Download here - Pearson Canada

Chapter 10
New-Product
Development and
Life-Cycle
Strategies
Copyright © 2008 Pearson Education Canada
Principles of Marketing, Seventh Canadian Edition
Learning Goals
1. Explain how companies find and
develop new-product ideas
2. List and define the steps in the newproduct development process
3. Describe the stages of the product life
cycle
4. Describe how marketing strategies
change during the product’s life cycle
Copyright © 2008 Pearson Education Canada
10-2
Principles of Marketing, Seventh Canadian Edition
Case Study
Nokia
• Focus on Innovation
• Corporate Results
– Names its culture of
continuous innovation
“renewal”
– Organizes into
autonomous units, which
helps foster innovation
– Large R&D budget of $3
billion with 40% of
employees involved in
R&D
Copyright © 2008 Pearson Education Canada
– Annual sales of $36 billion
across 130 countries
– Global market share of
38%, greater than that of its
nearest three rivals
combined
10-3
Principles of Marketing, Seventh Canadian Edition
Learning Goals
1. Explain how companies find and
develop new-product ideas
2. List and define the steps in the newproduct development process
3. Describe the stages of the product life
cycle
4. Describe how marketing strategies
change during the product’s life cycle
Copyright © 2008 Pearson Education Canada
10-4
Principles of Marketing, Seventh Canadian Edition
New-Product
Development Strategy
• New Product Development
– The development of original products,
product improvements, product
modifications, and new brands through the
firm’s own R&D efforts.
Copyright © 2008 Pearson Education Canada
10-5
Principles of Marketing, Seventh Canadian Edition
New-Product
Development Strategy
• New products can be obtained via
acquisition or development.
• New products suffer from high failure
rates.
• Several reasons account for failure.
Copyright © 2008 Pearson Education Canada
10-6
Principles of Marketing, Seventh Canadian Edition
Discussion Question
• Think of products
you have seen
recently in stores.
Can you think of any
that seem doomed to
fail?
• Why?
Copyright © 2008 Pearson Education Canada
10-7
Principles of Marketing, Seventh Canadian Edition
Learning Goals
1. Explain how companies find and
develop new-product ideas
2. List and define the steps in the newproduct development process
3. Describe the stages of the product life
cycle
4. Describe how marketing strategies
change during the product’s life cycle
Copyright © 2008 Pearson Education Canada
10-8
Principles of Marketing, Seventh Canadian Edition
Stages of the New Product
Development Process
• Stage 1: Idea Generation
– The systematic search for new product ideas
– Internal sources: brainstorming, employees
from all departments, R & D
– External sources: customers, competitors,
distributors, suppliers, and others
Copyright © 2008 Pearson Education Canada
10-9
Principles of Marketing, Seventh Canadian Edition
Stages of the New Product
Development Process
• Stage 2: Idea Screening
– The purpose is to 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
Copyright © 2008 Pearson Education Canada
10-10
Principles of Marketing, Seventh Canadian Edition
Stages of the New Product
Development Process
• Stage 3: Concept Development and
Testing
– Concept development creates a detailed
version of the idea stated in meaningful
consumer terms.
– Concept testing asks target consumers to
evaluate product concepts.
Copyright © 2008 Pearson Education Canada
10-11
Principles of Marketing, Seventh Canadian Edition
Stages of the New Product
Development Process
• Stage 4: Marketing Strategy Development
• 1st statement describes the target market, product
positioning, and sales, share, and profit goals for
the first few years.
• 2nd statement outlines the product’s price,
distribution, and marketing budget for the first
year.
• 3rd statement describes the long-run sales and
profit goals, and the marketing mix strategy.
Copyright © 2008 Pearson Education Canada
10-12
Principles of Marketing, Seventh Canadian Edition
Stages of the New Product
Development Process
• Stage 5: Business Analysis
– Review of the sales, costs, and profit
projections for a new product to determine if
they will satisfy company objectives
• Stage 6: 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
Copyright © 2008 Pearson Education Canada
10-13
Principles of Marketing, Seventh Canadian Edition
Stages of the New Product
Development Process
• Stage 7: 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
• Standard test markets
• Controlled test markets
• Simulated test markets
• Stage 8: Commercialization
Copyright © 2008 Pearson Education Canada
10-14
Principles of Marketing, Seventh Canadian Edition
Stages of the New Product
Development Process
• Stage 8: Commercialization, introducing a
new product into the market
– Large investment required
– Need to decide on introduction timing and
scale of event
– Market rollout or full-scale introduction
Copyright © 2008 Pearson Education Canada
10-15
Principles of Marketing, Seventh Canadian Edition
Online Test Marketing
Is It in the Near Future?
?
• Levi and Nike have partnered
with There for market research
data.
• Levi’s has found that jeans and
jean jacket buyers were more
likely to be virtual club-goers.
• They can also track how long
people wear a certain jean or
jacket in their virtual world.
• Discussion Question: Do you
believe the Internet can supply
valuable test marketing data?
Copyright © 2008 Pearson Education Canada
10-16
Principles of Marketing, Seventh Canadian Edition
Organizing for
New-Product Development
• Sequential product development: working
on one piece of the new product at a time
• Simultaneous (team-based) product
development: developing multiple pieces
of the product at the same time; today’s
method due to distributed computing
Copyright © 2008 Pearson Education Canada
10-17
Principles of Marketing, Seventh Canadian Edition
Learning Goals
1. Explain how companies find and
develop new-product ideas
2. List and define the steps in the newproduct development process
3. Describe the stages of the product life
cycle
4. Describe how marketing strategies
change during the product’s life cycle
Copyright © 2008 Pearson Education Canada
10-18
Principles of Marketing, Seventh Canadian Edition
Stages of the PLC
• Introduction
• Growth
• Maturity
• Decline
Copyright © 2008 Pearson Education Canada
10-19
Principles of Marketing, Seventh Canadian Edition
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
Copyright © 2008 Pearson Education Canada
10-20
Principles of Marketing, Seventh Canadian Edition
Learning Goals
1. Explain how companies find and
develop new-product ideas
2. List and define the steps in the newproduct development process
3. Describe the stages of the product life
cycle
4. Describe how marketing strategies
change during the product’s life cycle
Copyright © 2008 Pearson Education Canada
10-21
Principles of Marketing, Seventh Canadian Edition
Product Life-Cycle Strategies
• Growth Stage
• Introduction 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
– 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
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
Copyright © 2008 Pearson Education Canada
10-22
Principles of Marketing, Seventh Canadian Edition
Marketing Strategies:
Introduction Stage
• Product – Offer a basic product
• Price – Use cost-plus basis to set
• Distribution – Build selective
distribution
• Advertising – Build awareness among
early adopters and dealers/resellers
• Sales Promotion – Heavy expenditures
to create trial
Copyright © 2008 Pearson Education Canada
10-23
Principles of Marketing, Seventh Canadian Edition
Marketing Strategies:
Growth Stage
• Product – Offer product extensions,
service, warranty
• Price – Penetration pricing
• Distribution – Build intensive distribution
• Advertising – Build awareness and interest
in the mass market
• Sales Promotion – Reduce expenditures to
take advantage of consumer demand
Copyright © 2008 Pearson Education Canada
10-24
Principles of Marketing, Seventh Canadian Edition
Product Life-Cycle Strategies
• Decline
• Maturity 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
– Decisions about the product
– 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:
• Maintain spending levels to
fight it out for what is left
• Harvest by cutting spending
and riding it out
• Drop the product and move
on to the next thing
• Modify the market
• Modify the product
• Modify the marketing mix
Copyright © 2008 Pearson Education Canada
10-25
Principles of Marketing, Seventh Canadian Edition
Discussion
• How can marketers
help products bounce
back from the decline
stage?
Copyright © 2008 Pearson Education Canada
?
10-26
Principles of Marketing, Seventh Canadian Edition
Learning Goals
1. Explain how companies find and
develop new-product ideas
2. List and define the steps in the newproduct development process
3. Describe the stages of the product life
cycle
4. Describe how marketing strategies
change during the product’s life cycle
Copyright © 2008 Pearson Education Canada
10-27
Principles of Marketing, Seventh Canadian Edition