New-Product Development and Product Life-Cycle Strategies Chapter Eight

Important topics Explain how companies find and develop new-product ideas. List and define the steps in the new-product development process. Describe the stages of the product life cycle. Describe how marketing strategies change during the product’s life cycle.

New-Product Development Strategy Strategies for Obtaining New-Product Ideas Acquisition of: Companies Patents Licenses New Products: Original Products Improvements Modifications

New-Product Failures Only 10% of new products are still on the market and profitable after 3 years. Texas instruments lost $660 million in home computer business New coke ( coca cola company) Zap mail-email ( FedEx company) Arch Delux sandwitches ( Mc Donald's)

New-Product Failures Failure rate for industrial products is as high as 30%.Why? Overestimation of market size Design problems Incorrectly positioned, priced, or advertised Pushed despite poor marketing research findings Development costs Competition

Major Stages in New-Product Development Figure 8.1

Idea Generation Company Employees Customers Competitors Distributors Suppliers

Idea Generation When Heinz asked kids what would make the product more fun, they said, “Change the color!” so, Heinz developed and launched EZ Squirt, now in a variety of colors targeted at kids. The EZ Squirt bottle’s special nozzle also emits a thin stream so tykes can autograph their burgers.

Idea Screening Process to spot good ideas and drop poor ones. Develop system to estimate: market size, product price, development time and costs, manufacturing costs, and rate of return. Evaluate these findings against set of company criteria for new products.

Concept Development and Testing Product Idea: idea for a possible product that the company can see itself offering. Product Concept: detailed version of the idea stated in meaningful consumer terms. Product Image: the way consumers perceive an actual or potential product.

New product concept and Image

Concept testing Testing new product concepts with a group of target consumers. The concept may be presented to the customers symbolically or physically. Customers may be asked many questions regarding their perception towards the new product.

DiamlerChrysler’s Fuel-Cell-Powered Electric Car The company’s task is to develop its fuel-cell-powered electric car into alternative product concepts, find out how attractive each is to customers, and choose the best one.

Concept testing

Marketing Strategy Development Part One Describes: The Target Market Planned Product Positioning Sales, Market Share, & Profit Goals Marketing Strategy Development Part Two Outlines the First-Year’s: Product’s Planned Price Distribution Marketing Budget Part Three Describes Long-Run: Sales & Profit Goals Marketing Mix Strategy

Business Analysis Involves a review of the sales, costs, and profit projections to assess fit with company objectives. If yes, move to the product development phase.

Product Development Develop concept into physical product Calls for large jump in investment Prototypes are made Prototype must have correct physical features and convey psychological characteristics

Test Marketing Product and program introduced in more realistic market setting. Not needed for all products. Can be expensive and time consuming, but better than making major marketing mistake. 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.

Commercialization Must decide on timing (i.e., when to introduce the product). Must decide on where to introduce the product (e.g., single location, state, region, nationally, internationally). Must develop a market plan.

Product Life Cycle Product Life Cycle (PLC) is the course of a products sales and profits over its lifetime. It involves five distinct stages: product development, introduction, growth, maturity and decline.

The Product Life Cycle Applied to the Digital Video Market Figure 8.4

Practical Problems of PLC Hard to identify which stage of the PLC the product is in Hard to pinpoint when the product moves to next stage Hard to identify factors that affect product’s movement through stages Hard to forecast sales level, length of each stage, and shape of PLC Strategy is both a cause and result of the PLC

Introduction Stage of the PLC Summary of Characteristics, Objectives, & Strategies Sales Costs Profits Marketing Objectives Product Price Low High cost per customer Negative Create product awareness and trial Offer a basic product Use cost-plus formula Distribution Build selective distribution Promotion Heavy to entice product trial

Growth Stage of the PLC Summary of Characteristics, Objectives, & Strategies Sales Costs Profits Marketing Objectives Product Price Rapidly rising Average cost per customer Rising Maximize market share Offer extension, service, warranty Penetration strategy Distribution Build intensive distribution Promotion Reduce to take advantage of demand

Maturity Stage of the PLC Summary of Characteristics, Objectives, & Strategies Sales Costs Profits Marketing Objectives Product Price Peak Low cost per customer High Maximize profits while defending market share Diversify brand and models Match or best competitors Distribution Build more intensive distribution Promotion Increase to encourage brand switching

Maturity Stage of the PLC Modifying the Market: Increase the consumption of the current product. How? Look for new users and market segments Reposition the brand to appeal to larger or faster-growing segment Look for ways to increase usage among present customers

Maturity Stage of the PLC Modifying the Product: Changing characteristics such as quality, features, or style to attract new users and to inspire more usage. How? Improve durability, reliability, speed, taste Improve styling and attractiveness Add new features Expand usefulness, safety, convenience

Maturity Stage of the PLC Modifying the Marketing Mix: Improving sales by changing one or more marketing mix elements. How? Cut prices Launch a better ad campaign Move into larger market channels Offer new or improved services to buyers

Decline Stage of the PLC Summary of Characteristics, Objectives, & Strategies Sales Costs Profits Marketing Objectives Product Price Declining Low cost per customer Reduce expenditures and milk the brand Phase out weak items Cut price Distribution Selective: phase out unprofitable outlets Promotion Reduce to minimum level

Successful and Failed PLC Management Strategies Figure 8.6 Successful and Failed PLC Management Strategies

Rest Stop: Reviewing the Concepts Explain how companies find and develop new-product ideas. List and define the steps in the new-product development process. Describe the stages of the product life cycle.