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Chapter 8 ar-fiii


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Chapter 8 ar-fiii

  1. 1. Chapter 8 New-Product Development and Product Life-Cycle Strategies
  2. 2. Objectives <ul><li>Objective 1: Explain how companies find and develop new-product ideas </li></ul><ul><li>Objective 2: List and define the steps in the new-product development process </li></ul><ul><li>Objective 3: Describe the stages of the product life cycle </li></ul><ul><li>Objective 4: Describe how marketing strategies change during the product’s life cycle </li></ul>
  3. 3. 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>
  4. 4. <ul><li>Firm History </li></ul><ul><li>Steve Jobs’s creativity led to innovation in user friendliness of computers. </li></ul><ul><li>LazerWriters and the Macintosh established Apple firmly in desktop publishing market. </li></ul><ul><li>Status as market share leader and innovator was lost in the late 1980s after Jobs left the firm. </li></ul><ul><li>Firm Recovery </li></ul><ul><li>Steve Jobs returns in 1997 and revitalizes Apple by first launching the iMac. </li></ul><ul><li>The Mac OS X next breaks ground and acts as a launching pad for a new generation of computers and software products. </li></ul><ul><li>iPod and iTunes change the face of music and are the hit of the decade. </li></ul><ul><li>Take Chances, risk seeking culture </li></ul>APPLE COMPUTER – Innovation at Work
  5. 5. New-Product Development Strategy <ul><li>Firms can acquire new products in two ways </li></ul><ul><ul><li>One is through acquisition (buying a company, a patent, or a license; </li></ul></ul><ul><ul><li>Two is through new-product development </li></ul></ul><ul><li>New-Product Development: developing new products, product improvements, product modifications, and new brands within a company’s own R&D efforts </li></ul><ul><li>To create successful new products, a company must understand its consumers , markets , and competitors and develop products that deliver superior value to customers </li></ul>
  6. 6. Why do products fail? See if you can identify the fatal flaw in the brands below and at right. Discussion Question Buttermilk Shampoo Fruit of the Loom Laundry Detergent Ben-Gay Asprin
  7. 7. Figure 8-1: Major Stages in New-Product Development
  8. 8. <ul><li>New Product Development Process: </li></ul><ul><ul><li>Stage 1: Idea Generation </li></ul></ul><ul><ul><ul><li>Internal idea sources: </li></ul></ul></ul><ul><ul><ul><ul><li>R & D </li></ul></ul></ul></ul><ul><ul><ul><li>External idea sources: </li></ul></ul></ul><ul><ul><ul><ul><li>Customers, competitors, distributors, suppliers </li></ul></ul></ul></ul>New Product Development Strategy
  9. 9. Nike acquired Converse in 2003 for $305 million
  10. 10. Idea Generation <ul><li>Idea Generation: the systematic search for new product ideas </li></ul><ul><ul><li>Firms typically generate thousands of ideas of which only a few make it to production </li></ul></ul><ul><ul><li>Internal Idea Sources: the company can find new ideas through formal research and development; by picking the brains of company executives, scientists, engineers, etc.; or through an intrapreneurial program </li></ul></ul><ul><ul><li>External Idea Sources: good new-product ideas also come from watching and listening to customers, competitors, distributors and suppliers </li></ul></ul><ul><ul><li>The search for new product ideas should be systematic and companies would benefit from an idea management system that directs the flow of new ideas to a central point where they can be collected, reviewed and evaluated </li></ul></ul>
  11. 11. <ul><li>New Product Development Process: </li></ul><ul><ul><li>Stage 2: Idea Screening </li></ul></ul><ul><ul><ul><li>Product development costs increase substantially in later stages. </li></ul></ul></ul><ul><ul><ul><li>Ideas are evaluated against criteria; most are eliminated. </li></ul></ul></ul>New Product Development Strategy
  12. 12. Idea Screening <ul><li>Idea Screening: the first idea-reducing stage—helps spot good ideas and drop poor ones as soon as possible </li></ul><ul><ul><li>Is the product truly useful to consumers and society? </li></ul></ul><ul><ul><li>Is it good for our particular company? </li></ul></ul><ul><ul><li>Does it mesh well with the company’s objectives and strategies? </li></ul></ul><ul><ul><li>Do we have the people, skills, and resources to make it succeed? </li></ul></ul><ul><ul><li>Does it deliver more value to customers than do competing products? </li></ul></ul>
  13. 13. <ul><li>New Product Development Process: </li></ul><ul><ul><li>Stage 3: Concept Development and Testing </li></ul></ul><ul><ul><ul><li>Product concepts provide detailed versions of new product ideas. </li></ul></ul></ul><ul><ul><ul><li>Concept tests ask target consumers to evaluate product concepts. </li></ul></ul></ul>New Product Development Strategy
  14. 14. Concept Development and Testing <ul><li>Concept Development: An attractive idea must be developed into a product concept </li></ul><ul><ul><li>Product Idea: an idea for a possible product that the company can see itself offering to the market </li></ul></ul><ul><ul><li>Product Concept: a detailed version of the idea stated in meaningful consumer terms </li></ul></ul><ul><ul><li>Product Image: the way consumers perceive an actual or potential product </li></ul></ul><ul><li>Concept Testing: calls for testing new-product concepts with groups of target consumers </li></ul><ul><ul><li>Exposing the customers, symbolically or physically, to the concept and gauging their reaction to the concept </li></ul></ul>
  15. 15. <ul><li>Pair up with another student and assume that you are in charge of the concept testing for the product shown at right. </li></ul><ul><li>What questions would you ask of consumers who are evaluating this product concept? </li></ul>
  16. 16. <ul><li>New Product Development Process: </li></ul><ul><ul><li>Stage 4: Marketing Strategy Development </li></ul></ul><ul><ul><ul><li>Strategy statements describe: </li></ul></ul></ul><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><ul><ul><li>Product price, distribution, and marketing budget for the first year. </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Long-run sales and profit goals and the marketing mix strategy. </li></ul></ul></ul></ul>New Product Development Strategy
  17. 17. <ul><li>New Product Development Process: </li></ul><ul><ul><li>Stage 5: Business Analysis </li></ul></ul><ul><ul><ul><li>Sales, cost, and profit projections </li></ul></ul></ul><ul><ul><li>Stage 6: Product Development </li></ul></ul><ul><ul><ul><li>Prototype development and testing </li></ul></ul></ul>New Product Development Strategy
  18. 18. Business Analysis <ul><li>Business Analysis: involves a review of the sales, costs, and profit projections for a new product to find out whether they satisfy the company’s objectives </li></ul><ul><li>It is the evaluation of the business attractiveness of the proposed product </li></ul><ul><li>To estimate sales, the company might look at the sales history of similar products and conduct surveys of market opinion </li></ul>
  19. 19. Product Development <ul><li>If the product concept passes muster during the business analysis stage, then we can move the concept into development </li></ul><ul><li>Product Development: R&D or engineering develops the product concept into a physical product—calls for a large jump in investment </li></ul><ul><li>R&D hopes to design a prototype that will satisfy and excite consumers and that can be produced quickly and at budgeted costs </li></ul><ul><li>The prototype must have the required functional features and also convey the intended psychological characteristics </li></ul>
  20. 20. Daimler is currently road-testing its prototype NECAR 5 (New Electric Car)
  21. 21. <ul><li>New Product Development Process: </li></ul><ul><ul><li>Stage 7: Test Marketing </li></ul></ul><ul><ul><ul><li>Standard test markets </li></ul></ul></ul><ul><ul><ul><li>Controlled test markets </li></ul></ul></ul><ul><ul><ul><li>Simulated test markets </li></ul></ul></ul><ul><ul><li>Stage 8: Commercialization </li></ul></ul>New Product Development Strategy
  22. 22. Test Marketing <ul><li>Test Marketing: the stage at which the product and marketing program are introduced into more-realistic market settings </li></ul><ul><li>It gives the marketer experience with marketing the product before going to the great expense of full introduction </li></ul><ul><li>The company can test the product and its entire marketing program—positioning strategy, advertising, distribution, pricing, branding and packaging, and budget levels </li></ul>
  23. 23. Test Marketing <ul><li>Standard Test Markets: </li></ul><ul><ul><li>The company finds a small number of representative test cities, conducts a full marketing campaign in these cities, and uses stare audits, consumers and distributor surveys, and other measures to gauge product performance </li></ul></ul><ul><li>Controlled Test Markets: several research firms keep controlled panels of stores that have agreed to carry new products for a fee </li></ul><ul><li>Simulated Test Markets: the company or research firm shows ads and promotions for a variety of products, including the new product being tested, to a sample of consumers. It gives consumers a small amount of money and invites them to a real or laboratory store where they may keep the money or use it to buy items </li></ul>
  24. 24. 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>Click on screenshot for website Source Advertising Age
  25. 25. Test Marketing <ul><li>Product / marketing program introduced in more realistic market setting. </li></ul><ul><li>Not for all products. </li></ul><ul><li>Can be expensive and time consuming, but better than making a major marketing mistake. </li></ul>After test marketing the “Go Active” meal (an adult happy meal) in 150 markets in Indiana, McDonald’s decided to sell it across the U.S.
  26. 26. Commercialization <ul><li>Commercialization: introducing the new product into the market </li></ul><ul><li>The company must decide upon the timing of the introduction as well as where to launch the new product </li></ul>
  27. 27. Organizing for New-Product Development <ul><li>Sequential Product Development: under this approach, one company department works individually to complete its stage of the process before passing the new product along to the next department and stage </li></ul><ul><li>Simultaneous Product Development: under this approach, company departments work closely together through cross-functional teams, overlapping the steps in the product development process to save time and increase effectiveness </li></ul>
  28. 28. Sales and Profits Over A Product’s Life
  29. 29. <ul><li>The Typical Product Life Cycle (PLC) Has Five Stages </li></ul><ul><ul><li>Product Development, Introduction, Growth, Maturity, Decline </li></ul></ul><ul><ul><li>Not all products follow this cycle: </li></ul></ul><ul><ul><ul><li>Fads </li></ul></ul></ul><ul><ul><ul><li>Styles </li></ul></ul></ul><ul><ul><ul><li>Fashions </li></ul></ul></ul>Product Life-Cycle Strategies
  30. 30. Product Life-Cycle Strategies <ul><li>Product Life Cycle (PLC): the course that a product’s sales and profits take over its lifetime—it has five stages </li></ul><ul><li>Product Development: the company finds and develops a new product idea—sales are zero and the investment costs are high </li></ul><ul><li>Introduction: a period of slow sales growth as the product is introduced to the market—profits are non-existent </li></ul><ul><li>Growth: a period of rapid market acceptance and increasing profits </li></ul><ul><li>Maturity: a period of slowdown in sales and growth because the product has achieved acceptance by most potential buyers </li></ul><ul><li>Decline: the period when sales fall off and profits drop </li></ul>
  31. 31. Product Life Cycle <ul><li>The PLC concept can describe a product class (gas powered automobiles), a product form (SUV) or a brand (the Ford Explorer) </li></ul><ul><li>Style: a basic and distinctive mode of expression—a style as a cycle showing several periods of renewed interest </li></ul><ul><li>Fashion: a currently accepted or popular style in a given field—fashions tend to grow slowly, remain popular for a while, then decline slowly </li></ul><ul><li>Fad: fashions that enter quickly, are adopted with great zeal, peak early, and decline very quickly—they last only a short time and tend to attract only a limited following </li></ul>
  32. 32. Figure 8-3: Styles, Fashions, and Fads
  33. 33. Companies want their products to enjoy a long life cycle. Hershey’s actively promotes the fact that it has been “unchanged since 1899”
  34. 34. <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>Product Life-Cycle Strategies
  35. 35. The Category Product Life Cycle Total Retail Sales Introduction Growth Maturity Decline Time Introduction Growth Maturity Decline Strategy variable Target market High-income Middle-income Mass market Low-income Innovators adapters and laggards Variety One basic Some variety Greater variety Less variety offering Distribution Limited or More retailers More retailers Fewer Intensity extensive retailers Price Penetrating Wide range Lower prices Lower prices or skimming Promotion Informative Persuasive Competitive Limited
  36. 36. Introduction Stage <ul><li>Starts when the new product is first launched </li></ul><ul><li>Profits are negative or low because of the low sales and high distribution and promotion expenses </li></ul><ul><li>The company must choose a launch strategy that is consistent with the intended product positioning </li></ul><ul><li>It must also realize that the initial strategy is just the first step in a grander marketing plan for the product’s entire life cycle </li></ul>
  37. 37. <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
  38. 38. New Product Introduction
  39. 39. Growth Stage <ul><li>If the new product satisfies the market, it will enter a growth stage in which sales will start climbing quickly </li></ul><ul><li>New competitors may enter the market, new product features may be introduced, number of distribution outlets may increase, ultimately leading to an increase in sales </li></ul><ul><li>Profits increase as promotion costs are spread over a large volume and as unit manufacturing costs fall </li></ul><ul><li>By spending a lot of money on product improvement, promotion, and distribution, the company can capture a dominant position in the market—in doing so, however, it gives up maximum current profit, which it hopes to make up in the next stage </li></ul>
  40. 40. <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
  41. 41. <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
  42. 42. Maturity Stage <ul><li>The stage in which product’s sales growth will slow down </li></ul><ul><li>The maturity stage typically last longer than the previous stages </li></ul><ul><li>Most products are in the maturity stage and most of marketing management deals with the mature product </li></ul><ul><li>Slowdown in sales growth results in many producers with many products to sell which leads to greater competition </li></ul>
  43. 43. <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
  44. 44. <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
  45. 45. Reinvigorating a Brand In an effort to reclaim its lost market share, Levi's promotes new styles
  46. 46. Modifying the Product <ul><li>Gillette’s Fusion razor combines a precision trimmer blade (on back) with a five blade shaving surface (on front). The flexible comfort guard and Enhanced Indicator Lubrastrip (containing vitamin E and aloe) enhance shaving comfort. </li></ul>http://
  47. 47. <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>9 -
  48. 48. Maturity Stage <ul><li>Modifying the Market: company tries to increase the consumption of the current product </li></ul><ul><li>Modifying the Product: changing characteristics such as quality, features, or style to attract new users and to inspire more usage </li></ul><ul><li>Modifying the Marketing Mix: improving sales by changing one or more marketing mix elements </li></ul>
  49. 49. Decline Stage <ul><li>The sales of most product forms and brands eventually dip—this is the decline stage </li></ul><ul><li>Some firms withdraw from the market, some prune their product offerings, some drop smaller market segments and marginal trade channels </li></ul><ul><li>Management may decide to maintain its brand without change in the hope that competitors will leave the industry </li></ul><ul><li>Management may decide to harvest the product, which means reducing various casts and hoping that sales hold up—aiming for short run profits </li></ul><ul><li>Management may decide to drop the product from the line—can sell it to another firm or liquidate it at salvage value </li></ul>
  50. 50. <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
  51. 51. 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