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New-Product Development

and Product Life-CycleStrategiesChapter 10


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10- 1

Objectives

Understand how companies find anddevelop new-product ideas.

Learn the steps in the new-productdevelopment process.

Know the stages of the product life

cycle.Understand how marketingstrategies change during theproducts life cycle.


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10- 2

$50 billion inprofits over 27

yearsEarly new productdevelopment reliedheavily on copyingthe competition

$4.2 billionannually invested

in R & D

Innovation iscritical to

Microsofts futuresuccess

Much of R & Defforts are Internet

relatedMany new productsand services are indevelopment

c

Microsoft


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Definition

New Product Development

Development of originalproducts, productimprovements, product

modifications, and newbrands through the firmsown R & D efforts.


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New-ProductDevelopment

Strategies

OriginalProducts

ProductImprovements

ProductModifications

New

Brands

AcquiredCompanies

AcquiredPatents

AcquiredLicenses

Strategies for Obtaining New Product Ideas


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New Product DevelopmentProcess

IdeaGeneration

IdeaScreening

ConceptDevelopment

and Testing

MarketingStrategy

BusinessAnalysis

ProductDevelopment

TestMarketing

Commercialization


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New Product Development Process:

Stage 1: Idea Generation

Internal idea sources:

R & D

External idea sources: Customers,

competitors,distributors, suppliers


Strategy


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3Ms corporate

culture

encourages,supports, andrewards newproduct ideas

and innovation


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To see how P&G solicits ideas fromcustomers, visit the Procter andGamble home page, click on theResources and Offers button, thenselect the Share Your Thoughts listing.

Procter & Gamble

Using the Web to Solicit Product Ideas

Procter and Gamble
http://www.pg.com/


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Many companies have systems for ratingand screening ideas which estimate:

Process to spot good ideas and drop poorones as soon as possible.

Market Size

Product Price

Development Time & Costs

Manufacturing Costs Rate of Return

Then, the idea is evaluated against a set ofgeneral company criteria.

New Product Development ProcessStep 2. Idea Screening


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New Product Development ProcessStep 3. Concept Development & Testing

1. Develop Product Ideas intoAlternative

Product Concepts

2. Concept Testing - Test theProduct Concepts with Groups

of Target Customers

3. Choose the Best One


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New Product Development ProcessStep 4. Marketing Strategy Development

Part Two Describes Short-Term:Products Planned Price

Distribution

Marketing Budget

Part Three Describes Long-Term:Sales & Profit Goals

Marketing Mix Strategy

Marketing Strategy Statement Formulation

Part One Describes Overall:Target Market

Planned Product Positioning

Sales & Profit GoalsMarket Share


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New Product Development ProcessStep 5. Business AnalysisStep 6. Product Development

Business Analysis

Review of Product Sales, Costs,and Profits Projections to See if

They Meet Company Objectives

If Yes, Move toProduct Development

If No, Eliminate

Product Concept


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Sensable Video Clip

Computer modelingis being used to aid

in product design

BusinessNow


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Daimler is currently road-testing its

prototype NECAR 5 (New Electric Car)


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IRI BehaviorScanprovides an in-market laboratoryfor testing newproducts andmarketing programs

IRI BehaviorScan


Strategy
http://www.behaviorscan.com/


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Advertising

Packaging

ProductBudget Levels

Positioning

DistributionPricing

Branding

Elements thatMay be Test

Marketed by aCompany

Test Marketing is the Stage Where the Product and MarketingProgram are Introduced into More Realistic Market Settings.

New Product Development ProcessStep 7. Test Marketing


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New Product Development ProcessStep 7. Test Marketing

StandardTest Market

Full marketing campaignin a small number ofrepresentative cities.

SimulatedTest Market

Test in a simulatedshopping environment

to a sample ofconsumers.

ControlledTest Market

A few stores that have

agreed to carry newproducts for a fee.


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Where is a good test market?

I. Factors to consider- Size- Demographics- Isolation from other cities

- Media availability and cost- Retailer support

2. Popular cities- Big cities: Detroit, St. Louis, Columbus,Philadelphia- Small cities: Nashville, Jacksonville,

Toledo, Wilmington

d l


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New Product Development ProcessStep 8. Commercialization

When? Where?To

Whom? How?

Commercialization is theIntroduction of the New Product

into the Marketplace.


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LIFE IS SHORT AND THENYOU INTRODUCE A NEW

PRODUCTProduct lifetimes are shrinking, as competitors

pressure innovators by offering imitations of

successful, high-margin products.Panasonic now replaces electronic consumerproducts on a 90-day cycle (with older modelsgoing to discounters)

the big Japanese car makers are aiming tooffer new models every two years.

(from the New York Times)

Speeding Up Development


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Speeding Up Development

Step 1

Step 2

Step 3

Step 4

Step

1

Step

2

Step 3

Step 4

Sequential Simultaneous


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Why do products fail?

See if you can identify thefatal flaw in the brandsbelow and at right.

Discussion Question

Buttermilk Shampoo Fruit of the LoomLaundry Detergent

Ben-Gay Asprin

Causes of New Product Failures


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Causes of New Product Failures

Overestimation of Market Size

Product Design Problems Insignificant differenceProduct Incorrectly Positioned, Priced or AdvertisedCosts of Product Development

Competitive Actions

No access to the market

Bad timingTo create successful new products, the company mus

understand its customers, markets andcompetitors

develop products that deliver superior value tocustomers.


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Alternatives toDevelopment:

Acquire new Products

Develop "me-too"products.

Revive old products


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The Typical Product Life Cycle

(PLC) Has Five Stages Product Development, Introduction,

Growth, Maturity, Decline

Not all products follow this cycle: Fads

Styles

Fashions

Product Life-Cycle

Strategies


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Figure 10-2:

Sales and ProfitsOver A Products Life


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Product Life Cycle

length

style - comes, goes, comes

backfashion - come, goes awayslowly

fad - comes and goes wayquickly


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Figure 10-3:

Styles, Fashions, and Fads


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Companies

want theirproducts toenjoy a longlife cycle.

Hersheysactivelypromotesthe fact thatit has beenunchanged

since 1899


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Additional marketinginvestments canmove a product backinto the growth stage,

as in the case ofCracker Jack.

Product Life-Cycle

Strategies


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The product life cycle concept canbe applied to a:

Product class (soft drinks)

Product form (diet colas)

Brand (Diet Dr. Pepper)

Using the PLC to forecast brandperformance or to develop marketing

strategies is problematic

Product Life-Cycle

Strategies


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Problems Using thePLC

Trouble identifyingWhich Stage of thePLC the Product Is

In

Difficult to Forecastthe Sales Level, theLength of Each Stage,

and Shape of the PLCStrategy is Both aCause and a Resultof the Products Life

Cycle

The PLC Concept CanHelp in Developing GoodMarketing Strategies for

Different Stages of theProduct Life-Cycle,However SomeProblems Can Arise:


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Product Life-Cycle Strategies

Productdevelopment

Introduction

GrowthMaturity

Decline

Begins when thecompany

develops a new-product idea

Sales are zero

Investment costsare high

Profits arenegative

PLC Stages


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Productdevelopment

Introduction

GrowthMaturity

Decline

Low sales

High cost per

customeracquired

Negative profits

Innovators aretargeted

Little competition

PLC Stages


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Productdevelopment

Introduction

GrowthMaturity

Decline

Rapidly risingsales

Average cost percustomer

Rising profits

Early adopters aretargeted

Growingcompetition

PLC Stages


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Productdevelopment

Introduction

GrowthMaturity

Decline

Sales peak

Low cost per

customerHigh profits

Middle majority

are targeted

Competitionbegins to decline

PLC Stages


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Productdevelopment

Introduction

GrowthMaturity

Decline

Declining sales

Low cost per

customerDeclining profits

Laggards are

targeted

Decliningcompetition

PLC Stages

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