VISTULA UNIVERSITY / PhD Krzysztof Nowakowski

LECTURE 2; Starting and operating a

new business – the product’s life cycle.
 Lecture objectives;

• List and define the steps in new product development.

• Explain how companies find and develop new product
idea.
• Describe the stages of product life cycle.
• Discuss how marketing strategy changes during a
product’s life cycle.
 New product development strategy –
introduction.
A company can obtain new products in two
ways.
• One is through acquisition, by buying a whole company, a
patent, or a license to produce someone else’s product.
• The other is through new product development in the
company’s own research and development department.
• As the costs of developing and introducing major new
products have climbed, many large companies decided to
acquire existing brands rather than create new ones.
• Others have saved money by copying competitors’ brands or
by reviving old brands.
New product development strategy;
(source; https://www.pinterest.co.uk/pin/454019206164513482/)
 Successful new product…
• Successful new product develop may be even more
difficult in the future.
• Keen competition has lead to increasing market
fragmentation – companies must now aim at smaller
market segments rather than the mass market.
• New products must meet growing social and government
constraints such as consumer safety and ecological
standards.
• The costs of finding, developing, and lauching new
products will rise steadily due to rising manufacturing,
media and distribution costs.
• Even when a new product is successful, rivals are so quick
to follow suit that the new product is typically fated for
only a short happy life.
 A product idea – definition.
• A product idea is an idea for a possible product that the company
can see itself offering to the market.
• A product concept is a detailed version of the idea stated in
meaningful consumer terms.
• A product image is the way consumers picture an actual or
potential product.
• IDEA GENERATION; new product development starts with idea
generation, the systematic search for new product ideas. A
company typically has to generate many ideas in order to find a
few good ones.
• The purpose of the succeeding stages is to reduce the number of
ideas. The first idea-reducing stage is idea screening. The
purpose of screening is to spot good ideas and drop poor ones as
soon as possible.
 IDEA GENERATION
• Internal sources; the company can find new ideas through
formal research and development.
• Customers; the company can analyze customer questions
and complaints to find new products that can better solve
consumer problems.
• Competitors; the company can watch competitors’ ads and
other communications to get clues about their new
products.
• Companies buy competing new products, take them apart
to see how they work, analyze their sales, and decide
whether the company should bring out a new produt of its
own.
 Major sources of new product ideas
include:

• Distributors and suppliers; resellers are close to the

market and can pass along information about consumer
problems and new product possibilities.
• Suppliers can tell the company about new concepts,
techniques, and materials that can be used to develop
new products.
• Other idea sources include; trade magazines, shows,
and seminars; government agencies, new product
consultants; advertising agencies; marketing research
firms, university and commercial laboratories; and
inventors.
 Movie; Growing our business through
new product development - WOW toys;
https://youtu.be/pFdAraJ5cjU
 Movie; From Idea To Launch: The
Product Development Journey by
Alex Mitchell; https://youtu.be/zdzUq
rFoq3o
 Business analysis
• Business analysis involves a review of the sales, costs, and profit
projections to find out whether they satisfy the company’s
objectives. If they do, the product can move to the product
development stage.

• To estimate sales, the company should look at the sales history of

similar products and should survey market opinion.

• Product development; developing a successful prototype can take

days, weeks, months, or even years.

• The prototype must have the required functional features and also
convey the intended psychological characteristics.
 Forecasting future demand
• The environmental forecast calls for projecting
inflation, unemployment, interest rate, consumer
spending and saving, business investment, government
expenditures, net exports and other environmental
events important to the company.
• The result is a forecast of gross national product, which
is used along with other indicators to forecast industry
sales.
• Then the company prepares its sales forecast by
assuming that it will win a certain share of industry
sales.
 Some common sales forecasting techniques

• Surveys of buyers’ intentions; one way to fercast what

buyers will do is to ask them directly. Surveys are especially
valuable if the buyers have clearly formed intentions, will
carry them out, and can describe them to interviewers.
• Composite of saleforce opinions; when buyer interviewing is
impractical, the company may base its sales forecasts on
information provided by the salesforce.
• The company typically asks its salespeople to estimate sales
by product for their individual territories. It then adds up the
individual estimates to arrive at an overall sales forecast.
 Research of buyers’ intentions; qualitative
research

• Develop an initial uderstanding of an issue or problem.

• Look for a range of ideas and feelings about something.
• Understand different perspectives between groups and
categories of people.
• Uncover uderlying motivations and factors that influence
decision making and opinions.
• Provide information needed to design a quantitative study.
• Explain findings from a quantitative study
 Use quantitative research; methods emphasize objective
measurements and the statistical, mathematical, or
numerical analysis of data collected through polls,
questionnaires, and surveys.

• Use quantitative research to;

• Recommend a final course of action.
• Find whether there is consensus on a
particular issues.
• Project results to a larger population.
• Identify evidence regarding cause and effect
relationships.
• Describe characteristics of relevant group of
consumers.
• Test specific hypotheses and examine
specific relationships.
• Identify and size market segments.
 Some common sales forecasting
techniques
• Time series analysis; consists of breaking down the original
sales into its trend, cycle, season, and erratic components,
then recombining these components to produce the sales
forecast.
• Leading indicators; other time series that change in the
same direction but in advantage of company sales.
• Statistical demand analysis; is a set of statistical procedures
used to discover the most important real factors affecting
sales and their relative influence. The factors most
commonly analyzed are prices, income, population, and
promotion.
 Some common sales forecasting
techniques

• Expert opinion; companies can also obtain forecasts

by turning to experts. Experts include dealers,
distributors, suppliers, marketing consultants and
trade associations.
• Market-test method; a direct market test is especially
useful in forecasting the sales of a new product, or of
an established product in a new distrubution channel
or territory.
 Test marketing
• Test marketing; If the product passes functional and consumer tests,
the next step is market testing. Test marketing is the stage in which the
product and marketing program are tested in more realistic market
settings.

• Standard test markets; the company finds a small number of

representative test cities where the company’s salesforce tries to
persuade resellers to carry the product and give it good shelf space and
promotional support.

• The company puts on a full advertising and promotion campaign in

these markets and uses store audits, consumer and distribution
campaign in these markets and uses store audits, consumer and
distributor surveys, and other measures to gauge product
performance.

• The results are used to forecast national sales and profits, to discover
potential product problems, and to fine-tune the marketing program.
 Marketing strategy development

The marketing strategy statement

consists of three parts.
1) The first part describes the target market, the planned product
positioning and the sales, market share, and profit goals for the
first few years.

2) The second part of the marketing strategy statement outlines the

product’s planned price, distribution, and marketing budget for
the first year.

3) The third part of the marketing strategy statement describes the

planned long-run sales and profit goals and marketing mix
strategy over time.
 Movie; IKEA | Marketing Mix;
https://youtu.be/MwWAozQoPxU
 The marketing
strategy proces
(source;
http://www.easy-
marketing-
strategies.com/marketin
g-strategy-process.html)
 Commercialization

• Test marketing gives management the information needed

to make a final decision about wheter to launch the new
product.
• If the company goes ahead with commercialization –
introducing and marketing the product – it will face high
costs.
 In launching a new product, the
company must make four decisions.
1) When? The first decision is whether it is the right time to introduce
the new product.

2) Where? The company must decide whether to lauch the new

product in a single location, a region, several regions, the national
market, or the international market.

3) To whom? Within the rollout markets, the company must target its
distribution and promotion to the best prospect groups.

4) How? The company must develop an action plan for introducing the
new product into the selected markets. It must spend the marketing
budget on the marketing mix and various other activities.
 Product life - cycle strategies

• After launching the new product, management

wants the product to enjoy a long and happy life.
• Although it does not expect the product to sell
forever, management wants to earn a decent profit
to cover all the effort and risk that went into it.
Sales and profits over the product’s life
from inception to demise (source;
https://marketing-insider.eu/product-life-cycle-stages/)
 The typical product life cycle;
1) Product development begins when the company finds and develops
a new product idea. During product development, sales are zero and
company’s investment costs add up.

2) Introduction is a period of slow sales growth as the product is being

introduced in the market. Profits are nonexistent in this stage
because of the heavy expenses of product introduction.

3) Growth is a period of rapid market acceptance and increasing profits.

4) Maturity is a period of slowdown in sales growth because the

product has chieved acceptance by most of the potential buyers.
Profits level off or decline because of increased marketing outlays to
defend the product against competition.

5) Decline is the period when sales fall off quickly and profits drop.
 Product modification
• The product manager can also change product characteristics – such as pruduct
quality, features, or style – attract new users and more usage.

• A strategy of quality improvement aims at increasing the performance of the

product – such as its durability, reliability, speed, or taste. This strategy is
effective when the quality can be improved, when buyers believe the claim of
improved quality, and when enough buyers want higher quality.

• A strategy of feature improvement adds new features that expand the product’s
usefulness, safety, or convenience. Feature improvement has been successfully
used by Japanese makers of wathes, calculators, copying machines and
consumer electronics.

• A strategy of style improvement aims to increase the attractiveness of the

product. Thus car manufacturers restyle their cars to attract buyers who want a
new look.
 Marketing mix modification
• The product manager can also try to improve sales by changing
one or more marketing mix elements.

• Prices can be cut to attract new users and competitors’ customer.

• A new advertising campaign can be lauched.

• Aggressive sales promotion – trade deals, coupons, gifts and

contents – can be used.

• The company can move into larger market channels, using mass
merchandisers, if these channels are growing.

• The company can offer new or improved services to the buyers.

Movie; Product Life cycle - Stages
of PLC explained with examples
 External sources;

•  Reading for this class ;

• R. J. Ebert, R. W. Griffin, 2007, Business Essentials, Pearson
Prentice Hall, Chapter 3: Entrepreneurship New Ventures,
and Business Ownership.
• P. Kotler, G. Armstrong, 1989, Principles of Marketing.
Prentice Hall, Chapters 11&12.
• H. M. Hayes, P. V. Jenster, N. E. Aaby, 1996, Business
Marketing. A Global Perspective, Irwin McGraw-Hill.
Chapter 7.