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PRINCIPLES OF MARKETING

Chapter 9
New Product Development and Product Life-Cycle Strategies

Causes of New Product Failures

Overestimation of Market Size Product Design Problems Product Incorrectly Positioned, Priced or Advertised Costs of Product Development Competitive Actions To create successful new products, the company must:
understand its customers, markets and competitors develop products that deliver superior value to customers.

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New Product Development Process

Idea Generation and Screening Concept Development and Testing Marketing Strategy Business Analysis Product Development Test Marketing Commercialization

New Product Development Process

Step 1. Idea Generation

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Systematic Search for New Product Ideas Internal sources Customers Competitors Distributors Suppliers

New Product Development Process

Step 2. Idea Screening

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Process to spot good ideas and drop poor ones Criteria

Market Size Product Price Development Time & Costs Manufacturing Costs Rate of Return

New Product Development Process

Step 3. Concept Development & Testing
1. Develop Product Ideas into Alternative Product Concepts

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2. Concept Testing - Test the Product Concepts with Groups of Target Customers

3. Choose the Best One

New Product Development Process

Step 4. Marketing Strategy Development Marketing Strategy Statement Formulation
Part One - Overall:
Target Market Planned Product Positioning Sales & Profit Goals Market Share

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Part Two - Short-Term:

Products Planned Price Distribution Marketing Budget

Part Three - Long-Term:

Sales & Profit Goals Marketing Mix Strategy

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

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If No, Eliminate Product Concept

If Yes, Move to Product Development

New Product Development Process

Step 7. Test Marketing

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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.

Simulated Test Market

Test in a simulated shopping environment to a sample of consumers.

Product Life Cycle

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Sales and Profits ($) Sales

Profits Time Product Development Losses/ Investments ($) Introduction Growth Maturity Decline

Introduction Stage of the PLC

Sales Costs Profits
Marketing Objectives

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Low sales High cost per customer Negative Create product awareness and trial Offer a basic product Use cost-plus Build selective distribution Build product awareness among early adopters and dealers

Product Price Distribution Advertising

Growth Stage of the PLC

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Sales
Costs Profits
Marketing Objectives

Rapidly rising sales

Average cost per customer Rising profits Maximize market share Offer product extensions, service, warranty Price to penetrate market Build intensive distribution Build awareness and interest in the mass market

Product Price Distribution Advertising

Maturity Stage of the PLC

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Sales
Costs Profits
Marketing Objectives

Peak sales
Low cost per customer High profits Maximize profit while defending market share Diversify brand and models Price to match or best competitors Build more intensive distribution Stress brand differences and benefits

Product Price Distribution Advertising

Decline Stage of the PLC

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Sales
Costs Profits
Marketing Objectives

Declining sales
Low cost per customer Declining profits Reduce expenditure and milk the brand Phase out weak items Cut price Go selective: phase out unprofitable outlets Reduce to level needed to retain hard-core loyal customers

Product Price Distribution Advertising