Product development cycle

1. New-ProductNew-Product
Development and ProductDevelopment and Product
Life-Cycle StrategiesLife-Cycle Strategies

2. 10- 2
Objectives
Understand how companies find andUnderstand how companies find and
develop new-product ideas.develop new-product ideas.
Learn the steps in the new-productLearn the steps in the new-product
development process.development process.
Know the stages of the product lifeKnow the stages of the product life
cycle.cycle.
Understand how marketingUnderstand how marketing
strategies change during thestrategies change during the
product’s life cycle.product’s life cycle.

3. 10- 3
$50 billion in$50 billion in
profits over 27profits over 27
yearsyears
Early new productEarly new product
development relieddevelopment relied
heavily on copyingheavily on copying
the competitionthe competition
$4.2 billion$4.2 billion
annually investedannually invested
in R & Din R & D
Innovation isInnovation is
critical tocritical to
Microsoft’s futureMicrosoft’s future
successsuccess
Much of R & DMuch of R & D
efforts are Internetefforts are Internet
relatedrelated
Many new productsMany new products
and services are inand services are in
developmentdevelopment
cMicrosoftMicrosoft

4. 10- 4
Definition
New Product DevelopmentNew Product Development
 Development of originalDevelopment of original
products, productproducts, product
improvements, productimprovements, product
modifications, and newmodifications, and new
brands through the firm’sbrands through the firm’s
own R & D efforts.own R & D efforts.

5. 10- 5
New products can be obtained viaNew products can be obtained via
acquisition oracquisition or
development.development.
New products sufferNew products suffer
from high failure rates.from high failure rates.
Several reasonsSeveral reasons
account for failure.account for failure.
New Product
Development Strategy

6. 10- 6
Why do products fail?Why do products fail?
See if you can identify theSee if you can identify the
fatal flaw in the brandsfatal flaw in the brands
below and at right.below and at right.
Discussion Question
Buttermilk ShampooButtermilk Shampoo Fruit of the LoomFruit of the Loom
Laundry DetergentLaundry Detergent
Ben-Gay AsprinBen-Gay Asprin

7. 10- 7
Figure 10-1:
Major Stages in
New-Product Development

8. 10- 8
New Product Development Process:New Product Development Process:
 Stage 1: Idea GenerationStage 1: Idea Generation
 Internal idea sources:Internal idea sources:
• R & DR & D
 External idea sources:External idea sources:
• Customers,Customers,
competitors,competitors,
distributors, suppliersdistributors, suppliers
New Product
Development Strategy

9. 10- 9
3M’s corporate
culture
encourages,
supports, and
rewards new
product ideas
and innovation

10. 10- 10
To see how P&G solicits ideas from
customers, visit the Procter and
Gamble home page, click on the
Resources and Offers button, then
select the Share Your Thoughts listing.
Procter & Gamble
Using the Web to Solicit Product Ideas
Procter and Gamble

11. 10- 11
New Product
Development Strategy
New Product Development Process:New Product Development Process:
 Stage 2: Idea ScreeningStage 2: Idea Screening
 Product developmentProduct development
costs increase dramaticallycosts increase dramatically
in later stages.in later stages.
 Ideas are evaluatedIdeas are evaluated
against criteria;against criteria;
most are eliminated.most are eliminated.

12. 10- 12
New Product Development Process:New Product Development Process:
 Stage 3: Concept Development andStage 3: Concept Development and
TestingTesting
 Product concepts provideProduct concepts provide
detailed versions of newdetailed versions of new
product ideas.product ideas.
 Consumers evaluateConsumers evaluate
ideas in concept tests.ideas in concept tests.
New Product
Development Strategy

13. 10- 13
New Product Development Process:New Product Development Process:
 Stage 4: Marketing Strategy DevelopmentStage 4: Marketing Strategy Development
 Strategy statements describe:Strategy statements describe:
• The target market, product positioning, andThe target market, product positioning, and
sales, share, and profit goals for the first fewsales, share, and profit goals for the first few
years.years.
• Product price, distribution, and marketingProduct price, distribution, and marketing
budget for the first year.budget for the first year.
• Long-run sales and profit goals and theLong-run sales and profit goals and the
marketing mix strategy.marketing mix strategy.
New Product
Development Strategy

14. 10- 14
New Product Development Process:New Product Development Process:
 Stage 5: Business AnalysisStage 5: Business Analysis
 Sales, cost, and profitSales, cost, and profit
projectionsprojections
 Stage 6: ProductStage 6: Product
DevelopmentDevelopment
 Prototype developmentPrototype development
and testingand testing
New Product
Development Strategy

15. 10- 15
Daimler is currently road-testing its
prototype NECAR 5 (New Electric Car)

16. 10- 16
Sensable Video Clip
Computer modeling
is being used to aid
in product design
BusinessNow

17. 10- 17
New Product Development Process:New Product Development Process:
 Stage 7: Test MarketingStage 7: Test Marketing
 Standard test marketsStandard test markets
 Controlled test marketsControlled test markets
 Simulated test marketsSimulated test markets
 Stage 8:Stage 8:
CommercializationCommercialization
New Product
Development Strategy

18. 10- 18
IRI BehaviorScan
provides an in-
market laboratory
for testing new
products and
marketing programs
IRI BehaviorScan
New Product
Development Strategy

19. 10- 19
Advantages:Advantages:
 Reduces risk – capital,Reduces risk – capital,
marketing dollars,marketing dollars,
cannibalizationcannibalization
 Increases efficiencyIncreases efficiency
 Maintains security –Maintains security –
competitors have less timecompetitors have less time
to plan counter strategiesto plan counter strategies
 Saves the company timeSaves the company time
Simulated Test Markets (STM)
In-Depth
Types of STMs:Types of STMs:
 ASSESSORASSESSOR
 BASESBASES
 MarkeTestMarkeTest
 MerwynMerwyn
 And othersAnd others

20. 10- 20
Model Inputs:Model Inputs:
 The market's sizeThe market's size
 Copy testing resultsCopy testing results
 Advertising budget for theAdvertising budget for the
test product andtest product and
competitors.competitors.
 Media schedule,Media schedule,
Consumer promotion,Consumer promotion,
Trade promotion byTrade promotion by
month.month.
Simulated Test Markets (STM)
In-Depth
Model Inputs:Model Inputs:
 PricePrice
 The proportion ofThe proportion of
stores carrying the teststores carrying the test
product and theproduct and the
number of shelf facingsnumber of shelf facings
by month.by month.
 Expected marketingExpected marketing
costs and margincosts and margin
contribution.contribution.

21. 10- 21
Do‘s & Don’ts of STMsDo‘s & Don’ts of STMs
 Be a champion for yourBe a champion for your
new product--but benew product--but be
objectiveobjective
 Choose the proper sample.Choose the proper sample.
 Expose people to yourExpose people to your
product and its advertisingproduct and its advertising
in a way that best simulatesin a way that best simulates
the real world.the real world.
 Use proven researchUse proven research
technology to forecasttechnology to forecast
market behavior and sales.market behavior and sales.
Simulated Test Markets (STM)
In-Depth
Do‘s & Don’ts of STMsDo‘s & Don’ts of STMs
 Calculate different levelsCalculate different levels
of competitive response.of competitive response.
 Don't estimate a level ofDon't estimate a level of
support in a simulatedsupport in a simulated
market that you would notmarket that you would not
maintain nationally.maintain nationally.
 Be very careful inBe very careful in
estimating all marketingestimating all marketing
input factors—the moreinput factors—the more
you guess incorrectly, theyou guess incorrectly, the
less accurate the forecast.less accurate the forecast.

22. 10- 22
Figure 10-2:
Sales and Profits
Over A Product’s Life

23. 10- 23
The Typical Product Life CycleThe Typical Product Life Cycle
(PLC) Has Five Stages(PLC) Has Five Stages
 Product Development, Introduction,Product Development, Introduction,
Growth, Maturity, DeclineGrowth, Maturity, Decline
 Not all products follow this cycle:Not all products follow this cycle:
 FadsFads
 StylesStyles
 FashionsFashions
Product Life-Cycle
Strategies

24. 10- 24
Figure 10-3:
Styles, Fashions, and Fads

25. 10- 25
Companies
want their
products to
enjoy a long
life cycle.
Hershey’s
actively
promotes
the fact that
it has been
“unchanged
since 1899”

26. 10- 26
Additional marketingAdditional marketing
investments caninvestments can
move a product backmove a product back
into the growth stage,into the growth stage,
as in the case ofas in the case of
Cracker Jack.Cracker Jack.
Product Life-Cycle
Strategies

27. 10- 27
The product life cycle concept canThe product life cycle concept can
be applied to a:be applied to a:
 Product class (soft drinks)Product class (soft drinks)
 Product form (diet colas)Product form (diet colas)
 Brand (Diet Dr. Pepper)Brand (Diet Dr. Pepper)
 Using the PLC to forecast brandUsing the PLC to forecast brand
performance or to develop marketingperformance or to develop marketing
strategies is problematicstrategies is problematic
Product Life-Cycle
Strategies

28. 10- 28
Product Life-Cycle Strategies
ProductProduct
developmentdevelopment
IntroductionIntroduction
GrowthGrowth
MaturityMaturity
DeclineDecline
Begins when theBegins when the
companycompany
develops a new-develops a new-
product ideaproduct idea
Sales are zeroSales are zero
Investment costsInvestment costs
are highare high
Profits areProfits are
negativenegative
PLC StagesPLC Stages

29. 10- 29
Product Life-Cycle Strategies
ProductProduct
developmentdevelopment
IntroductionIntroduction
GrowthGrowth
MaturityMaturity
DeclineDecline
Low salesLow sales
High cost perHigh cost per
customercustomer
acquiredacquired
Negative profitsNegative profits
Innovators areInnovators are
targetedtargeted
Little competitionLittle competition
PLC StagesPLC Stages

30. 10- 30
Product –Product – Offer a basic productOffer a basic product
Price –Price – Use cost-plus basis to setUse cost-plus basis to set
DistributionDistribution –– Build selective distributionBuild selective distribution
AdvertisingAdvertising –– Build awareness amongBuild awareness among
early adopters and dealers/resellersearly adopters and dealers/resellers
Sales PromotionSales Promotion –– Heavy expenditures toHeavy expenditures to
create trialcreate trial
Marketing Strategies:
Introduction Stage

31. 10- 31
Product Life-Cycle Strategies
ProductProduct
developmentdevelopment
IntroductionIntroduction
GrowthGrowth
MaturityMaturity
DeclineDecline
Rapidly risingRapidly rising
salessales
Average cost perAverage cost per
customercustomer
Rising profitsRising profits
Early adopters areEarly adopters are
targetedtargeted
GrowingGrowing
competitioncompetition
PLC StagesPLC Stages

32. 10- 32
Product –Product – Offer product extensions,Offer product extensions,
service, warrantyservice, warranty
Price –Price – Penetration pricingPenetration pricing
DistributionDistribution –– Build intensive distributionBuild intensive distribution
AdvertisingAdvertising –– Build awareness andBuild awareness and
interest in the mass marketinterest in the mass market
Sales PromotionSales Promotion –– Reduce expendituresReduce expenditures
to take advantage of consumer demandto take advantage of consumer demand
Marketing Strategies:
Growth Stage

33. 10- 33
Product Life-Cycle Strategies
ProductProduct
developmentdevelopment
IntroductionIntroduction
GrowthGrowth
MaturityMaturity
DeclineDecline
Sales peakSales peak
Low cost perLow cost per
customercustomer
High profitsHigh profits
Middle majorityMiddle majority
are targetedare targeted
CompetitionCompetition
begins to declinebegins to decline
PLC StagesPLC Stages

34. 10- 34
Product –Product – Diversify brand and modelsDiversify brand and models
Price –Price – Set to match or beat competitionSet to match or beat competition
DistributionDistribution –– Build more intensiveBuild more intensive
distributiondistribution
AdvertisingAdvertising –– Stress brand differencesStress brand differences
and benefitsand benefits
Sales PromotionSales Promotion –– Increase to encourageIncrease to encourage
brand switchingbrand switching
Marketing Strategies:
Maturity Stage

35. 10- 35
Product Life-Cycle Strategies
ProductProduct
developmentdevelopment
IntroductionIntroduction
GrowthGrowth
MaturityMaturity
DeclineDecline
Declining salesDeclining sales
Low cost perLow cost per
customercustomer
Declining profitsDeclining profits
Laggards areLaggards are
targetedtargeted
DecliningDeclining
competitioncompetition
PLC StagesPLC Stages

36. 10- 36
Product –Product – Phase out weak itemsPhase out weak items
Price –Price – Cut priceCut price
DistributionDistribution –– Use selective distribution:Use selective distribution:
phase out unprofitable outletsphase out unprofitable outlets
AdvertisingAdvertising –– Reduce to level needed toReduce to level needed to
retain hard-core loyalistsretain hard-core loyalists
Sales PromotionSales Promotion –– Reduce to minimalReduce to minimal
levellevel
Marketing Strategies:
Decline Stage