1. Chapter 9 New-Product Development and Product Life-Cycle Strategies
Learning Objectives
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.
Chapter Overview
Organizations must develop new products and services. A company has to be good at developing new products. It also must manage them in the face of changing tastes, technologies, and competition. As a reason to change, the company must realize that products face limited life spans and must be replaced by newer products. In addition, new products can fail. The risks of innovation can be as great as the rewards.
The key to successful innovation is in a total company effort, strong planning, and a systematic new-product development process. The new-product development process consists of eight stages: idea generation, idea screening, concept development and testing, marketing strategy development, business analysis, product development, test marketing, and commercialization. At each stage, a decision must be made as to whether the idea should be further developed or dropped. The company wants to minimize the chances of poor ideas moving forward or good ideas being rejected.
Each product has a life cycle marked by a changing set of problems and opportunities. The sales of a typical product follow an S-shaped curve made up of five stages. These stages include the product-development stage, the introduction stage, the growth stage, the maturity stage, and the decline stage. As the product passes through these stages, the marketing planner must adjust the organization’s strategies and be aware of changing problems, threats, and opportunities. The planner must adjust the firm’s marketing mix to these changes and be able to predict when significant changes will occur. Managing change is a true marketing management art and one necessary for the organization to be successful in the long-term.
Chapter 9
New-Product Development and Product Life-Cycle Strategies

2. Case Study Nokia Focus on Innovation Corporate Results
Names its culture of continuous innovation “renewal”
Organizes into autonomous units, which helps foster innovation
Large R&D budget of $3 billion with 40% of employees involved in R&D
Corporate Results
Annual sales of $36 billion across 130 countries
Global market share of 38%, greater than that of its nearest three rivals combined
Chapter Outline
Introduction
When it comes to new products, Nokia has its foot on the accelerator. It has almost tripled the launch of new products in the last four years.
At Nokia, innovation isn’t an accident—it goes to the company’s very core.
Nokia is a company that refuses to grow big, grow old, or grow slow.
Its new product development philosophy is simple: Small, nimble, creative units are much more likely to bubble up new ideas.
Nokia makes a healthy habit of giving its people fresh challenges in completely new areas. Job rotation is routine, even for senior managers.
Nokia mines outside sources as well.
A company has to be good at developing and managing new products. Every product seems to go through a life cycle—it is born, goes through several phases, and eventually dies as new products come long that better serve consumer needs.
The product life cycle presents two major challenges.
First, because all products eventually decline, a firm must be good at developing new products to replace aging ones (the challenge of new-product development).
Second, the firm must be good at adapting its marketing strategies in the face of changes tastes, technologies, and competition as products pass through life-cycle stages (the challenge of product life-cycle strategies).
9 - 2

3. AMEX introduces a new product
Definition
New Product Development
Development of original products, product improvements, product modifications, and new brands through the firm’s own R&D efforts.
Video Snippet
AMEX introduces a new product

4. New Product Development Strategy
New products can be obtained via acquisition or development.
New products suffer from high failure rates.
Several reasons account for failure.
New-Product Development Strategy
A firm can obtain new products in two ways.
One is through acquisition—by buying a whole company, a patent, or a license to produce some else’s product.
The other is through new-product development in the company’s own research and development department. By new products we mean original products, product improvements, product modifi­cations, and new brands that the firm develops through its own research and development efforts.
Use Key Term New-Product Development here.
One source estimates that more than 90 percent of all new products fail within two years. Another study suggested that of the staggering 25,000 new consumer food, beverage, beauty, and health care products to hit the market each year, only 40 percent would be around five years later. Moreover, failure rates for new industrial products may be as high as 30 percent.
Why do so many products fail? There are several reasons.
Although an idea may be good, the market size may have been overestimated.
Perhaps the product was not designed as well as it should have been.
Or maybe it was incorrectly positioned in the market, priced too high, or advertised poorly.
A high-level executive might push a favorite idea despite poor marketing research findings.
Sometimes the costs of product development are higher than expected, and sometimes competitors fight back harder than expected.
In all, to create successful new products, a company must understand its consumers, markets, and competitors and develop products that deliver superior value to customers.
It must carry out strong new-product planning and set up a systematic new-product development process for finding and growing new products. Figure 9.1 shows the eight major steps in this process.
Use Chapter Objectives 1 here.
Use Figure 9.1 here.

5. Nike acquired Converse in 2003 for $305 million
Nike is no stranger to new products. They design continuously. They also acquire new products, including Converse retro style sneakers.
9 - 5
Marketing in Action

6. Discussion Question
Think of products you have seen recently in stores. Can you think of any that seem doomed to fail?
Why?
Common reasons for failure include:
-Overestimation of market size
-Poor design
-Incorrect positioning
-Priced too high
-Advertised poorly
-High level managers pushing idea with poor research findings
-Development costs too high
-Competition
9 - 6

7. Stages of the New Product Development Process Figure 9.1
9 - 7

8. Stages of the New Product Development Process
Stage 1: Idea Generation
Internal idea sources:
R & D
External idea sources:
Customers, competitors, distributors, suppliers
Idea Generation
New-product development starts with idea generation—the systematic search for new-product ideas. A company typically has to generate many ideas in order to find a few good ones.
Using internal sources, the company can find new ideas through formal research and development. Companies sometimes look for creative innovation approaches that overcome barriers to the free flow of new product ideas.
Good new-product ideas also come from watching and listening to customers.
The company can analyze customer questions and complaints to find new products that better solve consumer problems.
Company engineers or salespeople can meet with and work alongside customers to get suggestions and ideas.
The company can conduct surveys or focus groups to learn about consumer needs and wants.
Consumers often create new products and uses on their own, and companies can benefit by putting them on the market.
Some companies even give customers the tools and resources to design their own products.
Companies must be careful not to rely too heavily on customer input when developing new products. For some products, especially highly technical ones, customers may not know what they need.
Competitors are another good source of new-product ideas.
Companies watch competitors’ ads to get clues about their new products.
They buy competing new products, take them apart to see how they work, analyze their sales, and decide whether they should bring out a new product of their own.
Distributors and suppliers can also contribute many good new-product ideas.
Resellers are close to the market and can pass along information about consumer problems and new-product possibilities.
Suppliers can tell the company about new concepts, techniques, and materials that can be used to develop new products.
Other idea sources include trade magazines, shows, and seminars; government agencies; new-product consultants; advertising agencies; marketing research firms; university and commercial laboratories; and inventors.
The search for new product ideas should be systematic rather than haphazard. Otherwise, few new ideas will surface and many good ideas will sputter and die.
Top management can avoid these problems by installing an idea management system that directs the flow of new ideas to a central point where they can be collected, reviewed, and evaluated.
Use Key Term Idea Generation here.
Use Real Marketing 9.1 here.
Use Discussing the Concepts 1 here.

9. Click on screenshot for website
Intuit, a marketer of financial software, asks for new product ideas from customers
Click on screenshot for website
9 - 9
Marketing in Action

10. Stages of the New Product Development Process
Stage 2: Idea Screening
Product development costs increase substantially in later stages so poor ideas must be dropped
Ideas are evaluated against criteria; most are eliminated
Idea Screening
The purpose of idea generation is to create a large number of ideas. The first idea-reducing stage is idea screening that helps spot good ideas and drop poor ones as soon as possible.
Product development costs rise greatly in later stages, so the company wants to go ahead only with the product ideas that will turn into profitable products.
Many companies require their executives to write up new-product ideas on a standard form that can be reviewed by a new-product committee.
The write-up describes the product, the target market, and the competition.
It makes some rough estimates of market size, product price, development time and costs, manufacturing costs, and rate of return.
The committee then evaluates the idea against a set of general criteria.
Use Key Term Idea Screening here.
Use Applying the Concepts 1 here.

11. Stages of the New Product Development Process
Stage 3: Concept Development and Testing
Concept development creates a detailed version of the idea stated in meaningful consumer terms.
Concept testing asks target consumers to evaluate product concepts.
Concept Development and Testing
An attractive idea must be developed into a product concept.
A product idea is an idea for a possible product that the company can see itself offering to the marketing.
A product concept is a detailed version of the idea stated in meaningful consumer terms.
A product image is the way consumers perceive an actual or potential product.
Use Key Term Product Concept here.
The company’s task is to develop a new product into alternative product concepts, find out how attractive each concept is to customers, and choose the best one.
Concept testing calls for testing new-product concepts with groups of target consumers. The concepts may be presented to consumers symbolically or physically.
For some concept tests, a word or picture description might be sufficient. However, a more concrete and physical presentation of the concept will increase the reliability of the concept test.
After being exposed to the concept, consumers then may be asked to react to it by answer questions such as those in Table 9.1. The answers will help the company decide which concept has the strongest appeal.
Many firms routinely test new-product concepts with consumers before attempting to turn them into actual new products.
Use Key Term Concept Testing here.
Use Table 9.1 here.
Use Applying the Concepts 2 here.
Use Focus on Ethics here.

12. Click on screenshot for website
MIT Virtual Research
MIT has developed online techniques to gain consumer feedback on new product ideas
Click on screenshot for website
9 - 12
Marketing in Action

13. Stages of the New Product Development Process
Stage 4: Marketing Strategy Development
The target market, product positioning, and sales, share, and profit goals for the first few years.
Product price, distribution, and marketing budget for the first year.
Long-run sales and profit goals and the marketing mix strategy.
Marketing Strategy Development
The next step is marketing strategy development, designing an initial marketing strategy for introducing this product to the market.
The marketing strategy statement consists of three parts.
The first part describes the target market; the planning product positioning; and the sales, market share, and profit goals for the first few years.
The second part of the marketing strategy statement outlines the product’s planned price, distribution, and marketing budget for the first year.
The third part of the marketing strategy statement describes the planning long-run sales, profit goals, and marketing mix strategy.
Use Key Term Marketing Strategy Development here.
Use Discussing the Concepts 2 here.

14. Stages of the New Product Development Process
Stage 5: Business Analysis
Sales, cost, and profit projections
Stage 6: Product Development
Prototype development and testing
Business Analysis
Business analysis involves a review of the sales, costs, and profit projections for a new product to find out whether they satisfy the company’s objectives. If they do, the product can move to the product development stage.
Use Key Term Business Analysis here.
Product Development
If the product concept passes the business test, it moves into product development. Here R&D or engineering develops the product concept into a physical product. The product development step now calls for a large jump in investment. It will show whether the product idea can be turned into a workable product.
Developing a successful prototype can take days, weeks, months, or even years.
Often products undergo rigorous tests to make sure that they perform safely and effectively, or that consumers will find value in them.
Use Key Term Product Development here.

15. Stages of the New Product Development Process
Stage 7: Test Marketing
Standard test markets
Controlled test markets
Simulated test markets
Stage 8: Commercialization
Test Marketing
If the product passes functional and consumer tests, the next step is test marketing, the stages at which the product and marketing program are introduced into more realistic market settings.
Test marketing gives the marketer experience with marketing the product before going to the great expense of full introduction.
It lets the company test the product and its entire marketing program—positioning strategy, advertising, distribution, pricing, branding and packaging, and budget levels.
The amount of test marketing needed varies with each new product.
When the costs of developing and introducing the product are low, or when management is already confident about the new product, the company may do little or no test marketing.
When introducing a new product requires a big investment, or when management is not sure of the product or marketing program, a company may do a lot of test marketing.
Although test marketing costs can be high, they are often small when compared with the costs of making a major mistake.
Still, test marketing does not guarantee success.
When using test marketing, consumer products companies usually choose one of three approaches.
Using standard test markets, the company finds a small number of representative test cities, conducts a full marketing campaign in these cities, and uses store audits, consumer and distributor surveys, and other measures to gauge product performance.
Standard test markets have some drawbacks. They can be very costly and they may take a long time—some last as long as three to five years. Competitors can monitor test market results or even interfere with them by cutting their prices in test cities, increasing their promotion, or even buying up the product being tested. Finally, test markets give competitors a look at the company’s new product well before it is introduced nationally.
Despite these disadvantages, standard test markets are still the most widely used approach for major in-market testing. However, many companies today are shifting toward quicker and cheaper controlled and simulated test marketing methods.
Several research firms keep controlled panels of stores that have agreed to carry new products for a fee. Controlled test marketing systems like ACNielsen’s Scantrack and Information Resources, Inc.’s (IRI) BehaviorScan track individual consumer behavior for new products from the television set to the checkout counter.
Controlled test markets usually cost less than standard test markets. Also, because retail distribution is “forced” in the first week of the test, controlled test markets can be completed much more quickly than standard test markets.
As in standard test markets, controlled test markets allow competitors to get a look at the company’s new product. and some companies are concerned that the limited number of controlled test markets used by the research services may not be representative of their products’ markets or target consumers.
However, the research firms are experienced in projecting test market results to broader markets and can usually account for biases in the test markets used.
Companies can also test new products in a simulated shopping environment. The company or research firm shows ads and promotions for a variety of products, including the new product being tested, to a sample of consumers. It gives consumers a small amount of money and invites them to a real or laboratory store where they may keep the money or use it to buy items. The researchers note how many consumers buy the new product and competing brands.
This simulation provides a measure of trial and the commercial’s effectiveness against competing commercials. The researchers then ask consumers the reasons for their purchase or non-purchase. Some weeks later, they interview the consumers by phone to determine product attitudes, usage, satisfaction, and repurchase intentions. Using sophisticated computer models, the researchers then project national sales from results of the simulated test market.
Simulated test markets overcome some of the disadvantages of standard and controlled test markets. They usually cost much less, can be run in eight weeks, and keep the new product out of competitors’ view.
Yet, because of their small samples and simulated shopping environments, many marketers do not think that simulated test markets are as accurate or reliable as larger, real-world tests.
Still simulated test markets are used widely, often as “pretest” markets. Because they are fast and inexpensive, they can be run to quickly assess a new product or its marketing program.
Use Key Term Test Marketing here.
Use Discussing the Concepts 3 here.
Commercialization
If the company goes ahead with commercialization—introducing the new product into the market—it will face high costs.
The company may have to build or rent a manufacturing facility.
And it may have to spend, in the case of a new consumer packaged good, between $10 million and $200 million for advertising, sales promotion, and other marketing efforts in the first year.
The company launching a new product must first decide on introduction timing.
Next, the company must decide where the launch the new product—in a single location, a region, the national market, or the international market.
Use Key Term Commercialization here.
Use Discussing the Concepts 5 here.
Organizing for New-Product Development
Many companies organize their new-product development process into the orderly sequence of steps shown in Figure 9.1, starting with idea generation and ending with commercialization.
Under this sequential product development approach, one company department works individually to complete its stage of the process before passing the new product along to the next department and stage.
This orderly, step-by-step process can help bring control to complex and risky projects. But it can also be dangerously slow.
Use Key Term Sequential Product Development here.
In order to get their new products to market more quickly, many companies are adopting a faster, team-oriented approach called simultaneous product development (or team-based or collaborative product development).
Under this approach, company departments work closely together through cross-functional teams, overlapping the steps in the product development process to save time and increase effectiveness.
Instead of passing the new product from department to department, the company assembles a team of people from various departments that stay with the new product from start to finish.
This approach does have some limitations.
Superfast product development can be riskier and more costly than the slower, more orderly sequential approach.
It often creates increased organizational tension and confusion.
And the company must take care that rushing a product to market doesn’t adversely affect its quality—the objective is not only to create products faster, but also to create them better and faster.
Despite the drawbacks, in rapidly changing industries facing increasingly shorter product life cycles, the rewards of fast and flexible product development far exceed the risks.
Use Chapter Objectives 2 here.
Use Key Term Simultaneous (or Team-Based) Product Development here.
Use Discussing the Concepts 4 here.

16. Online Test Marketing Is it in the Near Future?
Silicon Valley startup called There launched their site in 2003.
Users enter a virtual world where they can network, hang out, dress up and try new products.
There is catching marketers’ attention as a tool to test brands and products.
There will also help marketers identify leaders and heavy users of their products.
Click on screenshot for website
9 - 16
Marketing in Action
Source: Advertising Age

17. Online Test Marketing Is it in the Near Future?
Levi and Nike have partnered with There for market research data.
Levi’s has found that jeans and jean jacket buyers were more likely to be virtual club-goers.
They can also track how long people wear a certain jean or jacket in their virtual world.
Do not click on the image above – it does not connect to a website.
9 - 17
Marketing in Action

18. Stages of the PLC Figure 9.2
Product Life-Cycle Strategies
After launching the new product, management wants the product to enjoy a long and happy life. Figure 9.2 shows a typical product life cycle (PLC), the course that a product’s sales and profits take over its lifetime.
Use Key Term Product Life Cycle (PLC) here.
Use Figure 9.2 here.
Product development begins when the company finds and develops a new-product idea. During product development, sales are zero and the company’s investment costs mount.
Introduction is a period of slow sales growth as the product is introduced in the market. Profits are nonexistent in this stage because of the heavy expenses of product introduction.
Growth is a period of rapid market acceptance and increasing profits.
Maturity is a period of slowdown in sales growth because the product has achieved acceptance by most potential buyers. Profits level off or decline because of increased marketing outlays to defend the product against competition.
Decline is the period when sales fall off and profits drop.
Not all products follow this product life cycle. Some products are introduced and die quickly; others stay in the mature stage for a long, long time. Some enter the decline stage and are then cycled back into the growth stage through strong promotion or repositioning.
9 - 18

19. Alternative Product Life Cycles Figure 9.3
9 - 19

20. Product Life-Cycle Strategies
The product life cycle concept can be applied to a:
Product class (soft drinks)
Product form (diet colas)
Brand (Diet Dr. Pepper)
Using the PLC to forecast brand performance or to develop marketing strategies is problematic
The PLC concept can describe a product class, a product form, or a brand. The PLC concept applies differently in each case.
Product classes have the longest life cycles—the sales of many product classes stay in the maturity stage for a long time.
Product forms, in contrast, tend to have the standard PLC shape.
A specific brand’s life cycle can change quickly because of changing competitive attacks and responses.
The PLC concept also can be applied to what are known as styles, fashions, and fads. Their special life cycles are shown in Figure 9.3.
A style is a basic and distinctive mode of expression.
A fashion is a currently accepted or popular style in a given field.
Fads are temporary periods of unusually high sales driven by consumer enthusiasm and immediate product or brand popularity.
Use Key Terms Style, Fashion, Fad here.
Use Figure 9.3 here.
Marketers can apply the PLC concept as a useful framework for describing how products and markets work. But using the PLC concept for forecasting product performance or for developing marketing strategies presents some practical problems.
Managers may have trouble identifying which stage of the PLC the product is in or pinpointing when the product moves into the next stage.
They may find it hard to determine the factors that affect the product’s movement through the stages.
In practice, it is difficult to forecast the sales level at each PLC stage, the length of each stage, and the shape of the PLC curve.
Using the PLC concept to develop marketing strategy also can be difficult because strategy is both a cause and a result of the product’s life cycle. The product’s current PLC position suggests the best marketing strategies, and the resulting marketing strategies affect product performance in later life-cycle stages.

21. Product Life-Cycle Strategies
PLC Stages
Begins when the company develops a new-product idea
Sales are zero
Investment costs are high
Profits are negative
Product development
Introduction
Growth
Maturity
Decline

22. Product Life-Cycle Strategies
PLC Stages
Low sales
High cost per customer acquired
Negative profits
Innovators are targeted
Little competition
Product development
Introduction
Growth
Maturity
Decline
Introduction Stage
The introduction stage starts when the new product is first launched.
In this stage, as compared to other stages, profits are negative or low because of the low sales and high distribution and promotion stage.
A company, especially the market pioneer, must choose a launch strategy that is consistent with the intended product positioning. It should realize that the initial strategy is just the first step in a grander marketing plan for the product’s entire life cycle.
Use Key Term Introduction Stage here.

23. Which stage of the PLC? How do you know?
Product development
Introduction
Growth
Maturity
Decline
9 - 23
Marketing in Action

24. Marketing Strategies: Introduction Stage
Product – Offer a basic product
Price – Use cost-plus basis to set
Distribution – Build selective distribution
Advertising – Build awareness among early adopters and dealers/resellers
Sales Promotion – Heavy expenditures to create trial

25. Product Life-Cycle Strategies
PLC Stages
Rapidly rising sales
Average cost per customer
Rising profits
Early adopters are targeted
Growing competition
Product development
Introduction
Growth
Maturity
Decline
Growth Stage
If the new product satisfies the market, it will enter a growth stage, in which sales start climbing quickly.
The early adopters will continue to buy, and later buyers will start following their lead, especially if they hear favorable word of mouth.
Attracted by the opportunities for profit, new competitors will enter the market. They will introduce new product features, and the market will expand.
Profits increase during the growth stage, as promotion costs are spread over a large volume and as unit manufacturing costs fall.
The firm uses several strategies to sustain rapid market growth as long as possible.
It improves product quality and adds new product features and models.
It enters new market segments and new distribution channels.
It shifts some advertising from building product awareness to building product conviction and purchase, and it lowers prices at the right time to attract more buyers.
In the growth stage, the firm faces a trade-off between high market share and high current profit.
Use Key Term Growth Stage here.
Use Discussing the Concepts 6 here.

26. Which stage of the PLC? How do you know?
Product development
Introduction
Growth
Maturity
Decline
9 - 26
Marketing in Action

27. Marketing Strategies: Growth Stage
Product – Offer product extensions, service, warranty
Price – Penetration pricing
Distribution – Build intensive distribution
Advertising – Build awareness and interest in the mass market
Sales Promotion – Reduce expenditures to take advantage of consumer demand

28. Product Life-Cycle Strategies
PLC Stages
Sales peak
Low cost per customer
High profits
Middle majority are targeted
Competition begins to decline
Product development
Introduction
Growth
Maturity
Decline
Maturity Stage
At some point, a product’s sales growth will slow down, and the product will enter a maturity stage.
This maturity stage normally lasts longer than the previous stages, and it poses strong challenges to marketing management.
Most products are in the maturity stage of the life cycle, and therefore most of marketing management deals with the mature product.
Although many products in the mature stage appear to remain unchanged for long periods, most successful ones are actually evolving to meet changing consumer needs.
Product managers should do more than simply ride along with or defend their mature products. They should consider modifying the marketing, product, and marketing mix.
In modifying the market, the company tries to increase the consumption of the current product. Or the company may reposition the brand to appeal to a larger or faster-growing market segment. The manager may also look for ways to increase usage among present customers.
The company might also try modifying the product—changing characteristics such as quality, features, or style to attract new users and to inspire more usage.
Finally, the company can try modifying the marketing mix—improving sales by changing one or more marketing mix elements.
It can cut prices to attract new users and competitors’ customers.
It can launch a better advertising campaign or use aggressive sales promotions—trade deals, cents-off, premiums, and contests.
In addition to pricing and promotion, the company can also move into large market channels, using mass merchandisers, if these channels are growing.
The company can offer new or improved services to buyers.
Use Key Term Maturity Stage here.
Use Real Marketing 9.2 here.

29. Which stage of the PLC? How do you know?
Product development
Introduction
Growth
Maturity
Decline
Depends whether talking about milk or low carb…
9 - 29
Marketing in Action

30. Marketing Strategies: Maturity Stage
Product – Diversify brand and models
Price – Set to match or beat competition
Distribution – Build more intensive distribution
Advertising – Stress brand differences and benefits
Sales Promotion – Increase to encourage brand switching

31. Product Life-Cycle Strategies
PLC Stages
Declining sales
Low cost per customer
Declining profits
Laggards are targeted
Declining competition
Product development
Introduction
Growth
Maturity
Decline
Decline Stage
The sales of most product forms and brands eventually dip. The decline may be slow. Or sales may plunge to zero, or they may drop to a low level where they continue for many years. This is the decline stage.
Sales may decline for many reasons, including technological advances, shifts in consumer tastes, and increased competition.
Carrying a weak product can be very costly to a firm, and not just in profit terms.
A weak product may take up too much of management’s time.
It often requires frequent price and inventory adjustments.
It requires advertising and sales force attention that might be better used to make “healthy” products more profitable.
Companies need to pay more attention to their aging products.
The firm’s first task is to identify those products in the decline stage by regularly reviewing sales, market shares, costs, and profit trends.
Then, management must decide whether to maintain, harvest, or drop each of these declining products.
Management may decide to maintain its brand without change in the hope that competitors leave the industry.
Or management may decide to reposition or reformulate the brand in hopes of moving it back into the growth stage of the product life cycle.
Management may decide to harvest the product that means reducing various costs and hoping that sales hold up. If successful, harvesting will increase the company’s profits in the short run.
Management may decide to drop the product from the line. It can sell it to another firm or simply liquidate it at salvage value.
Table 9.2 summarizes the key characteristics of each stage of the product life cycle. The table also lists the marketing objectives and strategies for each.
Use Chapter Objectives 3, 4 here.
Use Key Term Decline Stage here.
Use Table 9.2 here.
Use Applying the Concepts 3 here.
Use Focus on Technology here.
End of Chapter Material
Discussing the Concepts
Which is a better source of new-product ideas, the company’s sales force or external sources?
Both the company’s sales force and external sources can be good sources of new-product ideas. It is highly likely, however, that the sales force will hear of ideas from outside sources (customers) and pass them along to the new-product development organization, rather than conceive them.
Write a 100-word, three-part marketing strategy statement for a new music CD by your favorite recording artist.
Question objective: Focus on the three-part structure of the marketing strategy statement.
Make sure the student’s statement includes each element of the three parts:
Part One includes:
Target market.
Planned product position.
Sales estimate.
Market share.
Profit goals.
Part Two includes:
Outline of the product’s planned price, distribution, and budget for the first year.
Part Three includes:
Description of the planned long-run sales, profit goals, and marketing mix strategy.
Under what conditions would you consider not test marketing a product? Describe a product or service that meets these no-need-to-test criteria.
Question objective: Familiarize the student with different market testing concepts.
Quite often a company will not market test for a simple line extension or exact copy of a competitor’s product. Small investment products would also qualify for a no-need-to-test process.
An example of a product that meets the no-need-to-test criteria would be yet still another variety of chunky peanut butter—“super-super chunk.”
An example of a service would be a new tour package offered by Jet Blue that duplicates a United Airlines or American Airlines package.
Compare the sequential and simultaneous product development approaches. Is one approach better than the other? Explain.
Question objective: Distinguish between the two major new-product development processes.
Sequential product development is a serial approach where one company department works individually to complete its stage of the process before passing the new product along to the next department and stage. This orderly, step-by-step process can help bring control to complex and risky projects, but is slow.
Simultaneous product development is a parallel approach where many company departments work closely together through cross-functional teams, overlapping the steps in the product development process to save time and increase effectiveness. Instead of passing the new product from department to department, the company assembles a team of people from various departments that stay with the new product from start to finish.
What major commercialization plan elements must a marketer address before launching a new product?
Question objective: Stress the major elements of a commercialization plan for a new product.
The commercialization plan for a new product must address:
When to introduce the product—the timing.
Where to introduce the product—the city, region, country, etc.
A planned market rollout over time will be developed.
The chapter states that “In the growth stage of the product life cycle, the firm faces a trade-off between high market share and high current profit.” Explain this statement.
Question objective: To reinforce the PLC concept as a useful framework for describing how products and markets work.
This means that by spending a large amount of resources on product development, promotion, and distribution, the company can capture a dominant market share, but in the process will more than likely sacrifice profit maximization. In doing this, the company hopes to make it up in the next stage—maturity.
Applying the Concepts
You are a new-product manager and have been asked to design an idea screening process for your company. Prepare a five-step process for screening consumer convenience good ideas.
Question objective: Focus on the importance of screening new-product ideas, and undertaking only those concepts that meet rigorous evaluation criteria.
Here is a simple five-step process that includes some of the key items to consider in the new product idea screening process:
What is the product? (Super, super crunchy peanut butter.)
Will the target market benefit from the product? (Consumer research defined need for a new super, super crunchy peanut butter.)
Is it technically feasible to manufacture the product? (Easily accomplished in current manufacturing facilities.)
Will the product be profitable? (Estimated $0.55 sales price premium at an incremental cost of $0.05.)
Is this product compatible with the company’s mission/vision, and business/ marketing strategies? (Natural extension of current company mission and growth strategy.)
Go to QuestionPro.com at Click on “New Product/Concept Testing (20)” under the “Marketing” header. Click on the “Brief Product Concept Test” template (#9). Now prepare a concept test question­naire for a new action toy figure with the following characteristics: middle-aged, stout, balding man; dressed in dark-gray suit, white shirt, dark tie; carries a brief­case; and drives a 5-year-old Ford Crown Victoria.
Question objective: Highlight the importance of the concept testing process and illustrate how a concept questionnaire is constructed.
Action Figure Questionnaire
1. Below is a list of features that are part of the new action toy figure. How important is each feature to you?
Not At All Important Extremely Important
Vibrant color
Movable arms and legs
Accurate accessories
5 to 7 inches in height
Auto included
2. This survey is about a new product concept that is described as follows:
“The new action figure toy will be a middle-aged man who is stout, balding man; dressed in dark-gray suit, white shirt, dark tie; carries a briefcase; and drives a 5-year-old Ford Crown Victoria.”
3. Whether or not you know about this middle-age male action figure, how favorable is your overall reaction?
Poor
Fair
Good
Very good
Excellent
4. What is it that you like most about the middle-age male action figure? Please enter as many items as you wish.
5. What do you like least about middle-age male action figure?
6. Based on the product description, how interested would you be in buying this new middle-age male action figure if it were within your budget? Please check one.
Not at all interested
Not very interested
Not sure
Somewhat interested
Extremely interested
7. About what would you expect to pay for a new middle-age male action figure?
$ ______________
8. How often would you play with action figures?
Once a week or more often
Two to three times a month
Once a month
Every two to three months
Two to three times a year
Once a year or less
Would not use
Thank you for your feedback.
You are a product manager in a firm that manufactures and markets a line of branded action figure toys. The branded toy line is 5 years old. Annual sales and profits for this period are presented in the chart below. Prepare a one-sentence strategy for each of the 4 Ps based on the brand’s current product life cycle position.
Period Sales Profit
Year 1 $ 3,000, ($ ,000)
Year 2 $ 20,000,000 $ 1,500,000
Year 3 $ 50,000,000 $10,000,000
Year 4 $ 52,000,000 $ 8,000,000
Year 5 $ 31,000,000 $ 1,000,000
Question objective: Emphasize the characteristics and marketing strategies of the various stages of the Product Life Cycle.
Phases of Product Life Cycle by year:
Year 1—Introduction
Year 2—Growth
Year 3—Growth
Year 4—Maturity
Year 5—Decline
Simple mix strategies at conclusion of 5th year of operation:
Product—phase out weak action figures.
Price—cut prices.
Distribution—phase out unprofitable or low margin outlets.
Promotion—Reduce overall promotion expenses and focus on core customer.
Focus on Technology
Many firms provide software and services to assist firms with product life cycle management. One of the more successful companies providing these services is Agile Software Corporation. According to the company, “Agile Product Lifecycle Management (Agile™ PLM) solutions help companies accelerate revenue, reduce costs, improve quality, ensure compliance, and drive innovation throughout the product lifecycle… Agile helps companies get the most from their products.” Go to Agile’s Web site at and review the PLM offering. Then respond to the following questions:
Question objective: Focus on a company that provides enterprise system technology to help manage the PLC.
What are the PLM services that Agile provides?
Agile offers a variety of services to assist an organization in managing PLC events and activities, but more than anything else, they shorten the cycle time. They help make better decisions, faster.
On what portion of the product life cycle does Agile focus?
Agile focuses on the entire product life cycle, starting with concepts and ideas to phase-out and disposal.
Based on what you have read at the Agile site, do you think Agile’s PLM services would be a good or poor investment? Why?
Yes, Agile would be a good investment, if you could afford the price and the additional resources required to manage the process.
Focus on Ethics
Concept testing is an invaluable part of the new-product development process. Time spent testing product concepts with consumers before developing them will reduce the number of false starts and conserve one of the most important resources in new-product development—money. Many companies shortcut the concept testing stage and go direct to demand testing. They conduct what are called “dry tests.” Dry testing occurs when you want to “test the waters” for interest in a new product by placing an ad for the product before it actually exists.
Question objective: Stress the right way to test, and if dry testing is needed, the rules that need to be observed.
Do you believe that such dry testing is ethical?
No, it is not an ethical testing process.
What does the Direct Marketing Association (DMA) say about the practice? (Do a Google search on “dry testing” (in quotes) and DMA.) What does the Federal Trade Commission (FTC) say?
DMA says, “Direct marketers should engage in dry testing only when the special nature of the offer is made clear in the promotion.”
The FTC says that, “dry testing” is not unlawful, but in their advisory they state that, “the ad must clearly disclose to consumers the fact that the merchandise is only planned and may not ever be shipped.”
Would you dry test a new-product concept? Under what conditions?
Yes, but only in accordance with the rules established by the FTC in their publication, “A Business Guide to the Federal Trade Commission’s Mail or Telephone Order Merchandise Rule.” See their Web site at:
Company Case Notes
I Want my VoIP!
Synopsis
VoIP is Voice Over Internet Protocol that has been branded Digital Telephone by Time Warner. As the growth of cable installations begins to slow down, cable companies have latched onto to VoIP as a means of continuing sales growth. In the case, an imaginary consumer, Rita, gets an offer in the mail the same day that she gets a telephone bill that she thinks is too high. The following is an explanation of VoIP and finally, the case comes back to Rita and asks for your input. What will she do?
Rita’s situation is presented to highlight the approach that the cable companies are making—competition on costs. But any consumer will think long and hard before discontinuing a familiar and easy-to-use service like standard telephone. Thus, students are really asked to judge whether the companies have made the right move in presenting their new product to the public.
PS: If students ask if Rita is an accomplished computer user, the answer is no. She probably uses it for simple and writing tasks.
Teaching Objectives
Identify which stage of the product life cycle digital telephony and traditional telephony are in.
Determine whether the companies involved are using appropriate marketing strategy for their services.
Explain the advantages of bundling services to companies and consumers.
Describe a typical consumer’s adoption process for a new service.
Discussion Questions
What are the advantages and disadvantages to Rita of accepting the Time Warner offer? Think carefully through the process that Rita would have to go through to switch telephone services. What would you do in her place?
Rita Accepts the Time Warner Offer
Advantages
Disadvantages
Reduces telephone bill. Sound quality may be poorer.More services included in new lower total.Loss of power means loss of telephone service.Bill does not fluctuate as calls are not individually priced.Might have to change telephone number.Time Warner provides “good” service when cable is out. Giving up a known service provider***Will be able to add other features such as videophones in the future.Multiple lines for one price.Can make calls from anywhere (kids call home from college without long distance charges). Can make international calls using home number .
Students may be able to think of other advantages and disadvantages.
*** A disadvantage is giving up a known provider. Even if one has had cable for several years, we are all much more familiar with traditional telephone service. We know Bell (for example) that has a good reputation for service. Digital telephony is a service and the impact of giving up an “old friend” provider for the cable company may be hard for consumers. Of course, many of them have already done so to buy cell phones from companies such as Cingular. But it’s important for students to realize the company involved may be more important in selling a service than in selling a physical product.
As for Rita making the decision, it depends on how risk adverse she is and how much she uses long distance. If she rarely makes long distance calls, then she doesn’t save much and vice versa. Also, changing from a well-known provider (such as a Bell system that provides good service) can be worrisome. Consumers hate to give up established brands with good service—especially when the new product is not fully developed (all voice quality, problems ironed out, etc.).
Write the first part of a marketing strategy statement for the Time Warner digital telephone offer? Include the target market and planned product positioning.
Normally, students would have to determine who the target market is, but in this case, the provider already has a list of customers to work from and all of them already use the computer, so they might be interested in bundling telephone service into their cable bill whereas computer users using telephone lines for their Internet service would not be interested.
For the positioning—there should be a stress on benefits. Possible benefits are: low cost (one total bill with no fluctuations for per call charges or long distance charges), more services for same price (more for your money), future enhancement opportunities, good service from the provider, mobility of cable for calling from anywhere, etc. (any of the advantages outlined in the case. The students’ real task is not to identify the benefits, but to choose how many and which ones to put in the strategy statement.
In what stage of the product life cycle is Internet telephony? Does the answer to this question vary across companies such as Vonage, Comcast, Time Warner, and Cox?
It’s in the introductory stage for all companies. Although some have offered it longer than others, it has had experienced high enough growth to have moved into the growth stage.
What stage is traditional telephone service in? The answer is maturity. It would be interesting to compare the strategies of the two providers. Traditional PLC theory suggests that prices should be lower and sales promotions higher in the maturity stage. However, the telephone companies are not following that model. They are adding more services. The lack of focus on pricing is possible because telephone service is regulated and is a monopoly. As the use of cable telephone grows, the security that telephone companies have had and their consequent ability to keep prices higher will be severely threatened.
Why does bundling of services work so well for the cable companies? What are the advantages to both the consumer and the company?
This is where students must explicitly consider the regulated nature of telephone service. Because rates are set, telephone companies have added services and charged for each of them. Today, they do have some packages, but many still price on a per feature basis. Cable company charges are not regulated and they are using price as a means of entering the market—a penetration strategy. To make the price even more attractive, they are bundling more services into the charge. The consumer gets more services/benefits and the company sells more to the same customer. The cable already goes to their house and they’re probably already paying computer and television charges. So, the additional cost of servicing the household is not great. Consequently, the company avoids expensive installation by selling to current customers and makes the customer more reliant on them. There’s convenience for the customer (one bill and one “check”) and the cable company can charge for multiple services in one bill. As the percentage of the household’s cable services are provided by one company, the household’s reliance/loyalty/attachment to that company grows, thus, providing long-term customers.
In your opinion, is Comcast’s strategy a big risk or a wise move? Is the aggressiveness of other companies appropriate?
This is purely opinion. One could argue that consumers are willing to put up with a few imperfections in a “new” service for a short period of time. By waiting to perfect their product, Comcast may be losing out to other providers. If it has no local cable competition, this may not matter. If they have a “monopoly” of cable service, then consumers will just have to wait. Of course, this gives the telephone company time to reduce rates and develop a competitive strategy and there is always the possibility of satellite telephone.
Teaching Suggestions
Perhaps the best way to introduce this case is to talk about the PLC and where digital and traditional telephony currently are. (This is being written in late 2004, so by early 2006, the answers may have changed). Ask the class to outline the strategies companies are employing. Then, put the chart showing PLC characteristics, objectives, and strategies up and compare with company strategies to see if they are following the traditional theory. Where they aren’t (likely to be traditional telephone companies), ask why, which should lead into a discussion of marketplace imperfections. This could include future government regulation of digital telephony. (Have to search for information on this as time goes by.) If that happens, then some of digital’s advantages may disappear. Will that hurt adopters who may later want to switch back to traditional telephones? What happens to consumer perceptions of products/services when and if some advantages are reduced?
Finally, ask what they think Rita will do. Hopefully, students will realize that her decision does not depend just on the merits of the service, but also on her risk adverse nature, usage of long distance and other expensive services, her expertise in using computers, and possibly other factors such as how many people would be using the service. In the end, the adoption decision relies on having the right target market.
Additional Material
Barriers to Effective Learning
The first barrier to effective learning experienced by the student in this chapter comes from their inexperience with the new product development process as described by Figure 9.1. The best solution (in addition to covering the material and examples provided by the text) is to ask students to bring to class one new product idea. Collect the ideas and, after weeding out the bad ones, ask the students to go through the development process. After they are finished with the one or two good product options, have them critique the process they just went through. What pitfalls must the manager watch-out for? If there is not enough time to do this in class, assign this as an outside class assignment. This is the most effective way to learn the new product development process.
Some students will have difficulty understanding specific parts of the new product development process. Though difficulties vary (correct this problem by carefully covering each area thoroughly) particular care must be taken when explaining the fourth component of the process—marketing strategy development. Use the examples in the text carefully. Perhaps the best way to approach this subject is to have student groups develop: (1) a general target market statement, (2) a strategy statement for dealing with pricing, distribution, and budgeting phenomena, or (3) a statement that describes the desires for long-run sales, profit goals, and the basic marketing mix strategy. The example in the text demonstrates this process. Remember, this process is very similar to what will be required of the student by future employers; therefore, it is worth reinforcing. Use a different example than the one in the text if there is time.
The third major barrier to effective learning comes from understanding the product life cycle and its various stages. The students should have no difficulty in reading the text’s presentation and description; however, as many practicing managers learn, application is more difficult. The best remedy for this is to take a product (use any of the examples in the text or choose an original one) and carry the product through a life cycle. It might be useful to begin with a fad, then a fashion, and then a style. This not only reinforces the material in the text but also provides a less complicated way of beginning the learning task. Once this has been accomplished, the instructor should choose a more complicated product that has a history. Be sure to concentrate on the strategy and marketing mix decisions that occur at each stage (refer to the text for a structure—see Table 9.2). It is also useful to ask students what policies can be followed to ensure that a product has a long life—are there any?
Student Projects
Identify one new product that is on the market. What kind of product is it? Is it part of a family of products? How is it positioned? What can you infer about the commercialization strategies of the company? What do you predict for length of life of the product? What could be done to prolong the product’s life?
Take a product that has failed. Analyze why this happened. What suggestions could you offer that might have prevented the failure?
Take a fad product and show how it could be maintained on the market past its fad stage. Describe your strategies for doing so. How could the Internet be used to aid your strategy?
Collect and describe five advertisements that show products in different phases of a product life cycle. What did you use to determine which stage the products were in?
Interactive Assignments
Small Group Assignment
Form students into groups of three to five. Each group should read the opening vignette to the chapter about Nokia. Each group should then answer the following questions:
How would rewarding creativity in taking photographs translate into creativity in product development?
Why would Nokia feel the need to triple the launch of new products in four years?
How has Nokia built innovation into its organization?
Trace one of Nokia’s products through the product life cycle stages. How quickly does a wireless phone move through the stages?
Each group should share its findings with the class.
Individual Assignment
Read the opening vignette to the chapter. Think about the answers to the following questions:
How has Nokia organized for new product development?
Are wireless phones styles, fashions, or fads?
Share your findings with the class.
Think-Pair-Share
Consider the following questions, formulate an answer, pair with the student on your right, share your thoughts with one another, and respond to questions from the instructor.
How can a firm obtain new products?
What is a new product?
Why do new products fail?
What are the steps in the new product development process? Characterize each one.
Which step do you think is the most important? Explain and justify.
What are the major sources of new product ideas?
What is involved in idea screening?
What is a product concept?
What is one way product concepts are tested?
What are the parts of a marketing strategy?
What must happen before a product can be developed?
What are the different types of test markets?
How can new product development be sped up?
What are the stages of the product life cycle? Comment on each stage as to characteristics.
What is the difference between a style, fashion, and fad?
What are the different strategies for modifying a product in the maturity stage?
What are the strategies for dealing with products in the decline stage?
Outside Example
ProductScan® Online is an Internet-based service from Market Intelligence Service, Ltd. It is a full-service marketing intelligence service for new product launches in the consumer packaged goods field. It offers subscribers enough information for them to spot trends or track potential threats to their business.
They’ve developed six criteria to measure new products against, because they claim that “the key to success in new consumer packaged goods marketing is innovation.” So, they decided to define innovation. Their criteria are:
Positioning the product to new users or usage.
Providing a consumer benefit with new packaging.
Offering additional value through a new formulation.
Introducing new technology to the product.
Opening a new market for the product.
Merchandising.
Although the last criterion, merchandising, has not been addressed in the textbook as yet, the other five criteria have been. Go to the Web site, and click on “What’s New.” There are free reports there, by year, on new product innovations that have been released. Select the latest year, and review the products listed. Answer the following questions:
Apply the above criteria to the products listed. Are they all truly innovative?
Look at the number of products launched over the years (statistics contained within the report). Considering that only one in ten new products succeed, what is the motivation for companies to launch such an astounding number of new products?
Which of the products listed would you have test marketed? Why?
Which products do you predict will still be considered innovative in another year?
Take any of the products discussed and trace through their likely life cycle. What kind of marketing strategy would you use in each stage to keep the product at the forefront?

32. Marketing Strategies: Decline Stage
Product – Phase out weak items
Price – Cut price
Distribution – Use selective distribution: phase out unprofitable outlets
Advertising – Reduce to level needed to retain hard-core loyalists
Sales Promotion – Reduce to minimal level

33. Discussion
How can marketers help products bounce back from the decline stage?
They can reposition to a new target or to the existing target with new benefits.
They can change features and attributes.
If it is a style, it often returns at the whim of fashion designers.
9 - 33

34. Click on screenshot for website with products
Low-dose Aspirin Ad
Baby Aspirin has been in the decline stage for over 10 years after discovery that it may have dangerous side effects for children.
Recently it has been discovered it helping to prevent heart attacks in adults and is now marketed to this new target.
Marketing in Action
Click on screenshot for website with products
9 - 34