New Product Development and Product Life-Cycle Strategies

Md. Abdur RobB PHARM, MBA, PGD in DP

Major Stages in New Product Development

• Idea generation: systematic search for new ideas– Internal sources: brainstorming– External sources: customers, competitors, distributors and

suppliers

• Idea screening: identify good ideas and drop poor ones

– Usefulness to consumers– Good for company– Fit with objectives and

strategies– Have the resources– Add value

Major Stages in New Product Development

• Concept development: detailed version of the product concept in meaningful consumer terms

• Concept testing: testing new-product concepts for consumer appeal

• Marketing strategy: initial strategy for product concept:

– Target market, positioning, and sales, market share, and profit goals

– Price, distribution, and marketing budget– Strategy statement, long-run sales, profit

goals, and marketing mix

Major Stages in New Product Development

• Business analysis: review of sales, costs, and profit projections to determine if they meet company objectives.

• Product development: developing the product concept into a physical product

– Large investment– Building a prototype– Testing for safety, durability,

and acceptability

Major Stages in New Product Development

• Test marketing: testing the product in more realistic market settings– Determine the target market profile

– Assess consumer acceptability, trial, repeat purchase rate

– Evaluate trade reception and distribution penetration

– Design effective media plans• Standard test markets• Controlled test markets• Simulated test market

Major Stages in New Product Development

• Commercialization: introducing a new product into the market– Introduction timing

– Market rollout or full-scale introduction

• Sequential product development• Simultaneous (team-based) product

development

Product Life-Cycle Strategies

Product Life-Cycle Strategies

• Product life cycle (PLC): the course of a product’s sales and profits over its life

Summary of PLC

Characteristics: Introduction Growth Maturity DeclineSales Low Rapidly rising sales Peak Declining salesCosts High cost Average cost Low cost Low cost

per customer per customer per customer per customerProfits Negative Rising profits High profits Declining profitsCustomers Innovators Early adopters Middle majority LaggardsCompetitors Few Growing number Stable number Declining number

Marketing objectives:Create product Maximize market Maximize profit & Reduce expenditureawareness and trial share defend market share & milk brand

Strategies:Product Offer basic product Offer product Diversify brand and Phase out weak

extensions, service models itemsPrice Use cost-plus Price to penetrate Price to match or Cut price

market best competitorsDistribution Build selective Build intensive Build more Selective; phase out

distribution distribution intensive distribution unprofitable outletsAdvertising Build awareness Build awareness & Stress brand differences Reduce to level needed

early adopters/dealers interest mass market and benefits to retain hard-core loyalsSales promotion Heavy sales promotion Reduce promotion due Increase to encourage Reduce to minimal

to entice trial to heavy demand brand switching level

BCG Matrix

BCG MATRIX is one of the most FAMOUS AND SIMPLE portfolio planning matrix ,used by large companies having multi-products.

Relative Market ShareCash Generation

Mar

ket

Gro

wth

rat

eC

ash

Usa

ge

Lo

w

Hig

h

High Low

• It is a portfolio planning model which is based on the observation that a company’s business units can be classified in to four categories

• It is based on the combination of market growth and market share relative to the next best competitor.

STARSHigh growth, High market share

• Stars are leaders in business.• They also require heavy investment, to maintain its large market share.• It leads to large amount of cash consumption and cash generation.• Attempts should be made to hold the market share otherwise the star will become

a CASH COW.

CASH COWSLow growth , High market share

• They are foundation of the company and often the stars of yesterday. • They generate more cash than required.• They extract the profits by investing as little cash as possible• They are located in an industry that is mature, not growing or declining.

DOGSLow growth, Low market share

• Dogs are the cash traps.• Dogs do not have potential to bring in much cash.• Number of dogs in the company should be minimized.• Business is situated at a declining stage.

QUESTION MARKSHigh growth , Low market share

• Most businesses start of as question marks.• They will absorb great amounts of cash if the market share remains unchanged.• Why question marks?• Question marks have potential to become star and eventually cash cow but can

also become a dog.• Investments should be high for question marks.

WHY BCG MATRIX?

To assess : Profiles of products/businesses The cash demands of products The development cycles of products Resource allocation and ivestment decisions

BENEFITS

• BCG MATRIX is simple and easy to understand.• It helps to quickly and simply screen the opportunities open, and helps to

think about how can make the most of them.• It is used to identify how corporate cash resources can best be used to

maximize a company’s future growth and profitability.

Ansoff Matrix

Ansoff Matrix

• Long-term business strategy is depend on planning for their introduction of products and service

• Ansoff Matrix represents the different options open to a marketing manager when considering new opportunities for sales growth

Existing PRODUCTS New

INCREASING RISK

INC

REA

SIN

G R

ISK

Existing

MARKETS

New

MARKET PENETRATION

Sell more in existing Markets

•This is the objective of higher market share in existing market• Strategy: advertisement, awareness , trial, low price

Existing PRODUCTS New

INCREASING RISK

INC

REA

SIN

G R

ISK

Existing

MARKETS

New

MARKET PENETRATION

Sell more in existing Markets

MARKET EXTENSION/

DEVELOPMENT

Achieve higher sales/market share of existing products in new markets

•This is the strategy of selling an existing product to new markets. • Strategy: selling to an overseas market, or a new market segment

Existing PRODUCTS New

INCREASING RISK

INC

REA

SIN

G R

ISK

Existing

MARKETS

New

MARKET PENETRATION

Sell more in existing Markets

MARKET EXTENSION

Achieve higher sales/market share of existing products in new markets

PRODUCT DEVELOPMENT

Sell new products in existing markets

Strategy: Develop new product, new test, new product personality

Existing PRODUCTS New

INCREASING RISK

INC

REA

SIN

G R

ISK

Existing

MARKETS

New

MARKET PENETRATION

Sell more in existing Markets

MARKET EXTENSION

Achieve higher sales/market share of existing products in new markets

PRODUCT DEVELOPMENT

Sell new products in existing markets

DIVERSIFICATION

Sell new products in new markets

This is the process of selling different, unrelated goods or services in unrelated marketsThis is the most risky of all four strategiesStrategy: Develop new geographic or new location, Develop product to fulfil customer demand

Summary

• The matrix identifies different strategic areas in which a business COULD expand

• Managers need to asses the costs, potential gains and risks associated with the other options

Thank you