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Copyright © 2011 Pearson Education
Chapter 8Developing New Products
and Managing the Product Life-Cycle
Veronica Mak
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New-product Development Strategy
New-product development is 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 Failures
• Overestimation of market size
• Design problems• Incorrect pricing or
positioning• High development
costs• Competitor reaction
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Each product failure represents squandered dollars and hopes
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The New-product Development Process
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Idea Generation-is the systematic search for new-product ideas.
Internal sources: includes formal research and development. External sources: includes distributors and suppliers; competitors; online collaborative; customers.
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Idea Generation
• Analyze customer questions and complaints to find new products that better solve consumer problems
• Invite customers to share suggestions and ideas
To harness customer new-product input, 3M has opened customer innovation centers, which generate customer-driven new-product ideas and help 3M establish long-term customer relationships
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Crowdsourcing
• Invites customers, employees, independent scientists and researchers, and even the public at large, into the new-product innovation process
When Netflix wanted ideas for improving the accuracy of its online recommendation system, it decided to “open it up to the world,” promising a $1 million prize for the best solution
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Idea screening
Screening new-product ideas in order to spot good ideas and drop poor ones as soon as possible.
Real? Win? Worth It?
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Idea screening- Criteria of Selection
P&G- Successful rate: 50% vs average 25%
Criteria of Choice:DifferentiatedSolve ProblemCompelling Customer Value proposition
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Concept Development and Testing
• Product idea: An idea for a possible product that the company can see itself offering to the market
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Concept Development and Testing
Product concept is a detailed version of the new-product idea stated in meaningful consumer terms.
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Concept Development and Testing
•Product image: •The way consumers perceive an actual or potential product
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Concept Development
• To develop a new product into alternative product concepts, find out how attractive each concept is to customers, and choose the best one
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Tesla’s initial all-electric roadster, will be followed by more-affordable mass-market models
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Concept Testing
• Testing new-product concepts with a group of target consumers to find out if the concepts have strong consumer appeal– Using a description, picture or model of the product– Asking consumers – about their reactions
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Concept Testing Questions- Would you Buy?
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Marketing Strategy Statement
• Describes the target market, planned value proposition, sales, market share, and profit goals
• Outlines the product’s planned price, distribution, and marketing budget
• Describes the planned long-run sales and profit goals, marketing mix strategy
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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
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Product Development
• Developing the product concept into a physical product to ensure that the product idea can be turned into a workable market offering – Prototypes are made– Consumer tests are conducted
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Test Marketing
• Introducing the product and marketing program in realistic market settings
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Starbucks spent 20 years developing Starbucks VIA instant Coffee and several months testing the product in Starbucks shops in Chicago and Seattle before releasing the product nationally
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Test Marketing
• Standard test markets are usually extensive and costly to use
• Simulated test markets– Researchers measure consumer responses to in laboratory stores or simulated online shopping environments
• Controlled test markets– New products and tactics are tested among controlled panels of shoppers and stores
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Commercialization
• Introducing a new product into the market• Companies must decide:
– When to introduce the product– Where to introduce the product
• Single location, state, region, nationally, internationally
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Managing New-Product Development
• Companies must take a holistic approach to new product development
• This requires:– Customer-centered new-product development– Team-based new-product development– Systematic new-product development
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Customer-Centered New-ProductDevelopment
Customers are urged to submit their own ideas for new products and services on P&G’s crowdsourcing site Connect + Develop
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• New-product development that focuses on finding new ways to solve customer problems and create more customer-satisfying experiences
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Marketing at Work
• Faced with falling sales, LEGO began new-product development by listening to customers and including them in the design process
LEGO’s Design By Me site lets customers download 3D design software, create a LEGO toy, and then order the kit to build it
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Figure 8.2 - Sales and Profits Over the Product’s Life From Inception to Decline
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The Product Life Cycle
• All products do not follow all five stages of the PLC
• Marketers can apply the PLC as a framework for describing how products and markets work
Some products die quickly, while others stay in the mature stage for a long, long time like TABASCO® sauce
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Applying the Product Life-Cycle Concept
• The PLC concept can describe a product class, a product form , or a brand – Product class has the longest life
cycle– Product form tends to the standard
PLC shape– PLCs for brands can change quickly
because of changing competitive attacks and responses
• The PLC concept also can be applied to what are known as styles, fashions, and fads
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Figure 8.3 - Styles, Fashions, and Fads
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Summary of Product Life-Cycle Characteristics, Objectives, and Strategies (pp276)
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Introduction Stage Characteristics
• Sales: Low• Costs: High cost per customer• Profits: Negative or low• Customers: Innovators• Competitors: Few• Marketing objective: Create product
awareness and trial
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Introduction Stage Strategies
• Product: Offer a basic product• Price: Use cost-plus pricing• Distribution: Build selective distribution• Advertising: Build product awareness among
early adopters and dealers• Promotion: Use heavy promotion to entice
product trial
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Growth Stage Characteristics
• Sales: Rapidly rising• Costs: Average cost per customer• Profits: Rising profits• Customers: Early adopters• Competitors: Growing number• Marketing objective: Maximize market share
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Growth Stage Strategies
• Product: Offer product extensions, service, warranty
• Price: Price to penetrate the market• Distribution: Build intensive distribution• Advertising: Build awareness and interest in
the mass market• Promotion: Reduce to take advantage of
heavy consumer demand
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Maturity Stage Characteristics
• Sales: Peak sales• Costs: Low cost per customer• Profits: High profits• Customers: Middle majority• Competitors: Stable number beginning to
decline• Marketing objective: Maximize profits while
defending market share
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Maturity Stage Strategies
• Product: Diversify brand and models• Price: Match or beat competitors• Distribution: Build more intensive distribution• Advertising: Stress brand differences and
benefits• Promotion: Increase to encourage brand
switching
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Maturity Stage Strategies
• 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 Strategies
• Modifying the product– Changing characteristics such as quality, features,
style or packaging to attract new users and inspire more usage
• How?– Improve durability, reliability, speed, taste– Improve styling and attractiveness– Add new features
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Maturity Stage Strategies
• Modifying the marketing mix– Improving sales by changing one or more
marketing mix elements
• How?– Offer new or improved services– Cut prices– Launch a better ad campaign– Move into new market channels
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Maturity Stage Strategies
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• Reinvigorating a mature brand: Kellogg kept its 55-year-old Special K brand growing by turning it into a healthful, slimming lifestyle brand
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Decline Stage Characteristics
• Sales: Declining sales• Costs: Low cost per customer• Profits: Declining profits• Customers: Laggards• Competition: Declining number• Marketing objective: Reduce expenditures
and milk the brand
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Decline Stage Strategies
• Product: Phase out weak items• Price: Cut price• Distribution: Go selective—phase out
unprofitable outlets• Advertising: Reduce to level needed to retain
hard-core loyals• Promotion: Reduce to minimal level
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Summary of Product Life-Cycle Characteristics, Objectives, and Strategies
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Marketing at Work
• Swatch is constantly evolving to meet changing consumer needs
• With Swatch, people started to purchase multiple watches to match their mood or activity.
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Product Decisions and Social Responsibility
• Companies must consider – Public policy issues– Regulations regarding acquiring or dropping products– Patent protection– Product quality and safety, and warranties
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International Product and Services Marketing
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• Companies face challenges in the international market
• They can• Standardize
products across markets
• Adapt products to local tastes
Kit Kat benefits from a coincidental similarity between the bar’s name and the Japanese phrase, kitto katsu, which roughly translates to “Surely you win!”
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Review
• New Product Development• Product Life-Cycle and Marketing Strategies• International product and services marketing• Skip: Social Responsibility in product decisions
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Individual Marketing Plan Proposal• Half-page, includes the following:• Name and brief description of the product
(not yet launched in HK)• Background of the company
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• The End