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New-Product New-Product Development and Development and Product Life-Cycle Product Life-Cycle
StrategiesStrategies
Chapter Eight
8-1
Marketing : An IntroductionMarketing : An IntroductionAn Asian PerspectiveAn Asian Perspective© Armstrong, Kotler & da Silva© Armstrong, Kotler & da Silva 8-2
Important topics
• Explain how companies find and develop new-product ideas.
• List and define the steps in the new-product development process.
• Describe the stages of the product life cycle.
• Describe how marketing strategies change during the product’s life cycle.
Marketing : An IntroductionMarketing : An IntroductionAn Asian PerspectiveAn Asian Perspective© Armstrong, Kotler & da Silva© Armstrong, Kotler & da Silva 8-3
New-Product Development Strategy
Strategies for Obtaining New-Product Ideas
Acquisition of:
Companies
Patents
Licenses
Acquisition of:
Companies
Patents
Licenses
New Products:
Original Products
Improvements
Modifications
New Products:
Original Products
Improvements
Modifications
Marketing : An IntroductionMarketing : An IntroductionAn Asian PerspectiveAn Asian Perspective© Armstrong, Kotler & da Silva© Armstrong, Kotler & da Silva 8-4
New-Product Failures
• Only 10% of new products are still on the market and profitable after 3 years.
• Texas instruments lost $660 million in home computer business
• New coke ( coca cola company)• Zap mail-email ( FedEx company)• Arch Delux sandwitches ( Mc Donald's)
Marketing : An IntroductionMarketing : An IntroductionAn Asian PerspectiveAn Asian Perspective© Armstrong, Kotler & da Silva© Armstrong, Kotler & da Silva 8-5
New-Product Failures
• Failure rate for industrial products is as high as 30%.Why?
– Overestimation of market size– Design problems– Incorrectly positioned, priced, or advertised– Pushed despite poor marketing research findings– Development costs– Competition
Marketing : An IntroductionMarketing : An IntroductionAn Asian PerspectiveAn Asian Perspective© Armstrong, Kotler & da Silva© Armstrong, Kotler & da Silva 8-6
Major Stages in New-Product Development
Figure 8.1
Marketing : An IntroductionMarketing : An IntroductionAn Asian PerspectiveAn Asian Perspective© Armstrong, Kotler & da Silva© Armstrong, Kotler & da Silva 8-7
Company EmployeesCompany Employees
CustomersCustomers
CompetitorsCompetitors
DistributorsDistributors
SuppliersSuppliers
Idea Generation
Marketing : An IntroductionMarketing : An IntroductionAn Asian PerspectiveAn Asian Perspective© Armstrong, Kotler & da Silva© Armstrong, Kotler & da Silva 8-8
Idea Generation
When Heinz asked kids what would make the product more fun, they said, “Change the color!” Change the color!” so, Heinz developed and launched EZ Squirt, now in a variety of colors targeted at kids. The EZ Squirt bottle’s special nozzle also emits a thin stream so tykes can autograph their burgers.
Marketing : An IntroductionMarketing : An IntroductionAn Asian PerspectiveAn Asian Perspective© Armstrong, Kotler & da Silva© Armstrong, Kotler & da Silva 8-9
Idea Screening
• Process to spot good ideas and drop poor ones.
• Develop system to estimate: market size, product price, development time and costs, manufacturing costs, and rate of return.
• Evaluate these findings against set of company criteria for new products.
Marketing : An IntroductionMarketing : An IntroductionAn Asian PerspectiveAn Asian Perspective© Armstrong, Kotler & da Silva© Armstrong, Kotler & da Silva 8-10
Concept Development and Testing• Product Idea: idea for a possible
product that the company can see itself offering.
• Product Concept: detailed version of the idea stated in meaningful consumer terms.
• Product Image: the way consumers perceive an actual or potential product.
Marketing : An IntroductionMarketing : An IntroductionAn Asian PerspectiveAn Asian Perspective© Armstrong, Kotler & da Silva© Armstrong, Kotler & da Silva
New product concept and Image
8-11
Marketing : An IntroductionMarketing : An IntroductionAn Asian PerspectiveAn Asian Perspective© Armstrong, Kotler & da Silva© Armstrong, Kotler & da Silva 8-12
Concept testing
• Testing new product concepts with a group of target consumers.
• The concept may be presented to the customers symbolically or physically.
• Customers may be asked many questions regarding their perception towards the new product.
Marketing : An IntroductionMarketing : An IntroductionAn Asian PerspectiveAn Asian Perspective© Armstrong, Kotler & da Silva© Armstrong, Kotler & da Silva 8-13
• The company’s task is to develop its fuel-cell-powered electric car into alternative product concepts, find out how attractive each is to customers, and choose the best one.
DiamlerChrysler’s Fuel-Cell-Powered Electric Car
Marketing : An IntroductionMarketing : An IntroductionAn Asian PerspectiveAn Asian Perspective© Armstrong, Kotler & da Silva© Armstrong, Kotler & da Silva 8-14
Concept testing
Marketing : An IntroductionMarketing : An IntroductionAn Asian PerspectiveAn Asian Perspective© Armstrong, Kotler & da Silva© Armstrong, Kotler & da Silva 8-15
Marketing Strategy Development
Part One Describes:The Target Market
Planned Product PositioningSales, Market Share, & Profit Goals
Part One Describes:The Target Market
Planned Product PositioningSales, Market Share, & Profit Goals
Part Two Outlines the First-Year’s:Product’s Planned Price
DistributionMarketing Budget
Part Two Outlines the First-Year’s:Product’s Planned Price
DistributionMarketing Budget
Part Three Describes Long-Run:Sales & Profit Goals
Marketing Mix Strategy
Part Three Describes Long-Run:Sales & Profit Goals
Marketing Mix Strategy
Marketing : An IntroductionMarketing : An IntroductionAn Asian PerspectiveAn Asian Perspective© Armstrong, Kotler & da Silva© Armstrong, Kotler & da Silva 8-16
Business Analysis
• Involves a review of the sales, costs, and profit projections to assess fit with company objectives.
• If yes, move to the product development phase.
Marketing : An IntroductionMarketing : An IntroductionAn Asian PerspectiveAn Asian Perspective© Armstrong, Kotler & da Silva© Armstrong, Kotler & da Silva 8-17
Product Development
• Develop concept into physical product
• Calls for large jump in investment
• Prototypes are made• Prototype must have
correct physical features and convey psychological characteristics
Marketing : An IntroductionMarketing : An IntroductionAn Asian PerspectiveAn Asian Perspective© Armstrong, Kotler & da Silva© Armstrong, Kotler & da Silva 8-18
Test Marketing
• Product and program introduced in more realistic market setting.
• Not needed for all products.
• Can be expensive and time consuming, but better than making major marketing mistake.
After test marketing the “Go Active” meal (an adult happy meal) in 150 markets in Indiana, McDonald’s decided to sell it across the U.S.
Marketing : An IntroductionMarketing : An IntroductionAn Asian PerspectiveAn Asian Perspective© Armstrong, Kotler & da Silva© Armstrong, Kotler & da Silva 8-19
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 plan.
Marketing : An IntroductionMarketing : An IntroductionAn Asian PerspectiveAn Asian Perspective© Armstrong, Kotler & da Silva© Armstrong, Kotler & da Silva
Product Life Cycle• Product Life Cycle (PLC) is the course of a products
sales and profits over its lifetime.• It involves five distinct stages: product development,
introduction, growth, maturity and decline.
8-20
Marketing : An IntroductionMarketing : An IntroductionAn Asian PerspectiveAn Asian Perspective© Armstrong, Kotler & da Silva© Armstrong, Kotler & da Silva 8-21
The Product Life Cycle Applied to the Digital Video Market
Figure 8.4
Marketing : An IntroductionMarketing : An IntroductionAn Asian PerspectiveAn Asian Perspective© Armstrong, Kotler & da Silva© Armstrong, Kotler & da Silva 8-22
Practical Problems of PLC
Hard to identifywhich stage of the
PLC the product is in
Hard to pinpointwhen the product
moves to next stage
Hard to identifyfactors that affect
product’s movementthrough stages
Hard to forecastsales level, length of
each stage, andshape of PLC
Strategy is both acause and result of
the PLC
Marketing : An IntroductionMarketing : An IntroductionAn Asian PerspectiveAn Asian Perspective© Armstrong, Kotler & da Silva© Armstrong, Kotler & da Silva 8-23
SalesSales
CostsCosts
ProfitsProfits
Marketing ObjectivesMarketing Objectives
ProductProduct
PricePrice
LowLow
High cost per customerHigh cost per customer
NegativeNegative
Create product awareness and trialCreate product awareness and trial
Offer a basic productOffer a basic product
Use cost-plus formulaUse cost-plus formula
DistributionDistribution Build selective distributionBuild selective distribution
PromotionPromotion Heavy to entice product trialHeavy to entice product trial
Summary of Characteristics, Objectives, & Strategies
Introduction Stage of the PLC
Marketing : An IntroductionMarketing : An IntroductionAn Asian PerspectiveAn Asian Perspective© Armstrong, Kotler & da Silva© Armstrong, Kotler & da Silva 8-24
SalesSales
CostsCosts
ProfitsProfits
Marketing ObjectivesMarketing Objectives
ProductProduct
PricePrice
Rapidly risingRapidly rising
Average cost per customerAverage cost per customer
RisingRising
Maximize market shareMaximize market share
Offer extension, service, warrantyOffer extension, service, warranty
Penetration strategyPenetration strategy
DistributionDistribution Build intensive distributionBuild intensive distribution
PromotionPromotion Reduce to take advantage of demandReduce to take advantage of demand
Summary of Characteristics, Objectives, & Strategies
Growth Stage of the PLC
Marketing : An IntroductionMarketing : An IntroductionAn Asian PerspectiveAn Asian Perspective© Armstrong, Kotler & da Silva© Armstrong, Kotler & da Silva 8-25
SalesSales
CostsCosts
ProfitsProfits
Marketing ObjectivesMarketing Objectives
ProductProduct
PricePrice
PeakPeak
Low cost per customerLow cost per customer
HighHigh
Maximize profits while defending market share
Maximize profits while defending market share
Diversify brand and models Diversify brand and models
Match or best competitorsMatch or best competitors
DistributionDistribution Build more intensive distributionBuild more intensive distribution
PromotionPromotion Increase to encourage brand switchingIncrease to encourage brand switching
Summary of Characteristics, Objectives, & Strategies
Maturity Stage of the PLC
Marketing : An IntroductionMarketing : An IntroductionAn Asian PerspectiveAn Asian Perspective© Armstrong, Kotler & da Silva© Armstrong, Kotler & da Silva 8-26
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
Marketing : An IntroductionMarketing : An IntroductionAn Asian PerspectiveAn Asian Perspective© Armstrong, Kotler & da Silva© Armstrong, Kotler & da Silva 8-27
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
Marketing : An IntroductionMarketing : An IntroductionAn Asian PerspectiveAn Asian Perspective© Armstrong, Kotler & da Silva© Armstrong, Kotler & da Silva 8-28
Maturity Stage of the PLC
• Modifying the Marketing Mix: Improving sales by changing one or more marketing mix elements.
• How?– Cut prices– Launch a better ad campaign– Move into larger market channels– Offer new or improved services to buyers
Marketing : An IntroductionMarketing : An IntroductionAn Asian PerspectiveAn Asian Perspective© Armstrong, Kotler & da Silva© Armstrong, Kotler & da Silva
Marketing : An IntroductionMarketing : An IntroductionAn Asian PerspectiveAn Asian Perspective© Armstrong, Kotler & da Silva© Armstrong, Kotler & da Silva 8-30
SalesSales
CostsCosts
ProfitsProfits
Marketing ObjectivesMarketing Objectives
ProductProduct
PricePrice
DecliningDeclining
Low cost per customerLow cost per customer
DecliningDeclining
Reduce expenditures and milk the brandReduce expenditures and milk the brand
Phase out weak itemsPhase out weak items
Cut priceCut price
DistributionDistribution Selective: phase out unprofitable outletsSelective: phase out unprofitable outlets
PromotionPromotion Reduce to minimum levelReduce to minimum level
Summary of Characteristics, Objectives, & Strategies
Decline Stage of the PLC
Marketing : An IntroductionMarketing : An IntroductionAn Asian PerspectiveAn Asian Perspective© Armstrong, Kotler & da Silva© Armstrong, Kotler & da Silva 8-31
Marketing : An IntroductionMarketing : An IntroductionAn Asian PerspectiveAn Asian Perspective© Armstrong, Kotler & da Silva© Armstrong, Kotler & da Silva 8-32
Successful and Failed PLC
Management Strategies
Figure 8.6
Marketing : An IntroductionMarketing : An IntroductionAn Asian PerspectiveAn Asian Perspective© Armstrong, Kotler & da Silva© Armstrong, Kotler & da Silva 8-33
Rest Stop: Reviewing the Concepts
• Explain how companies find and develop new-product ideas.
• List and define the steps in the new-product development process.
• Describe the stages of the product life cycle.