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New-Product Development and Product Life-Cycle Strategies Chapter Eight 8-1 Important topics • Explain how companies find and develop new-product ideas. • List and define the steps in the newproduct development process. • Describe the stages of the product life cycle. • Describe how marketing strategies change during the product’s life cycle. © Armstrong, Kotler & da Silva Marketing : An Introduction An Asian Perspective 8-2 New-Product Development Strategy Strategies for Obtaining New-Product Ideas Acquisition of: New Products: Companies Original Products Patents Improvements Licenses Modifications © Armstrong, Kotler & da Silva Marketing : An Introduction An Asian Perspective 8-3 New-Product Failures • Only 10% of new products are still on the market and profitable after 3 years. • Texas instruments lost $660 million in home computer business • New coke ( coca cola company) • Zap mail-email ( FedEx company) • Arch Delux sandwitches ( Mc Donald's) © Armstrong, Kotler & da Silva Marketing : An Introduction An Asian Perspective 8-4 New-Product Failures • Failure rate for industrial products is as high as 30%.Why? – – – – – – Overestimation of market size Design problems Incorrectly positioned, priced, or advertised Pushed despite poor marketing research findings Development costs Competition © Armstrong, Kotler & da Silva Marketing : An Introduction An Asian Perspective 8-5 Major Stages in New-Product Development Figure 8.1 © Armstrong, Kotler & da Silva Marketing : An Introduction An Asian Perspective 8-6 Idea Generation Company Employees Customers Competitors Distributors Suppliers © Armstrong, Kotler & da Silva Marketing : An Introduction An Asian Perspective 8-7 Idea Generation When Heinz asked kids what would make the product more fun, they said, “Change the color!” so, Heinz developed and launched EZ Squirt, now in a variety of colors targeted at kids. The EZ Squirt bottle’s special nozzle also emits a thin stream so tykes can autograph their burgers. © Armstrong, Kotler & da Silva Marketing : An Introduction An Asian Perspective 8-8 Idea Screening • Process to spot good ideas and drop poor ones. • Develop system to estimate: market size, product price, development time and costs, manufacturing costs, and rate of return. • Evaluate these findings against set of company criteria for new products. © Armstrong, Kotler & da Silva Marketing : An Introduction An Asian Perspective 8-9 Concept Development and Testing • Product Idea: idea for a possible product that the company can see itself offering. • Product Concept: detailed version of the idea stated in meaningful consumer terms. • Product Image: the way consumers perceive an actual or potential product. © Armstrong, Kotler & da Silva Marketing : An Introduction An Asian Perspective 8-10 New product concept and Image © Armstrong, Kotler & da Silva Marketing : An Introduction An Asian Perspective 8-11 Concept testing • Testing new product concepts with a group of target consumers. • The concept may be presented to the customers symbolically or physically. • Customers may be asked many questions regarding their perception towards the new product. © Armstrong, Kotler & da Silva Marketing : An Introduction An Asian Perspective 8-12 DiamlerChrysler’s Fuel-Cell-Powered Electric Car • The company’s task is to develop its fuelcell-powered electric car into alternative product concepts, find out how attractive each is to customers, and choose the best one. © Armstrong, Kotler & da Silva Marketing : An Introduction An Asian Perspective 8-13 Concept testing © Armstrong, Kotler & da Silva Marketing : An Introduction An Asian Perspective 8-14 Marketing Strategy Development Part One Describes: The Target Market Planned Product Positioning Sales, Market Share, & Profit Goals Part Two Outlines the First-Year’s: Product’s Planned Price Distribution Marketing Budget Part Three Describes Long-Run: Sales & Profit Goals Marketing Mix Strategy © Armstrong, Kotler & da Silva Marketing : An Introduction An Asian Perspective 8-15 Business Analysis • Involves a review of the sales, costs, and profit projections to assess fit with company objectives. • If yes, move to the product development phase. © Armstrong, Kotler & da Silva Marketing : An Introduction An Asian Perspective 8-16 Product Development • Develop concept into physical product • Calls for large jump in investment • Prototypes are made • Prototype must have correct physical features and convey psychological characteristics © Armstrong, Kotler & da Silva Marketing : An Introduction An Asian Perspective 8-17 Test Marketing • Product and program introduced in more realistic market setting. • Not needed for all products. • Can be expensive and time consuming, After test marketing the “Go Active” but better than meal (an adult happy meal) in 150 making major markets in Indiana, McDonald’s marketing mistake. decided to sell it across the U.S. © Armstrong, Kotler & da Silva Marketing : An Introduction An Asian Perspective 8-18 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 plan. © Armstrong, Kotler & da Silva Marketing : An Introduction An Asian Perspective 8-19 Product Life Cycle • Product Life Cycle (PLC) is the course of a products sales and profits over its lifetime. • It involves five distinct stages: product development, introduction, growth, maturity and decline. © Armstrong, Kotler & da Silva Marketing : An Introduction An Asian Perspective 8-20 The Product Life Cycle Applied to the Digital Video Market Figure 8.4 © Armstrong, Kotler & da Silva Marketing : An Introduction An Asian Perspective 8-21 Practical Problems of PLC Hard to identify which stage of the PLC the product is in Hard to pinpoint when the product moves to next stage Hard to identify factors that affect product’s movement through stages Hard to forecast sales level, length of each stage, and shape of PLC © Armstrong, Kotler & da Silva Strategy is both a cause and result of the PLC Marketing : An Introduction An Asian Perspective 8-22 Introduction Stage of the PLC Summary of Characteristics, Objectives, & Strategies Sales Low Costs High cost per customer Profits Negative Marketing Objectives Create product awareness and trial Product Offer a basic product Price Use cost-plus formula Distribution Build selective distribution Promotion Heavy to entice product trial © Armstrong, Kotler & da Silva Marketing : An Introduction An Asian Perspective 8-23 Growth Stage of the PLC Summary of Characteristics, Objectives, & Strategies Sales Rapidly rising Costs Average cost per customer Profits Rising Marketing Objectives Maximize market share Product Offer extension, service, warranty Price Penetration strategy Distribution Build intensive distribution Promotion Reduce to take advantage of demand © Armstrong, Kotler & da Silva Marketing : An Introduction An Asian Perspective 8-24 Maturity Stage of the PLC Summary of Characteristics, Objectives, & Strategies Sales Peak Costs Low cost per customer Profits High Marketing Objectives Maximize profits while defending market share Product Diversify brand and models Price Match or best competitors Distribution Build more intensive distribution Promotion Increase to encourage brand switching © Armstrong, Kotler & da Silva Marketing : An Introduction An Asian Perspective 8-25 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 © Armstrong, Kotler & da Silva Marketing : An Introduction An Asian Perspective 8-26 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 – Expand usefulness, safety, convenience © Armstrong, Kotler & da Silva Marketing : An Introduction An Asian Perspective 8-27 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 larger market channels – Offer new or improved services to buyers © Armstrong, Kotler & da Silva Marketing : An Introduction An Asian Perspective 8-28 © Armstrong, Kotler & da Silva Marketing : An Introduction An Asian Perspective Decline Stage of the PLC Summary of Characteristics, Objectives, & Strategies Sales Declining Costs Low cost per customer Profits Declining Marketing Objectives Reduce expenditures and milk the brand Product Phase out weak items Price Cut price Distribution Selective: phase out unprofitable outlets Promotion Reduce to minimum level © Armstrong, Kotler & da Silva Marketing : An Introduction An Asian Perspective 8-30 © Armstrong, Kotler & da Silva Marketing : An Introduction An Asian Perspective 8-31 Figure 8.6 Successful and Failed PLC Management Strategies © Armstrong, Kotler & da Silva Marketing : An Introduction An Asian Perspective 8-32 Rest Stop: Reviewing the Concepts • Explain how companies find and develop new-product ideas. • List and define the steps in the newproduct development process. • Describe the stages of the product life cycle. © Armstrong, Kotler & da Silva Marketing : An Introduction An Asian Perspective 8-33