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Principles of Marketing

Dr. Karim

Chapter 9: New-Product Development and Product


Life-Cycle Strategies

Ke ywords

Patent refers to the exclusive right


granted by a government to an inventor
to manufacture, use, or sell an invention
for a certain number of years (usually 20
years).
License refers to an increasingly popular
method
protection.

of

intellectual

property

Introduction
In this chapter, we examine two product topics:
developing new products and managing products
through their life cycles. New products are the
lifeblood of an organization. However, new-product
development is risky, and many new products fail. So,
the first part of this chapter lays out a process for
finding and growing successful new products. Once
introduced, marketers want their products to enjoy
long and happy lives. In the second part of this
chapter, we will see that every product passes
through several life-cycle stages, and each stage
poses new challenges requiring different marketing
strategies and tactics. Finally, we wrap up our product
discussion by looking at two additional considerations:
social responsibility in product decisions and
international product and services marketing.

New-Product Development
Strategy
How Companies Find & Develop New Products Ideas?

Two ways by which a firm obtain new products:


1) Acquisition refers to the buying of a whole company, a
patent, or a license to produce someone elses product.

2)

New

product

development

refers

to

original

products, product improvements, product modifications,


and new brands developed from the firms own
research and development (R&D) department.

New Product Development

New-Product Development
Reasons for new product failure

Overestimation of market size


Poor design
Incorrect positioning
Wrong timing
Priced too high
Ineffective promotion
Management influence
High development costs
Competition

New-Product Development Process


Major Stages in New-Product Development

Stage 1: Idea Generation


Idea generation is the systematic search
for new-product ideas.
Sources of new-product ideas
Internal
External

Sources of New Product Ideas

Internal sources refer to


the companys own formal
research and development,
management and staff, and
entrepreneurial programs

External sources refer to


sources
outside
the
company
such
as
customers,
competitors,
distributors, suppliers, and
outside design firms

Stage 2: Idea Screening

Identify good ideas and drop poor


ideas
R-W-W Screening Framework:
Is it real?
Can we win?
Is it worth doing?

Stage 3: Concept Development & Testing


An attractive idea must be developed into a
product concept. It is important to distinguish
between a product idea, a product concept, and a
product image:
- Product idea is an idea for a possible product that
the company can see itself offering to the market
- Product concept is a detailed version of the idea
stated in meaningful consumer terms.
- Product image is the way consumers perceive an
actual or potential product

Concept Development and


Testing
Many firms routinely test new-product concepts
with consumers before attempting to turn them
into actual new products. For some concept tests,
a word or picture description might be sufficient.
However, a more concrete presentation of the
concept will increase the reliability of the concept
test.

After

being

exposed

to

the

concept,

consumers then may be asked to react to it by


answering questions similar to those in table I.

C o n ce p t D e v e l o p m e n t a n d Te s t i n g

Concept testing refers to testing


new-product concepts with groups
of target consumers

Stage 4: Marketing Strategy Development

Marketing strategy development refers to


the

initial

marketing

strategy

introducing the product to the market


Marketing strategy statement includes:
Description of the target market
Value proposition
Sales and profit goals

for

Stage 5: Business Analysis


Business analysis involves a review
of

the

sales,

costs,

and

profit

projections to find out whether they


satisfy the companys objectives.

Stage 6: Product Development


Product

development

involves the creation


and testing of one or
more

physical

versions by the R&D


or customers.

Requires an increase
in investment.

Stage 7: Test Marketing


Test marketing is the stage at which the
product and marketing program are introduced
into more realistic marketing settings.

Provides the marketer with experience in testing


the product and entire marketing program
before full introduction.

Types of Test Markets


Standard test
markets
Controlled test
markets
Simulated test
markets

Advantages & Disadvantages of Test Markets

Advantages of simulated test markets


Less expensive than other test methods
Faster
Restricts access by competitors

Disadvantages of simulated test markets


Not considered as reliable and accurate due
to the controlled setting

When firms
test market
New product
with large
investment
Uncertainty
about
product or
marketing
program

When firms
may not test
market
Simple line
extension
Copy of
competitor
product
Low costs
Management
confidence

Stage 8: Commercialization
Commercialization is the introduction of the new
product
When to launch
Where to launch
Planned market rollout

New-Product Development Strategies


Successful new-product development
might be:
1- Customer Centered
2- Sequential
3- Team Centered

New-Product Development Strategies


1- Customer Centered New Product
Development
Focuses on finding new ways to solve
customer problems and create more
customer satisfying experiences
Begins and ends with solving
customer problems (needs, wants,
and interest).

2- Sequential New Product Development


Is a development approach where company
departments work individually to complete
each stage of the process before passing it
along to the next department or stage.
Increased
projects
Slow

control

in

risky

or

complex

New-Product Development Strategies


3- Team Based New Product
Development
Is a development approach where company
departments work closely together in
cross-functional teams, overlapping in
the

product-development

process

save time and increase effectiveness.

to

New-Product Development Strategies


4-

Systematic

new-product

development
Is an innovative
approach
reviews,

development

that

collects,

evaluates,

and

manages new-product ideas

Creates

an

innovation-oriented

culture

Yields a large number of newproduct ideas

Product Life Cycle (PLC)

Product Life Cycle (PLC)


Stage 1: Product Development
Sales are zero and investment costs mount

Product Life Cycle (PLC)


Stage 2: Introduction
Slow sales growth and profits are nonexistent

Product Life Cycle (PLC)


Stage 3: Growth

Rapid market acceptance


Sales increase
New competitors enter the market
Price stability or decline to increase volume
Profits increase
Promotion and manufacturing costs gain economies
of scale

Product Life Cycle (PLC)


Stage 4: Maturity
Slowdown in sales growth and profits level off or
decline
Many suppliers
Substitute products
Overcapacity leads to competition

Product Life Cycle (PLC)


Stage 5: Decline
- Sales fall off and profits drop

REMARK
Not all products follow all five stages of the
PLC. Some products are introduced and
die quickly; others stay in the mature
stage for a long, long time. Some enter
the decline stage and are then cycled
back
strong

into

the

growth

promotion

or

stage

through

repositioning.

It

seems that a well-managed brand could

Marketing Strategies During PLC

Stage 1: Product Development Stage


We looked at the product development
stage of the PLC in the first part of this
chapter. We now look at strategies for
each of the other life cycle stages.

Marketing Promotion During PLC


2. Introduction

Advertising and public relations


awareness
Sales promotion trial
Personal selling distribution

4. Maturity

Advertising persuasion,
reminder
Sales promotion market
share

3. Growth

Advertising and PR brand loyalty


Less emphasis on sales promotion

5. Decline

Reduction in advertising and


PR
More emphasis on sales
promotions temporary
sales

Market modifying
Product
modifying
Marketing mix
modifying

Possible Strategies During


Decline Stage
Maintain the product
Harvest the product
Drop the product

Additional Product and Service


Considerations
International Product and Service Marketing
Challenges

Determining what products and services to


introduce in
which countries
Standardization versus Customization
Packaging and labeling
Customs, values, laws

International Product
Customization

Additional Product and Service


Considerations
Product Decisions and Social Responsibility

Public policy and regulations regarding


developing and dropping products,
patents, quality, and safety