Chapter 10Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 1 MKTG Designed by Amy McGuire, B-books, Ltd. Prepared by Deborah Baker, Texas Christian University Lamb, Hair, McDaniel CHAPTER Developing and Managing Products

Chapter 10Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 2 LO 1 New Product A product new to the world, the market, the producer, the seller, or some combination of these. New Product

Chapter 10Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 3 LO 1 Categories of New Products New-to-the-World New Product Lines Product Line Additions Improvements or Revisions Repositioned Products Lower-Priced Products

Chapter 10Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 4 LO 1 Beyond the Book New Product for Starbucks SOURCE: Janet Adamy, “Lights, Camera, Action at Starbucks,” Wall Street Journal, April 22-23/2006, A2.  Starbucks recently marketed the film Akeelah and the Bee.  It says the film is a natural extension of the Starbucks experience.  Critics say the pervasive chain is overextending its welcome.

Chapter 10Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 5 REVIEW LEARNING OUTCOME LO 1 Developing New Products

Chapter 10Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 6 The New-Product Development Process LO 2 Long-term commitment Company-specific approach Capitalize on experience Establish an environment New Product Success Factors

Chapter 10Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 7 New-Product Development Process LO 2 New-Product Strategy Idea Generation Idea Screening Business Analysis Development Test Marketing Commercialization New Product

Chapter 10Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 8 LO 2 Idea Generation Customers Employees Distributors Competitors Vendors R & D Consultants Sources of New-Product Ideas Online

Chapter 10Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 9 LO 2 Tips for New Product Development  Disperse R & D around the globe  Keep teams small and empower employees  Flatten hierarchy  Encourage generation of crazy new ideas  Welcome mistakes

Chapter 10Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 10 LO 2 Brainstorming The process of getting a group to think of unlimited ways to vary a product or solve a problem.

Chapter 10Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 11 LO 2 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.

Chapter 10Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 12 LO 2 Concept Testing A test to evaluate a new-product idea, usually before any prototype has been created.

Chapter 10Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 13 LO 2 Business Analysis Considerations in Business Analysis Stage Demand Cost Sales Profitability

Chapter 10Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 14 LO 2 Development  Creation of prototype  Marketing strategy  Packaging, branding, labeling  Promotion, price, and distribution strategy  Manufacturing feasibility  Final government approvals if needed

Chapter 10Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 15 LO 2 Simultaneous Product Development Simultaneous Product Development Simultaneous Product Development A new team-oriented approach to new-product development where all relevant functional areas and outside suppliers participate in the development process.

Chapter 10Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 16 LO 2 Test Marketing Online The limited introduction of a product and a marketing program to determine the reactions of potential customers in a market situation.

Chapter 10Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 17 LO 2 Alternatives to Test Marketing  Single-source research using supermarket scanner data  Simulated (laboratory) market testing  Online test marketing Online

Chapter 10Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 18 Biz Flix LO 2 October Sky

Chapter 10Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 19 LO 2 Commercialization Production Inventory Buildup Distribution Shipments Sales Training Trade Announcements Customer Advertising

Chapter 10Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 20 REVIEW LEARNING OUTCOME LO 2 New-Product Development Process

Chapter 10Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 21 Beyond the Book Why New Products Fail NOTE: Supplemental content – not in book.  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

Chapter 10Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 22 Beyond the Book Success Factors NOTE: Supplemental content – not in book. Factors in Successful New Products Match between product and market needs Different from substitute products Benefit to large number of people

Chapter 10Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 23 Beyond the Book Success Factors NOTE: Supplemental content – not in book. Listening to customers Producing the best product Vision of future market Strong leadership Commitment to new- product development Project-based team approach Getting every aspect right

Chapter 10Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 24 Beyond the Book Why Products Succeed and Others Fail NOTE: Supplemental content – not in book.

Chapter 10Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 25 LO 3 Global Marketing Questions  Develop product for potential worldwide distribution  Build in unique market requirements  Design products to meet regulations and key market requirements

Chapter 10Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 26 REVIEW LEARNING OUTCOME LO 3 Global Issues in New-Product Development Single product worldwide Modification of products Multiple products in multiple countries

Chapter 10Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 27 Diffusion LO 4 The process by which the adoption of an innovation spreads. Diffusion

Chapter 10Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 28 Categories of Adopters LO 4 Laggards Late Majority Early Majority Early Adopters Innovators

Chapter 10Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 29 Product Characteristics and the Rate of Adoption LO 4 Trialability Observability Relative Advantage Compatibility Complexity Online

Chapter 10Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 30 Sales of New Audio Products LO 4

Chapter 10Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 31 Marketing Implications of the Adoption Process LO 4 Direct from Marketer Word of Mouth Communication Aids the Diffusion Process

Chapter 10Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 32 REVIEW LEARNING OUTCOME LO 4 Diffusion Process for New Products

Chapter 10Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 33 Product Life Cycle LO 5 Product Life Cycle A concept that provides a way to trace the stages of a product’s acceptance, from its introduction (birth) to its decline (death).

Chapter 10Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 34 Product Life Cycle LO 5 Time Dollars Profits SalesIntroductoryStageGrowthStageMaturityStageDeclineStage 0

Chapter 10Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 35 Product Life Cycles for Styles, Fashions, and Fads LO 5

Chapter 10Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 36 U.S. Sales of Televisions LO 5

Chapter 10Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 37 Introductory Stage LO 5  High failure rates  Little competition  Frequent product modification  Limited distribution  High marketing and production costs  Negative profits with slow sales increases  Promotion focuses on awareness and information  Communication challenge is to stimulate primary demand

Chapter 10Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 38 Introductory Stage in Europe LO 5

Chapter 10Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 39 Growth Stage LO 5  Increasing rate of sales  Entrance of competitors  Market consolidation  Initial healthy profits  Aggressive advertising of the differences between brands  Wider distribution

Chapter 10Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 40 Maturity Stage LO 5  Sales increase at a decreasing rate  Saturated markets  Annual models appear  Lengthened product lines  Service and repair assume important roles  Heavy promotions to consumers and dealers  Marginal competitors drop out  Niche marketers emerge

Chapter 10Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 41 Decline Stage LO 5  Long-run drop in sales  Large inventories of unsold items  Elimination of all nonessential marketing expenses  “Organized abandonment”

Chapter 10Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 42 Diffusion Process and PLC Curve LO 5

Chapter 10Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 43 REVIEW LEARNING OUTCOME LO 5 Product Life Cycles Time INTRODUCTION GROWTH MATURITYDECLINE 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 High to recoup development costs Fall as result of competition & efficient production. Prices fall (usually). Prices stabilize at low level. Sales