1. Chapter 10Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 1 MKTG Designed by Amy McGuire, B-books, Ltd. Prepared by Deborah Baker, Texas Christian University Lamb, Hair, McDaniel 2007-2008 10 CHAPTER Developing and Managing Products

2. Chapter 10Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 2 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 Discuss global issues in new-product development LO 1 LO 2 LO 3

3. Chapter 10Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 3 Learning Outcomes Explain the diffusion process through which new products are adopted Explain the concept of product life cycles LO 4 LO 5

4. Chapter 10Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 4 Explain the importance of developing new products and describe the six categories of new products The Importance of New Products The Importance of New Products LO 1

5. Chapter 10Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 5 LO 1 New Product A product new to the world, the market, the producer, the seller, or some combination of these. New Product

6. Chapter 10Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 6 LO 1 Categories of New Products New-to-the-World New Product Lines Product Line Additions Improvements or Revisions Repositioned Products Lower-Priced Products

7. Chapter 10Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 7 LO 1 Beyond the Book New Product for Starbucks SOURCE: Janet Adamy, “Lights, Camera, Action at Starbucks,” Wall Street Journal, April 22-23/2006, A2.  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.

8. Chapter 10Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 8 REVIEW LEARNING OUTCOME LO 1 Developing New Products

9. Chapter 10Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 9 Explain the steps in the new-product development process The New Product Development Process LO 2

10. Chapter 10Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 10 The New-Product Development Process LO 2 Long-term commitment Company-specific approach Capitalize on experience Establish an environment New Product Success Factors

11. Chapter 10Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 11 New-Product Development Process LO 2 New-Product Strategy Idea Generation Idea Screening Business Analysis Development Test Marketing Commercialization New Product

12. Chapter 10Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 12 LO 2 Idea Generation Customers Employees Distributors Competitors Vendors R & D Consultants Sources of New-Product Ideas Online http://www.ideo.com

13. Chapter 10Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 13 LO 2 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

14. Chapter 10Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 14 LO 2 Brainstorming The process of getting a group to think of unlimited ways to vary a product or solve a problem.

15. Chapter 10Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 15 LO 2 Idea Screening The first filter in the product development process, which eliminates ideas that are inconsistent with the organization’s new-product strategy or are inappropriate for some other reason.

16. Chapter 10Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 16 LO 2 Concept Testing A test to evaluate a new-product idea, usually before any prototype has been created.

17. Chapter 10Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 17 LO 2 Business Analysis Considerations in Business Analysis Stage Demand Cost Sales Profitability

18. Chapter 10Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 18 LO 2 Development  Creation of prototype  Marketing strategy  Packaging, branding, labeling  Promotion, price, and distribution strategy  Manufacturing feasibility  Final government approvals if needed

19. Chapter 10Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 19 LO 2 Simultaneous Product Development 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.

20. Chapter 10Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 20 LO 2 Test Marketing Online http://www.merwyn.com The limited introduction of a product and a marketing program to determine the reactions of potential customers in a market situation.

21. Chapter 10Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 21 LO 2 Alternatives to Test Marketing  Single-source research using supermarket scanner data  Simulated (laboratory) market testing  Online test marketing Online http://www.newproductworks.com

22. Chapter 10Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 22 Biz Flix LO 2 October Sky

23. Chapter 10Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 23 LO 2 Commercialization Production Inventory Buildup Distribution Shipments Sales Training Trade Announcements Customer Advertising

24. Chapter 10Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 24 REVIEW LEARNING OUTCOME LO 2 New-Product Development Process

25. Chapter 10Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 25 Beyond the Book Why Some Products Succeed and Others Fail NOTE: Supplemental content – not in book. Explain why some products succeed and others fail

26. Chapter 10Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 26 Beyond the Book Why New Products Fail NOTE: Supplemental content – not in book.  No discernible benefits  Poor match between features and customer desires  Overestimation of market size  Incorrect positioning  Price too high or too low  Inadequate distribution  Poor promotion  Inferior product

27. Chapter 10Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 27 Beyond the Book Success Factors NOTE: Supplemental content – not in book. Factors in Successful New Products Match between product and market needs Different from substitute products Benefit to large number of people

28. Chapter 10Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 28 Beyond the Book Success Factors NOTE: Supplemental content – not in book. Listening to customers Producing the best product Vision of future market Strong leadership Commitment to new- product development Project-based team approach Getting every aspect right

29. Chapter 10Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 29 Beyond the Book Why Products Succeed and Others Fail NOTE: Supplemental content – not in book.

30. Chapter 10Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 30 Discuss global issues in new-product development Global Issues in New-Product Development LO 3

31. Chapter 10Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 31 LO 3 Global Marketing Questions  Develop product for potential worldwide distribution  Build in unique market requirements  Design products to meet regulations and key market requirements

32. Chapter 10Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 32 REVIEW LEARNING OUTCOME LO 3 Global Issues in New-Product Development Single product worldwide Modification of products Multiple products in multiple countries

33. Chapter 10Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 33 Explain the diffusion process through which new products are adopted The Spread of New Products The Spread of New Products LO 4

34. Chapter 10Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 34 Diffusion LO 4 The process by which the adoption of an innovation spreads. Diffusion

35. Chapter 10Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 35 Categories of Adopters LO 4 Laggards Late Majority Early Majority Early Adopters Innovators

36. Chapter 10Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 36 Product Characteristics and the Rate of Adoption LO 4 Trialability Observability Relative Advantage Compatibility Complexity Online http://www.electronicgadgetdepot.com

37. Chapter 10Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 37 Sales of New Audio Products LO 4

38. Chapter 10Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 38 Marketing Implications of the Adoption Process LO 4 Direct from Marketer Word of Mouth Communication Aids the Diffusion Process

39. Chapter 10Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 39 REVIEW LEARNING OUTCOME LO 4 Diffusion Process for New Products

40. Chapter 10Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 40 Explain the concept of product life cycles Product Life Cycles LO 5

41. Chapter 10Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 41 Product Life Cycle LO 5 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).

42. Chapter 10Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 42 Product Life Cycle LO 5 Time Dollars Profits SalesIntroductoryStageGrowthStageMaturityStageDeclineStage 0

43. Chapter 10Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 43 Product Life Cycles for Styles, Fashions, and Fads LO 5

44. Chapter 10Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 44 U.S. Sales of Televisions LO 5

45. Chapter 10Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 45 Introductory Stage LO 5  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

46. Chapter 10Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 46 Introductory Stage in Europe LO 5

47. Chapter 10Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 47 Growth Stage LO 5  Increasing rate of sales  Entrance of competitors  Market consolidation  Initial healthy profits  Aggressive advertising of the differences between brands  Wider distribution

48. Chapter 10Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 48 Maturity Stage LO 5  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

49. Chapter 10Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 49 Decline Stage LO 5  Long-run drop in sales  Large inventories of unsold items  Elimination of all nonessential marketing expenses  “Organized abandonment”

50. Chapter 10Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 50 Diffusion Process and PLC Curve LO 5

51. Chapter 10Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 51 REVIEW LEARNING OUTCOME LO 5 Product Life Cycles Time INTRODUCTION GROWTH MATURITYDECLINE Product Strategy Distribution Strategy Promotion Strategy Pricing Strategy Limited models Frequent changes More models Frequent changes. Large number of models. Eliminate unprofitable models Limited Wholesale/ retail distributors Expanded dealers. Long- term relations Extensive. Margins drop. Shelf space Phase out unprofitable outlets Awareness. Stimulate demand. Sampling Aggressive ads. Stimulate demand Advertise. Promote heavily Phase out promotion High to recoup development costs Fall as result of competition & efficient production. Prices fall (usually). Prices stabilize at low level. Sales