1. Developing and Managing Products
Chapter 10 Developing and Managing Products
Developing and Managing Products
CHAPTER 10
Essentials of Marketing Lamb, Hair, McDaniel 6
Designed by
Eric Brengle
B-books, Ltd.
Prepared by
Deborah Baker
Texas Christian University

2. Learning Outcomes LOI LO2 LO3
Chapter 10 Developing and Managing Products
Learning Outcomes
Explain the importance of developing new products and describe the six categories of new products
Explain the steps in the new-product development process
Explain the diffusion process through which new products are adopted
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LO2
LO3

3. Learning Outcomes LO4 Explain the concept of product life cycles
Chapter 10 Developing and Managing Products
Learning Outcomes
Explain the concept of product life cycles
LO4

4. The Importance of New Products
Chapter 10 Developing and Managing Products
LOI
The Importance of New Products
Explain the importance of developing new products and describe the six categories of new products

5. New Product LOI New Product
Chapter 10 Developing and Managing Products
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New Product
New Product
A product new to the world, the market, the producer, the seller, or some combination of these.
Notes:
New products are important to sustain growth and profits and to replace obsolete items. Companies are faced with pressure to innovate more—and more quickly. But the overall innovation initiative success rate is only 4.5 percent.
The average consumer goods company introduces 70 to 80 new products per year. PepsiCo—over 200 products in a recent year, and Kellogg over 100 in the first half of 2004.
Discussion/Team Activity:
List some of the new products introduced recently. Examples: Food products, cleaning products, consumer electronics, etc.

6. Categories of New Products
Chapter 10 Developing and Managing Products
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Categories of New Products
New-to-the-World
New Product Lines
Product Line Additions
Improvements or Revisions
Repositioned Products
Lower-Priced Products
Increase market share among
existing customers
Attract new customers to
existing products
Create new products for
present markets
Market
Development
Notes:
The meaning of the term “new product” varies, and has several correct definitions, including those listed below.
New-to-the-world products (or discontinuous innovations) create an entirely new market and are the smallest category of new products. In the past 100 years, ten of the most important include penicillin, transistor radio, polio vaccine, Mosaic, microprocessor, B/W television, plain paper copier, Alto personal computer, microwave oven, and Arpanet network.
New product lines: These products allow a firm to enter an established market. Examples: Iams pet food from P & G.
Additions to existing product lines: These products include new products that supplement a firm’s established product line. Examples: Huggies Pull-Ups and Pampers Easy-ups brands of disposable training pants.
Improvements or revisions of existing products: The new and improved product may have significantly or slightly changed. Most products fit into the revision or improvement category. Examples: Tide formulations, Heinz EZ Squirt Ketchup.
Repositioned products: These are existing products targeted at new markets or market segments. Examples: Cadillac Escalade sport-utility vehicles and CTS sedans. The average age of Cadillac buyers dropped from 64 to 59.
Lower-priced products: This category refers to products that provide performance similar to competing brands at a lower price. Examples: Hewlett-Packard Laser Jet 3100 scanner/copier/printer/fax machine combination. Wal-Mart’s low-price fashions.
Diversification
Introduce new products
into new markets

7. New Product for Starbucks
Chapter 10 Developing and Managing Products
New Product for Starbucks
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.
SOURCE: Janet Adamy, “Lights, Camera, Action at Starbucks,” Wall Street Journal, April 22-23/2006, A2.
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8. REVIEW LEARNING OUTCOME Developing New Products
Chapter 10 Developing and Managing Products
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REVIEW LEARNING OUTCOME Developing New Products

9. The New Product Development Process
Chapter 10 Developing and Managing Products
The New Product Development Process
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Explain the steps in the new-product development process

10. The New-Product Development Process
Chapter 10 Developing and Managing Products
The New-Product Development Process
Long-term commitment
Company-specific approach
Capitalize on experience
Establish an environment
New Product Success Factors
Notes:
Results from studies of the new-product development process have concluded that companies most likely to succeed in new-product development and introduction are those that take the actions as shown on this slide.
Make the long-term commitment needed to support innovation and new-product development
Use a company-specific approach, driven by corporate strategy and objectives, with a well-defined new-product strategy.
Capitalize on experience to achieve and maintain competitive advantage.
Establish an environment conducive to achieving company-specific new-product and corporate objectives.
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11. New-Product Development Process
Chapter 10 Developing and Managing Products
New-Product Strategy
Idea Generation
Idea Screening
Business Analysis
Development
Test Marketing
Commercialization
New Product
New-Product Development Process
Notes:
Most companies follow formal new-product development process, consisting of the seven steps shown here and in Exhibit 10.1.
The funnel-shaped graphic highlights the fact that each stage acts as a screen to filter out unworkable ideas as the new-product development process evolves.
A new-product strategy is part of the organization’s overall marketing strategy. It sharpens the focus and provides general guidelines for generating, screening, and evaluating new product ideas. It links the new-development process with the objectives of the marketing department, the business unit, and the corporation. All objectives must be consistent with one another.
For each successful new product introduced, a company needs between 50 and 60 other new product ideas in the new-product development process.
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12. Sources of New-Product Ideas
Chapter 10 Developing and Managing Products
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Idea Generation
Customers
Employees
Distributors
Competitors
Vendors
R & D
Consultants
Sources of New-Product Ideas
On Line
IDEO
What are some recent innovations to come out of IDEO? Who are its clients? Which innovation do you like best?
Notes:
New-product ideas come from many sources within an organization and from outside an organization.
Diversification
Online

13. Tips for New Product Development
Chapter 10 Developing and Managing Products
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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
Notes:
The head of R&D at Nokia offers five tips for successful new-product development.

14. Brainstorming LO2 Brainstorming
Chapter 10 Developing and Managing Products
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Brainstorming
Brainstorming
The process of getting a group to think of unlimited ways to vary a product or solve a problem.
Notes:
Creativity is the source of new-product ideas. Two creative ways to generate new-product ideas are brainstorming and focus-group exercises.
When brainstorming, a group thinks of unlimited ways to vary a product or solve a problem without criticism of an idea. The important concept in brainstorming is the quantity of ideas generated.

15. Idea Screening LO2 Screening
Chapter 10 Developing and Managing Products
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Idea Screening
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.

16. Concept Test LO2 Concept Test
Chapter 10 Developing and Managing Products
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Concept Test
Concept Test
A test to evaluate a new-product idea, usually before any prototype has been created.

17. Considerations in Business Analysis Stage
Chapter 10 Developing and Managing Products
Business Analysis
Considerations in Business Analysis Stage
Demand
Cost
Sales
Profitability
Notes:
In the business analysis stage, the preliminary figures for demand, cost, sales, and profitability are calculated.
In an existing product, the accuracy of revenue projections can be made using industry estimates of total market size. However, forecasting market share for a new entry is a bigger challenge.
These questions are asked during the business analysis stage: * What is the likely demand for the product? * What impact would the new product have on total sales, profits, market share, and return on investment? * How would the introduction of a new product affect existing products? Would the new product cannibalize existing products? * Would current customers benefit from the product? * Would the produce enhance the image of the company’s overall product mix? * Would the new product affect current employees, such as hiring more people or reducing the size of the workforce? * What new facilities would be needed? * How might competitors respond? * What is the risk of failure? Is the company willing to take the risk?
The business analysis is important because costs increase dramatically once a product idea enters the development stage.
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18. Development LO2 Creation of prototype Marketing strategy
Chapter 10 Developing and Managing Products
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Development
Creation of prototype
Marketing strategy
Packaging, branding, labeling
Promotion, price, and distribution strategy
Manufacturing feasibility
Final government approvals if needed
Notes:
The development stage can last a long time and is very expensive. For example: 10 years for Crest toothpaste 18 years for Minute Rice 15 years for Xerox copy machine 51 years for television
Gillette introduced three shaving systems before introducing the Mach3 in 1998 and Fusion in 2006

19. Simultaneous Product Development
Chapter 10 Developing and Managing Products
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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.
Notes:
The development process works best when all the involved areas (marketing, R&D, engineering, production, and suppliers) work together rather than sequentially. This product is known as simultaneous product development.
This process allows firms to shorten the development process and reduce costs.
The Internet is a useful tool for implementing SPD, particularly for global efforts. Global R&D is important because large companies have become global and focus on multiple markets. Second, companies want to tap into the world’s best talent.

20. Test Marketing LO2 Test Marketing
Chapter 10 Developing and Managing Products
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Test Marketing
Test Marketing
The limited introduction of a product and a marketing program to determine the reactions of potential customers in a market situation.
Online
On Line
Merwyn
Do you think test marketing can be simulated successfully? Go to Merwyn.com and read how the company uses algorithms to create test market results. If you have an idea, try it out. Do you think this is a suitable and effective substitute for real test marketing?
Notes:
Test marketing allows management to evaluate alternative strategies and to assess how well the various aspects of the marketing mix fit together.
Cities chosen for test sites should reflect market conditions in the new product’s projected market area. Since no place is “ideal”, researchers should find locations where the demographics and purchasing habits mirror the overall market.
Exhibit 10.2 provides a checklist for choosing a test market.

21. Alternatives to Test Marketing
Chapter 10 Developing and Managing Products
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Alternatives to Test Marketing
Single-source research using supermarket scanner data
Simulated (laboratory) market testing
Online test marketing
Online:
New Product Works
Not all new products are well received in the marketplace. Go to New Product Works’ Web site and read the polls for an overview of products the company expects to “hit” and some it expects to “miss.” What is your opinion of the products listed?
Notes:
Alternatives to traditional test marketing include:
Single source research using supermarket scanner data. (Chapter 8) Typical cost: $300,000
Simulated market testing. Advertising and test product are shown to members of the target market. These people are taken to a mock or real store where their purchases are recorded. Typical cost: $25,000 to $100,000, compared to $1 million or more for full-scale test marketing.
The Internet is a fast, cost-effective way to conduct test marketing. Firms utilizing this capability include Procter & Gamble.
Online

22. Distribution Shipments
Chapter 10 Developing and Managing Products
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Commercialization
Production
Inventory Buildup
Distribution Shipments
Sales Training
Trade Announcements
Customer Advertising
Notes:
The decision to market a product sets several tasks in motion, as shown on this slide.
The time between the initial commercialization decision and the actual introduction may range from a few weeks to several years, depending on the complexity of the product.
Costs of development and introduction can be staggering. Gillette spent $750 million developing MACH 3, and the first-year marketing budget was $300 million.
A well-planned Internet campaign can provide new-product information, and is a cost-effective way to reach customers at a time they need a product than communication with a target market that may eventually have a need.

23. REVIEW LEARNING OUTCOME New-Product Development Process
Chapter 10 Developing and Managing Products
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REVIEW LEARNING OUTCOME New-Product Development Process

24. The Spread of New Products
Chapter 10 Developing and Managing Products
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The Spread of New Products
Explain the diffusion process through which new products are adopted

25. Diffusion LO3 Diffusion
Chapter 10 Developing and Managing Products
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Diffusion
Diffusion
The process by which the adoption of an innovation spreads.
Notes:
By understanding how consumers learn about and adopt products, marketing managers have a better chance of successfully marketing products.

26. Categories of Adopters
Chapter 10 Developing and Managing Products
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Categories of Adopters
Laggards
Late Majority
Early Majority
Early Adopters
Innovators
Notes:
A person who buys a new product never before tried may become an adopter, a consumer who was happy enough with his/her product trial experience to use it again.
The diffusion process is the process by which the adoption of an innovation spreads.
Five categories of adopters participate in the diffusion process:
Innovators: the first 2.5 percent who adopt the product. Many are obsessive about trying new ideas and products. Venturesome.
Early adopters: the next 13.5 percent who adopt early in the product’s life cycle. They are oriented to the community and rely on group norms and values. Respect of others is important. Opinion leaders.
Early majority: the next 34 percent weigh the pros and cons before adopting a new product, often collecting information and evaluating more brands than early adopters. Characterized as deliberate
Late majority: the next 34 percent to adopt. This group adopts a new product because most of their friends have already adopted it. Characterized by skepticism.
Laggards: the final 16 percent to adopt. Tied to tradition with heavy influence from the past. By the time laggards adopt an innovation, it has probably been outmoded. Marketers typically ignore laggards, who do not seem to be motivated by promotion and personal selling. Dominant value is tradition.

27. Product Characteristics and the Rate of Adoption
Chapter 10 Developing and Managing Products
Product Characteristics and the Rate of Adoption
LO3
Trialability
Observability
Relative Advantage
Compatibility
Complexity
On Line: Electronic Gadget Depot
Visit the Electronic Gadget Depot and shop for an Internet appliance. Choose one, and rate it on a scale of 1 to 10 for each of the product characteristics listed on this slide. How quickly do you think this innovation will be adopted based on your perception of its complexity, compatibility, advantage, observability, and trialability?
Notes:
Five product characteristics can be used to predict and explain the rate of acceptance and diffusion of a new product:
Complexity: the more complex the product, the slower is its diffusion. Example: DVD recorders
Compatibility: Incompatible products diffuse more slowly than compatible products. Example: contraceptives in countries with contradictory religious beliefs.
Relative advantage: The degree to which a product is perceived as superior to existing substitutes. Example: The advantages of an MP3 player over a portable CD player.
Observability: The degree to which the benefits or other results of using the products can be observed by others and communicated to target customers. Example: Fashion items and automobiles.
Trialability: The degree to which a product can be tried on a limited basis. Example: It is easier to try a new toothpaste than a new automobile.
Online

28. Sales of New Audio Products
Chapter 10 Developing and Managing Products
Sales of New Audio Products
Notes:
Exhibit 10.3 shows the rate of adoption of numerous audiovisual products introduced in the last 25 years. Satellite radio has been adopted more quickly than any other innovative audio product.
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29. Marketing Implications of the Adoption Process
Chapter 10 Developing and Managing Products
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Marketing Implications of the Adoption Process
Direct from Marketer
Word of Mouth
Communication Aids the Diffusion Process
Notes:
Two types of communication aid the diffusion process:
Word-of-Mouth communication among consumers. Opinion leaders discuss new products. Some products, such as professional and health care services, rely almost solely on word-of-mouth communication for new business.
Communication directly from the marketer to potential adopters: Messages directed toward early adopters should use different appeals than messages directed toward the early and late majority, or the laggards.

30. REVIEW LEARNING OUTCOME Diffusion Process for New Products
Chapter 10 Developing and Managing Products
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REVIEW LEARNING OUTCOME Diffusion Process for New Products

31. Explain the concept of product life cycles
Chapter 10 Developing and Managing Products
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Product Life Cycles
Explain the concept of product life cycles

32. Product Life Cycle LO4 Product Life Cycle
Chapter 10 Developing and Managing Products
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Product Life Cycle
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).
Notes:
The product life cycle (PLC) is a widely familiar concept in marketing and is considered a useful marketing management tool. However, some critics have challenged the theoretical basis and managerial value of the PLC.
The product life cycle traces the stages of a product’s acceptance from its introduction to its decline.
The PLC concept can be used to analyze a brand, a product form, or a product category.

33. LO4 Product Life Cycle Sales Dollars Profits Time Introductory Stage
Chapter 10 Developing and Managing Products
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Product Life Cycle
Time
Dollars
Profits
Sales
Introductory
Stage
Growth
Maturity
Decline
Notes:
Exhibit 10.4 demonstrates the four major stages of the PLC: introduction, growth, maturity, and decline.
The time a product spends in any one stage of the PLC may vary. The chart shown here is representative for a consumer durable good, such as a washer or dryer.
In contrast, fad items move through the entire cycle in weeks (does anyone remember POGS?). Others, such as washers and dryers, stay in the maturity stage for decades.

34. Product Life Cycles for Styles, Fashions, and Fads
Chapter 10 Developing and Managing Products
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Notes:
Exhibit 10.5 illustrates typical life cycles for styles (such as formal, business, or casual clothing), fashions (such as miniskirts), and fads (such as leopard-print clothing).
Changes in a product, its use, its image, or its positioning can extend the product’s life cycle.
The PLC concept does not tell managers the length of a product’s life cycle or its duration at any stage. It is a tool to help marketers forecast future events and suggest appropriate strategies.

35. U.S. Sales of Televisions
Chapter 10 Developing and Managing Products
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Notes:
Exhibit 10.6 shows the PLC of TVs, based on 4.5 years of data. What conclusions can you draw about the PLC?

36. LO4 Introductory Stage High failure rates Little competition
Chapter 10 Developing and Managing Products
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Introductory Stage
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
Notes:
The introductory stage represents the full-scale launch of a new product. During the introductory stage, sales normally increase slowly. Marketing costs are high due to higher dealer margins required to obtain adequate distribution and the cost of consumer incentives to try a product.
Production costs are high.
Advertising expenses are high because consumers must be educated about the product’s benefits.
Promotion strategy focuses on developing product awareness and informing consumers about the product’s potential benefits. Intensive personal selling is often required.
Promotion of convenience products may require heavy consumer sampling and couponing. Shopping and specialty products demand educational advertising and personal selling to the final consumer.

37. Introductory Stage in Europe
Chapter 10 Developing and Managing Products
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Notes:
The introductory stage of the PLC varies among European countries, as shown in this exhibit. Cultural factors seem to be largely responsible, and Scandinavians are often more open to new ideas than other European countries.

38. LO4 Growth Stage Increasing rate of sales Entrance of competitors
Chapter 10 Developing and Managing Products
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Growth Stage
Increasing rate of sales
Entrance of competitors
Market consolidation
Initial healthy profits
Aggressive advertising of the differences between brands
Wider distribution
Notes:
In the growth stage, sales grow at an increasing rate, many competitors enter the market, and larger companies may acquire small pioneering firms.
Profits rise rapidly, peak, and begin declining as competition increases.
Aggressive brand advertising and communication of the differences between brands is the preferred promotion strategy.
Adequate distribution is a major key to establish a strong market position and product success.

39. LO4 Maturity Stage Sales increase at a decreasing rate
Chapter 10 Developing and Managing Products
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Maturity Stage
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
Notes:
The maturity stage begins when sales increase at a decreasing rate, and the market approaches saturation. This is normally the longest stage of the PLC.
Annual models may appear during the maturity stage for shopping and specialty products. Product lines are lengthened to appeal to additional market segments.
Service and repair help manufacturers distinguish their products from others.
Heavy promotion is required to maintain market share. For example, consider the competitive “wars” between Coke and Pepsi, Budweiser and Miller, and McDonalds against Burger King and Wendy’s.
As prices and profits continue to fall, marginal competitors drop out of the market.
Niche marketers that target narrow, well-defined segments of a market emerge.

40. LO4 Decline Stage Long-run drop in sales
Chapter 10 Developing and Managing Products
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Decline Stage
Long-run drop in sales
Large inventories of unsold items
Elimination of all nonessential marketing expenses
“Organized abandonment”
Notes:
The rate of decline depends on how rapidly consumer tastes change or substitute products are adopted. Many convenience products and fad items lose their market overnight.
A strategy for declining products includes elimination of nonessential marketing expenses, and the eventual product withdrawal as sales decline. Management expert Peter Drucker says that all companies should practice organized abandonment, which entails reviewing every product every 2-3 years and asking the question, “If we didn’t do this already, would we launch it now?” If the answer is no, begin the abandonment process.

41. Diffusion Process and PLC Curve
Chapter 10 Developing and Managing Products
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Diffusion Process and PLC Curve
Innovators
Early adopters
Early majority
Late majority
Laggards
Product
life cycle
curve
Diffusion
Introduction
Growth
Maturity
Decline
Sales
Notes:
Exhibit 10.8 shows the relationship between the adopter categories and the PLC. Note that the various categories of adopters buy products in different stages of the product life cycle.
The product life cycle encourages proactive planning. It is a useful predicting and forecasting tool. Historical data can help estimate a product’s location on the curve.
Almost all sales in the maturity and decline stages represent repeat purchases.

42. REVIEW LEARNING OUTCOME
Chapter 10 Developing and Managing Products
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REVIEW LEARNING OUTCOME
Product Life Cycles
INTRODUCTION
GROWTH
MATURITY
DECLINE
Product
Strategy
Distribution
Promotion
Pricing
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 produc-
tion.
Prices fall (usually).
Prices
stabilize at low level.
Sales
Notes:
Review Learning Outcome 4 summarizes and compares the marketing strategies typically used in each phase of the product life cycle, overlaid with the PLC curve.
Time