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Chapter 8 New-Product Development and Product Life-Cycle Strategies

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Title: Chapter 8 New-Product Development and Product Life-Cycle Strategies


1
Chapter 8 New-Product Development and Product
Life-Cycle Strategies
  • Professor Marshall
  • Queens College

2
Example Microsoft
  • Owns 97 of Operating System Market
  • Owns 90 of office applications Market
  • Internet Explorer, MSN, Hotmail
  • How does Microsoft stay on top?

3
Answer
  • They dont just sit back.
  • Microsoft continues to pour resources into
    Research Development.
  • New Products that have or will launch soon
  • .NET (allows unrelated websites to communicate)
  • Smartphone (allows users to email, instant
    message, listen to music, surf the web, etc.)
  • Face mapping (for gamers)
  • The digital home (connects everything in the
    house)

4
To Stay in Business
  • Companies have to be good at developing and
    managing products.
  • Each product goes through a product life cycle
  • its born, matures, and eventually dies as newer
    products come along that serve consumers better
  • Firms must be good at developing new products to
    replace older ones.
  • As products go through these life-cycle stages,
    firms must be good at adapting marketing
    strategies to consumers changing tastes, new
    technology, and competition.

5
Stages in The Product Life Cycle
  • Product development
  • Introduction
  • Growth
  • Maturity
  • Decline

6
New-Product Development Strategy
  • Strategies for Obtaining New-Product Ideas
  • Acquisition
  • Buying a whole company, patent, or license
  • New Product Development
  • Creating Original products, improvements,
    modifications, or new brands, through your own
    RD department
  • Modifications are not always adding features
    may also be taking away features!

7
Acquisition - Examples
  • Merger of Cingular and ATT
  • Buying a whole company
  • Handheld PDAs buy Palm OS Operating System
    software from Palm to use on competing products.
  • Buying a license or buying a patent

8
New-Product Development Failures
  • Only 10 of new products still on the market and
    profitable after 3 years.
  • 250,000 new consumer food, beverage, beauty and
    health care products are developed each year.
    Only 40 of them will be around 5 years later.
  • Innovation is very risky- Ford lost 350 million
    on the Edsel automobile.
  • Examples of failures
  • Gerber food for Adults
  • Ben-Gay Aspirin
  • Exxon Fruit Punch
  • Smuckers premium Ketchup
  • Fruit of the Loom Laundry Detergent

http//www.newproductworks.com/product_poll/produc
t_poll.html
9
Why do New Products Fail?
  • Overestimation of market size
  • Design problems
  • Incorrectly positioned, priced, or advertised
  • Pushed despite poor marketing research findings
  • High development costs
  • Competition might be too fierce

10
Major Stages in New-Product Development
Concept Development Testing
Marketing Strategy Development
Idea Generation
Idea Screening
Business Analysis
Product Development
Test Marketing
Commercialization
11
Idea Generation
For every 1000 ideas, only 100 will be turned
into a small-scale experiment. From those
experiments, only 10 will warrant financial
commitment. Of those, only one or two will be
successful.
  • Where do Product Ideas Come From?
  • Internal
  • Company employees example 3M allows 15 of
    employee time to be spent working on projects of
    personal interest. Post-it notes evolved from
    this.
  • External
  • Customers analyze customer complaints
  • Competitors
  • Distributors can pass along consumer problems
  • Suppliers can provide insight on materials and
    techniques to use in new product development

12
Ways to foster Idea Generation
  • Creating an Idea Management System that directs
    ideas to a central location for review
  • Set up a public toll-free number or website for
    anyone who wants to send ideas
  • Set up a rewards program for those who contribute

13
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.
  • Example of questions to ask
  • Is the product truly useful to consumers and
    society?
  • Is it a good move for our company?
  • Does it mesh with our company objectives and
    strategies?
  • Do we have the resources, people, and skills to
    make it succeed?
  • Does it deliver more value to customers than
    competitive products?
  • Is it easy to advertise and distribute?

14
Concept Development Terminology
  • 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.
  • Attractive Product Ideas are developed into
    Product Concepts.

15
Concept Development Example
  • DaimlerChrysler is getting ready to commercialize
    its experimental fuel-cell powered electric car.
    It is highly efficient and environmentally
    superior to gasoline powered cars. The company
    is currently road testing prototypes.
  • DaimlerChryslers task is to develop this new
    product into alternative product concepts, find
    out how attractive each concept is to customers,
    and choose the best one.

16
Concept Development Example
  • Concept 1 - A moderately priced subcompact
    designed as a second family car to be used around
    town. Ideal for running errands and visiting
    friends.
  • Concept 2 A medium-cost sporty compact
    appealing to young people.
  • Concept 3 An inexpensive subcompact green
    car, appealing to environmentally conscious
    people who want practical transportation and low
    pollution.
  • Concept 4 A high-end SUV appealing to those who
    love the space SUVs provide but hate the poor gas
    mileage.

17
Concept Testing
  • Testing new product concepts with groups of
    target consumers.
  • Products may be presented physically or
    described. Some marketers use virtual reality
    programs. Physical tests are the most reliable.
  • For Concept 3
  • An efficient, fun-to-drive, fuel-cell powered
    electric subcompact car that seats four. This
    methanol-powered high-tech wonder provides
    practical and reliable transportation with
    virtually no pollution. It goes up to 90 mph
    and, unlike battery-powered electric cars, it
    never needs recharging. Its priced,
    fully-equipped, at 20,000.

18
Questions for Target Consumers of Concept Test to
Answer
  • Do you understand the concept of a fuel-cell
    powered electric car?
  • Do you believe the claims about the cars
    performance?
  • What are the major benefits of the fuel-cell
    powered electric car compared to a conventional
    car?
  • What improvements would you suggest?
  • For what uses would you prefer a fuel-cell
    powered electric car to a conventional car?
  • What would be a reasonable price for such a car?
  • Who would be involved in your decision to buy
    such a car? Who would drive it?
  • Would you buy such a car? (definitely, probably,
    probably not, definitely not)

19
Studying the Results
  • Answers to the questions give marketers insight
    as to which concept has the strongest appeal.
    They can use the answers to the would you buy
    question to project sales for the entire target
    audience.

AcuPOLL http//www.acupoll.com/homenglish/pag1engl
ish3.html is a market research company that tests
new products for client companies and rates them
based on the results of the test.
20
Marketing Strategy Development
  • Now that we have chosen a concept, we can design
    an initial marketing strategy for introducing the
    product to market.
  • Part One Describes
  • The target market, planned product positions. It
    also contains sales, market share, and profit
    goals.
  • Part Two Outlines the First Years
  • Products planned price, distribution, and
    marketing budget
  • Part Three Describes Long-Run
  • Sales and profit goals, marketing mix strategy

21
Marketing Strategy for the Electric Car
  • Part 1 target market, positioning, slaes market
    share, profit goals for first few years
  • Target market is younger, well-educated, moderate
    to high income individuals, couples or small
    families seeking practical environmentally
    responsible transportation. The car will be
    positioned as more economical to operate, more
    fun to drive, and less polluting than other cars.
    It is also less restricting than battery powered
    electric cars which frequently have to be
    charged. The company aims to sell 100,000 cars
    in the first year, at a loss of not more than 15
    million. In the second year, the company will
    aim to sell 120,000 cars and profit 25 million.

22
Marketing Strategy for the Electric Car
  • Part 2 price, distribution, marketing budget
  • The vehicle will be offered in three colors
    red, white, and blue. It will have optional air
    conditioning and power drive features. It will
    sell at a retail price of 20,000 with 15 off
    the list price to dealers. Dealers who sell more
    than 10 cars per month will get an additional 5
    discount on each car sold that month. An
    advertising budget of 50 million will be split
    50-50 between national and local advertising.
    Advertising will emphasize the cars fun spirit
    and low emissions. During the first year,
    100,000 will be spent on market research to find
    out who is buying and their levels of
    satisfaction.

23
Marketing Strategy for the Electric Car
  • Part 3 long run
  • DaimlerChrysler intends in the long run to
    capture a 3 share in the total auto market,
    realizing a 15 net return on investment. To
    achieve this, product quality will start high and
    improve over time. Price will be raised in the
    second and third years if competition permits.
    The total advertising budget will rise each year
    by about 10. Market research will be reduced to
    60,000 per year after the first year.

24
Business Analysis
  • Involves a review of the sales, costs, and profit
    projections to assess fit with company
    objectives.
  • To estimate sales, the company will look at sales
    of similar items and conduct surveys to gather
    market opinion. Generally it will come up with a
    minimum and maximum range of sales to asses risk.
  • Then the company can assign costs (marketing,
    RD, operations, accounting, and finance costs).
  • If yes ? move to the product development phase.

25
Product Development
  • Develop concept into physical product
  • Calls for large jump in investment
  • Prototypes are made (can take days, weeks, even
    years)
  • Prototype must have correct physical features and
    convey psychological characteristics
  • Prototypes have to undergo many tests to ensure
    performance and safety
  • New product testing is often conducted by
    volunteers in focus groups or individually.
    Often subjects are paid to test new products. At
    Gillette, employees can volunteer to test new
    products.

26
Test Marketing
  • Once the product passes initial testing ? it
    moves on to Test Marketing
  • Product and entire marketing program (pricing,
    positioning distribution, advertising, etc.) are
    introduced in a more realistic market setting.
  • Not needed for all products.
  • Can be expensive and time consuming, but better
    than making major marketing mistake.

27
Commercialization
  • Commercialization introducing a new product
    into the market
  • 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 rollout plan. Small
    companies might enter cities one by one, while
    larger companies might enter the national market
    more quickly or all at once.

28
Organizing New-Product Development
  • Sequential Approach each stage completed before
    moving to next phase of the project.
  • Simultaneous Approach Cross-functional teams
    work through overlapping steps to save time and
    increase effectiveness. Riskier - Must be
    careful not to rush and lose product quality.

Concept Development Testing
Marketing Strategy Development
Idea Generation
Idea Screening
Business Analysis
Product Development
Test Marketing
Commercialization
29
Video Case
  • eGo Vehicles
  • (14 minutes)

http//www.egovehicles.com/
30
Thoughts
  • How does eGos strategy differ from say Coca-Cola
    introducing a new flavor to the market?
  • The marketing of beverages are fairly
    straightforward consumers have a basic
    understanding of the use of the product, and
    marketers can use existing channels of
    distribution. A brand new product, such as eGo
    has to pave the way by educating consumers about
    the product and creating its own distribution
    channels.
  • Who is eGos likely target market?

31
Stages in The Product Life Cycle
  • Product development finding and developing a
    new product no sales yet and high costs
  • Introduction slow sales growth as the product
    is introduced in the market due to heavy
    expenses, profits are not realized yet
  • Growth rapid market acceptance and increasing
    profits
  • Maturity sales growth slows down because the
    product has been accepted by most potential
    buyers. Profits level off or decline because of
    increased marketing expenses to defend against
    competition
  • Decline sales fall off and profits drop

32
Stages in The Product Life Cycle
Many products never make it past introduction.
Others stay in Maturity for a long time. Some
products enter the decline stage and later come
back to the growth stage through strong promotion
or repositioning.
33
Stages in the Adoption Process (from chapter 5
buyer behavior)
Introduction Growth
Maturity Decline
34 Early Majority
34 Late Majority
2.5 Innovators
13.5 Early Adopters
16 Laggards
X - 2s X - s
X X s
Time of adoption of innovations
Suspicious of change
Try new ideas at some risk.
Before the average person
Opinion Leaders adopt new ideas early but
carefully
Only after majority has tried it
34
Product Life Cycle Applications
  • Product class (ex gas-powered cars) has the
    longest life cycle stays in the mature stage
    for a very long time
  • Product form (ex SUVs) tends to have the
    standard PLC shape pass through each of the
    stages in the
  • Brand (ex Ford Explorer) can change quickly
    because of changing competitive attacks and
    responses

35
Product Life Cycle Applications
  • Style is a basic and distinctive mode of
    expression (ex clothing formal, casual) once
    a style is born it may last for generations
    passing in and out of vogue
  • Fashion is a popular style in a given field (ex
    business casual) tends to grow slowly, remain
    popular for a while and decline slowly
  • Fad is a fashion that enters quickly, is adopted
    quickly, and declines fast (ex lava lamps,
    Pokeman)

Style
Fashion Fad
Sales
Sales
Sales
Time
Time
Time
36
Practical Problems of PLC
  • Hard to identify which stage of the PLC the
    product is in and when the product will move to
    the next stage.
  • Hard to identify factors that affect products
    movement through stages.
  • Hard to forecast sales level, length of each
    stage, and shape of PLC.
  • Strategy is both a cause and result of the PLC.

When used carefully, the PLC can help in
developing good marketing strategies for
different stages of the product life cycle.
37
Stages in The Product Life Cycle
  • Product development
  • Introduction
  • Growth
  • Maturity
  • Decline

38
Marketing Example
http//www.apple.com/ipod/
39
Introduction Stage of PLC
  • Sales low
  • Costs high cost per customer
  • Profits negative
  • Marketing Objective create product awareness and
    trial
  • Product offer a basic product generally want
    to educate consumers without confusing them can
    add additional features later
  • Price use cost-plus formula (little more than
    break-even)
  • Distribution Attract distributors Consumers
    drive the demand ? causing distributors to supply
    the product
  • Promotion heavy to inform consumer and entice
    product trial aim the promotion toward early
    adopters

40
Stages in The Product Life Cycle
  • Product development
  • Introduction
  • Growth
  • Maturity
  • Decline

41
Marketing Example
42
Growth Stage of PLC
  • Sales rapidly rising
  • Costs average cost per customer
  • Profits rising
  • Marketing Objective maximize market share
    build awareness and interest in the mass market
  • Product offer extension, service, warranty
  • Price penetration strategy remain where they
    are or fall slightly to compete
  • Distribution increasing distribution
  • Promotion depends on the market situation
    generally reduce to take advantage of demand
    (unless competition is fierce)

43
Stages in The Product Life Cycle
  • Product development
  • Introduction
  • Growth
  • Maturity
  • Decline

44
Marketing Example
45
Maturity Stage of PLC
  • Sales peak
  • Costs low cost per customer
  • Profits high but may drop due to competition and
    RD spending to improve product
  • Marketing Objective maximize profits while
    defending market share Usually a lot of
    competition in this stage - stress brand
    differences and benefits
  • Product diversify brand and models
  • Price match or beat competitors
  • Distribution keep building more intensive
    distribution
  • Promotion Increase to encourage brand switching

46
Mature Stage
  • How can we increase consumption (sales and
    profits) in this stage?

47
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

http//www.wd40.com/Brands/wd40.cfm
48
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

http//www.heinz.com/jsp/new_prod.jsp
49
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

http//www.spammobile.com/
50
Stages in The Product Life Cycle
  • Product development
  • Introduction
  • Growth
  • Maturity
  • Decline

51
Marketing Example
  • Blockbuster Ticker BBI
  • How have their ads changed?

http//www.ifilm.com/player/?ifilmId2419643pgsu
perbowl2002skindefaultrefsitedefaultmediaSize
defaultcontextproductlaunchVal1datanullrea
lId2419643bw300mtWMP
52
Decline Stage of PLC
  • Sales declining
  • Costs low cost per customer
  • Profits declining
  • Marketing Objective reduce expenditures and milk
    the brand - just try to retain the hard-core
    loyals
  • Product phase out weak items
  • Price cut price
  • Distribution selective--phase out unprofitable
    outlets
  • Promotion reduce to minimal level

53
Decline Stage of PLC
  • Management may decide to drop the product
    altogether (selling it to another firm or simply
    liquidating it).
  • Alternatively, it may decide to maintain it
    hoping that competitors will leave the market.
  • PG remained in the liquid soap business while
    competitors withdrew.
  • Management may decide to reposition the brand and
    bring it back to the growth stage.

http//www.crackerjack.com/home.htm
54
Are there any Age-Defying Products?
  • Barbie
  • Crayola Crayons
  • These products have remained in the marketplace
    for generations.
  • How did they do it?

55
  • They may seem like they defy the PLC, but
    actually, Barbie continually adds new dolls and
    collections (product lines).
  • Crayola has added new colors, shapes, sizes and
    packages. Crayola also extended the brand to new
    markets (scissors, paints, pens, stamps,
    stickers, etc.)
  • Bottom Line
  • To stay in business, companies must adapt their
    strategies to a constantly changing environment.

http//www.barbiecollector.com/showcase/
http//www.crayolastore.com/category.asp?NAVDRAW
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