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Copyright © 2005 Pearson Education Canada Inc. New Product Development and Product Life-Cycle Strategies •Chapter 11 •Powerpoint slides •Extendit! version •Instructor name •Course name •School name •Date Principles of Marketing: 6th Canadian Edition Learning Objectives 11.2 Copyright © 2005 Pearson Education Canada Inc. • After studying this chapter, you should be able to: – Explain how companies find and develop new-product ideas – List and define the steps in the new-product development process – Describe the stages of the product life cycle – Describe how marketing strategies change during the product’s life cycle Principles of Marketing: 6th Canadian Edition Copyright © 2005 Pearson Education Canada Inc. Opening Vignette: Microsoft 11.3 • Began life with MS-DOS by Bill Gates approximately 30 years ago • Market share: 97% of PC operating system software, 90% of Office software market, 40% of business server market • Not initially known for innovation, but have changed dramatically • Spent $5.2 billion on R&D in 2003 • Founder of the company now focusing on new product development instead of CEO duties • Innovation strategy based around Internet • Future of software: providing services for use by consumers; convergence of media and information • In the face of rapid technological change, new products will be their lifeblood Principles of Marketing: 6th Canadian Edition Why New Product Development? 11.4 Copyright © 2005 Pearson Education Canada Inc. • New-product development: – The development of original products, product improvements, modifications, and new brands – Through the firm’s own R&D efforts • Importance based on: – – – – – Remaining competitive Keeping up with technological change Changing consumer tastes Following market trends Diversifying the product offering to lower risk • The challenge is to overcome the high rate of new product failure Principles of Marketing: 6th Canadian Edition Copyright © 2005 Pearson Education Canada Inc. New Product Hall of Shame 11.5 • Robert McMath’s New Product Showcase and Learning Center: – Gallery of 80,000 new product failures – Represents $5.2 billion in new product investment • Lessons learned from failure: – Offer real value: such as what customers really want – Cherish thy brand: brands are a matter of trust; do not abuse this trust – Be different: me-too marketing usually fails – But not too different: need to relate to the target customer – Accentuate the positive: people do not buy things to feel bad Principles of Marketing: 6th Canadian Edition Major Stages in New Product Development 11.6 Copyright © 2005 Pearson Education Canada Inc. • Idea generation: the systematic search for new product ideas – Internal sources: brainstorming, employees from all departments – External sources: customers (could involve several competitors), competitors, distributors, suppliers, and others • Idea screening: the purpose is to Figure 11.1 identify good ideas and drop poor ones to avoid spending any more money on developing them – Criteria used: • Usefulness to consumers • Good fit with company objectives and strategies • Have the resources • Add value Principles of Marketing: 6th Canadian Edition Major Stages in New Product Development 11.7 Copyright © 2005 Pearson Education Canada Inc. • Concept development: detailed version of the product concept in meaningful consumer terms; used for testing purposes (around the different target markets or usefulness of the product) • Concept testing: testing new-product concepts for consumer appeal (physical specimen or words) – questionnaire 11.1 • Marketing strategy: designing an initial Figure 11.1 strategy for a product concept: – Target market, positioning, and sales, market share, and profit goals – Price, distribution, and marketing budget – Strategy statement, long-run sales, profit goals, and marketing mix Principles of Marketing: 6th Canadian Edition Major Stages in New Product Development 11.8 Copyright © 2005 Pearson Education Canada Inc. • Business analysis: review of the sales, costs, and profit projections for a new product to determine if they will satisfy company objectives – Estimating potential sales is more difficult than estimating costs to produce and market Figure 11.1 • Product development: developing the product concept into a physical product to ensure that it can be done – Requires large investment – Building a prototype – Testing for safety, durability, and acceptability Principles of Marketing: 6th Canadian Edition Major Stages in New Product Development 11.9 Copyright © 2005 Pearson Education Canada Inc. • Test marketing: testing the product and marketing program in more realistic market settings – To determine the target market profile – Assess consumer acceptability, trial, repeat purchase rate – Evaluate trade reception and distribution penetration – Design effective media plans Figure 11.1 Different test marketing approaches – Standard test markets: • Choose a small number of representative test cities • Conduct a full marketing campaign within these markets • Measure results Principles of Marketing: 6th Canadian Edition Copyright © 2005 Pearson Education Canada Inc. Major Stages in New Product Development 11.10 • Controlled test markets: – Using controlled panels of stores that agree to carry new products for a fee; use scanner data to measure results from selected shoppers (can results be representative of all target market?) • Simulated test markets: – Simulating the shopping environment to measure consumer interest in a new product – May involve virtual reality store shopping • The greater control exerted, the cheaper but less realistic the situation, which may influence the validity of the findings; trade-off with reliability Figure 11.1 Principles of Marketing: 6th Canadian Edition Major Stages in New Product Development 11.11 Copyright © 2005 Pearson Education Canada Inc. • Commercialization: introducing a new product into the market – Large investment required – Need to decide on introduction timing and scale of event – Market rollout (depends on budget) or full-scale introduction (high tech products) Figure 11.1 Sequential product development: working on one piece of the new product development at a time Simultaneous (team-based) product development: developing multiple pieces of the product development at the same time; today’s method due to distributed computing Principles of Marketing: 6th Canadian Edition 11.12 Product Life-Cycle Strategies Copyright © 2005 Pearson Education Canada Inc. • Product life cycle (PLC): the course of a product’s sales and • • • • profits over its life; five distinct stages The PLC can describe a product class, form, or brand Not all products follow this exactly Competition and rate of technology change can influence the length of a PLC Useful for planning purposes Figure 11.2 Principles of Marketing: 6th Canadian Edition 11.13 Copyright © 2005 Pearson Education Canada Inc. Product Development Stage • The stage where the product is being developed, as discussed • Sales are zero, profits are negative which is the money spent on development • Products will vary in development costs; eg. pharmaceuticals • Products should meet a need that is not being addressed in the marketplace • The marketing mix is still to be determined • There is no competition at this point • Length of time in this stage will vary by product Figure 11.2 Principles of Marketing: 6th Canadian Edition 11.14 Copyright © 2005 Pearson Education Canada Inc. Styles, Fashions, and Fads • Style: basic and distinctive mode of expression (classical, art deco) • Fashion: currently accepted or popular style in a given field (long hair) • Fad: a fashion the enters quickly, adopted with great zeal, peaks early, and decline very fast Figure 11.3 Principles of Marketing: 6th Canadian Edition Copyright © 2005 Pearson Education Canada Inc. Introduction Stage 11.15 • The new product is introduced to the market • Sales start at zero and begin to climb slowly; profits continue to decline due to costs of launching the product • The main promotional goal is to make a big noise to attract attention and to educate buyers about the new product concept • Market pioneers take the most risk but may reap the biggest Figure 11.2 rewards, eg. Chrysler minivan • Few product variants, no competition to speak of • Pricing strategy: skimming or penetration • Distribution: not all outlets covered as some may not want the risk Principles of Marketing: 6th Canadian Edition 11.16 Copyright © 2005 Pearson Education Canada Inc. Growth Stage • Sales of the new product begin to climb quickly as awareness within the target market(s) builds • Profits may become positive as development and launch costs are recovered and the company achieves economies of scale • Competition notices and rushes their versions into production • Product quality can be improved, extra features and versions developed to sustain growth and differentiate from competition • Distribution increases as the product becomes more known • Pressure on pricing as competition increases Figure 11.2 Principles of Marketing: 6th Canadian Edition 11.17 Copyright © 2005 Pearson Education Canada Inc. Maturity Stage • Sales of the new product continue to climb and then peak as the majority of the target market(s) have tried the product • Profits continue to grow and stay positive throughout • Competition is most intense at this stage; many versions and brands • Strategies to prolong this stage: – Reach new target markets – Modify the product – Modify the marketing mix • Some products stay in this stage for an indefinite period, eg. Catsup • Others are replace by new technology and fade rapidly Figure 11.2 Principles of Marketing: 6th Canadian Edition 11.18 Copyright © 2005 Pearson Education Canada Inc. Decline Stage • Sales of the new product drop quickly as the target market(s) move on to other things • Profits decline as competitive pressures force lower prices and increased promotional spending to maintain share • Competition has declined as weaker brands have left the market • Companies need to make decisions about what to do with the declining product – Maintain spending levels to fight it out for what is left – Harvest by cutting spending – Drop the product and move on to the next thing Figure 11.2 Principles of Marketing: 6th Canadian Edition Copyright © 2005 Pearson Education Canada Inc. 11.19 Principles of Marketing: 6th Canadian Edition In Conclusion… 11.20 Copyright © 2005 Pearson Education Canada Inc. • The learning objectives for this chapter were: – Explain how companies find and develop new-product ideas – List and define the steps in the new-product development process – Describe the stages of the product life cycle – Describe how marketing strategies change during the product’s life cycle Principles of Marketing: 6th Canadian Edition