Slides for Chapter 9


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  • 1 1 For further details about this topic see page310
  • 2 For further details about this topic see page312
  • 3 For further details about this topic see page313
  • 4 For further details about this topic see page313-314
  • 5 For further details about this topic see page314
  • 6 For further details about this topic see page314
  • 7 For further details about this topic see page315
  • 8 For further details about this topic see page315
  • 9 For further details about this topic see page317
  • 10 For further details about this topic see page318
  • 12 For further details about this topic see page319-320
  • 14 For further details about this topic see page320
  • 15 For further details about this topic see page320-321
  • 16 For further details about this topic see page321-322
  • 17 For further details about this topic see page322
  • 19 For further details about this topic see page322-323
  • 20 For further details about this topic see page323
  • 21 For further details about this topic see page323-325
  • 22 For further details about this topic see page325-327
  • 31 31 For further details about this topic see page183
  • 33 33 For further details about this topic see page184.
  • 23 For further details about this topic see page327-332
  • Slides for Chapter 9

    1. 1. Chapter 9: New Product Development & Life Cycle Strategies June 12, 2001
    2. 2. New Product Development <ul><li>R&D </li></ul><ul><li>Capital investment </li></ul><ul><li>Advertising expense </li></ul><ul><li>Annual earnings growth 17% </li></ul><ul><li>45% of Duracell sales outside North America </li></ul>Gillette’s Growth Drivers
    3. 3. New Product Development: impact of product life-cycle <ul><li>New product development </li></ul><ul><ul><li>New to replace dying products </li></ul></ul><ul><ul><li>Need to constantly “over-innovate” to compensate for high failure rates </li></ul></ul><ul><li>Life-cycle strategies </li></ul><ul><ul><li>Adapt products to changing marketing environment : </li></ul></ul><ul><ul><ul><li>tastes </li></ul></ul></ul><ul><ul><ul><li>technologies </li></ul></ul></ul><ul><ul><ul><li>competition </li></ul></ul></ul>Two major challenges :
    4. 4. New Product Development Strategy <ul><li>New products include: </li></ul><ul><ul><li>Continuous Innovations : </li></ul></ul><ul><ul><ul><li>product improvements, or product modifications </li></ul></ul></ul><ul><ul><li>Discontinuous Innovations : </li></ul></ul><ul><ul><ul><li>Original products, new brands </li></ul></ul></ul><ul><li>Two sources of new products </li></ul><ul><ul><li>Acquisition - company, patent, licence </li></ul></ul><ul><ul><li>Research & development (R&D) internally </li></ul></ul>
    5. 5. Why do 80% of new products fail? <ul><li>Overestimated demand </li></ul><ul><li>Incorrect targeting and positioning </li></ul><ul><li>4Ps: </li></ul><ul><ul><li>Poor product design </li></ul></ul><ul><ul><li>Error in pricing </li></ul></ul><ul><ul><li>Poor Promotion </li></ul></ul><ul><ul><li>Improper Distribution </li></ul></ul><ul><li>Cost overrun </li></ul><ul><li>Underestimation of Competition </li></ul>
    6. 6. New Product Success Factors <ul><li>Unique superior product </li></ul><ul><ul><li>quality, features, value </li></ul></ul><ul><li>Well defined product concept from startup </li></ul><ul><ul><li>at all three levels </li></ul></ul><ul><li>New Product Planning: </li></ul><ul><ul><li>Specific acceptance criteria </li></ul></ul><ul><ul><li>Specific strategic role </li></ul></ul><ul><ul><li>Systematic new-product process in place </li></ul></ul>
    7. 7. New-Product Development Process: major stages Idea generation Idea screening Concept Development & testing Marketing strategy Business analysis Product development Commercialization Test marketing 8 Steps
    8. 8. Step 1: Idea Generation <ul><li>Need to constantly generate lots of new ideas in order to find a few successful ones </li></ul><ul><li>Major Sources of New-Product Ideas </li></ul><ul><ul><li>Internal sources </li></ul></ul><ul><ul><ul><li>employees, sales people, R&D, managers </li></ul></ul></ul><ul><ul><li>Customers - surveys, complaints, focus groups </li></ul></ul><ul><ul><li>Competitors - reverse engineering </li></ul></ul><ul><ul><li>Distributors & suppliers - Point of Purchase </li></ul></ul><ul><li>In other words - marketing intelligence and research </li></ul>
    9. 9. Step 2: Idea Screening <ul><li>Purpose is to identify good ideas & drop poor ones fast (triage) - prioritization </li></ul><ul><li>Challenge is to maintain creativity & a stream of new ideas </li></ul><ul><li>Standardized write-up format developed for easy comparison </li></ul><ul><ul><li>Target market potential, 4Ps, costs </li></ul></ul><ul><li>Criteria and rating to select one </li></ul><ul><ul><li>Usefulness, image consistency, strategic fit (core competencies), marketability with 4Ps </li></ul></ul><ul><ul><li>Point system can be used </li></ul></ul>
    10. 10. Step 3: Concept Development & testing <ul><li>Defining the Product concept </li></ul><ul><ul><li>New-product idea in detail stated in meaningful consumer terms - 3 layers </li></ul></ul><ul><li>Concept development </li></ul><ul><ul><li>Expanding the new-product idea into various alternative product concepts with different approaches to targeting, positioning and the 4Ps </li></ul></ul><ul><li>Concept testing </li></ul><ul><ul><li>Target consumers exposed to new-product concepts - good use of focus groups </li></ul></ul><ul><ul><li>Word or picture description or physical presentation of the concept (prototype) </li></ul></ul><ul><ul><li>Questions asked and reactions observed </li></ul></ul>
    11. 11. Step 4: Marketing strategy development <ul><li>Strategic Decisions in bringing a product concept to market: </li></ul><ul><ul><li>Target market </li></ul></ul><ul><ul><li>Planned product positioning </li></ul></ul><ul><ul><li>Sales, market share and profit goals </li></ul></ul><ul><ul><li>Outline price, distribution and first year marketing budget </li></ul></ul><ul><ul><li>Planned long-run sales </li></ul></ul><ul><ul><li>Profit goals </li></ul></ul><ul><ul><li>Marketing mix strategy - 4Ps </li></ul></ul>
    12. 12. Step 5: Business Analysis <ul><li>Estimate maximum and minimum sales </li></ul><ul><ul><li>company history and market opinion </li></ul></ul><ul><li>Estimate product costs and profits </li></ul><ul><li>Analyze projected sales, costs and profit in consideration of company’s strategic objectives </li></ul><ul><li>Determine the attractiveness of the proposal to the bottom line </li></ul>
    13. 13. Step 6: Prototype Development <ul><li>Performed by engineering or R&D </li></ul><ul><li>Transform product concept into a physical product that can be test marketed </li></ul><ul><li>Prototype - functional and psychological to stimulate interest </li></ul><ul><li>Major investment of time and money </li></ul>
    14. 14. Step 7: Test marketing <ul><li>Advantages : </li></ul><ul><ul><li>Reduces uncertainty about product and marketing approach </li></ul></ul><ul><ul><li>Saves risk and expense of full launch </li></ul></ul><ul><li>Disadvantages </li></ul><ul><ul><li>High cost </li></ul></ul><ul><ul><li>Longer time-to-market </li></ul></ul><ul><ul><li>Tips off competitors </li></ul></ul>Testing the prototype and marketing program possibilities in a realistic market setting
    15. 15. Types of test markets <ul><li>Standard (Most popular approach) </li></ul><ul><ul><li>Use small number of representative test cities </li></ul></ul><ul><ul><li>Store audits, consumer surveys, sales figures </li></ul></ul><ul><ul><li>Costly & time consuming </li></ul></ul><ul><ul><li>Competitor reaction obscures results </li></ul></ul><ul><li>Controlled - panel of stores on a fee basis </li></ul><ul><ul><li>Client specifies stores and locations </li></ul></ul><ul><ul><li>Shelf space/location, displays, promotion and price controlled </li></ul></ul><ul><ul><li>Sales tracked </li></ul></ul><ul><li>Simulated - laboratory setting </li></ul>
    16. 16. Product Development Process: simulated test markets <ul><li>Use real or laboratory store </li></ul><ul><li>Consumers view test and competitive ads </li></ul><ul><li>Given shopping money to spend or keep </li></ul><ul><li>Interview on reasons for purchasing or not </li></ul><ul><li>Phone follow-up on attitudes, purchase plans </li></ul><ul><li>Costs less - can be done in eight weeks </li></ul><ul><li>Risk from small sample, artificial situation </li></ul>
    17. 17. Product Development Process: test marketing business products <ul><li>Product use tests - beta testing </li></ul><ul><li>Demonstrations at trade shows </li></ul><ul><li>Evaluate performance and buying plans </li></ul><ul><li>Standard or test market sales territories </li></ul>
    18. 18. Step 8: Commercialization <ul><li>Major investment in manufacturing facilities </li></ul><ul><li>High initial advertising and promotion expense </li></ul><ul><li>Considerations: </li></ul><ul><ul><li>Timing - time of year, business cycle </li></ul></ul><ul><ul><li>Launch location - Local, regional roll-out, national or global </li></ul></ul>
    19. 19. Speeding Up the Development Process <ul><li>Sequential process is traditionally used </li></ul><ul><li>Other options: </li></ul><ul><ul><li>Concurrent or team-based approaches </li></ul></ul><ul><ul><li>Parallel Development </li></ul></ul><ul><li>Shorter cycle-times </li></ul><ul><li>First-mover advantage </li></ul><ul><li>Time is money </li></ul><ul><li>Higher risk & tension </li></ul>
    20. 20. Buyer Decision Process for new products (pp.183-184) <ul><li>Individual Adoption Process: </li></ul><ul><ul><li>Mental process </li></ul></ul><ul><li>Stages </li></ul><ul><ul><li>Awareness </li></ul></ul><ul><ul><li>Interest </li></ul></ul><ul><ul><li>Evaluation </li></ul></ul><ul><ul><li>Trial </li></ul></ul><ul><ul><li>Adoption </li></ul></ul>
    21. 21. Influence of Product Characteristics on Rate of Adoption <ul><li>Relative advantage - superiority over existing products </li></ul><ul><li>Compatibility - with values, experience, lifestyles of users </li></ul><ul><li>Complexity - easier to understand (use and purpose) the better - e.g. Internet </li></ul><ul><li>Divisibility - degree of trialability in small low-risk doses </li></ul><ul><li>Communicability/Observability - can product concept be observed and described to/by others? </li></ul>
    22. 22. Adopter Categorization: relative time of adoption Time of adoption of innovations 2.5% Innovators 34% Early majority 34% Late majority Early adopters 13.5% 16% Laggards
    23. 23. Adopter Categories <ul><li>Can be used as a basis for segmentation </li></ul><ul><li>Require different Marketing Mix Approaches </li></ul><ul><ul><li>e.g. Early adopters need less promotion, and act as opinion leaders for others </li></ul></ul><ul><ul><ul><ul><li>Laggards wait until quality and price are stabilized </li></ul></ul></ul></ul>
    24. 24. Product Life-Cycle Strategies Profits Sales Development Introduction Growth Maturity Decline Sales Profit ($) Loss ($) “ S-Curve”
    25. 25. PLC Stages - see Table 9-3, p. 333 <ul><li>Introduction </li></ul><ul><ul><li>Product awareness (sellers & consumers) is top priority - Promotion </li></ul></ul><ul><ul><li>high cost, investment in the future </li></ul></ul><ul><li>Growth </li></ul><ul><ul><li>sales and profits increase as majority begins to adopt </li></ul></ul><ul><ul><li>All 4Ps important, especially product and distribution </li></ul></ul><ul><ul><li>Gaining market share is key </li></ul></ul>
    26. 26. PLC Stages (2) <ul><li>Maturity </li></ul><ul><ul><li>longest life-cycle stage, so many products on the market are there at any given time </li></ul></ul><ul><ul><ul><li>Manage market - new uses, more users, more usage </li></ul></ul></ul><ul><ul><ul><li>Manage Product - improvement of features </li></ul></ul></ul><ul><ul><ul><li>Manage other Ps </li></ul></ul></ul><ul><li>Decline </li></ul><ul><ul><li>Sales and profits slide </li></ul></ul><ul><ul><ul><li>Maintain, Harvest or Drop the product </li></ul></ul></ul>