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Marketing-Management-UNIT-II-PLC-NPD.pdf

The PDF is a teaching aid for the course of Marketing Management. In specific, it covers two important topics - Product Life Cycle, & New Product Development. Describes the Stages of PLC: 1. Product Development, 2. Introduction, 3. Growth, 4. Maturity, 5. Decline. Explores the relationship between PLC and the BCG Matrix.

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PRODUCT
Shrini Vempali, AUSIB
MARKETING MANAGEMENT
PLC concept derives its strong intuitive logic from the Diffusion of Innovation Theory,
and the Theory of Monopolistic Competition from Economics.
THEORETICAL UNDERPINNINGS OF PLC
“Diffusion of Innovation (DOI) Theory,
developed by E M Rogers in 1962, is one of
the oldest social science theories. It
originated in communication to explain how,
over time, an idea or product gains
momentum and diffuses (or spreads) through
a specific population or social system. The
end result of this diffusion is that people, as
part of a social system, adopt a new idea,
behavior, or product.”
ADOPTER
CATEGORIES
Diffusion of Innovation Theory
Theory of Monopolistic Competition
THEORETICAL UNDERPINNINGS OF PLC
Monopolistic competition describes a market structure where
many firms are selling the products that are similar, but not
perfect substitutes for each other. In the initial stage the number
of firms in the business will be lower, because of the risk
involved in the new product. As the acceptance, and adoption of
the product picks up more firms would enter the market, this
leads to the growth in the market. During the maturity stage,
the number of firms entering and number of firms leaving the
market would be more or less equal. On the decline, only those
firms, which choose to specialize, would stay in the market and
others would leave the market.
WHAT IS A PLC?
Technically speaking, PLC is the graph we obtain
when product sales [Y-axis] are plotted against time
[X-axis]. Metaphorically, it delineates the life-stages
of a product.
STAGES IN
PLC
The product life cycle is the concept that a
product goes through several stages in the
course of its life:
1. Product Development,
2. Introduction,
3. Growth,
4. Maturity, &
5. Decline

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Marketing-Management-UNIT-II-PLC-NPD.pdf

  • 2. PLC concept derives its strong intuitive logic from the Diffusion of Innovation Theory, and the Theory of Monopolistic Competition from Economics. THEORETICAL UNDERPINNINGS OF PLC “Diffusion of Innovation (DOI) Theory, developed by E M Rogers in 1962, is one of the oldest social science theories. It originated in communication to explain how, over time, an idea or product gains momentum and diffuses (or spreads) through a specific population or social system. The end result of this diffusion is that people, as part of a social system, adopt a new idea, behavior, or product.”
  • 4. Theory of Monopolistic Competition THEORETICAL UNDERPINNINGS OF PLC Monopolistic competition describes a market structure where many firms are selling the products that are similar, but not perfect substitutes for each other. In the initial stage the number of firms in the business will be lower, because of the risk involved in the new product. As the acceptance, and adoption of the product picks up more firms would enter the market, this leads to the growth in the market. During the maturity stage, the number of firms entering and number of firms leaving the market would be more or less equal. On the decline, only those firms, which choose to specialize, would stay in the market and others would leave the market.
  • 5. WHAT IS A PLC? Technically speaking, PLC is the graph we obtain when product sales [Y-axis] are plotted against time [X-axis]. Metaphorically, it delineates the life-stages of a product.
  • 6. STAGES IN PLC The product life cycle is the concept that a product goes through several stages in the course of its life: 1. Product Development, 2. Introduction, 3. Growth, 4. Maturity, & 5. Decline
  • 7. PLC STAGES & CASHFLOWS [Typical] Product Life-Cycle
  • 8. STAGE I: PRODUCT DEVELOPMENT The first Stage in Product Life Cycle is Product Development, during which the firm develops a new product to exploit a market opportunity. A product generally undergoes several changes in this Stage – involving a lot of investment, effort, and time – before it is exposed to target customers via test market. At this Stage, sales are zero and cash-flows are negative.
  • 9. STAGE II: INTRODUCTION The Introduction stage of the product life cycle occurs when the product is first introduced to its target market. This Stage is characterized by large expenditure on promotion and advertising. The company has to be prepared to spend a lot of money and get only a small proportion of that back. At this stage, sales are low, production costs tend to be high and profit is negative or very low.
  • 10. STAGE III: GROWTH As more and more customers adopt the new product, demand for the new product starts increasing rapidly and the firm sees a sharp rise in sales revenues. This is the right time to focus on increasing the market share because innovators move from the trial to repeat purchase if they are satisfied with the product. Innovators may influence others by word of-mouth, which is often considered the most effective mode of communication. A new growing market catches the attention of the competitors. At this Stage, sales rise, revenues increase and the firm starts making cash profits.
  • 11. STAGE IV: MATURITY The Maturity stage of the product life cycle occurs when the original forecasts for demand have been met, or exceeded, and the sales reach the highest level and maintain the same for a relatively long period of time. PLC reaches a plateau. This Stage of life cycle is the longest phase for most products. Competition is most intense during this Stage. At this stage, sales reach their highest level. The firm enjoys the largest market share.
  • 12. STAGE V: DECLINE The Decline Stage of product life cycle sets in when sales continue a strong downward drift and profits erode rapidly. The typical reason for a product decline is the entry of new products coupled with a decrease in consumer interest in the product. Product decline occurs even when most customers no longer buy the product, only a few loyal customers remain. The latter continue buying the product in spite of no advertising or promotional support. The firm may decide to follow a `milking strategy‘.
  • 16. PLC Stages & Marketing-Mix
  • 17. PLC Stages & BCG Matrix
  • 19. Why develop new products? According to Joseph A Schumpeter, “the strategic stimulus to economic development is innovation, defined as the commercial or industrial application of something new – a new product, process or method of production, a new market or source of supply, a new form of commercial, business or financial organization.”
  • 20. Why develop new products?  In an economy of rapid change, continuous innovation is a necessity. Companies that fail to develop new products leave themselves vulnerable to changing customer needs and tastes, shortened product life cycles, increased domestic and foreign competition, and especially new technologies.  To be able to seize new market opportunities that emerge due to the changes in external environment, firms have to be highly innovative, and should be able to develop and launch new products, or services quickly.
  • 21. Why develop new products?  The competency of a firm to take advantage of new market opportunities by developing suitable products, or services can be a source of sustained competitive advantage.  The excitement, imagination, and growth associated with the introduction of a new product invigorate the company’s best people. New products build confidence and momentum.
  • 22. Types of New Products  New Product Development is a ceaseless, continuous process – which enables firms to increase revenues, profits, & profitability; and ensures long-term survival.  Technically speaking, a new product is an addition to the firm’s existing product-mix.  A new product essentially lengthens, widens, or deepens the product-mix of an organization.
  • 23. Types of New Products  New products range from new-to-the-world items that create an entirely new market to minor improvements or revisions of existing products.  Most new-product activity is devoted to improving existing products – known as incremental innovation. Research suggests that fewer than 10 percent of all new products are truly innovative and new-to-the-world – resulting from disruptive innovation. Disruptive innovation, typically the domain of startups, or newly established companies, not only creates a new product line and a new market, but also is likely to alter the competitive space.
  • 24. Many top companies use the Stage-gate Model to divide New Product Development process into 8 stages, with a gate or checkpoint at the end of each. NPD PROCESS Idea Generation Idea Screening Concept Development & Testing Is the idea worth considering? Is the product idea compatible with company objectives, strategies, and resources? Can we find a good concept consumers say they would try? cont. [ Fuzzy Front-end ] DISCARD NO NO NO YES YES YES 1 . 2 . 3 .
  • 25. NPD PROCESS Mktg Strategy Development Business Analysis Product Development Can we find a cost- effective, affordable marketing strategy? Will this product meet our profit goal? Have we got a technically and commercially sound product? cont. The project leader, working with a cross-functional team, must bring a set of known deliverables to each gate before the project can pass to the next stage. cont. 4 . NO NO YES YES YES DISCARD 5 . 6 .
  • 26. NPD PROCESS Market Testing Commercialization Manage the PLC Have product sales met expectations? Are product sales meeting expectations? cont. NO YES NO YES YES YES DISCARD Send the idea back for product development? Modify the product or marketing program? Product Development 7 . 8 .
  • 27. NPD PROCESS Stage I: Idea Generation New-product development requires senior management to define business domains, product categories, and specific criteria for selecting new product ideas. Ideas can originate from various sources – consumers, sales teams, product managers, and trade. Also, an innovation in materials, or processes can trigger new product ideas. In specific, various consumer research methods; and idea generation techniques such as brainstorming, & focus group interviews are used to generate new product ideas.
  • 28. NPD PROCESS Stage II: Idea Screening Ideas are screened using a list of criteria, such as:  Does the product meet a need?  Would it offer superior value?  Can it be distinctively advertized or promoted?  Is the product idea compatible with the overall strategy and philosophy of the company?  Does the company have the necessary know-how and resources?  Will the new product deliver the expected sales volume, sales growth, and profit?  Time-to- market  Market potential, & Market Growth Rate  Gross Margins, & ROI  Probability to achieve technical or market leadership.
  • 29. NPD PROCESS Stage III: Concept Development & Testing This Stage involves converting ideas into meaningful product concepts [consumer benefits]; tentative product positioning; shortlisting of concepts; developing different designs; & estimating costs for development. Concept testing involves presenting the product concept to target consumers in a tangible [physical] or intangible [say, digital], and getting their reactions. Different designs, price points, promotion concepts are also tested. When the product idea is expressed in terms of meaningful consumer benefits, it is converted into a product concept.
  • 30. NPD PROCESS Stage IV: Development of Marketing Strategy A preliminary three-part marketing strategy for introducing the new product into the market is developed. The first part describes the target market’s size, structure, and behavior; the brand positioning; and sales, market share, and profit forecasts/targets for the first few years. The second part outlines the pricing, & distribution strategies, and marketing budget for the first year. The third part of the strategic plan describes the long-run sales and profit goals and marketing-mix strategy over time. Marketing Strategy for the new product might also include launch, and roll- out strategies.
  • 31. NPD PROCESS Stage V: Business Analysis Business Analysis is carried out to evaluate the proposal’s business attractiveness. This analysis involves preparation of sales, cost, and profit projections to determine whether they satisfy company objectives.  Sales: First-time [trial] / replacement / repeat sales  Costs and Profits: Costs are estimated by the R&D, manufacturing, marketing, and finance departments.  To evaluate the merit of a new product proposal, companies use different financial measures such as break-even analysis, cash flow projections, & RoI estimates. The Fourt-Woodlock equation is a market research tool to estimate the total volume of consumer product purchases per year based on households which initially make a trial purchase of the product and those households which make a repeat purchase within the first year.
  • 32. NPD PROCESS Stage VI: Product Development At this stage a prototype is developed for each of the product concepts that survive business analysis. Prototype helps marketers to more completely define the final characteristics and features of the product concept, ensuring that the idea can be translated into a product. When the prototypes are ready, they are first tested for functionality within the firm to see how it performs in different applications; and then with the customers to seek their user experience & their reactions to the various product attributes. “People don't know what they want until you show it to them”. ~Steve Jobs
  • 33. NPD PROCESS Stage VII: Test Marketing [1] By now, the product is ready to be launched in market with brand name, packaging, and pricing. Before full scale launching the product, it is launched in a test market. The objectives of test marketing are listed below.  To obtain the best estimates of sales volume and market share of the new product.  Some of the marketing mix elements like trade support, advertisement response, and sales promotion efforts can be evaluated only in the test marketing.  Provides an opportunity to evaluate the entire marketing strategy. Test Marketing is like a dress rehearsal, time to streamline manufacturing, selling, and delivering the product to consumers.
  • 34. NPD PROCESS Stage VII: Test Marketing [2] In designing a test market, management faces several decisions: (1) How many test cities? (2) Which test cities? (3) Length of the test? (4) Which information to collect? and (5) What action to take? To Test Market, or Not To Test Market? “We don’t think it is okay if things aren’t perfect, but we’re willing to innovate and have speed to market trump a 100% guarantee that it’s be perfect.” Consumer- products test marketing seeks to estimate four variables: trial, first repeat, adoption, and purchase frequency.
  • 35. NPD PROCESS Stage VIII: Commercialization Culmination of the NPD Process, where the product is launched across target market with a proper market strategy and a roll-out plan. The firm may build or rent a full-scale manufacturing facility, or it may need to contract for manufacture of the product. Most new-product campaigns also require a sequenced mix of market communication tools to build awareness and ultimately preference, choice, and loyalty. “In many markets, 40 percent or more of revenues come from products introduced in the previous year.” Developing products rapidly and moving them into the marketplace efficiently is important for long-term corporate success.
  • 36. NPD PROCESS New Product Development The eight Stages may be iterated as needed. Some Stages may be eliminated. To reduce the time that the NPD process takes, many companies are completing several steps at the same time [Concurrent Engineering]. Most industry leaders see new product development as a proactive process. Resources are allocated to identify market changes and seize upon new product opportunities before they occur [in contrast to a reactive strategy in which nothing is done until problems occur or the competitor introduces an innovation]. Many industry leaders see new product development as an ongoing process [Continuous Development] in which the entire organization is actively looking for opportunities. Commercialization Plan must address the following issues.  WHEN [Timing]  WHERE [Geographic Strategy]  TO WHOM [Target Market]  HOW [Introductory Market Strategy]