New Product Development

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New Product Development

• Marketing Management

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Overview

• Challenges in NPD
• Adoption of new products
• The NPD process
• Product-life-cycle (PLC) strategies

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Strategic roles of most successful new products
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Challenges in NPD

• New products suffer high failure rates up to
  90
• Several reasons account for failure

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What it takes to launch one commercially
successful new product
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Why do products fail?

• No significant point of difference
• Market size overestimated
• Design flaws or poor product quality
• Poor execution of the marketing mix
• Overpriced
• Bad positioning
• Wrong target
• Poor distribution support
• RD costs higher than expected
• Competition retaliates vigorously

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Hurdles for NPD

• Shortage of new ideas in some areas (e.g.,
  commodities)
• Fragmented markets
• Governmental social constraints (e.g., GM food)
• Staggering RD costs
• Shorter product life cycles

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Stages in Adoption Process

• Awareness
• Interest
• Seek information
• Evaluation
• Trial
• Adoption

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Buyer Decision Process for New Products

• Stages in the Adoption Process
• Marketers should help consumers move from
  awareness to adoption.

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Buyer Decision Process for New Products

• Individual Differences in Innovativeness
• Consumers can be classified into five adopter
  categories, each of which behaves differently
  toward new products.

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Adopter Categories Based on Relative Time of
Adoption
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Adoption of New Products

• Five types of adopters
• Innovators
• Early adopters
• Early majority
• Late majority
• Laggards
• Personal influence most important
• in evaluation stage
• for later adopters
• for risky situations

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Adoption of New Products Product Characteristics

• Relative advantage
• Switching cost (e.g., DVDs)
• Complexity
• Trialability
• Visibility

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Idea Generation Internal Sources

• RD (3M)
• Salespeople
• Customer service reps
• Management
• Suggestion box

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Idea Generation External Sources

• Channel Suggestions
• Foreign Markets
• Customers
• Lead users
• Focus group discussions
• Customer feedback (complaints)
• Competition
• Inventors

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Idea Generation Managing the Creative Process

• Openness and participation
• Encourage many and diverse ideas
• Build on each others ideas
• A problem orientation
• Use a leader to guide the discussion

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Screening of Ideas

• Three groups
• Promising
• Marginal
• Rejects
• Two types of errors
• DROP-error
• GO-error

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A weighted point system Medtronic uses to try to
spot a winning new medical product (first part)
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A weighted point system Medtronic uses to try to
spot a winning new medical product (final part)
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Concept Development Testing

• More elaborate description of a product idea
• Who will use product?
• Primary benefits?

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Concept Testing Development -- Purposes

• Choose most promising from set of alternatives
• Refine core idea
• Find out who is most interested
• Indicate what direction further development work
  should take

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Concept Test Focus Group

• Are benefits clear? Believable?
• Need level does this product solve a need?
• Likes and dislikes of current offerings
• Likes and dislikes of concept (pre- and
  post-exposure)
• Willingness to pay perceived value
• Purchase intent
• Target customers? Purchase/usage frequency?

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Business Analysis

• Preliminary marketing strategy plan
• Estimate sales, market share
• Estimate costs profits
• Risk (scenario) analysis

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Pretest Market

• Simulated Test Markets
• Objective to measure, in a controlled way, the
  trial and repeat intentions of target market
• Use high purchase frequency, low involvement
  goods (e.g., most groceries)

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Pretest Markets Steps

• Step 1 Expose target customers to commercials
  for the new existing products
• Step 2 Have them make a purchase from the
  product category in a simulated store those who
  select competing brand get the item free (to
  measure impact of sampling)
• Step 3 New item is taken home and used
• Step 4 Contact customer to measure reactions
  towards product, repurchase intent

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Test Market Motivations

• Predict sales, share profits
• Practice
• Test alternative marketing mix plans

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Test Market Cons

• Time-consuming
• Costly (implementation plus opportunity costs)
• Tip off competitors
• Risk of competitor interference
• Projectability of results

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Test Market Decisions

• How many cities?
• Which cities?
• How long (purchase cycle)?
• What information
• Actual sales
• Surveys
• Panels
• What action?

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Test Markets What Action
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Commercialization How?

• Targets? Positioning?
• How? Marketing Mix Launch Plan
• Price?
• Distribution channels?
• Push versus pull

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Commercialization - Timing

• First?
• Pioneering advantage
• But risky (e.g., product bugs, market
  uncertainty)

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Commercialization - Timing

• Follower - Overcome first-mover advantages (if
  any) via
• Marketing clout
• Product enhancement (2nd but better)
• Lower cost (2nd but cheaper)

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Commercialization Where?

• Phased rollout - smart bombing
• Nationwide rollout - carpet bombing

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Sales and Profits Over a Products Life
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Product Life-Cycle Strategies

• The Typical Product Life Cycle (PLC) Has Five
  Stages
• Product Development, Introduction, Growth,
  Maturity, Decline
• Not all products follow this cycle
• Fads
• Styles
• Fashions

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Product Life-Cycle Strategies

• Additional marketing investments can move a
  product back into the growth stage, as in the
  case of Cracker Jack.

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Product Life-Cycle Strategies

• The product life cycle concept can be applied to
  a
• Product class (soft drinks)
• Product form (diet colas)
• Brand (Diet Dr. Pepper)
• Using the PLC to forecast brand performance or
  to develop marketing strategies is problematic

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Product Life-Cycle Strategies

• Begins when the company develops a new-product
  idea
• Sales are zero
• Investment costs are high
• Profits are negative

PLC Stages

• Product development
• Introduction
• Growth
• Maturity
• Decline

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Product Life-Cycle Strategies

• Low sales
• High cost per customer acquired
• Negative profits
• Innovators are targeted
• Little competition

PLC Stages

• Product development
• Introduction
• Growth
• Maturity
• Decline

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Marketing Strategies Introduction Stage

• Product Offer a basic product
• Price Use cost-plus basis to set
• Distribution Build selective distribution
• Advertising Build awareness among early
  adopters and dealers/resellers
• Sales Promotion Heavy expenditures to create
  trial

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Product Life-Cycle Strategies

• Rapidly rising sales
• Average cost per customer
• Rising profits
• Early adopters are targeted
• Growing competition

PLC Stages

• Product development
• Introduction
• Growth
• Maturity
• Decline

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Marketing Strategies Growth Stage

• Product Offer product extensions, service,
  warranty
• Price Penetration pricing
• Distribution Build intensive distribution
• Advertising Build awareness and interest in the
  mass market
• Sales Promotion Reduce expenditures to take
  advantage of consumer demand

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Product Life-Cycle Strategies

• Sales peak
• Low cost per customer
• High profits
• Middle majority are targeted
• Competition begins to decline

PLC Stages

• Product development
• Introduction
• Growth
• Maturity
• Decline

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Marketing Strategies Maturity Stage

• Product Diversify brand and models
• Price Set to match or beat competition
• Distribution Build more intensive distribution
• Advertising Stress brand differences and
  benefits
• Sales Promotion Increase to encourage brand
  switching

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Product Life-Cycle Strategies

• Declining sales
• Low cost per customer
• Declining profits
• Laggards are targeted
• Declining competition

PLC Stages

• Product development
• Introduction
• Growth
• Maturity
• Decline

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Marketing Strategies Decline Stage

• Product Phase out weak items
• Price Cut price
• Distribution Use selective distribution phase
  out unprofitable outlets
• Advertising Reduce to level needed to retain
  hard-core loyalists
• Sales Promotion Reduce to minimal level