1 CHAPTER ELEVEN DEVELOPING AND MANAGING PRODUCTS Prepared by Jack Gifford Miami University (Ohio) © 2000 South-Western College Publishing

2 THE IMPORTANCE OF NEW PRODUCTS n Sustain corporate growth and profits n Replace obsolete items n Improve quality of life n Take advantage of new technology n Better satisfy the needs of current and future consumers n Brand extensions © 2000 South-Western College Publishing

3 CATEGORIES OF NEW PRODUCTS n New-to-the-world (discontinuous Innovations) n New product lines n Additions to existing product lines n Improvements or revisions of existing products n Repositioned products n Lower priced products  When first introduced, would include items like…  Telephone  FAX machines  Music CDs © 2000 South-Western College Publishing

4 CATEGORIES OF NEW PRODUCTS n New-to-the-world (discontinuous Innovations) n New product lines n Additions to existing product lines n Improvements or revisions of existing products n Repositioned products n Lower priced products  Levi Company adding product lines such as…  Shoes  Hats  Belts © 2000 South-Western College Publishing

5 CATEGORIES OF NEW PRODUCTS n New-to-the-world (discontinuous Innovations) n New product lines n Additions to existing product lines n Improvements or revisions of existing products n Repositioned products n Lower priced products  Hallmark greeting cards for...  Pets  Scented candles  Design your own card kiosks © 2000 South-Western College Publishing

6 CATEGORIES OF NEW PRODUCTS n New-to-the-world (discontinuous Innovations) n New product lines n Additions to existing product lines n Improvements or revisions of existing products n Repositioned products n Lower priced products  Tissues with lotion  Turkeys with pop-out thermometers  Low fat microwave popcorn © 2000 South-Western College Publishing

7 CATEGORIES OF NEW PRODUCTS n New-to-the-world (discontinuous Innovations) n New product lines n Additions to existing product lines n Improvements or revisions of existing products n Repositioned products n Lower priced products  Arm & Hammer Baking Soda for your…  Refrigerator  Sock drawer © 2000 South-Western College Publishing

8 CATEGORIES OF NEW PRODUCTS n New-to-the-world (discontinuous Innovations) n New product lines n Additions to existing product lines n Improvements or revisions of existing products n Repositioned products n Lower priced products  In Computer technology…  Color printers for under $200  Digital Video Cameras for under $100 © 2000 South-Western College Publishing

9 THE NEW PRODUCT DEVELOPMENT PROCESS  New-Product Strategy  Links the new-product development process with objectives of the...  Marketing Department  The Business unit  The Corporation © 2000 South-Western College Publishing

10 THE NEW PRODUCT DEVELOPMENT PROCESS  Idea Generation  New-product ideas come from many sources, such as...  Customers  Employees  Distributors  Competitors  R & D  Consultants  Brainstorming, Focus Groups and Computer Simulations © 2000 South-Western College Publishing

11 THE NEW PRODUCT DEVELOPMENT PROCESS  Idea Screening  Concept tests  Compatibility with corporate goals and objectives  Compatibility with other company product lines. Cannibalization potential  Does it possess the characteristics of a successful product? © 2000 South-Western College Publishing

12 THE NEW PRODUCT DEVELOPMENT PROCESS  Business Analysis  Estimated...  demand  costs  sales  profitability  resource requirements  return on investment © 2000 South-Western College Publishing

13 THE NEW PRODUCT DEVELOPMENT PROCESS  Business Analysis (continued)  Questions asked during this phase include…  Potential market share?  Cannibalization?  Impact on total product mix?  New facilities and personnel needed?  Competitive response?  Downside risk of failure? © 2000 South-Western College Publishing

14 THE NEW PRODUCT DEVELOPMENT PROCESS  Development  Creation of prototype  Packaging  Branding  Labeling  Promotion strategy  Pricing  Distribution  Technical production processes on a mass scale  Final government approvals if needed © 2000 South-Western College Publishing

15 THE NEW PRODUCT DEVELOPMENT PROCESS  Development through field testing...  Similar to planned distribution outlets  Relative isolation from other cities  Appropriate demographics  Not easily jammed by competitors  Availability of cooperative supply chain partners  Representative of total field environment  Alternatives to field testing? © 2000 South-Western College Publishing

16 THE NEW PRODUCT DEVELOPMENT PROCESS  Commercialization  Full scale production and distribution  Local, regional, national or international rollout  Measurement and feedback of results against forecasts and benchmarks © 2000 South-Western College Publishing

17 SOMETIMES PRODUCTS STILL FAIL! Why? n Do not offer discernible benefits compared to existing products. n Poor match between product features and consumer desires. n Overestimation of market size n Incorrect positioning, inappropriate marketing mix. n Poor timing n Technical problems n Poor execution of the marketing plan © 2000 South-Western College Publishing

18 CHARACTERISTICS OF A POTENTIALLY SUCCESSFUL PRODUCT INCLUDE... n Relative advantage n Compatibility with existing consumption patterns n Trialability n Observability of benefits n Simple to understand, use and operate DVD PORTABLE VIDEO CAMERA © 2000 South-Western College Publishing

19 Companies that do succeed often share the following characteristics n A history of carefully listening to customers n An obsession with producing the best product possible n A vision of what the market will like in the future n Strong leadership n A commitment to new-product development n A team approach to new-product development © 2000 South-Western College Publishing

20 ORGANIZING FOR NEW-PRODUCT DEVELOPMENT n Support from the top is essential n Organizational development structures n New-product committee (cross- functional membership) n New-product department n New venture team n Full time commitment n Forms and disbands as needed n Intrapreneurs n Simultaneous product development © 2000 South-Western College Publishing

21 THE SPREAD OF NEW PRODUCTS n Managers have a better chance of successfully marketing products if they understand how consumers learn about and adopt products. This process is usually referred to as the “Diffusion of Innovation” © 2000 South-Western College Publishing

22 THE DIFFUSION OF INNOVATION n An innovation is a product perceived as new by a potential adopter n A person who buys a new product never before tried may ultimately become an adopter if pleased by the purchase n Diffusion is the process by which the adoption of an innovation spreads. © 2000 South-Western College Publishing

23 THE DIFFUSION OF INNOVATION n Laggards (16%) n Late majority (34%) n Early majority (34%) n Early Adopters (13.5%) n Innovators (2.5%) Late Majority Early Adopters © 2000 South-Western College Publishing

24 MARKETING IMPLICATIONS OF THE ADOPTION PROCESS n Diffusion occurs at different rates among different customers based upon word-of mouth communication or communication directly from the marketer to potential adopters © 2000 South-Western College Publishing

25 Time PRODUCT LIFE CYCLE Introduction Growth Maturity Decline Style Fashion Fad Sales Innovators - Early Adopters - Early Majority - Late Majority - Laggards Profits © 2000 South-Western College Publishing

26 STAGES IN THE PRODUCT LIFE CYCLE n Introductory n High marketing costs n Low Volume n Aimed at Innovators n Profits may be negative n Promotion emphasizes product awareness n Growth n Sales grow at increasing rate n Competition enters n Growth (continued) n Profits rise and reach peak n Brand advertising n Distribution key n Maturity n Usually longest stage n Prices and profits fall n Heavy promotional advertising © 2000 South-Western College Publishing

27 STAGES IN THE PRODUCT LIFE CYCLE n Decline n Sales of fads drop off rapidly n Sales of fashion taper off n Sales of styles rise and fall over long cycles n Profits become very small n Demand drops © 2000 South-Western College Publishing

28 IMPLICATIONS OF THE PRODUCT LIFE CYCLE TO MARKETING MANAGEMENT n The stage in the product life cycle and the rate of movement through the four stages of the adoption process provide vital clues to marketing managers concerning the best marketing mix to implement at any point in time! © 2000 South-Western College Publishing