0. New-Product Development and Product Life-Cycle Strategies
Chapter 10

1. Objectives
Understand how companies find and develop new-product ideas.
Learn the steps in the new-product development process.
Know the stages of the product life cycle.
Understand how marketing strategies change during the product’s life cycle.

2. Microsoft $50 billion in profits over 27 years
Early new product development relied heavily on copying the competition
$4.2 billion annually invested in R & D
Innovation is critical to Microsoft’s future success
Much of R & D efforts are Internet related
Many new products and services are in development

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

4. New-Product Development Strategies
Strategies for Obtaining New Product Ideas
New-Product Development Strategies
Strategies for Obtaining New Product Ideas
Acquired
Companies
Original
Products
Acquired
Patents
Product
Improvements
Acquired
Licenses
Product
Modifications
New
Brands

5. New Product Development Process
This CTR corresponds to Figure 9-1 on p. 275 and relates to the discussion on pp
Marketing
Strategy
Business
Analysis
Concept
Development
and Testing
Product
Development
Stages in New Product Development
Idea Generation. This stage is the systematic search for new product ideas. Sources for new product ideas include internal sources, customers, competitor's products, distributors & suppliers, and other sources.
Screening. This stage focuses on reducing the number of ideas by dropping poor ideas as soon as possible. This helps reduce costs and focus attention more productively.
Concept Development and Testing. This stage involves translating ideas into product concepts or detailed versions of the ideas stated in meaningful consumer terms. Concepts are then tested on target consumers.
Marketing Strategy. This stage consists of three parts. The first part describes the target market, the second part outlines the product's projected price, distribution, and budget for the first year, the third part describes long-term sales, profit goals, and marketing mix strategy.
Business Analysis. This stage reviews the sales, costs, and profit projections for the product to find out if they satisfy overall company objectives.
Product Development. This stage involves bringing the product concept into existence as a physical product to ensure that the idea is a workable product.
Test Marketing. This is the stage at which the product and marketing program are implemented in one or more realistic market settings.
Commercialization. This stage involves actually introducing the new product into the competitive marketplace. In this stage, the company must make decisions involving when to introduce, where, to whom, and how.
Idea
Screening
Test
Marketing
Idea
Generation
Commercialization

6. New Product Development Strategy
New Product Development Process:
Stage 1: Idea Generation
Internal idea sources:
R & D
External idea sources:
Customers, competitors, distributors, suppliers

7. 3M’s corporate culture encourages, supports, and rewards new product ideas and innovation

8. Using the Web to Solicit Product Ideas
Procter and Gamble
To see how P&G solicits ideas from customers, visit the Procter and Gamble home page, click on the Resources and Offers button, then select the Share Your Thoughts listing.
Procter & Gamble

9. New Product Development Process Step 2. Idea Screening
Many companies have systems for rating and screening ideas which estimate:
Process to spot good ideas and drop poor ones as soon as possible.
Market Size
Product Price
Development Time & Costs
Manufacturing Costs
Rate of Return
Then, the idea is evaluated against a set of general company criteria.

10. New Product Development Process Step 3. Concept Development & Testing
1. Develop Product Ideas into
Alternative
Product Concepts
2. Concept Testing - Test the
Product Concepts with Groups
of Target Customers
3. Choose the Best One

11. New Product Development Process Step 4. Marketing Strategy Development
Marketing Strategy Statement Formulation
Part One Describes Overall:
Target Market
Planned Product Positioning
Sales & Profit Goals
Market Share
Part Two Describes Short-Term:
Product’s Planned Price
Distribution
Marketing Budget
Part Three Describes Long-Term:
Sales & Profit Goals
Marketing Mix Strategy

12. New Product Development Process Step 5. Business Analysis
Review of Product Sales, Costs,
and Profits Projections to See if
They Meet Company Objectives
New Product Development Process Step 5. Business Analysis
Step 6. Product Development
If No, Eliminate
Product Concept
If Yes, Move to
Product Development

13. BusinessNow Sensable Video Clip
Computer modeling is being used to aid in product design
Clicking the Video Clip icon will launch a short video (typically between 20 seconds and 1 minute in length) extracted from one of the BusinessNow Video shorts that accompany the text. You must have RealPlayer, QuickTime, or Windows Media Player installed for the video clip to function correctly. From the VIEW menu, select COMMENTS to hide this box.

14. Daimler is currently road-testing its prototype NECAR 5 (New Electric Car)

15. New Product Development Strategy
IRI BehaviorScan provides an in-market laboratory for testing new products and marketing programs
IRI BehaviorScan

16. New Product Development Process Step 7. Test Marketing
Test Marketing is the Stage Where the Product and Marketing Program are Introduced into More Realistic Market Settings.
Budget Levels
Product
Packaging
Positioning
Branding
Advertising
Elements that May be Test Marketed by a Company
Pricing
Distribution

17. Full marketing campaign representative cities.
New Product Development Process Step 7. Test Marketing
Test Marketing
This CTR relates to the discussion on pp
Controlled
Test Market
A few stores that have
agreed to carry new
products for a fee.
Standard
Test Market
Full marketing campaign
in a small number of
representative cities.
Test Marketing
Standard Test Markets. Under this approach, the company finds a small number of representative test cities, conducts a full marketing campaign in those cities, and then measures and evaluates performance. This provides a “real world” picture of how the product performs. But there are drawbacks. Standard testing is expensive, long, and tips competitors to company strategy.
Controlled Test Markets. This approach uses a research firm that has designated store placement space for their clients. Participating stores receive a fee. Some services like Scantrack (Nielsen) and BehaviorScan (IRI) offer computerized monitoring of individual consumer panels whose television viewing is cross-tabulated with store purchases. Controlled testing is quicker and less expensive than standard testing. Concerns revolve around representativeness of the test markets (small size) and tipping off competitors.
Simulated Test Markets. This approach creates a simulated shopping environment by the company or research firm. Consumers are exposed to promotions and then given money to shop with. Purchase patterns are observed and consumers are interviewed afterward by researchers. Simulated test marketing is inexpensive and quick. Representativeness and demand characteristics are concerns and this approach might be used as a pretest for a go-no go decision on further testing.
Simulated
Test Market
Test in a simulated
shopping environment
to a sample of
consumers.

18. Where is a good test market?
I. Factors to consider
- Size
- Demographics
- Isolation from other cities
- Media availability and cost
- Retailer support
2. Popular cities
- Big cities: Detroit, St. Louis, Columbus, Philadelphia
- Small cities: Nashville, Jacksonville, Toledo, Wilmington

19. New Product Development Process Step 8. Commercialization
Commercialization is the Introduction of the New Product into the Marketplace.
When?
Where? To
Whom?
How?

20. LIFE IS SHORT AND THEN YOU INTRODUCE A NEW PRODUCT
Product lifetimes are shrinking, as competitors pressure innovators by offering imitations of successful, high-margin products.
Panasonic now replaces electronic consumer products on a 90-day cycle (with older models going to discounters)
the big Japanese car makers are aiming to offer new models every two years.
(from the New York Times)

21. Speeding Up Development
This CTR relates to the material on p
Sequential
Simultaneous
Step 1
Step 2
Step 3
Step 4
Step 1
Step 2
Speeding Up New-Product Development
Sequential Product Development. Isolated groups in each stage work on the new product until the stage is completed. This completed stage is then passed to the next group or department to begin its stage in the process. This organization brings control to complex development projects and reduces the risk associated with costly mistakes. But it is also extremely slow and subjects the company to greater competitive risk and potential lost sales while the process is completed.
Simultaneous Product Development. This approach organizes new product development into a more flexible integration of each stage in the process. Simultaneous organization features close communication and coordination of departments and groups working on different stages, more overlap of work on steps to save time and increase effectiveness. Coordination facilitates each stage benefiting from the developmental process of the other stages while still planning what the product should be and will become.
Step 3
Step 4

22. Discussion Question Why do products fail?
See if you can identify the fatal flaw in the brands below and at right.
Ben-Gay Asprin
Buttermilk Shampoo
Fruit of the Loom Laundry Detergent

23. Causes of New Product Failures
Overestimation of Market Size
Product Design Problems  Insignificant difference
Product Incorrectly Positioned, Priced or Advertised
Costs of Product Development
Competitive Actions
No access to the market
Bad timing
To create successful new products, the company must:
understand it’s customers, markets and competitors
develop products that deliver superior value to customers.

24. Alternatives to Development:
Acquire new Products
Develop "me-too" products.
Revive old products

25. Product Life-Cycle Strategies
The Typical Product Life Cycle (PLC) Has Five Stages
Product Development, Introduction, Growth, Maturity, Decline
Not all products follow this cycle:
Fads
Styles
Fashions

26. Sales and Profits Over A Product’s Life
Figure 10-2:
Sales and Profits Over A Product’s Life

27. Product Life Cycle length style - comes, goes, comes back
fashion - come, goes away slowly
fad - comes and goes way quickly

28. Styles, Fashions, and Fads
Figure 10-3:
Styles, Fashions, and Fads

29. Companies want their products to enjoy a long life cycle
Companies want their products to enjoy a long life cycle. Hershey’s actively promotes the fact that it has been “unchanged since 1899”

30. Product Life-Cycle Strategies
Additional marketing investments can move a product back into the growth stage, as in the case of Cracker Jack.

31. 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

32. Problems Using the PLC
Trouble identifying Which Stage of the PLC the Product Is In
The PLC Concept Can Help in Developing Good Marketing Strategies for Different Stages of the Product Life-Cycle, However Some Problems Can Arise:
Difficult to Forecast the Sales Level, the Length of Each Stage, and Shape of the PLC
Strategy is Both a Cause and a Result of the Product’s Life Cycle

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

34. Product Life-Cycle Strategies
Low sales
High cost per customer acquired
Negative profits
Innovators are targeted
Little competition
PLC Stages
Product development
Introduction
Growth
Maturity
Decline

35. Product Life-Cycle Strategies
Rapidly rising sales
Average cost per customer
Rising profits
Early adopters are targeted
Growing competition
PLC Stages
Product development
Introduction
Growth
Maturity
Decline

36. Product Life-Cycle Strategies
Sales peak
Low cost per customer
High profits
Middle majority are targeted
Competition begins to decline
PLC Stages
Product development
Introduction
Growth
Maturity
Decline

37. Product Life-Cycle Strategies
Declining sales
Low cost per customer
Declining profits
Laggards are targeted
Declining competition
PLC Stages
Product development
Introduction
Growth
Maturity
Decline