - 51