Download Ch. 10

New-Product Development
and Product Life-Cycle
Strategies
Chapter 10
Objectives
Understand how companies find and
develop new-product ideas.
Learn the steps in the new-product
development process.
Know the stages of the product life
cycle.
Understand how marketing
strategies change during the
product’s life cycle.
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Microsoft
c
$50 billion in
profits over 27
years
Early new product
development relied
heavily on copying
the competition
$4.2 billion
annually invested
in R & D
Innovation is
critical to
Microsoft’s future
success
Much of R & D
efforts are Internet
related
Many new products
and services are in
development
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Definition
New Product Development
 Development of original
products, product
improvements, product
modifications, and new
brands through the firm’s
own R & D efforts.
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New-Product
Development
Strategies
Strategies for Obtaining New Product Ideas
Acquired
Companies
Original
Products
Acquired
Patents
Product
Improvements
Acquired
Licenses
Product
Modifications
New
Brands
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New Product Development
Process
Marketing
Strategy
Concept
Development
and Testing
Idea
Screening
Idea
Generation
Business
Analysis
Product
Development
Test
Marketing
Commercialization
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New Product Development
Strategy
New Product Development Process:
 Stage 1: Idea Generation

Internal idea sources:
• R&D

External idea sources:
• Customers,
competitors,
distributors, suppliers
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3M’s corporate
culture
encourages,
supports, and
rewards new
product ideas
and innovation
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Using the Web to Solicit Product Ideas
Procter and Gamble
To see how P&G solicits ideas from
customers, visit the Procter and
Gamble home page, click on the
Resources and Offers button, then
select the Share Your Thoughts listing.
Procter & Gamble
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New Product Development Process
Step 2. Idea Screening
Many companies have systems for rating
and screening ideas which estimate:
Process to spot good ideas and drop poor
ones as soon as possible.
 Market Size
 Product Price
 Development Time & Costs
 Manufacturing Costs
 Rate of Return
Then, the idea is evaluated against a set of
general company criteria.
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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
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New Product Development Process
Step 4. Marketing Strategy Development
Marketing Strategy Statement Formulation
Part One Describes Overall:
Target Market
Planned Product Positioning
Sales & Profit Goals
Market Share
Part Two Describes Short-Term:
Product’s Planned Price
Distribution
Marketing Budget
Part Three Describes Long-Term:
Sales & Profit Goals
Marketing Mix Strategy
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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
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BusinessNow
Sensable Video Clip
Computer modeling
is being used to aid
in product design
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Daimler is currently road-testing its
prototype NECAR 5 (New Electric Car)
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New Product Development
Strategy
IRI BehaviorScan
provides an inmarket laboratory
for testing new
products and
marketing programs
IRI BehaviorScan
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New Product Development Process
Step 7. Test Marketing
Test Marketing is the Stage Where the Product and Marketing
Program are Introduced into More Realistic Market Settings.
Budget Levels
Packaging
Branding
Pricing
Product
Elements that
May be Test
Marketed by a
Company
Positioning
Advertising
Distribution
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New Product Development Process
Step 7. Test Marketing
Standard
Test Market
Controlled
Test Market
Full marketing campaign
in a small number of
representative cities.
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.
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Where is a good test market?
I. Factors to consider
- Size
- Demographics
- Isolation from other cities
- Media availability and cost
- Retailer support
2. Popular cities
- Big cities: Detroit, St. Louis, Columbus,
Philadelphia
- Small cities: Nashville, Jacksonville,
Toledo, Wilmington
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New Product Development Process
Step 8. Commercialization
Commercialization is the
Introduction of the New Product
into the Marketplace.
When?
Where?
To
Whom?
How?
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LIFE IS SHORT AND THEN
YOU INTRODUCE A NEW
PRODUCT
Product lifetimes are shrinking, as competitors
pressure innovators by offering imitations of
successful, high-margin products.
Panasonic now replaces electronic consumer
products on a 90-day cycle (with older models
going to discounters)
the big Japanese car makers are aiming to
offer new models every two years.
(from the New York Times)
Speeding Up Development
Step 2
Step 3
Step 4
Step 2
Step 1
Simultaneous
Step 1
Sequential
Step 3
Step 4
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Discussion Question
Why do products fail?
See if you can identify the
fatal flaw in the brands
below and at right.
Ben-Gay Asprin
Buttermilk Shampoo
Fruit of the Loom
Laundry Detergent
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Causes of New Product Failures
Overestimation of Market Size
Product Design Problems  Insignificant difference
Product Incorrectly Positioned, Priced or Advertised
Costs of Product Development
Competitive Actions
No access to the market
Bad timing
To create successful new products, the company must
 understand it’s customers, markets and
competitors
 develop products that deliver superior value to
customers.
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Alternatives to
Development:
Acquire new Products
Develop "me-too"
products.
Revive old products
Product Life-Cycle
Strategies
The Typical Product Life Cycle
(PLC) Has Five Stages
 Product Development, Introduction,
Growth, Maturity, Decline
 Not all products follow this cycle:
Fads
 Styles
 Fashions

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Figure 10-2:
Sales and Profits
Over A Product’s Life
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Product Life Cycle
length
style - comes, goes, comes
back
fashion - come, goes away
slowly
fad - comes and goes way
quickly
Figure 10-3:
Styles, Fashions, and Fads
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Companies
want their
products to
enjoy a long
life cycle.
Hershey’s
actively
promotes
the fact that
it has been
“unchanged
since 1899”
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Product Life-Cycle
Strategies
Additional marketing
investments can
move a product back
into the growth stage,
as in the case of
Cracker Jack.
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Product Life-Cycle
Strategies
The product life cycle concept can
be applied to a:
 Product class (soft drinks)
 Product form (diet colas)
 Brand (Diet Dr. Pepper)

Using the PLC to forecast brand
performance or to develop marketing
strategies is problematic
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Problems Using the
PLC
The PLC Concept Can
Help in Developing Good
Marketing Strategies for
Different Stages of the
Product Life-Cycle,
However Some
Problems Can Arise:
Trouble identifying
Which Stage of the
PLC the Product Is
In
Difficult to Forecast
the Sales Level, the
Length of Each Stage,
and Shape of the PLC
Strategy is Both a
Cause and a Result
of the Product’s Life
Cycle
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Product Life-Cycle Strategies
PLC Stages
Product
development
Introduction
Growth
Maturity
Decline
Begins when the
company
develops a newproduct idea
Sales are zero
Investment costs
are high
Profits are
negative
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Product Life-Cycle Strategies
PLC Stages
Product
development
Introduction
Growth
Maturity
Decline
Low sales
High cost per
customer
acquired
Negative profits
Innovators are
targeted
Little competition
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Product Life-Cycle Strategies
PLC Stages
Product
development
Introduction
Growth
Maturity
Decline
Rapidly rising
sales
Average cost per
customer
Rising profits
Early adopters are
targeted
Growing
competition
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Product Life-Cycle Strategies
PLC Stages
Product
development
Introduction
Growth
Maturity
Decline
Sales peak
Low cost per
customer
High profits
Middle majority
are targeted
Competition
begins to decline
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Product Life-Cycle Strategies
PLC Stages
Product
development
Introduction
Growth
Maturity
Decline
Declining sales
Low cost per
customer
Declining profits
Laggards are
targeted
Declining
competition
10- 37