11 Developing and Managing Products Dr. Close

New Product Development (1) New Product: different or new in ANY way (Pentium) Various categories of new products -New to world -New to market -New to seller -New to producer

New Product Development (2) New product process includes: 1. New Product Strategy (NPD process to match objectives) 2. Idea Generation and Sources Customers (Food Lion) Employees Competitors (reverse engineer; US – Japan autos) Need formal program: R&D Any source of idea is good

New Product Development (3) 3. Idea Screening (what do we have? +/-) In pharmacy, 1 of 5,000 new drug ideas is common In autos, 1 of 20 new car concepts is made to prototype Point? Brainstorm, then cut via research Short and long run $ performance Social issues: Consumer welfare (Ben and Jerry’s) Safety ( Marlboro cigarettes) – liability (McDonald’s hot coffee)

New Product Development (4) 4. Business Analysis Examine consumer perceptions (Coors banquet beer) Consider view of retailers and wholesaler (Frito Lay) 5. Development (can go hand-in-hand with analysis) Product tests (New Coke, movies) Risky: (leaks, skewed results) Virtual product development: examine without construction Prototype product and marketing strategy Longest process (Minute Rice took 18 years!)

New Product Development (5) Test Marketing and Commercialization 6. Test Marketing and Commercialization Select Test Cities (Panama City or Dayton Ohio?) Does skipping test marketing save money? Sometimes, line extensions are not tested (Quaker Chewy) Commercialization takes a substantial amount of $ (New Coke) Some firms “roll out” their products gradually (movies; Pixar)

Product Life Cycle (1) Product life cycle (4 stages): for product IDEA, not individual firms. 1.Introduction (phones with net access; plasma TV) High marketing costs (inform) Slow sales increase Low or no profit (Amazon.com) Low competition Price often high (ex. Calculator) What other products can you think of that are in introduction?What other products can you think of that are in introduction?

Advertising is key in the intro stage…

Product Life Cycle (2) Product life cycle (cont…) 2.Growth (solar changing lens) High marketing expense (inform and persuade) Many small competitors – market entry (athletic apparel) Little price competition Industry profits rise/peak and sales increasing What other productsWhat other products are in growth? are in growth?

Product Life Cycle (3) 3.Maturity (Beer and Auto) Industry sales level off; profits down Promotions stop rising: moderate marketing expense (persuade) Fewer, stronger competitors: tough competition in general Many consumers view product as homogeneous; price competition What other products can you think of that are in maturity?

Budweiser: in a mature market

Product Life Cycle (4) 4.Decline: being replaced (VCR) Decrease in industry sales/profits Low marketing expense; small groups remain loyal Dropouts: few competitors; most gone What other products can you think of that are in decline?What other products can you think of that are in decline?

Are your old toys in decline?

Product Life Cycle (5) Criticisms: –Self fulfilling prophecy (Is beer always going to be a mature product?) –All do not follow pattern (fads; fashion; scooters: comeback) –Product may be in different stages by the market (B&W T.V.; Coke) What do you see are the advantages of the PLC? Why should m.managers care?

Product Life Cycle (6) Factors that may speed products through PLC: 1.Ease of trial (supermarkets, no risk, test drive) 2.Ease of use (some assembly required; Toys R Us (bike); Gateway store) 3.Easy to communicate advantages (Always low price; cars) 4.Compatible with customer experience (Poland & free samples)

Zara: Fashion Changes Quickly

Spread of New Products Global and Domestic: Perceived as “new” Diffusion of Innovation Who are you?Who are you? Early adopter (first 2.5% to adopt) Early majority (next 13.5%) Late majority (next 34%) Laggard (last 16% to adopt)

How to Have New Product Failure –New product failure (70-80% of brands; 80% packaged goods) – How to fail: Offer no unique benefit (Pepsi’s clear soda vs. Secret’s clear deodorant) Race to market (Ford Pinto, Ford school bus, Netscape) Give little thought to promotion (Chevy NoVa) Give little thought to competition (Wal-mart’s impact) Skip research or conduct sloppy research Try just one new product (top consumer goods companies average trying 75 new products a year)

Historic product failures

Diversify with new products

Summary Categories of New Products NPD Process Product life cycle Global/spread of new products Diffusion of Innovations New product failures