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New-Product Development and Product Life-Cycle Strategies

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CHAPTER 6 New-Product Development and Product Life-Cycle Strategies Objective: finding and developing new products and managing them successfully over their life cycle. – PowerPoint PPT presentation

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


1
CHAPTER 6
  • New-Product Development and Product Life-Cycle
    Strategies
  • Objective finding and developing new products
    and managing them successfully over their life
    cycle.

2
New-Product Development Strategy
  • Because of the rapid changes in consumer tastes,
    technology, and competition, companies must
    develop new products and services. A firm can
    obtain new products in two ways
  • acquisition (1) buying a whole company, (2) a
    patent, or (3) a license.
  • new-product development (1) developing original
    products, (2) product improvements, (3) product
    modification, or (4) new brands.

3
New products
  • Can be obtained via acquisition or development.
  • Suffer from high failure rates.
  • To create succesful new products, the company
    must
  • Undestand its customers, markets and competitiors
  • Develop products that deliver superior value to
    customers.

4
Causes of new product failures
  • Overestimation of market size
  • Product design problems
  • Product incorrectly positioned, priced or
    advertised
  • Costs of product development
  • Competitive actions

5
New-product Development Process
  • In order to find and develop successful
    products, the marketers must go through the
    following stages

6
Idea Generation
  • New product development starts with idea
    generation - the systematic search for
    new-product ideas.
  • Major sources of new-product ideas include (1)
    internal sources - research development
    department, executives, salespeople (2)
    customers (3) competitors (4) distributors and
    suppliers (5) others - trade magazines,
    seminars, government agencies, new-product
    consultants, marketing research firms,
    universities, inventors.

7
Idea Screening
  • Idea screening reduces the number of new ideas by
    screening new-product ideas in order to identify
    good ideas and drop poor ones as soon as
    possible.
  • In idea screening, market size, product price,
    development time and costs, production costs,
    rate of return and type of customers are put into
    consideration.

8
Concept Development and Testing
  • An attractive idea must be developed into
    alternative detailed product concepts.
  • Concept Development is a detailed version of the
    new-product idea stated in meaningful consumer
    terms. Several concepts can be developed for a
    product idea e.g. the idea of developing an
    electric car may be created in the following
    product concepts - (1) an inexpensive family car
    (2) a medium cost sporty car for young people
    (3) an inexpensive

9
  • car for conscious people who look for basic
    transportation, low fuel cost, and low pollution.
    The marketer must test these alternatives.
  • Concept Testing involves testing new-product
    concepts with target consumers before turning the
    new ideas into actual new products. The concepts
    may be presented to consumers symbolically or
    physically. After being exposed to the concept,
    consumers may be asked to tell their opinions.
    The answers will help the company decide which
    concept has the strongest appeal.

10
Marketing Strategy Development
  • After all the concepts are tested, the company
    must develop the initial marketing strategy to
    introduce the best concept to the market.
  • At this stage, the marketing strategy consists of
    three parts
  • Part one describes the (1) target market, (2)
    the planned product positioning, and (3) the
    sales, market share and profit goals for the
    first year.
  • Part two outlines the products planned (1)
    price, (2) distribution, and (3) marketing budget
    for the first year.
  • Part three describes the planned long-run (1)
    sales, (2) profit goals, and (3) marketing mix
    strategy.

11
Business Analysis
  • Once the product concept and the marketing
    strategy is decided, the marketer should evaluate
    the business attractiveness of the proposal.
  • Business analysis involves the projections for
    the sales (by looking at the sales history of
    similar products and getting the market opinion),
    costs (by looking at the forecasted sales
    figures), and profit for the new product to find
    out whether they satisfy the companys
    objectives. If they do, the product can move to
    the product-development stage.

12
Product Development
  • Here, the product concept is developed into a
    physical product (prototype) to understand
    whether the product idea can be turned into a
    workable product.
  • Prototypes are tested under laboratory and field
    conditions to make sure that the product performs
    safely and effectively.

13
Test Marketing
  • After the prototype is tested under the
    laboratory and field conditions, the next stage
    is testing the product under more realistic
    market settings.
  • Test marketing allows the company to test the
    product and its marketing program (e.g.
    positioning strategy, advertising, pricing,
    distribution, branding, packaging, budget) before
    going into the full introduction.
  • When introducing a new product requires a big
    investment, or when management is not sure of the
    product or marketing program, the companies do a
    lot of test marketing.

14
Commercialization
  • Commercialization is the introduction of a new
    product into the market.
  • At this stage, the company may need to spend
    between 10 million and 100 million for
    advertising and sales promotion in the first
    year.
  • Here, the company should decide when and where
    the product will be introduced.

15
Product Life-Cycle Strategies
  • After launching a new product, management wants
    it to enjoy a long and happy life, although it
    does not expect the product to sell forever.
  • The product life cycle (PLC) is the course that a
    products sales and profits take over its
    lifetime. It has five stages
  • 1. Product development begins when the company
    develops a new-product idea. During product
    development, sales are zero and the companys
    investment costs mount.

16
  • 2. Introduction is a period of slow sales growth
    as the product enters in the market. Profits are
    nonexistent in this stage because of the heavy
    expenses of product introduction.
  • 3. Growth is a period of rapid market acceptance
    and increasing profits.
  • 4. Maturity is a period of slowdown in sales
    growth because the product has achieved
    acceptance by most potential buyers. Profits
    level off or decline because of increased
    marketing outlays to defend the product against
    competition.
  • 5. Decline is the period when sales fall off and
    profits drop.

17
Product Life-Cycle
18
  • The PLC concept is used by the marketers to
    forecast product performance or to develop
    marketing strategies.
  • But all products do not follow the PLC in the
    same way. Some products are introduced and die
    quickly others stay in the maturity stage for a
    long time. Some enter the decline stage and are
    then cycled back into the growth stage through
    strong promotion or repositioning.
  • The major drawbacks of this cycle is that it is
    difficult (1) to identify which stage of the PLC
    the product is in, (2) to determine the factors
    that affect the products movement through the
    stages, to forecast the (3) sales level at each
    PLC stage, (4) the length of each stage, (5) the
    shape of the PLC curve.

19
  • The product life cycle concept can be applied to
    a
  • Product class (soft drinks)
  • Product form (diet colas)
  • Brand (Pepsi)

20
Introduction Stage
  • The introduction stage starts when the new
    product is first launched.
  • Here, sales growth is slow, profits are negative
    or low, because of low sales and high
    distribution and promotion expenses.
  • Promotion spending is high to inform consumers of
    the new product and get them to try it.
  • The company and its competitors produce the basic
    versions of the product because the market is not
    ready for the different versions of the product
    yet.

21
  • The introduction stage strategies are
  • Rapid-skimming strategy (high price/high
    promotion) here the company targets the cream
    of the buyers (buyers with high income) so the
    price of the new product or service is set high.
    When the company wants to attract these people
    rapidly (quickly), it heavily promotes the
    product.
  • Slow-skimming strategy (high price/low
    promotion) the difference between slow- and
    rapid-skimming is in the amount spent on
    promotion. Here less money is spent on
    promotion.
  • Rapid-penetration (low price/high promotion) the
    price level is the key difference between
    penetration and skimming strategies. Whe the
    market is price sensitive, penetration is a
    better strategy. In penetration, prices are set
    low to capture as many buyers as possible. When
    most of the potential buyers

22
  • are unaware of the product, they use heavy
    promotion. Here the risk is attracting heavy
    competition because a lot of companies may like
    to copy.
  • Slow-penetration strategy (low price/low
    promotion) here the new product or service is
    introduced at a low price with a low level of
    promotion. Again, the potential market is large
    and price sensitive but aware of the new service
    or product that is why, the level of promotion is
    low.

23
In summary
  • Marketing objective Create product awareness and
    trial
  • Sales Low sales
  • Costs High cost per customer
  • Profits Negative
  • Customers Innovators
  • Competitors Few
  • Strategies
  • Product Offer a basic product
  • Price Skimming or penetration
  • Place Build selective distribution
  • Promotion Build product awareness among early
    adopters and dealers with advertising, use heavy
    sames promotion to entice trial

24
Growth Stage
  • If the new product satisfies the market, it will
    enter a growth stage, in which sales climb
    quickly.
  • Early adopters buy the product.
  • New competitors enter the market when they are
    attracted by the opportunities for profit. They
    introduce new product features so the market
    expands.
  • Sales increase, prices remain the same or fall
    slightly, promotional spending stays the same or
    increase slightly.

25
  • Profits increase as promotion costs are spread
    over a large volume (sales) and as unit
    production costs fall.
  • The growth stage strategies are
  • improving product quality and adding new product
    features and models
  • entering into the new market segments
  • entering into the new distribution channels
  • shifting some advertising from building product
    awareness to building product conviction and
    purchase
  • lowering prices at the right time to attract more
    buyers
  • in order to sustain its rapid growth and meet
    competition.

26
  • By spending a lot of money on product
    improvement, promotion, and distribution, the
    company can gain a dominant position in the
    market but, as a result of this, it gives up
    maximum current profit and hopes to make it in
    the next stage.

27
In summary
  • Marketing objective Maximize market share
  • Sales Rapidly raising sales
  • Profits Rising profits
  • Customers Early adopters
  • Competitors Growing number
  • Strategies
  • Product Offer product extentions, service and
    warranty
  • Price Depends on the strategy chosen at the
    intorduction stage
  • Place Build intensive distribution
  • Promotion Build awareness and interest in the
    mass market with advertisements, Reduce sales
    promotions to take advantage of ehavy customer
    demand

28
Maturity Stage
  • At some point, a products sales growth will slow
    down, and the product will enter a maturity stage
    which lasts longer than the previous stages.
  • Here, competition is greater because of the
    overcapacity. They drop their prices, increase
    advertising and sales promotions, and increase
    their RD budgets to find better products. As a
    result, profits decrease, weaker competitors
    leave the market and only the well-established
    competitors remain.

29
  • The product managers should consider modifying
    their market, product and marketing mix rather
    than defending their product. The maturity stage
    strategies are
  • In modifying the market, the company looks for
    new users and market segments e.g. Johnson
    Johnson Baby Shampoo is marketed to adults
    looks for ways to increase usage among present
    customers e.g. Sut icin Sut icirin campaign of
    Mis Sut. Or the company may want to reposition
    the brand to appeal to a larger or faster-growing
    segment.
  • Or the company may try modifying the product
    by changing its products features, quality or
    style to attract new users e.g. Sony adds new
    styles and features to its Walkman and Discman
    lines, Algida adds new flavors and ingredients to
    its current products, Burger King introduces its
    new Fish Burgers or car

30
  • manufacturers restyle their cars to attract
    buyers who want a new look.
  • Or the company can try modifying the marketing
    mix by changing one or more marketing mix
    elements to improve sales. They can cut prices to
    attract new users and competitors customers.
    They can launch a better advertising campaign or
    use heavy sales promotions. The company can also
    move into larger market channels - mass
    merchandisers. Or the company can offer new or
    improved services to buyers.

31
In summary
  • Marketing objective Maximize profit while
    defending market share
  • Sales Peak sales
  • Costs Low cost per customer
  • Profits High profits
  • Customers Middle majority
  • Competitors Stable number begining to decline
  • Strategies
  • Product Diversify brand and models
  • Price Price to match or beat competitors
  • Place Build more intensive distribution
  • Promotion Stress brand differences and benefits
    with advertising. Sales promotions are increased
    to encourage brand switching.

32
Decline Stage
  • Most product forms and brands sales decline.
  • Here, the sales may become zero suddenly or may
    drop to a low level where they continue for may
    years.
  • As sales and profits decline, firms withdraw from
    the market.
  • The remaining companies prune their product
    offerings, drop smaller segments or channels, cut
    the promotion budget or reduce their prices
    further.

33
  • Here, the company should decide whether to
    maintain, harvest, or drop its product in the
    decline stage.
  • Management may decide to maintain its brand
    without changing it in the hope that the
    competitors would leave the market. Or management
    may decide to reposition the brand in the hope of
    moving it back into the growth stage of the
    product life cycle.
  • Management may decide to harvest the product by
    reducing costs (equipment, advertising, sales
    force) hoping that sales will remain.
  • Or the management may decide to drop the product
    from the line by selling it to another firm or
    simply liquidate it at salvage value.

34
In summary
  • Marketing objective Reduce expenditure and milk
    the brand
  • Sales Declining sales
  • Costs Low cost per customer
  • Profits Declining profits
  • Customers Laggards
  • Competitors Declining number
  • Strategies
  • Product Phase out weak items
  • Price Cut price
  • Place Go selective phase out unprofitable
    outlets
  • Promotion Reduce advertisements to level needed
    to retain hard-core loyals. Reduce sales
    promotions to minimal level.
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