New-Product Development and Life-Cycle Strategies Chapter 9

New Product Development

Development of original products, product improvements, product modifications, and new brands through the firm’s own R & D efforts

a) Newness compared with existing products – if a product is functionally different from existing product, it can be defined as new. – Additional features are added to an existing product to try to make it appeal to more customers

b) Newness in legal terms • The term ‘new’ be limited to be use with a product up to 6 months after it enters regular distributions c) Newness from the company’s perspective • Successful companies are starting to view newness and innovation in their products at 3 levels: -lowest level (involved at least risk, is a product line extension. Ex: diet coke diet cherry coke or curry maggi Xtreme maggi); -second level (is a significant jump in the innovation /technology-Sony’s leap from the micro tape recorder to walkman) -third level (is positive innovation, a truly revolutionary new product. Ex: first Apple computer in 1976)

• New products can be obtained via acquisition or development. • New products suffer from high failure rates. • Several reasons account for failure.

Reasons for new product failures

Insignificant point of difference
a distinctive point of difference is essential for a new product to defeat competitive ones-through having superior characteristics that can deliver unique benefits to the user.

Incomplete market and product definition before product development start
a new product needs a precise protocol, should identifies: a well defined target market, specific customers’ needs, wants and preferences and what the product will be and do.

Poor execution of the marketing mix
Coca-Cola thought its Minute Maid Squeeze , fresh frozen orange juice concentrate in a squeeze bottle was a hit. Consumers loved the idea but the product was messy to use and the advertising and packaging didn’t educate them effectively on how to use it.

Poor production quality/sensitivity to customer needs on critical factors
this factor stresses that problem on one or more critical factors can kill the product, even though the general quality is high. Ex: Apple computers’ Newton personal digital assistant (PDA) was a great idea but was too complicated for the usage of the user.

Bad timing
The product is introduced too early, too late or a time when the consumer taste and preferences are shifting dramatically. Eg: IBM, killed several laptop computer prototype because competitors introduced better, more advanced machines to the marketplace before IBM could get there

No economical access to buyers
Eg: grocery products. Today’s super/hypermarket carry more than 33,000 new packaged goods products (food, beverage, health and beauty, household and pet items), the fight for exposure is tremendous in terms of costs for advertising, distribution and shelf space

Stages of the New Product Development Process
Stage 1: Idea Generation
– Internal idea sources: • R & D (your employees) – External idea sources: • Customers (through watching and listening to customers-the company can analyze customer questions and complaints to find new products that better solve consumer problem), competitors (watching competitor’s ads to get clues), distributors, suppliers (these channel close to market and can pass along information about consumer problems and new product possibilities)

Stage 2: Idea Screening – Product development costs increase substantially in later stages so poor ideas must be dropped – Ideas are evaluated against criteria; most are eliminated – Write up new product ideas on standard form, decribes the product, target market and the competition – Estimates of market size, product price, development time and costs, manufacturing costs. – Questions: i) Is the product truly useful to consumers and society? ii) Is it good for our particular company? iii) Does it mesh well with the company’s objectives and strategies? iv) Do we have the people, skills and resources it make to succeed?

 In screening ideas, the company must avoid 2 types of errors: a) Drop error-when the company dismisses an otherwise good idea b) Go error-when the company permits a poor idea to move into development and commercialization

Stage 3: Concept Development and Testing i) Concept development creates a detailed version of the idea stated in meaningful consumer terms -an attractive idea must be developed into a product concept -important to distinguish between a product idea, product concept and product image  Product idea can be turned into several concepts: A large food processing company gets the idea of producing a powder to add to milk to increase its nutritional value and taste. a) b) c) Who will use this product? What primary benefit should this product provide? When will people consume this drink?

 A company can form several concept: Concept 1: an instant breakfast drink for adults who want a quick nutritious breakfast without preparing a breakfast Concept 2: a tasty snack drink for children to drink as a refreshment Concept 3: a health supplement for older adults to drink in the dinner before they go to bed. ii) Concept testing asks target consumers to evaluate product concepts. Testing new product concepts with groups of target consumers and presented symbolically or physically.

• Stage 4: Marketing Strategy Development
• 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-run sales and profit goals and the marketing mix strategy.

• Stage 5: Business Analysis
– Sales (might look at the sales history of similar products and conduct survey of market opinion, needs to estimate whether sales will be high enough to yield satisfactory profit), cost (for each department), and profit projections

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Stage 6: Product Development
Prototype development and testing If the product concept passes the business test, it moves into this stage, here R&D or engineering develops the product concept into physical product. – At this stage, the company will determine whether the product idea can be translated into technically and commercially feasible product – When prototypes are ready, they must be put through rigorous functional tests and customer test: a) Functional tests: alpha testing and beta testing b) Customer tests: bringing customers into a laboratory to giving them samples to use in their home

Stage 7: Test Marketing – Standard test markets o finds a small number of representatives test cities, conducts a full o marketing campaign, use store audits (market share), consumer and o distributor surveys (attitudes and satisfaction) o management faces: how many test cities? Which cities? (good o media coverage), length of test?, what information to gain? (store o audit, consumer panels-loyalty and switching) – o o o o o o o Controlled test markets a research firm manages a panel of stores that will carry new product for a fee. The company with the new product specifies the number of stores and geographic locations it wants to test the research firm delivers the product to the participating stores and controls shelf position: number of facings, displays and point of purchase promotion and pricing. Sales results can be measured through electronic scanners at checkout.

– o o o o o o o o o

Simulated test markets can also test new product in a simulated shopping environment the company shows A&P for a variety of product, including the new product being tested to a sample of consumers finding 30 to 40 qualified shoppers and questioning them about brand familiarity and preferences in specific product category consumers are asked the reasons for their purchases or nonpurchases, those who did not buy the new brand are given a free sample. Weeks later, they are reinterviewed by phone to determine product attitudes, usage satisfaction and repurchase intention

• i) ii) iii) iv)

Stage 8: Commercialization When (timing) Where (geographic strategy) To whom ( target market prospect) How (introductory market strategy)

Managing New Product Development
• Successful new-product development requires a – Customer-Centered New-Product Development • Focuses on finding new ways to solve customer problems and create more customersatisfying experiences (Procter and Gamble) Team-Based New-Product Development • Company departments work together in cross-functional teams Systematic New-Product Development • Install innovation management system to collect, review, evaluate and manage newproduct ideas. • Web-based idea management software. (3M, Procter and Gamble, GE)

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Sales and profits Maturity Growth Introduction Decline

Time Product development stage

• Product development
 Characteristics : • Begins when the company develops a new-product idea • Sales are zero • Investment costs are high • Profits are negative


 Characteristic : • Low and slow sales • High cost per customer acquired • Negative or low profits because sales are low and distribution and A&P expenses are high • Innovators are targeted • Little competition  Marketing Strategies: • Product – Offer a basic product • Price – Use cost-plus basis • Distribution – Build selective distribution • Advertising – Build awareness among early adopters and dealers/resellers • Promotion – Heavy expenditures to create trial-sales promotion


 Characteristic: • Rapidly rising sales • Rising profits • Early adopters are targeted and continue to buy and later buyer will start following • Growing competition  Marketing Strategies • Product – Offer product extensions, service, warranty • Price – Penetration pricing (setting a low price) • Distribution – Build intensive distribution • Advertising – Build awareness and interest in the mass market • Promotion – Reduce expenditures to take advantage of consumer demand


 Characteristic: • Sales peak • At some point a product’s sales will slow down • At this stage normally lasts longer than the previous stage • High profits • Middle majority are targeted • Competition begins to decline because competitors begin marking down prices, increasing their A&P and upping their R&D budgets to find better versions of products  Marketing Strategies: • Product – Diversify brand and models • Price – Set to match or beat competition • Distribution – Build more intensive distribution • Advertising – Stress brand differences and benefits • Promotion – Increase to encourage brand switching

 Characteristic: • Declining sales because of technological advances, shifts in consumer tastes and increased competition • Declining profits • Laggards are targeted • Declining competition  Marketing Strategies: • Product – Phase out weak items, pay attention to the aging product, decide whether to maintain, harvest or drop each of these declining product • Price – Cut price • Distribution – Use selective distribution: phase out unprofitable outlets • Advertising – Reduce to level needed to retain hard-core loyalists • Promotion – Reduce to minimal level

Product Life-Cycle Strategies

Modifying Strategies • Market modifying • Product modifying • Marketing mix modifying


Product Life-Cycle Strategies

Modifying Strategies Market modifying strategy is when a company tries to increase consumption of the current product • New users • Increase usage of existing users • New market segments

Product Life-Cycle Strategies

Modifying Strategies Marketing mix modifying strategy is when a company changes one or more of the marketing mix elements • Price • Promotion • Distribution channels

Product Life-Cycle Strategies
Decline stage is when sales decline or level off for an extended time, creating a weak product • Maintain the product • Harvest the product • Drop the product


Additional Product and Service Considerations

Product Decisions and Social Responsibility Public policy and regulations regarding developing and dropping products, patents, quality, and safety


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


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