Session 3 - Product Development

Lecturer: Bahman Moghimi
Doctor of Business Administration

M.Sc. Of “Industrial Marketing & e-Commerce”
New-Product Development and Product Life

New- Life--Cycle strategies
University of Georgia
B.Moghimi
@yahoo.co.
New-Product Development
New-
and Product Life-
Life-Cycle
Strategies
Bahman Moghimi
University of Georgia
B.Moghimi@ug.edu.ge
Objectives
Understand how companies find and develop new-

new-product ideas.
Learn the steps in the new-

new-product development process.
Know the stages of the product life cycle.
Understand how marketing strategies change during the

product’s life cycle.
B.Moghimi@yahoo.co.uk
Microsoft
c
$50 billion in profits over 27 Innovation is critical to

years Microsoft’s future success
Early new product Much of R & D efforts are
development relied heavily on Internet related
copying the competition Many new products and
$4.2 billion annually invested services are in development
in R & D
New Product Development
Development of original products, product

improvements, product modifications,
and new Brands through the firm’s
own R&D efforts.
New Product Development Strategy
New products can be obtained via acquisition

or development.
New products suffer

from high failure rates.
Several reasons
account for failure.
Discussion Question
Why do products fail?

See if you can identify the fatal
flaw in the brands below and
at right.
Ben--Gay Asprin
Ben Buttermilk Shampoo Fruit of the Loom
Laundry Detergent
Why Do New Products Fail ?
• Overestimated market
• Poor design
• Incorrect positioning
• Error in pricing
• Poor marketing communication
• Production-orientation
• Cost overrun
• Competition
Why Do New Products Success?
• Unique
• superior product
• Well defined product concept

from startup
• Specific criteria
• Specific strategic role
• Systematic new-product process
Major Stages in
New-Product Development
New Product Development Process:

 Stage 1: Idea Generation
 Internal idea sources:
• R&D
 External idea sources:
• Customers,
• Competitors,,
Competitors
• Distributors
• Suppliers
3M’s corporate
culture
encourages,
supports, and
rewards new
product ideas
and innovation

 Stage 2: Idea Screening
 Product development
costs increase dramatically
in later stages.
 Ideas are evaluated
against criteria;
most are eliminated.
New-Product Development Process:
Idea Generation
Systematic process
 Idea manager
 Multidisciplinary committee
 Toll--free number
Toll
 Staff encouragement
 Formal recognition
Yields
 innovation culture
 more ideas

 Stage 3: Concept Development and
Testing
 Product concepts provide
detailed versions of new
product ideas.
 Consumers evaluate
ideas in concept tests.
Idea Screening
• Purpose • Product concept

– Identify good ideas drop
– New-product idea in
poor ones fast
detail stated in
• Challenge
meaningful consumer
– Maintain creativity and
stream of ideas terms
• Standard format • Concept development
• Criteria and rating – Expanding the new-
product idea into
various alternative
forms
Concept Development and Testing
• Concept testing
– Target consumers
exposed to new-
new-
product concepts
– Word or picture
description
– Physical presentation
of the concept
– Question reactions

 Stage 4: Marketing Strategy Development
 Strategy statements describe:
• The target market, product positioning, and
sales, share, and profit goals for the first few
years.
• Product price, distribution, and marketing
budget for the first year.
• Long
Long--run sales and profit goals and the
marketing mix strategy.

 Stage 5: Business Analysis
 Sales, cost, and profit
projections
 Stage 6: Product
Development
 Prototype development
and testing
Business Analysis
• Review sales, costs and profit projections

• Compare projected results to objectives
• Estimate maximum and minimum sales
– Company history and market opinion
• Assess risk
• Estimate product costs and profits
• Analyze attractiveness using sales and costs
Daimler is currently road-testing its prototype
NECAR 5 (New Electric Car)
Business Now
Computer modeling is being used to
aid in product design

 Stage 7: Test Marketing
 Standard test markets
 Controlled test markets
 Simulated test markets
Standard Test Markets
• Use small number of representative test cities

• Conducts full marketing campaign
• Store audits, consumer/distributor surveys gauge
performance
• Costly and time consuming
• Competitor reaction
• Most popular approach
Controlled Test Markets
• Controlled panel of stores - fee basis

• Client specifies stores and locations
• Shelf space/location, displays, promotion and price
controlled
• Sales tracked
• Less time, lower costs
• Representativeness and competition
Simulated Test Markets (STM)
In-Depth
Advantages: Types of STMs:
 Reduces risk – capital,  ASSESSOR
marketing dollars,
 BASES
cannibalization
 Marke--Test
Marke
 Increases efficiency
 Merwyn
 Maintains security –
competitors have less time  And others
to plan counter strategies
 Saves the company time
In-Depth
Model Inputs: Model Inputs:
 The market's size  Price
 Copy testing results  The proportion of
stores carrying the test
 Advertising budget for the
product and the
test product and
number of shelf facings
competitors.
by month.
 Media schedule,
 Expected marketing
Consumer promotion,
costs and margin
Trade promotion by
contribution.
month.
In-Depth
Do‘s & Don’ts of STMs Do‘s & Don’ts of STMs
 Be a champion for your  Calculate different levels
new product--
product--but
but be of competitive response.
objective  Don't estimate a level of
 Choose the proper sample. support in a simulated
 Expose people to your market that you would not
product and its advertising maintain nationally.
in a way that best simulates  Be very careful in
the real world. estimating all marketing
 Use proven research input factors—
factors—the more
technology to forecast you guess incorrectly, the
market behavior and sales. less accurate the forecast.
Stage 8 :Commercialization
• Major investment in manufacturing facilities
• High initial advertising and promotion expense
• Introduction timing critical
• Launch location?
• Local, regional roll-

roll-out, national, or global?
Sales and Profits
Over A Product’s Life
Product Life-Cycle Strategies
The Typical Product Life Cycle

(PLC) Has Five Stages
 Product Development, Introduction,
Growth, Maturity, Decline
 Not all products follow this cycle:
 Fads
 Styles
 Fashions
Styles, Fashions, and Fads
Companies
want their
products to
enjoy a long
life cycle.
Hershey’s
actively
promotes the
fact that it has
been
“unchanged
since 1899”
Additional marketing
investments can
move a product back
into the growth stage,
as in the case of
Cracker Jack.
The product life cycle concept can

be applied to a:
 Product class (soft drinks)
 Product form (diet colas)
 Brand (Diet Dr. Pepper)
 Using the PLC to forecast brand
performance or to develop marketing
strategies is problematic
PLC Stages Begins when the

company develops a new-
new-
Product
development product idea
Introduction Sales are zero

Growth Investment costs are high
Maturity
Profits are negative
Decline
PLC Stages Low sales

High cost per
Product customer acquired
development Negative profits
Introduction Innovators are
Growth targeted
Maturity Little competition
Decline
Marketing Strategies:
Introduction Stage
Product – Offer a basic product
Price – Use cost-
cost-plus basis to set
Place – Build selective distribution
Advertising – Build awareness among early adopters and
dealers/resellers
Sales Promotion – Heavy expenditures to create trial
PLC Stages Rapidly rising sales

Average cost per
Product customer
development Rising profits
Introduction Early adopters are
targeted
Growth Growing competition
Maturity
Decline
Growth Stage
Product – Offer product extensions, service, warranty
Price – Penetration pricing
Distribution – Build intensive distribution
Advertising – Build awareness and interest in the mass
market
Sales Promotion – Reduce expenditures to take
advantage of consumer demand
PLC Stages Sales peak

Low cost per
Product customer
development High profits
Introduction Middle majority are
Growth targeted
Maturity Competition begins
Decline to decline
Maturity Stage
Product – Diversify brand and models
Price – Set to match or beat competition
Distribution – Build more intensive
distribution
Advertising – Stress brand differences
and benefits
Sales Promotion – Increase to encourage
brand switching
PLC Stages Declining sales

Low cost per
Product customer
development Declining profits
Introduction Laggards are
Growth targeted
Maturity Declining
Decline competition
Decline Stage
Product – Phase out weak items

Price – Cut price
Distribution – Use selective distribution: phase out
unprofitable outlets
Advertising – Reduce to level needed to retain
hard--core loyalists
hard
Sales Promotion – Reduce to minimal level
Characteristics Introduction Growth Maturity Decline
Sales Low Rapidly rising Peak Declining
Costs High per customer Average per Low per customer Low per
customer customer
Profits Negative Rising High Declining
Customers Innovators Early adopters Middle majority Laggards
Competitors Few Growing number Stable number Declining number

beginning to
decline
Marketing Create product Maximize market Maximize profit Reduce
awareness and trial share while defending expenditures and
Objectives market share milk the brand
Strategies Introduction Growth Maturity Decline

Offer basic product Offer product Diversify brand and Phase out weak items
Product extensions, service, models
warranty
Use cost-plus Price to penetrate Price to match or best Cut price
Price market competitors
Build selective Build intensive Build more intensive Go selective, phase out
Distribution unprofitable outlets
Build product Build awareness and Stress brand Reduce to level needed
Advertising awareness among early interest in the mass differences and to retain hard-core
adopters and dealers market benefits loyals
Use heavy sales Reduce to take Increase to encourage Reduce to minimal
Sales promotion to entice advantage of heavy brand switching level
Promotion trial consumer demand

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Lecturer: Bahman Moghimi

Doctor of Business Administration

New-Product Development and Product Life

Understand how companies find and develop new-

Learn the steps in the new-

Know the stages of the product life cycle.

Understand how marketing strategies change during the

$50 billion in profits over 27 Innovation is critical to

Development of original products, product

New products can be obtained via acquisition

New products suffer

Why do products fail?

• Poor marketing communication

• Well defined product concept

• Specific strategic role

• Systematic new-product process

New Product Development Process:

New Product Development Process:

New Product Development Process:

• Purpose • Product concept

New Product Development Process:

New Product Development Process:

• Review sales, costs and profit projections

New Product Development Process:

 Controlled test markets

 Simulated test markets

• Use small number of representative test cities

• Controlled panel of stores - fee basis

• Major investment in manufacturing facilities

• High initial advertising and promotion expense

• Introduction timing critical

• Local, regional roll-

The Typical Product Life Cycle

The product life cycle concept can

PLC Stages Begins when the

Introduction Sales are zero

PLC Stages Low sales

PLC Stages Rapidly rising sales

PLC Stages Sales peak

PLC Stages Declining sales

Product – Phase out weak items

Characteristics Introduction Growth Maturity Decline

Sales Low Rapidly rising Peak Declining

Profits Negative Rising High Declining

Customers Innovators Early adopters Middle majority Laggards

Competitors Few Growing number Stable number Declining number

Strategies Introduction Growth Maturity Decline

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