1. New-Product Development and Product Life-Cycle Strategies
Chapter Nine
New-Product Development and Product Life-Cycle Strategies

2. New-Product Development and Product Life-Cycle Strategies
Topic Outline
New-Product Development Strategy
New-Product Development Process
Managing New-Product Development
Product Life-Cycle Strategies
Additional Product and Service Considerations

3. New-Product Development Strategy
Two ways to obtain new products
Acquisition refers to the buying of a whole company, a patent, or a license to produce someone else’s product New product development refers to original products, product improvements, product modifications, and new brands developed from the firm’s own research and development
Note to Instructor
New products are important—to both customers and the marketers who serve them. For companies, new products are a key source of growth. For customers, they bring new solutions and variety to their lives. Yet, innovation can be very expensive and very risky. New products face tough odds. According to one estimate, 90 percent of all new products in America fail. Each year, companies lose an estimated $20 billion to $30 billion on failed food products alone.

4. New-Product Development Reasons for new product failure
Overestimation of market size
Poor design
Incorrect positioning
Wrong timing
Priced too high
Ineffective promotion
Management influence
High development costs
Competition
Note to Instructor
If you are running a marketing plan project in your class, this is a good time to ask why their project ideas might fail in the real market. You can then ask what they plan to do to prevent failure.

5. New-Product Development Process
Major Stages in New-Product Development

6. New-Product Development Process
Idea Generation
Idea generation is the systematic search for new-product ideas
Sources of new-product ideas
Internal
External
Note to Instructor
Discussion Question
In groups of four come up with one ideas for a new products.
It might be helpful if you assign each group a category including kitchen products, office supplies, laptop accessories, dessert products, bathroom accessories, children’s toys, baby products, etc. Students will realize this is very difficult.

7. New-Product Development Process
Idea Generation
Internal sources refer to the company’s own formal research and development, management and staff, and intrapreneurial programs External sources refer to sources outside the company such as customers, competitors, distributors, suppliers, and outside design firms
Note to Instructor
It is not difficult to find examples of companies that are running contests where they ask consumers to send in ideas for new products. Dorito’s recently asked consumers to come up with a new flavor and new advertising. The Classic Mini Cooper brand was running Mini Mania’s the “Awesome New Product” Idea Contest. The grand prize winner received a 25 percent off promo code! Two second place winners will receive 15 percent off promo codes.

8. New-Product Development Process
Idea Screening
Identify good ideas and drop poor ideas
R-W-W Screening Framework:
Is it real?
Can we win?
Is it worth doing?

9. New-Product Development Process
Concept Development and Testing
Product idea is an idea for a possible product that the company can see itself offering to the market Product concept is a detailed version of the idea stated in meaningful consumer terms Product image is the way consumers perceive an actual or potential product

10. New-Product Development Process
Concept Development and Testing
Concept testing refers to testing new-product concepts with groups of target consumers
Note to Instructor
This Web link ties to a concept testing survey at Questionpro. It is helpful to point out to students that there are many online Web survey sites, which offer free surveys for market research. In this example, they supply a template for concept testing.

11. New-Product Development Process
Marketing Strategy Development
Marketing strategy development refers to the initial marketing strategy for introducing the product to the market
Marketing strategy statement includes:
Description of the target market
Value proposition
Sales and profit goals

12. New-Product Development Process
Marketing Strategy Development
Business analysis involves a review of the sales, costs, and profit projections to find out whether they satisfy the company’s objectives

13. New-Product Development Process
Marketing Strategy Development
Product development involves the creation and testing of one or more physical versions by the R&D or engineering departments
Requires an increase in investment
Note to Instructor
Many companies use their employees for product testing. Students might have worked at various consumer packaged goods companies, perhaps Quaker Oats, where they had to test cereal every day at lunch.
The text gives the example:
At Gillette, almost everyone gets involved in new-product testing. Every working day at Gillette, 200 volunteers from various departments come to work unshaven, troop to the second floor of the company’s gritty South Boston plant, and enter small booths with a sink and mirror. There they take instructions from technicians on the other side of a small window as to which razor, shaving cream, or aftershave to use. The volunteers evaluate razors for sharpness of blade, smoothness of glide, and ease of handling. In a nearby shower room, women perform the same ritual on their legs, underarms, and what the company delicately refers to as the “bikini area.” “We bleed so you’ll get a good shave at home,” says one Gillette employee.

14. New-Product Development Process
Marketing Strategy Development
Test marketing is the stage at which the product and marketing program are introduced into more realistic marketing settings Provides the marketer with experience in testing the product and entire marketing program before full introduction
Note to Instructor
Here is a list of the top 10 test markets
1. ALBANY—SCHENECTADY—TROY, NY
2. ROCHESTER, NY
3. GREENSBORO—WINSTON—SALEM—-HIGH POINT, NC
4. BIRMINGHAM, AL
5. SYRACUSE, NY
6. CHARLOTTE—GASTONIA—ROCK HILL, NC/SC
7. NASHVILLE, TN
8. EUGENE—SPRINGFIELD, OR
9. WICHITA, KS
10. RICHMOND—PETERSBURG, VA
Source: Acxiom Corp., June 2004

15. New-Product Development Process
Types of Test Markets
Standard test markets
Controlled test markets
Simulated test markets
Note to Instructor
Standard test markets are small representative markets where the firm conducts a full marketing campaign and uses store audits, consumer and distributor surveys, and other measures to gauge product performance. Results are used to forecast national sales and profits, discover product problems, and fine-tune the marketing program.
Controlled test markets are panels of stores that have agreed to carry new products for a fee. In general they are less expensive than standard test market, faster than standard test markets, but competitors gain access to the new product.
Simulated test markets are events where the firm will create a shopping environment and note how many consumers buy the new product and competing products. Provides measure of trial and the effectiveness of promotion. Researchers can interview consumers.

16. New-Product Development Process
Marketing Strategy Development
Advantages of simulated test markets
Less expensive than other test methods
Faster
Restricts access by competitors
Disadvantages
Not considered as reliable and accurate due to the controlled setting

17. New-Product Development Process
Marketing Strategy Development
When firms test market
New product with large investment
Uncertainty about product or marketing program
When firms may not test market
Simple line extension
Copy of competitor product
Low costs
Management confidence
Note to Instructor
This Web link takes you to Decision Insight—a company involved with online market testing. You can click at many examples they offer of clients as well as their virtual shopping testing products.

18. New-Product Development Process
Marketing Strategy Development
Commercialization is the introduction
of the new product
When to launch
Where to launch
Planned market
rollout

19. Managing New-Product Development
Successful new-product development should be:
Customer centered
Team centered
Systematic

20. Product Life-Cycle Strategies
Note to Instructor
Discussion Question
Name a product at each stage of the PLC.
This concept is very new to students. See if they can identify products or product categories that are in each stage of the model. Introduction might include online movie viewing software, growth might include MP3 players, maturity might include bottled water, and decline could include soda (actually in a decline) or videotape players.

21. Consumer Markets and Buyer Behavior
Learning Objective 4
Describe the adoption and diffusion process for new products.
The Buyer Decision Process for New Products
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22. The Buyer Decision Process for New Products
The adoption process is the mental process an individual goes through from first learning about an innovation to final regular use.
Stages in the adoption process include:
Awareness
Interest
Evaluation
Trial
Adoption
A new product is a good, service, or idea that is perceived by some potential customers as new. It may have been around for a while, but our interest is in how consumers learn about products for the first time and make decisions on whether to adopt them.
Consumers go through five stages in the process of adopting a new product:
Awareness: The consumer becomes aware of the new product but lacks information about it.
Interest: The consumer seeks information about the new product.
Evaluation: The consumer considers whether trying the new product makes sense.
Trial: The consumer tries the new product on a small scale to improve his or her estimate of its value.
Adoption: The consumer decides to make full and regular use of the new product.
This model suggests that new-product marketers should think about how to help consumers move through these stages. For example,
For example, if consumers are not buying a new product because they do not perceive a need for it, marketing might launch advertising messages that trigger the need and show how the product solves customers’ problems.
If customers know about the product but are not buying because they hold unfavorable attitudes toward it, marketers must find ways to change either the product or consumer perceptions.
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23. The Buyer Decision Process for New Products
Individual Differences in Innovativeness
Innovators
Early Adopters
Early Mainstream
Late Mainstream
Lagging Adopters
People differ greatly in their readiness to try new products. In each product area, there are “consumption pioneers” and early adopters. Other individuals adopt new products much later. People can be classified into the adopter categories shown in Figure 5.7 on the next slide.
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24. The Buyer Decision Process for New Products
Individual Differences in Innovativeness
FIGURE | 5.7 Adopter Categories Based on Relative Time of Adoption of Innovations
The five adopter groups shown in the slide have differing values.
Innovators are venturesome—they try new ideas at some risk.
Early adopters are guided by respect—they are opinion leaders in their communities and adopt new ideas early but carefully.
The early mainstream is deliberate—although they rarely are leaders, they adopt new ideas before the average person.
The late mainstream is skeptical—they adopt an innovation only after a majority of people have tried it.
Lagging adopters are tradition bound—they are suspicious of changes and adopt the innovation only when it has become something of a tradition itself.
This adopter classification suggests that an innovating firm should research the characteristics of innovators and early adopters in their product categories and direct initial marketing efforts toward them.
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25. The Buyer Decision Process for New Products
Influence of Product Characteristics
on Rate of Adoption
Relative advantage
Compatibility
Complexity
Divisibility
Communicability
Five characteristics are especially important in influencing an innovation’s rate of adoption.
Relative advantage is the degree to which the innovation appears superior to existing products.
Compatibility is the degree to which the innovation fits the values and experiences of potential consumers.
Complexity is the degree to which the innovation is difficult to understand or use.
Divisibility is the degree to which the innovation may be tried on a limited basis.
Communicability is the degree to which the results of using the innovation can be observed or described to others.
Other characteristics influence the rate of adoption, such as initial and ongoing costs, risk and uncertainty, and social approval. The new-product marketer must research all these factors when developing the new product and its marketing program.
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26. Stages in the Adoption Process
Awareness
Interest
Evaluation
Trial
Adoption
Adoption process is the mental process through which an individual passes from first learning about an innovation to final adoption. Consumers go through five stages in the process of adopting a new product.
The first stage is awareness. In this stage the consumer becomes aware of the new product but lacks information about it.
The second stage is interest, which refers to the consumer seeking information about the new product.
The third stage is evaluation, where the consumer considers whether trying the new product makes sense.
The fourth stage is trial. In this stage, the consumer tries the new product on a small scale to improve his or her
estimate of its value.
The final stage is adoption where the consumer decides to make full and regular use of the new product.

27. Adopter Categories Based on Relative Time of Adoption of Innovations
People can be classified into the adopter categories shown in this figure. The curve illustrates that after a slow start, an increasing number of people adopt the new product.
The five adopter groups have differing values. Innovators try new ideas at some risk. Early adopters are opinion leaders in their communities and adopt new ideas early but carefully. Early mainstream adopters adopt new ideas before the average person. Late mainstream adopters adopt an innovation only after a majority of people have tried it. Finally, lagging adopters adopt the innovation only when it has become something of a tradition itself.

28. Characteristics Influencing an Innovation’s Rate of Adoption
Relative advantage
Compatibility
Complexity
Divisibility
Communicability
The characteristics of the new product affect its rate of adoption.
Relative advantage is the degree to which the innovation appears superior to existing products.
The second characteristic is compatibility, which is the degree to which the innovation fits the values and experiences of potential consumers.
The third characteristic is complexity, which refers to the degree to which the innovation is difficult to understand or use.
The fourth characteristic is divisibility, which is the degree to which the innovation may be tried on a limited basis.
The fifth characteristic is communicability. This refers to the degree to which the results of using the innovation can be observed or described to others.
Other characteristics that influence the rate of adoption include initial and ongoing costs, risk and uncertainty, and social approval.

29. Product Life-Cycle Strategies
Product development
Sales are zero and investment costs mount
Introduction
Slow sales growth and profits are nonexistent
Growth
Rapid market acceptance and increasing profits.
Maturity
Slowdown in sales growth and profits level off or decline
Decline
Sales fall off and profits drop

30. Product Life-Cycle Strategies
Note to Instructor
Style is a basic and distinctive mode of expression.
Fashion is a currently accepted popular style in a given field.

31. Product Life-Cycle Strategies
Introduction Stage
Slow sales growth
Little or no profit
High distribution and promotion expense

32. Product Life-Cycle Strategies
Growth Stage
Sales increase
New competitors enter the market
Price stability or decline to increase volume
Consumer education
Profits increase
Promotion and manufacturing costs gain economies of scale

33. Product Life-Cycle Strategies
Maturity Stage
Slowdown in sales
Many suppliers
Substitute products
Overcapacity leads to competition
Increased promotion and R&D to support sales and profits
Note to Instructor
Cars are very mature products so companies are always coming up with new models and features. This is a link to a very funny YouTube ad about a new car product.

34. Product Life-Cycle Strategies
Maturity Stage Modifying Strategies
Market modifying
Product modifying
Marketing mix modifying
Note to Instructor
This link is for 1000 Uses of Glad Web site. It is described below, and in the book, as a way to modify the product.
In modifying the market, the company tries to increase the consumption of the current product. It may look for new users and new market segments. 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, style, or packaging to attract new users and to inspire more usage. It can improve the product’s styling and attractiveness. It might improve the product’s quality and performance—its durability, reliability, speed, taste.

35. Product Life-Cycle Strategies
Decline Stage
Maintain the product
Harvest the product
Drop the product

36. Product Life-Cycle Strategies
Summary of Product Life Cycle