New Product Development & Product Life-Cycle

Strategies (Chapter 9)

Lecture #9
Lecturer: Donna-Kay Smith
Date: June 17, 2016
 New Product Development Strategy

 The New Product Development Process

 Managing New Product Development

 Product Life-Cycle Strategies

 Additional Product & Service Considerations

 Companies can obtain products in two (2) ways:

 Acquisition – Buying a whole company, patent or

license to produce someone else’s product.

 New Product Development – The development of

original products, product improvements, product
modifications and new brands through the firm’s own
research and development (R&D) efforts.
 “Fiscal 2015 was Apple’s most successful
year ever, with revenue growing 28% to
nearly $234 billion. This continued success
is the result of our commitment to making
the best, most innovative products on
earth, and it’s a testament to the
tremendous execution by our teams”
- Tim Cook, Apple’s CEO (Oct. 2015)
 To create successful new products, a
company must:
 Understand its consumers, markets and
competitors.
 Develop products that deliver superior value to
customers.
 Major stages in the development of new
products:
 Idea generation – The systematic search for new
product ideas.
 Major sources of of new product ideas include:
1. Internal Sources – Finding ideas through research and
development (R&D), management and staff and
intrapreneurial programs.
2. External Sources – Finding ideas from outside the
company such as distributors, suppliers, competitors,
and customers

 Crowdsourcing – Inviting broad communities of

people – customers, employees, independent
scientists and researchers, and even the public at
large – into the new product innovation process.
 Idea screening – Involves screening new product ideas to spot
good ones and drop poor ones as soon as possible.
 Company Executives are usually required to write up new product
ideas in a standard format for review and evaluation by a new
product committee.

Value Proposition Target market Competition Market Size

Development Time &

Product price Manufacturing Costs Rate of Return
Costs

 R-W-W Screening Framework:

 Is it real?
 Can we win?
 Is it worth doing?
 Product idea – An idea for a possible product
that the company can see itself offering to the
market.

 Product concept – A detailed version of the

idea stated in meaningful consumer terms.

 Product image – The way consumers perceive

an actual or potential product.
 Concept Development – The forward-looking
process of using the prototype to develop
alternative product concepts, determine how
attractive each concept is to consumers and
choose the best one.

 Concept Testing – Testing new product concepts

with a group of target consumers to find out if
the concepts have strong consumer appeal.
 Concepts may be presented to consumers
symbolically or physically.
 Marketing Strategy Development – Designing an
initial marketing strategy for a new product
based on the product concept.
 The marketing strategy statement consists of
three (3) parts:
1. Description of the target market, planned value
proposition, sales, market share, profit goals for
Year1.
2. Details of the product’s planned price, distribution
and marketing budget for Year1.
3. Description of the planned long-run sales, profit
goals and marketing mix strategy.
 Business Analysis – A review of the sales,
costs and profit projections for a new product
to find out whether these factors satisfy the
company’s objectives.

 The aim is to evaluate the business

attractiveness of the proposal.
 Product Development – Developing the product concept
into a physical product to ensure that the product idea can
be turned into a workable market offering.
 R&D will develop and test one or more physical versions of
the product concept.
 This stage requires high investment.
 A new product must have the required functional features
and convey the intended psychological characteristics.
 Products undergo rigorous tests to make sure they perform
safely and effectively, or that consumers will find value in
them.
 Test Marketing – The stage of new product development
in which the product and its proposed marketing
program are tested in realistic market settings.

 Provides the marketer with experience in testing the

product and entire marketing program before full
introduction.

 Types include:
Standard Controlled Simulated
Test Markets Test Markets Test Markets
 Standard test markets - Small representative markets where the
firm conducts a full marketing campaign and uses store audits,
consumer and distributor surveys, and other measures to gauge
product performance. Results are used to forecast national sales
and profits, discover product problems, and fine-tune the
marketing program.
 Controlled test markets - Panels of stores that have agreed to
carry new products for a fee. In general they are less expensive and
faster than standard test markets, but competitors gain access to
the new product.
 Simulated test markets - Events where the firm will create a
shopping environment and note how many consumers buy the
new product and competing products. Provides measure of trial
and the effectiveness of promotion. Researchers can interview
consumers.
 Test marketing is critical when:
 Product development (investment) costs are high
 Risks are high
 High uncertainty about the product or its marketing
program

 Firms may do little to no test marketing when:

 Product development costs are low
 High confidence about the new product
 Products are simple line extensions
 Products are copies of competitors’ successful products
 Commercialization – Introducing a new product into
the market.

 This stage results in high increased costs to the

company.

 Decisions must be made about:

 Timing – When to launch
 Location – Where to launch
 Companies must manage the new product
development using a holistic approach.

 Successful new product development must

be:
Customer-
Team-based Systematic
centered
 Customer-centered new product development –
Focuses on finding new ways to solve customer problems
and create more customer-satisfying experiences.
 A recent study found that the most successful new
products are ones that are:
 Differentiated
 Solve major customer problems
 Offer a compelling customer value proposition

 Customer-centered new product development begins and

ends with understanding customers and involving them in
the process.
 Sequential new product development –
Departments work closely together individually to
complete each stage of the process before passing it
along to the next department or stage.
 Increased control in risky or complex projects but
may be slow.
 Team-based new product development – Various
company departments work closely together,
overlapping the stress in the product development
process to save time and increase effectiveness.
 This involves a total-company, cross-functional effort.
 Systematic new product development – A holistic
approach for finding new ways to create valued
customer experiences, from generating and screening
new product ideas to creating and rolling out want-
satisfying products to consumers. It focuses on
innovation and requires commitment from the whole
company.
 Innovation management system – Used to collect,
review, evaluate and manage new product ideas.
 To be effective, the company’s entire culture must
encourage and support innovation.
 Successful companies commit to new
product development despite economic and
financial difficulties.

 ‘Tough times’ often call for greater new

product development as companies struggle
to better align its market offering with
changing consumer needs and tastes.
  Product Life-Cycle (PLC) – The course of a product’s
sales and profits over its lifetime.

 Every product has a life cycle, however its exact

shape and length are not known in advance.

 The PLC has five (5) distinct stages:

Product
Introduction Growth Maturity Decline
Development
 The PLC concept can describe:
 Product Class – These have the longest life-cycle and
sales can stay in the mature stage for a long time E.g.
gasoline-powered automobiles

 Product form – Have standard PLC shape and pass

through regular history of introduction, rapid growth,
maturity and decline. E.g. SUVs

 Brand – Able to change quickly because of changing

competitive attacks and responses E.g. Ford Escape
 The PLC can also be applied to:
 Style – Basic and distinctive mode of expression
 Fashion – A currently accepted or popular style in a
given field
 Fad – A temporary period of unusually high sales driven
by consumer enthusiasm and immediate product or
brand popularity
 Introduction stage – Starts when a new product
is first launched, distributed and made available
for purchase.
 Characteristics:
 Slow sales growth
 Non-existent Profits – Negative or low profits due to
low sales and high distribution and promotion
expense
 Significant funding needed to attract distributors and
grow inventories
 High promotion spending is required to inform
consumers of the new product
 Companies can:
 Focus on consumers most ready to buy.
 Produce basic versions of the product are produced
because the market is generally not ready for
refinements.
 Choose a launch strategy that is consistent with the
intended product positioning

 This stage provides the opportunity for market

pioneers to build and retain market leadership in
the long-run if proper approaches are applied.
 Growth Stage – Period of rapid market
acceptance in which product’s sales start
climbing quickly.
 Characteristics:
 Early adopters continue to buy and later buyers will
follow their lead
 The market will expand – New competitors will enter
the market and introduce new product features.
 Number of distribution outlets will increase.
 Sales will increase to build re-seller inventories.
 Profits increase as promotion costs are spread over
large volume and unit manufacturing costs decrease
 Companies can :
 Focus on educating consumers
 Focus on combating the competition
 Use strategies to sustain rapid market growth as long as
possible
 Improve product quality and add new product features and
models
 Enter new market segments and new distribution channels
 Shift some advertising from building awareness to building
product conviction and purchase
 Lower prices at the right time to attract more buyers

 The firm faces a trade-off between high market share

and high current profit.
 Maturity Stage – Product has achieved acceptance by
most potential buyers.
 This stage typically lasts longer than previous stages and
poses strong challenges to marketing management.
 Characteristics:
 Sales growth slows or levels off - Results in many producers with
many products to sell
 Over-capacity which leads to greater competition
 Competitors begin marketing down prices, increasing advertising
and sales promotions, upping their product development
budgets to find better versions of the product.
 Profits level off or decline
 Increased marketing outlays are required to defend the product
against competition
 Companies can:
 Try modifying the market – Increase consumption
by finding new users and new market segments for
its brand
 Look for ways to increase usage among present
customers
 Try modifying the product – Change characteristic
such as quality, features, style, package to retain
current users or attract new ones.
 Try modifying the marketing mix – Improve sales
by changing one or more marketing mix elements.
 Decline stage – Product demand is very low to
nonexistent.
 Reasons for decline:
 Technological advances
 Shifts in consumer tastes
 Increased competition

 Characteristics:
 Decline may be slow or rapid – Sales may plunge to zero or drop
to a low level where they continue for up to years
 Profits decline
 Competitors may withdraw from the market or prune their
product offerings, drop smaller segments and marginal trade
channels
 Companies can must identify products in the
decline stage and decide whether to:
 Maintain the product – Repositioning or
reinvigorating the brand by returning to its core and
making its well-known system the anchor of all new
products
 Harvest the product – Reducing various costs (plant
and equipment, maintenance, R&D, advertising, sales
force) with the hope that sales hold up.
 Drop the product – Sell the product to another firm or
liquidate it at salvage value.
 Summary of PLC Characteristics & Objectives
 Summary of PLC Strategies
 Marketers must consider two (2) additional
product issues:

Product Decisions &

Social Responsibility

International Product
& Services Marketing
 Product Decisions & Social responsibility –
Public policy issues and regulations involving
acquiring or dropping products, patents
protection, product quality and safety and
product warranties.
 This includes:
 Government regulations about acquisitions
 Legal obligations for dropping products
 Patent laws for new product development
 Laws regarding product quality and safety – E.g. FDA
 Product Liability – E.g. Toyota
 Challenges facing international product
and services marketers –
 Figure out what products and services to
introduce and in which countries.
 Decide how much to standardize or adapt their
offerings for world markets.
 The End

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