Copyright © 2002 by Nelson, a division of Thomson Canada Limited.Chapter chapter Prepared by Angela Zigras, Seneca College Deborah Baker, Texas Christian University DEVELOPING AND MANAGING PRODUCTS

Copyright © 2002 by Nelson, a division of Thomson Canada Limited.Chapter You Will Learn To... 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.

Copyright © 2002 by Nelson, a division of Thomson Canada Limited.Chapter You Will Learn To Discuss global issues in new-product development. 5. Describe the organizational groups or structures used to facilitate new-product development. 6. Explain the diffusion process through which new products are adopted. 7. Explain the concept of product life cycles.

Copyright © 2002 by Nelson, a division of Thomson Canada Limited.Chapter New Product A product new to the world, the market, the producer, the seller, or some combination of these.

Copyright © 2002 by Nelson, a division of Thomson Canada Limited.Chapter 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

Copyright © 2002 by Nelson, a division of Thomson Canada Limited.Chapter Successful New-Product Development Process New Product Success Factors Long-Term Commitment New Product Strategy Capitalize on Experience Establish an Environment

Copyright © 2002 by Nelson, a division of Thomson Canada Limited.Chapter New-Product Strategy Idea Generation Idea Screening Business Analysis Development Test Marketing Commercialization New Product New-Product Development Process

Copyright © 2002 by Nelson, a division of Thomson Canada Limited.Chapter Idea Generation Customers Employees Distributors Competitors R & D Consultants Creative Thinking Sources of New-Product Ideas

Copyright © 2002 by Nelson, a division of Thomson Canada Limited.Chapter Brainstorming The process of getting a group to think of unlimited ways to vary a product or solve a problem.

Copyright © 2002 by Nelson, a division of Thomson Canada Limited.Chapter 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.

Copyright © 2002 by Nelson, a division of Thomson Canada Limited.Chapter Concept Test A test to evaluate a new-product idea, usually before any prototype has been created.

Copyright © 2002 by Nelson, a division of Thomson Canada Limited.Chapter Business Analysis Considerations in Business Analysis Stage Preliminary Demand Cost Sales Profitability

Copyright © 2002 by Nelson, a division of Thomson Canada Limited.Chapter Development  Creation of prototype  Marketing strategy  Technical production feasibility  Final government approvals if needed

Copyright © 2002 by Nelson, a division of Thomson Canada Limited.Chapter Test Marketing The limited introduction of a product and a marketing program to determine the reactions of potential customers in a market situation.

Copyright © 2002 by Nelson, a division of Thomson Canada Limited.Chapter 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

Copyright © 2002 by Nelson, a division of Thomson Canada Limited.Chapter Alternatives to Test Marketing  Single-source research using supermarket scanner data  Simulated (laboratory) market testing

Copyright © 2002 by Nelson, a division of Thomson Canada Limited.Chapter Commercialization Production Inventory Buildup Distribution Shipments Sales Training Trade Announcements Customer Advertising Steps in Marketing a New Product Steps in Marketing a New Product

Copyright © 2002 by Nelson, a division of Thomson Canada Limited.Chapter 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

Copyright © 2002 by Nelson, a division of Thomson Canada Limited.Chapter Success Factors Match between product and market needs Unique but superior product Benefit to large number of people Factors in Successful New Products

Copyright © 2002 by Nelson, a division of Thomson Canada Limited.Chapter Success Factors

Copyright © 2002 by Nelson, a division of Thomson Canada Limited.Chapter Global Issues  Develop product for potential worldwide distribution  Build in unique market requirements  Design products to meet regulations and key market requirements

Copyright © 2002 by Nelson, a division of Thomson Canada Limited.Chapter Organization For New Product Development Groups or Structures within an organization that facilitate new product development:  New Product Committees and departments.  Venture Teams and Intrapreneurs.  Design products to meet regulations and key market requirements

Copyright © 2002 by Nelson, a division of Thomson Canada Limited.Chapter Organization For New Product Development New Product Committees An ad hoc group whose members manage the new- product development process New Product Departments Full-time department that recommends new-product objectives and plans New Product Development

Copyright © 2002 by Nelson, a division of Thomson Canada Limited.Chapter Organization For New Product Development Venture Teams A market-oriented group staffed by representatives from different disciples. Venture Teams A market-oriented group staffed by representatives from different disciples. Intrapreneur An entrepreneur working inside a large organization.Intrapreneur New Product Development New Product Development

Copyright © 2002 by Nelson, a division of Thomson Canada Limited.Chapter Simultaneous Product Development A new team-oriented approach to new-product development. Cross functional teams operate in unison to capitalize on specialized knowledge.

Copyright © 2002 by Nelson, a division of Thomson Canada Limited.Chapter Categories of Adopters Laggards Late Majority Early Majority Early Adopters Innovators Categories of Adopters in the Diffusion Process

Copyright © 2002 by Nelson, a division of Thomson Canada Limited.Chapter Diffusion The process by which the adoption of an innovation spreads.

Copyright © 2002 by Nelson, a division of Thomson Canada Limited.Chapter Categories of Adopters Percentage of Adopters Time Innovators 2.5% Early Adopters 13.5% Late Majority 34% Early Majority 34% Laggards 16%

Copyright © 2002 by Nelson, a division of Thomson Canada Limited.Chapter Product Characteristics and the Rate of Adoption Trialability Observability Relative Advantage Compatibility Complexity Product Characteristics Predict Rate of Adoption

Copyright © 2002 by Nelson, a division of Thomson Canada Limited.Chapter Marketing Implications of the Adoption Process Direct from Marketer to adopter Direct from Marketer to adopter Word of Mouth Two Types of Communication Aids the Diffusion Process Two Types of Communication Aids the Diffusion Process

Copyright © 2002 by Nelson, a division of Thomson Canada Limited.Chapter 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).

Copyright © 2002 by Nelson, a division of Thomson Canada Limited.Chapter Product Life Cycle Time Dollars Product Category Profits Product Category SalesIntroductoryStageGrowthStageMaturityStageDeclineStage 0

Copyright © 2002 by Nelson, a division of Thomson Canada Limited.Chapter Extending the PLC  Change product  Change product use  Change product image  Change product positioning

Copyright © 2002 by Nelson, a division of Thomson Canada Limited.Chapter 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 Full-Scale Launch of New Products

Copyright © 2002 by Nelson, a division of Thomson Canada Limited.Chapter 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 Offered in more sizes, flavours, options

Copyright © 2002 by Nelson, a division of Thomson Canada Limited.Chapter 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 Many consumer products are in Maturity

Copyright © 2002 by Nelson, a division of Thomson Canada Limited.Chapter 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

Copyright © 2002 by Nelson, a division of Thomson Canada Limited.Chapter 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.

Copyright © 2002 by Nelson, a division of Thomson Canada Limited.Chapter Diffusion Process and PLC Curve Innovators Early adopters Early majority Late majority Laggards Product life cycle curve Diffusioncurve Introduction Growth Maturity Decline Sales