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  1. 1. Chapter 9 New-Product Development and Product Life-Cycle Strategies
  2. 2. Learning Goals <ul><li>Explain how companies find and develop new-product ideas </li></ul><ul><li>List and define the steps in the new-product development process </li></ul><ul><li>Describe the stages of the product life cycle </li></ul><ul><li>Describe how marketing strategies change during the product’s life cycle </li></ul>
  3. 3. <ul><li>Focus on Innovation </li></ul><ul><li>Names its culture of continuous innovation “renewal” </li></ul><ul><li>Organizes into autonomous units, which helps foster innovation </li></ul><ul><li>Large R&D budget of $3 billion with 40% of employees involved in R&D </li></ul><ul><li>Corporate Results </li></ul><ul><li>Annual sales of $36 billion across 130 countries </li></ul><ul><li>Global market share of 38%, greater than that of its nearest three rivals combined </li></ul>Case Study Nokia 9 -
  4. 4. Learning Goals <ul><li>Explain how companies find and develop new-product ideas </li></ul><ul><li>List and define the steps in the new-product development process </li></ul><ul><li>Describe the stages of the product life cycle </li></ul><ul><li>Describe how marketing strategies change during the product’s life cycle </li></ul>
  5. 5. Definition <ul><li>New Product Development </li></ul><ul><ul><li>Development of original products, product improvements, product modifications, and new brands through the firm’s own R&D efforts. </li></ul></ul>Video Snippet AMEX introduces a new product
  6. 6. New Product Development Strategy <ul><li>New products can be obtained via acquisition or development. </li></ul><ul><li>New products suffer from high failure rates. </li></ul><ul><li>Several reasons account for failure. </li></ul>
  7. 7. Nike acquired Converse in 2003 for $305 million Marketing in Action 9 -
  8. 8. Discussion Question <ul><li>Think of products you have seen recently in stores. Can you think of any that seem doomed to fail? </li></ul><ul><li>Why? </li></ul>9 -
  9. 9. Learning Goals <ul><li>Explain how companies find and develop new-product ideas </li></ul><ul><li>List and define the steps in the new-product development process </li></ul><ul><li>Describe the stages of the product life cycle </li></ul><ul><li>Describe how marketing strategies change during the product’s life cycle </li></ul>
  10. 10. Stages of the New Product Development Process Figure 9.1 9 -
  11. 11. <ul><li>Stage 1: Idea Generation </li></ul><ul><ul><li>Internal idea sources: </li></ul></ul><ul><ul><ul><li>R & D </li></ul></ul></ul><ul><ul><li>External idea sources: </li></ul></ul><ul><ul><ul><li>Customers, competitors, distributors, suppliers </li></ul></ul></ul>Stages of the New Product Development Process
  12. 12. Intuit, a marketer of financial software, asks for new product ideas from customers Marketing in Action Click on screenshot for website 9 -
  13. 13. Stages of the New Product Development Process <ul><li>Stage 2: Idea Screening </li></ul><ul><ul><li>Product development costs increase substantially in later stages so poor ideas must be dropped </li></ul></ul><ul><ul><li>Ideas are evaluated against criteria; most are eliminated </li></ul></ul>
  14. 14. Stages of the New Product Development Process <ul><li>Stage 3: Concept Development and Testing </li></ul><ul><ul><li>Concept development creates a detailed version of the idea stated in meaningful consumer terms. </li></ul></ul><ul><ul><li>Concept testing asks target consumers to evaluate product concepts. </li></ul></ul>
  15. 15. MIT Virtual Research <ul><li>MIT has developed online techniques to gain consumer feedback on new product ideas </li></ul>Marketing in Action Click on screenshot for website 9 -
  16. 16. Stages of the New Product Development Process <ul><li>Stage 4: Marketing Strategy Development </li></ul><ul><ul><ul><li>The target market, product positioning, and sales, share, and profit goals for the first few years. </li></ul></ul></ul><ul><ul><ul><li>Product price, distribution, and marketing budget for the first year. </li></ul></ul></ul><ul><ul><ul><li>Long-run sales and profit goals and the marketing mix strategy. </li></ul></ul></ul>
  17. 17. Stages of the New Product Development Process <ul><li>Stage 5: Business Analysis </li></ul><ul><ul><li>Sales, cost, and profit projections </li></ul></ul><ul><li>Stage 6: Product Development </li></ul><ul><ul><li>Prototype development and testing </li></ul></ul>
  18. 18. Stages of the New Product Development Process <ul><li>Stage 7: Test Marketing </li></ul><ul><ul><li>Standard test markets </li></ul></ul><ul><ul><li>Controlled test markets </li></ul></ul><ul><ul><li>Simulated test markets </li></ul></ul><ul><li>Stage 8: Commercialization </li></ul>
  19. 19. Online Test Marketing Is it in the Near Future? <ul><li>Silicon Valley startup called There launched their site in 2003. </li></ul><ul><li>Users enter a virtual world where they can network, hang out, dress up and try new products. </li></ul><ul><li>There is catching marketers’ attention as a tool to test brands and products. </li></ul><ul><li>There will also help marketers identify leaders and heavy users of their products. </li></ul>Marketing in Action Source: Advertising Age Click on screenshot for website 9 -
  20. 20. <ul><li>Levi and Nike have partnered with There for market research data. </li></ul><ul><li>Levi’s has found that jeans and jean jacket buyers were more likely to be virtual club-goers. </li></ul><ul><li>They can also track how long people wear a certain jean or jacket in their virtual world. </li></ul><ul><li>Discussion Question: Do you believe the Internet can supply valuable test marketing data? </li></ul>Online Test Marketing Is it in the Near Future? Marketing in Action 9 -
  21. 21. Learning Goals <ul><li>Explain how companies find and develop new-product ideas </li></ul><ul><li>List and define the steps in the new-product development process </li></ul><ul><li>Describe the stages of the product life cycle </li></ul><ul><li>Describe how marketing strategies change during the product’s life cycle </li></ul>
  22. 22. Stages of the PLC Figure 9.2 9 -
  23. 23. Alternative Product Life Cycles Figure 9.3 9 -
  24. 24. Product Life-Cycle Strategies <ul><li>The product life cycle concept can be applied to a: </li></ul><ul><ul><li>Product class (soft drinks) </li></ul></ul><ul><ul><li>Product form (diet colas) </li></ul></ul><ul><ul><li>Brand (Diet Dr. Pepper) </li></ul></ul><ul><ul><ul><li>Using the PLC to forecast brand performance or to develop marketing strategies is problematic </li></ul></ul></ul>
  25. 25. Learning Goals <ul><li>Explain how companies find and develop new-product ideas </li></ul><ul><li>List and define the steps in the new-product development process </li></ul><ul><li>Describe the stages of the product life cycle </li></ul><ul><li>Describe how marketing strategies change during the product’s life cycle </li></ul>
  26. 26. Product Life-Cycle Strategies <ul><li>Product development </li></ul><ul><li>Introduction </li></ul><ul><li>Growth </li></ul><ul><li>Maturity </li></ul><ul><li>Decline </li></ul><ul><li>Begins when the company develops a new-product idea </li></ul><ul><li>Sales are zero </li></ul><ul><li>Investment costs are high </li></ul><ul><li>Profits are negative </li></ul>PLC Stages
  27. 27. Product Life-Cycle Strategies <ul><li>Product development </li></ul><ul><li>Introduction </li></ul><ul><li>Growth </li></ul><ul><li>Maturity </li></ul><ul><li>Decline </li></ul><ul><li>Low sales </li></ul><ul><li>High cost per customer acquired </li></ul><ul><li>Negative profits </li></ul><ul><li>Innovators are targeted </li></ul><ul><li>Little competition </li></ul>PLC Stages
  28. 28. <ul><li>Product development </li></ul><ul><li>Introduction </li></ul><ul><li>Growth </li></ul><ul><li>Maturity </li></ul><ul><li>Decline </li></ul>Which stage of the PLC? How do you know? Marketing in Action 9 -
  29. 29. <ul><li>Product – Offer a basic product </li></ul><ul><li>Price – Use cost-plus basis to set </li></ul><ul><li>Distribution – Build selective distribution </li></ul><ul><li>Advertising – Build awareness among early adopters and dealers/resellers </li></ul><ul><li>Sales Promotion – Heavy expenditures to create trial </li></ul>Marketing Strategies: Introduction Stage
  30. 30. Product Life-Cycle Strategies <ul><li>Product development </li></ul><ul><li>Introduction </li></ul><ul><li>Growth </li></ul><ul><li>Maturity </li></ul><ul><li>Decline </li></ul><ul><li>Rapidly rising sales </li></ul><ul><li>Average cost per customer </li></ul><ul><li>Rising profits </li></ul><ul><li>Early adopters are targeted </li></ul><ul><li>Growing competition </li></ul>PLC Stages
  31. 31. <ul><li>Product development </li></ul><ul><li>Introduction </li></ul><ul><li>Growth </li></ul><ul><li>Maturity </li></ul><ul><li>Decline </li></ul>Marketing in Action Which stage of the PLC? How do you know? 9 -
  32. 32. <ul><li>Product – Offer product extensions, service, warranty </li></ul><ul><li>Price – Penetration pricing </li></ul><ul><li>Distribution – Build intensive distribution </li></ul><ul><li>Advertising – Build awareness and interest in the mass market </li></ul><ul><li>Sales Promotion – Reduce expenditures to take advantage of consumer demand </li></ul>Marketing Strategies: Growth Stage
  33. 33. Product Life-Cycle Strategies <ul><li>Product development </li></ul><ul><li>Introduction </li></ul><ul><li>Growth </li></ul><ul><li>Maturity </li></ul><ul><li>Decline </li></ul><ul><li>Sales peak </li></ul><ul><li>Low cost per customer </li></ul><ul><li>High profits </li></ul><ul><li>Middle majority are targeted </li></ul><ul><li>Competition begins to decline </li></ul>PLC Stages
  34. 34. <ul><li>Product development </li></ul><ul><li>Introduction </li></ul><ul><li>Growth </li></ul><ul><li>Maturity </li></ul><ul><li>Decline </li></ul>Which stage of the PLC? How do you know? Marketing in Action 9 -
  35. 35. <ul><li>Product – Diversify brand and models </li></ul><ul><li>Price – Set to match or beat competition </li></ul><ul><li>Distribution – Build more intensive distribution </li></ul><ul><li>Advertising – Stress brand differences and benefits </li></ul><ul><li>Sales Promotion – Increase to encourage brand switching </li></ul>Marketing Strategies: Maturity Stage
  36. 36. Product Life-Cycle Strategies <ul><li>Product development </li></ul><ul><li>Introduction </li></ul><ul><li>Growth </li></ul><ul><li>Maturity </li></ul><ul><li>Decline </li></ul><ul><li>Declining sales </li></ul><ul><li>Low cost per customer </li></ul><ul><li>Declining profits </li></ul><ul><li>Laggards are targeted </li></ul><ul><li>Declining competition </li></ul>PLC Stages
  37. 37. <ul><li>Product – Phase out weak items </li></ul><ul><li>Price – Cut price </li></ul><ul><li>Distribution – Use selective distribution: phase out unprofitable outlets </li></ul><ul><li>Advertising – Reduce to level needed to retain hard-core loyalists </li></ul><ul><li>Sales Promotion – Reduce to minimal level </li></ul>Marketing Strategies: Decline Stage
  38. 38. Discussion <ul><li>How can marketers help products bounce back from the decline stage? </li></ul>9 -
  39. 39. Low-dose Aspirin Ad <ul><li>Baby Aspirin has been in the decline stage for over 10 years after discovery that it may have dangerous side effects for children. </li></ul><ul><li>Recently it has been discovered it helping to prevent heart attacks in adults and is now marketed to this new target. </li></ul>Click on screenshot for website with products Marketing in Action 9 -
  40. 40. Learning Goals <ul><li>Explain how companies find and develop new-product ideas </li></ul><ul><li>List and define the steps in the new-product development process </li></ul><ul><li>Describe the stages of the product life cycle </li></ul><ul><li>Describe how marketing strategies change during the product’s life cycle </li></ul>
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