9.

Developing new products and managing the product life cycle

1. New product development strategy
- Two ways to obtain new products:
Acquisition
refers to the buying of a whole company, a patent or a license
to produce
someone elses product.
New product development
refers to the development of original products, product
improvements, product modifications and new brands through
the firms own product development efforts
Bring new solutions
Variety
BUT can be very expensive & risky
Reasons a new product might fail
Overestimate market size
Poorly designed
Incorrectly positioned
Launched at the wrong time
Price too high
Poorly advertised
Cost of product development higher than expected
Competitors fight back harder than expected
2. New product development process
- Major stages in new product development

1) Idea generation
= the systematic research for new-product ideas
Internal sources
= companys own formal research and development,
management and staff, and intrapreneurial programs.
Ex internal R&D, employees
External sources
= sources outside the company such as customers,
competitors, distributors, suppliers and outside design firms.

 Distributors: close to the market and can pass along

information about consumer problems and new product
possibilities
Suppliers: new concepts, techniques and materials that
can be used
Competitors
Other idea sources: trade magazines, seminars and
shows, government agencies, advertising agencies,
marketing reseach firms, university and commercial
laboratories, inventors
Customers: questions & complaints, share suggestions
and ideas
Ex: starbucks, can post ideas
Crowdsourcing
= inviting broad communities of people into the new-product
innovation process
Ex Netflix: 1 million price for best solution
2) Idea screening
= screening new-product ideas to spot good ideas and drop poor
ones as soon as possible
Rough estimates
Evaluating against general set of criteria
RWW: is it real? (real need and desire) can we win?
(sustainable competitive advantage) Is it worth doing?
( sufficient profit potential)
3) Concept development and testing
Product idea
=idea for a possible product that the company can see itself
offering to the market.
Product concept
= detailed version of the idea stated in meaningful consumer
terms.
Product image
= the way consumers perceive an actual or potential product.
Concept development
Concept testing
=testing new product concepts with a group of target
consumers to find out if the concepts have strong consumer
appeal.
4) Marketing strategy development
Marketing strategy development

involves designing an initial marketing strategy for a new

product based on
the product concept.
Marketing strategy statement includes:
o Description of the target market, planned value proposition,
sales, market share and profit for the first few years
o Value proposition : planned price, distribution and marketing
budget for the first few years
o Sales and profit goals. In the long run
Business analysis
= involves a review of the sales, costs and profit projections
for a new product to find out whether it satisfy the companies
objectives
Product development
= developing the product concept into a physical product to
ensure that the product idea can be turned into a workable
market offering
R&D will develop and test one or more physical versions
of a product concept: needs to satisfy consumer,
produced quickly and at low costs
Involve actual consumers
Ex HP: test new products from few days to 8 weeks in
own home and office
A new product must have the required functional
features and also convey the intended psychological
characteristics
Ex : a battery powered electric car should be seen as
well built, comfortable and safe
Test marketing
= the stage of new-product development in which the product
and its proposed marketing programs are tested in realistic
market settings
Standard test marketing
- costs can be high and takes time that may allow
competitors to gain advantage
Controlled test market: new products and tactics are
tested among controlled groups of customers and stores
+ less expensive
+ can provide accurate forecasts
Simulated test markets
= in laboratory or simulated shopping environment
+ less expensive

+ faster
+ Restricts access by competitors
- Not considered as reliable and accurate due to the
controlled
setting.
Ex Procter & gamble: launched online store that will
serve as learning lab
5) Commercialization
= introducing a new product into the market
Introduction timing
Ex: down economy or will decrease profits of other products
Where to launch
Ex: single location, international market
Planed market rollout over time
Ex Microsoft windows 7 advertising to launch simultaneously
in 30 markets
3. Product life-cycle strategies
Product life cycle strategies

A specific brands lifecycle can change quickly because of changing

competitive attacks and responses
Style: a basic and distinctive mode of expression
Cycle: several periods of renewed interest
Fashion: a currently accepted or popular style in a given field
Grow slowly, remain popular for a while then decline slowly
Fad: a temporary period of unusually high sales driven by consumer
enthusiasm and immediate product or brand popularity
Can be part of otherwise normal life cycle or can be entire life
cycle
Ex: Rubiks cube, low-carbohydrate diets
1) Product development
Sales are zero and investment costs mount.
2) Introduction
Slow sales growth and profits are nonexistent.

 Slow sales growth

Little or no profit
High distribution and promotion expense
3) Growth
Rapid market acceptance and increasing profits.
Sales increase
New competitors enter market
Price stability or decline to increase volume
Consumer education
Increase profit
Promotion and manufacturing costs gain
economies of scale
Early adopters will continue to buy and later buyers will start
following their lead, especially if they hear favorable mouth to
mouth.
Trade-off between high market share and high current profit
by spending a lot of money on product improvement,
promotion and distribution, the company can capture a
dominant position. But this reduces current profit
4) Maturity
Slowdown in sales growth and profits level off or decline.
Slowdown ales
Many suppliers
Substitute products
Overcapacity leads to competition
Increased promotion and R&D to support sales and
profit
Maturity stage modifying strategies
Market modifying
= increase consumption by finding new users and
new market segments/ or increasing usage
among present customers
Ex: wii balance bord: attrackt females
Product modifying
= changing characteristics such as quality,
features, style r packaging to attract new users
and inspire more usage
Marketing mix modifying
= improving sales by changing one or more
marketing mix elements
ex pricing, promotion, new marketing channels
5) Decline
Sales fall off and profits drop

 Maintain the product

= repositioning or reinvigorating it in the hopes of
moving it back into the growth stage
Harvest the product
= reducing costs ( plant & equipment,
maintenance, R&D, advertising..)
Drop the product
= sell it to another firm or liquidate it at salvage
value
Why? Technological advances, shift in consumer taste,
increased competition
Keeping weak product: needs frequent price & inventory
adjustments, advertising and sales attention, failing
reputation with customers

PLC concept:
-

Product class (ex petrol-powered motor cars)

Product form ( 4x4s)
Brand (BMW X5)
Product class: longest life-cycle
Product forms: standard PLC shape
Difficult to forecast sales level at each PLC stage, length of each stage
and shape of PLC curve
Strategy is both cause and result of PLC curve
Moral of PLC= companies must continually innovate or they risk
extinction. No matter how successful its current position, a company
must skillfully manage the lifecycles of existing products for future
success. And to grow it must develop a steady stream of new products
that bring new values to customers

6. Additional product and service considerations