Marketing Management

New Product Development and theProduct Life Cycle

Paul Dishman, Ph.D.Department of Business Management

Marriott School of Management

Brigham Young University

Lecture 14

Paul Dishman, Ph.D.

Marketing Management

Causes of New Product Failures

• One study estimated that as many as 80% of new consumer packaged products failed.

• Only about 40% of new consumer products are around 5 years after introduction.

• Why?– Overestimation of market size,– Product design problems,– Product incorrectly positioned, priced or advertised,– Product may have been pushed despite poor marketing research

findings,– Costs of product development, or– Competitive actions

Paul Dishman, Ph.D.

Marketing Management

Improving New-Product Success

• New product success depends on having a:– Unique superior product (one with higher quality, features, and

value in use), &– Well-defined product concept (a defined target market, product

requirements, and benefits).

• To create successful new products, the company must:– understand its customers, markets and competitors, &– develop products that deliver superior value to customers.

Paul Dishman, Ph.D.

Marketing Management

IdeaGeneration

Commercialization

IdeaScreening

ConceptDevelopmentand Testing

MarketingStrategy

BusinessAnalysis

ProductDevelopment

TestMarketing

Major Stages in New-Product Development (Fig. 9.1)

Paul Dishman, Ph.D.

Marketing Management

NPD: Idea Screening

• Process to spot good ideas and drop poor ones as soon as possible.

• Many companies have systems for rating and screening ideas which estimate:– Market Size– Product Price– Development Time & Costs– Manufacturing Costs– Rate of Return

• Then, the idea is evaluated against a set of general company criteria.

Paul Dishman, Ph.D.

Marketing Management

1. Develop New Product Ideas into Alternative Detailed

Product Concepts

NPD: Concept Development

Product Image is the Way Consumers Perceive an Actual or Potential Product2. Concept Testing - Test the

New Product Concepts with Groups of Target Customers

3. Choose the One That Has theStrongest Appeal to Target

Customers

Paul Dishman, Ph.D.

Marketing Management

Part Three Describes Long-Term:Sales & Profit Goals

Marketing Mix Strategy

Part Two Describes First-Year:Product’s Planned Price

DistributionMarketing Budget

Part One Describes Overall:Target Market

Planned Product PositioningSales & Profit Goals

Market Share

New Product Development Process Step 4. Marketing Strategy

Paul Dishman, Ph.D.

Marketing Management

Business AnalysisReview of Product Sales, Costs, and Profits Projections to See if They Meet Company Objectives

Business AnalysisReview of Product Sales, Costs, and Profits Projections to See if They Meet Company Objectives

Step 5. Business AnalysisStep 6. Product Development

If No, Eliminate Product Concept

If Yes, Move to Product Development

Paul Dishman, Ph.D.

Marketing Management

AdvertisingAdvertising

PackagingPackaging

ProductProductBudget LevelsBudget Levels

Positioning Positioning

DistributionDistributionPricingPricing

BrandingBranding

Elements that May be Test

Marketed by a Company

Test Marketing is the Stage Where the Product and Marketing Program are Introduced into More Realistic

Market Settings.

NPD: Test Marketing

Paul Dishman, Ph.D.

Marketing Management

StandardStandardTest MarketTest Market

Full marketing campaignin a small number of representative cities.

Controlled Controlled Test MarketTest Market

A few stores that have agreed to carry newproducts for a fee.

SimulatedSimulatedTest MarketTest Market

Test in a simulated shopping environment

to a sample of consumers.

NPD: Test Marketing

Paul Dishman, Ph.D.

Marketing Management

When is the Right Time to

IntroduceProduct?

When is the Right Time to

IntroduceProduct?

Where to Launch a

New Product?

Where to Launch a

New Product?

Commercialization is the Introduction of the New Product into the Marketplace.

NPD: Commercialization

Paul Dishman, Ph.D.

Marketing Management

Sales

Losses/Investments ($)

Sales andProfits ($)

Profits

Time

Sales and Profits Over the Product’s Life From Inception to Demise

Product Life Cycle (Fig. 9.2)

ProductDevelop-

ment

Introduction Growth Maturity Decline

Paul Dishman, Ph.D.

Marketing Management

Applications of theProduct Life Cycle• The PLC concept can describe a:

– Product class which has the longest life cycles (i.e. gas-powered cars),

– Product form which tend to have the standard PLC shape (i.e. minivans),

– Brand which can change quickly because of changing competitive attaches and responses (i.e. Ford Taurus),

– Style which is a basic and distinctive mode of expression,– Fashion which is a popular style in a given field,– Fad which is a fashion that enters quickly, is adopted

quickly and declines fast.

Paul Dishman, Ph.D.

Marketing Management

Problems Using the PLC

Trouble identifying Which Stage of the PLC the Product Is In

Difficult to Forecast the Sales Level, the Length of Each Stage, and Shape of the PLCStrategy is Both a

Cause and a Result of the Product’s Life

Cycle

The PLC Concept Can Help in Developing Good Marketing Strategies for Different Stages of the Product Life-Cycle, However Some Problems Can Arise:

Paul Dishman, Ph.D.

Marketing Management

SalesSales

CostsCosts

ProfitsProfits

Marketing ObjectivesMarketing Objectives

ProductProduct

PricePrice

Low sales Low sales

High cost per customerHigh cost per customer

Negative or lowNegative or low

Create product awareness and trialCreate product awareness and trial

Offer a basic productOffer a basic product

Usually is high; use cost-plus formulaUsually is high; use cost-plus formula

DistributionDistribution High distribution expensesHigh distribution expenses

AdvertisingAdvertising Build product awareness among early adopters and dealers

Build product awareness among early adopters and dealers

Introduction Stage of the PLC

Egg Beaters had to first convince people that they needed an egg substitute (overcoming a strong negative response to “fake eggs”)then demonstrate that their product was a perfect solution.

Paul Dishman, Ph.D.

Marketing Management

SalesSales

CostsCosts

ProfitsProfits

Marketing ObjectivesMarketing Objectives

ProductProduct

PricePrice

Rapidly rising sales Rapidly rising sales

Average cost per customerAverage cost per customer

Rising profitsRising profits

Maximize market shareMaximize market share

Offer new product features, extensions, service, and warranty

Offer new product features, extensions, service, and warranty

Price to penetrate marketPrice to penetrate market

DistributionDistribution Increase number of distribution outletsIncrease number of distribution outlets

AdvertisingAdvertising Build awareness and interest in the mass market

Build awareness and interest in the mass market

Growth Stage of the PLC

Paul Dishman, Ph.D.

Marketing Management

SalesSales

CostsCosts

ProfitsProfits

Marketing ObjectivesMarketing Objectives

ProductProduct

PricePrice

Peak salesPeak sales

Low cost per customerLow cost per customer

High profits, then lower profitsHigh profits, then lower profits

Maximize profits while defending market share

Maximize profits while defending market share

Diversify brand and modelsDiversify brand and models

Price to match or best competitorsPrice to match or best competitors

DistributionDistribution Build more intensive distributionBuild more intensive distribution

AdvertisingAdvertising Stress brand differences and benefits

Stress brand differences and benefits

Maturity Stage of the PLC

Paul Dishman, Ph.D.

Marketing Management

Maturity Stage of the PLC

Company tries to increase

consumption of the current product.

Changing characteristics such as quality, features, or styles to attract

new users.

Company tries to improve sales by

changing one or more marketing mix elements.

Paul Dishman, Ph.D.

Marketing Management

SalesSales

CostsCosts

ProfitsProfits

Marketing ObjectivesMarketing Objectives

ProductProduct

PricePrice

Declining salesDeclining sales

Low cost per customerLow cost per customer

Declining profitsDeclining profitsReduce expenditure and maintain,

reposition, harvest or drop the product

Reduce expenditure and maintain, reposition, harvest or drop the

productPhase out weak itemsPhase out weak items

Cut priceCut price

DistributionDistribution Go selective: phase out unprofitable outlets

Go selective: phase out unprofitable outlets

AdvertisingAdvertising Reduce to level needed to retain hard-core loyal customers

Reduce to level needed to retain hard-core loyal customers

Decline Stage of the PLC

Volkswagon made a comeback when one of its hal lmark products was well past the decl ine stage.

Never too Late.

What other companies have broughtback products from the past?

Cl ick or press spacebar to return.

Paul Dishman, Ph.D.

Marketing Management

Exercise

• Close your books and forget the examples

• Get in groups• Based on the characteristics of each

stage in the PLC, think of four examples of products in each stage and defend your answer

• Judge

Paul Dishman, Ph.D.

Marketing Management

Product Examples

• Product Development

• Introduction

• Growth

• Maturity

• Decline