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PRINCIPLES OF MARKETING

Chapter 9 Chapter 9 New Product Development and Product Life-Cycle Strategies

Causes of New Product Failures 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 New Product Development Process Process

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

New Product Development Process New Product Development Process

Step 1. Idea Generation Step 1. Idea Generation

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

New Product Development Process New Product Development Process

Step 2. Idea Screening 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 New Product Development Process

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

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

3. Choose the Best One 3. Choose the Best One

New Product Development Process New Product Development Process

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Step 4. Marketing Strategy Development Step 4. Marketing Strategy Development Marketing Strategy Statement Formulation
Part One -- Overall: Part One Overall:

Target Market Target Market Planned Product Positioning Planned Product Positioning Sales & Profit Goals Sales & Profit Goals Market Share Market Share

Part Two -- Short-Term: Part Two Short-Term:

Products Planned Price Products Planned Price Distribution Distribution Marketing Budget Marketing Budget

Part Three -- Long-Term: Part Three Long-Term:

Sales & Profit Goals Sales & Profit Goals Marketing Mix Strategy Marketing Mix Strategy

New Product Development Process New Product Development Process

Step 5. Business Analysis Step 5. Business Analysis Step 6. Product Development Step 6. Product Development

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Business Analysis Business Analysis Review of Product Sales, Costs, Review of Product Sales, Costs, and Profits Projections to See if and Profits Projections to See if They Meet Company Objectives They Meet Company Objectives

If No, Eliminate If No, Eliminate Product Concept Product Concept If Yes, Move to If Yes, Move to Product Development Product Development

New Product Development Process New Product Development Process

Step 7. Test Marketing Step 7. Test Marketing
Standard Standard Test Market Test Market
Full marketing campaign Full marketing campaign in a small number of in a small number of representative cities. representative cities.

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Controlled Controlled Test Market Test Market

A few stores that have A few stores that have agreed to carry new agreed to carry new products for a fee. products for a fee.

Simulated Simulated Test Market Test Market

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

Product Life Cycle 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 Introduction Stage of the PLC PLC

Sales Sales Costs Costs Profits Profits
Marketing Objectives Marketing Objectives

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

Product Product Price Price Distribution Distribution Advertising Advertising

Growth Stage of the PLC Growth Stage of the PLC

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Sales Sales Costs Costs Profits Profits

Marketing Objectives Marketing Objectives

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

Product Product Price Price Distribution Distribution Advertising Advertising

Maturity Stage of the PLC Maturity Stage of the PLC

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Sales Sales Costs Costs Profits Profits

Marketing Objectives Marketing Objectives

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

Product Product Price Price Distribution Distribution Advertising Advertising

Decline Stage of the PLC Decline Stage of the PLC

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Sales Sales Costs Costs Profits Profits

Marketing Objectives Marketing Objectives

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

Product Product Price Price Distribution Distribution Advertising Advertising