New-Product Development

New-Product Development: The development of original products, product improvements, product modifications, and new brands through the firm’s own R&D efforts.

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New-Product Development Strategy

Strategies for Obtaining New-Products
Acquisition of:
Companies

New Products:
Original Products

Patents
Licenses

Improvements
Modifications
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New-Product Failures

Only 10% of new products are still on the market and profitable after 3 years. Failure rate for industrial products is as high as 30%. Why?

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Overestimation of market size Design problems Incorrectly positioned, priced, or advertised Pushed despite poor marketing research findings Development costs Competition
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Major Stages in New-Product Development

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Idea Generation Company Employees Customers Competitors Distributors Suppliers 5 .

they said. The EZ Squirt bottle’s special nozzle also emits a thin stream so they can autograph their burgers. now in a variety of colors targeted at kids. Heinz developed and launched EZ Squirt. “Change the color!” so. 6 .Idea Generation When Heinz asked kids what would make the product more fun.

7 . Evaluate these findings against set of company criteria for new products.Idea Screening    Process to spot good ideas and drop poor ones. and rate of return. product price. Develop system to estimate: market size. manufacturing costs. development time and costs.

Concept Development and Testing    Product Idea: idea for a possible product that the company can see itself offering. Product Image: the way consumers perceive an actual or potential product. Product Concept: detailed version of the idea stated in meaningful consumer terms. 8 .

find out how attractive each is to customers. and choose the best one.. 9 . Concept 2: Medium cost medium size all purpose family car Concept 3.GM’s Electric Car      The company’s task is to develop new product into alternative product concepts.Medium cost sporty car appealing to young people Concept 4: Inexpensive appealing to people who want basic transportation. Concept 1:An inexpensive second family car ideal for loading groceries. and low pollution. low fuel cost.

10 .Concept testing  Testing new–product concepts with a group of target consumers to find out if the concept has strong consumer appeal.

& Profit Goals Part Two Outlines the First-Year’s: Product’s Planned Price Distribution Marketing Budget Part Three Describes Long-Run: Sales & Profit Goals Marketing Mix Strategy 11 . Market Share.Marketing Strategy Development Part One Describes: The Target Market Planned Product Positioning Sales.

costs.  12 .Business Analysis  Involves a review of the sales. If yes. move to the product development phase. and profit projections to assess fit with company objectives.

Product Development     Develop concept into physical product Calls for large jump in investment Prototypes are made Prototype must have correct physical features and convey psychological characteristics 13 .

Test Marketing    Product and program introduced in more realistic market setting. but better than making major marketing mistake. Can be expensive and time consuming. Not needed for all products. 14 .

15 .Test Marketing Nokia test-marketed its new N-Gage cell phone/mobile game player extensively before introducing it worldwide.

. 16 . internationally). state. single location. nationally. Must develop a market rollout plan. when to introduce the product).e.g. region. Must decide on where to introduce the product (e..Commercialization    Must decide on timing (i.

Organizing New-Product Development  Sequential Approach: each stage completed before moving to next phase of the project. Simultaneous Approach: Cross-functional teams work through overlapping steps to save time and increase effectiveness.  17 .

Product Life Cycle 18 .

) Sales and Profits Over the Product’s Lifetime 19 .) Profits Time Decline Sales Product Development Introduction Growth Maturity Losses/ Investments (Rs.Product Life Cycle Sales and Profits (Rs.

The Product Life Cycle  Recognizes distinct stages in the sales history of products 20 .

Introduction 2. Growth 3.The Product Life Cycle Four stages: 1. Decline 21 . Maturity 4.

Customer Types 22 .

Stage I: Introduction  Slow sales growth  Few competitors  Innovative customers  Nonexistent profit 23 .

Stage I: Introduction Strategic Focus  Expand market  Increase product awareness 24 .

Stage II: Growth  Rapid market acceptance  Substantial profit improvement  Increasing competition  Mass Market  Profits Peak? 25 .

Stage II: Growth Strategic Focus  Market penetration  Build brand preference 26 .

Stage III: Maturity  Slow down in sales growth  Profit peaks (if didn’t in growth)  Mass market  Many competitors 27 .

Stage III: Maturity Strategic Focus  Defend market share!  Retain brand loyalty  Product differentiation 28 .

Stage IV: Decline      Sales decline May be fast or slow Low profits Customers are laggards Competitors decline 29 .

Extending the PLC      Increase frequency of use by present customers Find new uses Increase number of users Change package size/label Encourage trial 30 .

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and shape of PLC Strategy is both a cause and result of the PLC 32 . length of each stage.Practical Problems of PLC Hard to identify which stage of the PLC the product is in Hard to identify factors that affect product’s movement through stages Hard to pinpoint when the product moves to next stage Hard to forecast sales level.

& Strategies Sales Low Costs Profits Marketing Objectives High cost per customer Negative Create product awareness and trial Product Price Distribution Offer a basic product Use cost-plus formula Build selective distribution Heavy to entice product trial 33 Promotion .Introduction Stage of the PLC Summary of Characteristics. Objectives.

service.Growth Stage of the PLC Summary of Characteristics. Objectives. warranty Penetration strategy Build intensive distribution Reduce to take advantage of demand 34 . & Strategies Sales Costs Profits Marketing Objectives Rapidly rising Average cost per customer Rising Maximize market share Product Price Distribution Promotion Offer extension.

Objectives. & Strategies Sales Costs Profits Marketing Objectives Product Price Distribution Promotion Peak Low cost per customer High Maximize profits while defending market share Diversify brand and models Match or beat competitors Build more intensive distribution Increase to encourage brand switching 35 .Maturity Stage of the PLC Summary of Characteristics.

Maturity Stage of the PLC   Modifying the Market: Increase the consumption of the current product. How?    Look for new users and market segments Reposition the brand to appeal to larger or fastergrowing segment Look for ways to increase usage among present customers 36 .

features. or style to attract new users and to inspire more usage. How?     Improve durability. convenience 37 . taste Improve styling and attractiveness Add new features Expand usefulness. reliability. safety. speed.Maturity Stage of the PLC   Modifying the Product: Changing characteristics such as quality.

Modifying the Product Crayola has added a steady stream of new colors. forms. and packages 38 .

Maturity Stage of the PLC   Modifying the Marketing Mix: Improving sales by changing one or more marketing mix elements.   Move into larger market channels Offer new or improved services to buyers 39 . How?   Cut prices Launch a better ad campaign New ads and promotions to reposition and revitalize mature product.

& Strategies Sales Costs Profits Marketing Objectives Product Price Distribution Promotion Declining Low cost per customer Declining Reduce expenditures and milk the brand Phase out weak items Cut price Selective: phase out unprofitable outlets Reduce to minimum level 40 . Objectives.Decline Stage of the PLC Summary of Characteristics.