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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10. product improvements. product modifications.3 . and new brands through the firm’s own R & D efforts.Definition New Product Development  Development of original products.

New-Product Development Strategies Strategies for Obtaining New Product Ideas Acquired Companies Acquired Patents Acquired Licenses Original Products Product Improvements Product Modifications New Brands 10.4 .

5 .New Product Development Process Marketing Strategy Concept Development and Testing Idea Screening Idea Generation Business Analysis Product Development Test Marketing Commercialization 10.

distributors. suppliers 10.New Product Development Strategy New Product Development Process:  Stage 1: Idea Generation  Internal idea sources: • R&D  External idea sources: • Customers.6 . competitors.

and rewards new product ideas and innovation 10.3M’s corporate culture encourages. supports.7 .

8 .Using the Web to Solicit Product Ideas Procter and Gamble To see how P&G solicits ideas from customers. then select the Share Your Thoughts listing. visit the Procter and Gamble home page. Procter & Gamble 10. click on the Resources and Offers button.

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.9 . the idea is evaluated against a set of general company criteria. 10.  Market Size  Product Price  Development Time & Costs  Manufacturing Costs  Rate of Return Then.New Product Development Process Step 2.

Concept Testing . Concept Development & Testing 1.New Product Development Process Step 3. Choose the Best One 10.10 . Develop Product Ideas into Alternative Product Concepts 2.Test the Product Concepts with Groups of Target Customers 3.

11 . 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 10.New Product Development Process Step 4.

New Product Development Process Step 5. Costs. Eliminate Product Concept If Yes. Product Development Business Analysis Review of Product Sales. Business Analysis Step 6. and Profits Projections to See if They Meet Company Objectives If No. Move to Product Development 10.12 .

13 .BusinessNow Sensable Video Clip Computer modeling is being used to aid in product design 10.

Daimler is currently road-testing its prototype NECAR 5 (New Electric Car) 10.14 .

New Product Development Strategy IRI BehaviorScan provides an inmarket laboratory for testing new products and marketing programs IRI BehaviorScan 10.15 .

New Product Development Process Step 7. Budget Levels Packaging Product Positioning Branding Pricing Elements that May be Test Marketed by a Company Advertising Distribution 10. Test Marketing Test Marketing is the Stage Where the Product and Marketing Program are Introduced into More Realistic Market Settings.16 .

Simulated Test Market Test in a simulated shopping environment to a sample of consumers.New Product Development Process Step 7.17 . 10. Test Marketing Standard Test Market Full marketing campaign in a small number of representative cities. Controlled Test Market A few stores that have agreed to carry new products for a fee.

18 . Columbus.Isolation from other cities . Factors to consider . Jacksonville.Big cities: Detroit. Toledo.Demographics .Size . Wilmington 10.Retailer support 2. St.Small cities: Nashville.Media availability and cost . Louis. Philadelphia .Where is a good test market? I. Popular cities .

New Product Development Process Step 8.19 . When? Where? To Whom? How? 10. Commercialization Commercialization is the Introduction of the New Product into the Marketplace.

LIFE IS SHORT AND THEN YOU INTRODUCE A NEW PRODUCT Product lifetimes are shrinking. high-margin products. (from the New York Times) . as competitors pressure innovators by offering imitations of successful. 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.

21 Step 2 Step 3 Step 4 Step 2 .Speeding Up Development Sequential Simultaneous Step 1 Step 1 Step 3 Step 4 10.

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 10.22 .

markets and competitors  develop products that deliver superior value to customers.Causes of New Product Failures Overestimation of Market Size Product Design Problems  Insignificant difference Product Incorrectly Positioned. 10. Priced or Advertised Costs of Product Development Competitive Actions No access to the market Bad timing To create successful new products. the company mus  understand it’s customers.23 .

Revive old products .Alternatives to Development: Acquire new Products Develop "me-too" products.

25 . Growth.Product Life-Cycle Strategies The Typical Product Life Cycle (PLC) Has Five Stages  Product Development. Decline  Not all products follow this cycle: Fads  Styles  Fashions  10. Maturity. Introduction.

Figure 10-2: Sales and Profits Over A Product’s Life 10.26 .

comes back fashion .come.comes and goes way quickly .comes.Product Life Cycle length style . goes. goes away slowly fad .

and Fads 10.Figure 10-3: Styles. Fashions.28 .

Companies want their products to enjoy a long life cycle.29 . Hershey’s actively promotes the fact that it has been “unchanged since 1899” 10.

as in the case of Cracker Jack. 10.30 .Product Life-Cycle Strategies Additional marketing investments can move a product back into the growth stage.

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.31 . Pepper)  Using the PLC to forecast brand performance or to develop marketing strategies is problematic 10.

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.32 . the Length of Each Stage. and Shape of the PLC Strategy is Both a Cause and a Result of the Product’s Life Cycle 10.

33 .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 10.

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 10.34 .

35 .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 10.

36 .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 10.

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 .

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