©2002 South-Western Chapter 10 Version 6e1 Developing and Managing Products Prepared by Deborah Baker Texas Christian University chapter 10

©2002 South-Western Chapter 10 Version 6e2 chapter Learning Objectives 1.Explain the importance of developing new products and describe the six categories of new products. 2. Explain the steps in the new-product development process. 3. Explain why some products succeed and others fail. 10

©2002 South-Western Chapter 10 Version 6e3 chapter Learning Objectives (continued) Discuss global issues in new-product development. 5. Explain the diffusion process through which new products are adopted. 6. Explain the concept of product life cycles.

©2002 South-Western Chapter 10 Version 6e4 Learning Objective 1 1 Explain the importance of developing new products and describe the six categories of new products.

©2002 South-Western Chapter 10 Version 6e5 New Product A product new to the world, the market, the producer, the seller, or some combination of these. 1 1

©2002 South-Western Chapter 10 Version 6e6 Categories of New Products New-To-The-World New Product Lines Product Line Additions Improvements/Revisions Repositioned Products Lower-Priced Products Six Categories of New Products Six Categories of New Products 1 1

©2002 South-Western Chapter 10 Version 6e7 Learning Objective 2 2 Explain the steps in the new-product development process.

©2002 South-Western Chapter 10 Version 6e8 Successful New-Product Development Process New Product Success Factors Long-Term Commitment New Product Strategy Capitalize on Experience Establish an Environment 2 2

©2002 South-Western Chapter 10 Version 6e9 2 2 New-Product Strategy Idea Generation Idea Screening Business Analysis Development Test Marketing Commercialization New Product New-Product Development Process

©2002 South-Western Chapter 10 Version 6e10 Idea Generation Customers Employees Distributors Competitors R & D Consultants Creative Thinking Sources of New-Product Ideas 2 2

©2002 South-Western Chapter 10 Version 6e11 Brainstorming The process of getting a group to think of unlimited ways to vary a product or solve a problem. 2 2

©2002 South-Western Chapter 10 Version 6e12 Idea Screening The first filter in the product development process, which eliminates ideas that are inconsistent with the organization’s new-product strategy or are inappropriate for some other reason. 2 2

©2002 South-Western Chapter 10 Version 6e13 Concept Test A test to evaluate a new-product idea, usually before any prototype has been created. 2 2

©2002 South-Western Chapter 10 Version 6e14 Business Analysis Considerations in Business Analysis Stage Preliminary Demand Cost Sales Profitability 2 2

©2002 South-Western Chapter 10 Version 6e15 Development  Creation of prototype  Marketing strategy  Technical production feasibility  Final government approvals if needed 2 2

©2002 South-Western Chapter 10 Version 6e16 Simultaneous Product Development A new team-oriented approach to new-product development. 2 2

©2002 South-Western Chapter 10 Version 6e17 Test Marketing The limited introduction of a product and a marketing program to determine the reactions of potential customers in a market situation. 2 2

©2002 South-Western Chapter 10 Version 6e18 Choosing a Test Market  Similar to planned distribution  Relative isolation and free of influences  Advertising availability; multiple media  Diversified cross section  No atypical purchase habits  Representative population/income  Not overly used or easily “jammed”  Year-round sales stability  Available research/audit and retailers 2 2

©2002 South-Western Chapter 10 Version 6e19 Alternatives to Test Marketing  Single-source research using supermarket scanner data  Simulated (laboratory) market testing 2 2

©2002 South-Western Chapter 10 Version 6e20 Commercialization 2 2 Production Inventory Buildup Distribution Shipments Sales Training Trade Announcements Customer Advertising Steps in Marketing a New Product Steps in Marketing a New Product

©2002 South-Western Chapter 10 Version 6e21 Learning Objective Explain why some products succeed and others fail. 3 3

©2002 South-Western Chapter 10 Version 6e22 Why New Products Fail  No discernible benefits  Poor match between features and customer desires  Overestimation of market size  Incorrect positioning  Price too high or too low  Inadequate distribution  Poor promotion  Inferior product 3 3

©2002 South-Western Chapter 10 Version 6e23 Success Factors Match between product and market needs Unique but superior product Benefit to large number of people Factors in Successful New Products 3 3

©2002 South-Western Chapter 10 Version 6e24 Success Factors 3 3

©2002 South-Western Chapter 10 Version 6e25 Learning Objective Discuss global issues in new-product development. 4 4

©2002 South-Western Chapter 10 Version 6e26 Global Issues 4 4  Develop product for potential worldwide distribution  Build in unique market requirements  Design products to meet regulations and key market requirements

©2002 South-Western Chapter 10 Version 6e27 Learning Objective Explain the diffusion process through which new products are adopted. which new products are adopted. 5 5

©2002 South-Western Chapter 10 Version 6e28 Diffusion The process by which the adoption of an innovation spreads. 5 5

©2002 South-Western Chapter 10 Version 6e29 Categories of Adopters Laggards Late Majority Early Majority Early Adopters Innovators Categories of Adopters in the Diffusion Process 5 5

©2002 South-Western Chapter 10 Version 6e30 Categories of Adopters Percentage of Adopters Time Innovators 2.5% Early Adopters 13.5% Late Majority 34% Early Majority 34% Laggards 16% 5 5

©2002 South-Western Chapter 10 Version 6e31 Product Characteristics and the Rate of Adoption Trialability Observability Relative Advantage Compatibility Complexity Product Characteristics Predict Rate of Adoption 5 5

©2002 South-Western Chapter 10 Version 6e32 Marketing Implications of the Adoption Process Direct from Marketer Word of Mouth Communication Aids the Diffusion Process 5 5

©2002 South-Western Chapter 10 Version 6e33 Learning Objective 6 6 Explain the concept of product life cycles.

©2002 South-Western Chapter 10 Version 6e34 Product Life Cycle 6 6 A concept that provides a way to trace the stages of a product’s acceptance, from its introduction (birth) to its decline (death).

©2002 South-Western Chapter 10 Version 6e35 Product Life Cycle 6 6 Time Dollars Product Category Profits Product Category SalesIntroductoryStageGrowthStageMaturityStageDeclineStage 0

©2002 South-Western Chapter 10 Version 6e36 Extending the PLC  Change product  Change product use  Change product image  Change product positioning 6 6

©2002 South-Western Chapter 10 Version 6e37 Introductory Stage  High failure rates  Little competition  Frequent product modification  Limited distribution  High marketing and production costs  Negative profits  Promotion focuses on awareness and information  Intensive personal selling to channels 6 6 Full-Scale Launch of New Products

©2002 South-Western Chapter 10 Version 6e38 Growth Stage  Increasing rate of sales  Entrance of competitors  Market consolidation  Initial healthy profits  Promotion emphasizes brand ads  Goal is wider distribution  Prices normally fall  Development costs are recovered 6 6 Offered in more sizes, flavors, options

©2002 South-Western Chapter 10 Version 6e39 Maturity Stage  Declining sales growth  Saturated markets  Extending product line  Stylistic product changes  Heavy promotions to dealers and consumers  Marginal competitors drop out  Prices and profits fall  Niche marketers emerge 6 6 Many consumer products are in Maturity

©2002 South-Western Chapter 10 Version 6e40 Decline Stage  Long-run drop in sales  Large inventories of unsold items  Elimination of all nonessential marketing expenses Rate of decline depends on change in tastes or adoption of substitute products Rate of decline depends on change in tastes or adoption of substitute products 6 6

©2002 South-Western Chapter 10 Version 6e41 Marketing Strategies for PLC INTRODUCTIONGROWTHMATURITYDECLINE Product Strategy Distribution Strategy Promotion Strategy Pricing Strategy Limited models Frequent changes More models Frequent changes. Large number of models. Eliminate unprofitable models Limited Wholesale/ retail distributors Expanded dealers. Long- term relations Extensive. Margins drop. Shelf space Phase out unprofitable outlets Awareness. Stimulate demand.Sampling Aggressive ads. Stimulate demand Advertise. Promote heavily Phase out promotion Higher/recoup development costs Fall as result of competition & efficient produc- tion. Prices fall (usually). Prices stabilize at low level. 6 6

©2002 South-Western Chapter 10 Version 6e42 Diffusion Process and PLC Curve 6 6 Innovators Early adopters Early majority Late majority Laggards Product life cycle curve Diffusioncurve Introduction Growth Maturity Decline Sales