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New-Product Development and Life- Cycle Strategies Chapter 8 Next Exit
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New-Product Development
and Life-Cycle
Strategies
Chapter 8
Next Exit
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Prentice Hall, Copyright 2009
Rest Stop: Previewing the Concepts
1. Explain how companies find and develop new-product ideas.
2. List and define the steps in the new-product development process and the major considerations in managing this process.
3. Describe the stages of the product life cycle.
4. Describe how marketing strategies change during the product’s life cycle.
5. Discuss two additional product and services issues: socially responsible product decisions and international product and services marketing.
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New Product Development
The development of original products, product improvements, product modifications, and new brands through the firm’s own product development efforts.
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New-Product Development Strategy
New products can be obtained via acquisition or new-product development.
New product development is very expensive and very risky. –70% to 90% of new consumer
products fail within 12 months.
–Products fail for many reasons.
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New-Product Failures
Why do new products fail? –Overestimation of market size
–Design problems
– Incorrectly positioned, priced, or advertised
–Pushed despite poor marketing research findings
–Excessive development costs
–Competitive reaction
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Figure 8.1 Major Stages in New-Product
Development Process
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New-Product
Development Process
Idea generation: – Internal sources:
• Company employees at all levels
– External sources: • Customers
• Competitors
• Distributors
• Suppliers
• Outsourcing
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Idea screening:
– Process used to spot good ideas and drop poor ones.
– Executives provide a description of the product along with estimates of market size, product price, development time and costs, manufacturing costs, and rate of return.
– Evaluated against a set of company criteria for new products.
New-Product
Development Process
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Concept development and testing:
– Product idea: • Idea for a possible product that the company
can see itself offering to the market.
– Product concept: • Detailed version of the new-product idea stated
in meaningful consumer terms.
– Concept testing: • Testing new-product concepts with groups of
target consumers to find out if the concepts have strong consumer appeal.
New-Product
Development Process
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Marketing Strategy Development:
– Part One: • Describes the target market, planned value
proposition, sales, market share, and profit goals.
– Part Two: • Outlines the product’s planned price,
distribution, and marketing budget.
– Part Three: • Describes the planned long-run sales and
profit goals, marketing mix strategy.
New-Product
Development Process
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Business analysis:
– Involves a review of the sales, costs,
and profit projections to assess fit with
company objectives.
– If results are positive, project moves to
the product development phase.
New-Product
Development Process
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Product development:
– Develops concept into a physical product
– Calls for a large jump in investment
– Prototypes are made
– Prototypes must have correct physical features and convey psychological characteristics
– Prototypes are subjected to physical tests
New-Product
Development Process
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Product Testing at Gillette
Gillette uses employee-volunteers to
test new shaving products.
Marketing in Action
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Testing marketing:
–Product and program are introduced in
a more realistic market setting.
–Not needed for all products.
–Can be expensive and time
consuming, but better than making a
major marketing mistake.
New-Product
Development Process
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Commercialization:
–Must decide on timing (i.e., when to
introduce the product).
–Must decide on where to introduce the
product (e.g., single location, state,
region, nationally, internationally).
–Must develop a market rollout plan.
New-Product
Development Process
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Managing New-Product
Development
Customer centered new-product development:
–Focuses on finding new ways to solve customer problems and create more customer-satisfying experiences.
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Managing New-Product
Development
Team-based new-product development: – Various company departments work closely
together, overlapping the steps in the product development process to save time and increase effectiveness.
Systematic new-product development: – Innovation management systems collect,
review, evaluate, and manage ideas.
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Figure 8.2 Sales and Profits Over the Product’s
Life from Inception to Decline
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Applying the Product Life-Cycle
Product classes have the longest life cycle.
Product forms tend to have the standard PLC shape.
Brand PLCs can change quickly because of changing competitive attacks and responses.
The PLC concept can also be applied to styles, fashions, and fads.
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Figure 8.3 Styles, Fashions, and Fads
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Practical Problems of PLC
In practice, it is difficult to:
– Identify the current stage of a product’s PLC.
– Pinpoint when the product moves to the next stage.
– Identify factors that affect product’s movement through stages.
– Forecast sales level, length of each stage, and shape of PLC.
– Develop marketing strategy, as strategy is both a cause and result of the PLC.
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Introduction Stage of PLC
Sales: Low
Costs: High cost per customer
Profits: Negative or low
Marketing objective: Create product awareness and trial
Product: Offer a basic product
Price: Use cost-plus formula
Distribution: Build selective distribution
Promotion: Heavy to entice product trial
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Growth Stage of PLC
Sales: Rapidly rising
Costs: Average cost per customer
Profits: Rising
Marketing objective: Maximize market share
Product: Offer extension, service, warranty
Price: Penetration strategy
Distribution: Build intensive distribution
Promotion: Reduce to take advantage of demand
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Maturity Stage of PLC
Sales: Peak
Costs: Low cost per customer
Profits: High
Marketing objective: Maximize profits while defending market share
Product: Diversify brand and models
Price: Match or best competitors
Distribution: Build more intensive distribution
Promotion: Increase to encourage brand switching
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Maturity Stage of the PLC
Strategies used to manage the PLC during maturity include:
–Modifying the market
–Modifying the product
–Modifying the marketing mix
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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 faster-growing segment
– Look for ways to increase usage among present customers
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Maturity Stage of the PLC
Modifying the product: – Changing characteristics such as quality,
features, or style to attract new users and to inspire more usage
How? – Improve durability, reliability, speed, taste
– Improve styling and attractiveness
– Add new features
– Expand usefulness, safety, convenience
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Maturity Stage of the PLC
Modifying the marketing mix:
– Improving sales by changing one or more
marketing mix elements
How?
– Cut prices
– Implement coupon, rebate, or other
promotions
– Launch a better ad campaign
– Move into larger market channels
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Sales: Declining
Costs: Low cost per customer
Profits: Declining
Marketing objective: Reduce expenditures and milk the brand
Product: Phase out weak items
Price: Cut price
Distribution: Selective—phase out unprofitable outlets
Promotion: Reduce to minimal level
Decline Stage of PLC
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Rest Stop: Reviewing the Concepts
1. Explain how companies find and develop new-product ideas.
2. List and define the steps in the new-product development process and the major considerations in managing this process.
3. Describe the stages of the product life cycle.
4. Describe how marketing strategies change during the product’s life cycle.
5. Discuss two additional product and services issues: socially responsible product decisions and international product and services marketing.
