1. New Product Development & Product Life-Cycle Strategies

2. 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

3. New Product Development (NPD) Strategies
Strategies for Obtaining New Product Ideas
Acquisition of
Companies
New Product
Developments
Acquisition of
Patents
Product
Improvements
Acquisition of
Licenses
Product
Modifications

4. New Product Development
Nike acquired Converse in for $305 million

5. What is New Product?
New-to-the world products ğ new products that create an entirely new market
New product lines ğ that allow a company to enter an established market for the first time
Additions to existing product lines ğ new products that supplement a company’s established product lines
Improvements and revisions ğ new products that provide improved performance or greater perceived value
Repositioning ğ existing products that are targeted to new markets
Cost reductions ğ new products that provide similar performance at lower cost

6. Why New Products Fail? Overestimation of market size
Product design problems (poor design)
Product incorrectly positioned, priced or advertised (poor marketing execution)
Product may have been pushed despite poor marketing research findings
High costs of product development
Strong competitive reaction

7. Challenges in NPD Idea shortage Fragmented markets
Social and governmental constraints
Cost
Capital shortage
Need for speed
Shorter product life cycles

8. Successful New Products
Unique, superior product
Well-defined product concept prior to development
Technological and marketing synergy
Quality of execution in all stages.
Understanding of customer needs
The earlier the product is introduced ahead of competition, new product success is greater
Top management support
Cross-functional team-work.
“You have to kiss a lot of frogs to find a prince”--- 3M

9. New Product Development Process
Marketing
Strategy
Development
Business
Analysis
Product
Development
Concept
Development
and Testing
Market
Testing
Idea
Screening
Commercialization
Idea
Generation

10. NPD Process Step 1. Idea Generation
Systematic search for new product ideas obtained internally from employees at all levels and also from:
Customers
Competitors
Distributors
Suppliers

11. Probability of Success
commercialization
given technical
completion X
Probability of
economic
success given
commercialization X
Overall
probability
of success =
Probability
of technical
completion

12. NPD Process Step 2. Idea Screening
Process to spot good ideas and drop poor ones as soon as possible.
Executives provide a description of the product, along with estimates of:
Market Size
Product Price
Development Time & Costs
Manufacturing Costs
Rate of Return
Then, the idea is evaluated against a set of general company criteria.

13. NPD Process Step 3. Concept Development
1. Develop New Product Ideas
into Alternative Detailed
Product Concepts
NPD Process Step 3. Concept Development
2. Concept Testing - Test the
New Product Concepts with
Groups of Target Customers
3. Choose the One That Has the
Strongest Appeal to Target
Customers

14. Concept Development Product Idea: Product Concept: Product Image:
idea for a possible product that the company can see itself offering.
Product Concept:
detailed version of the idea stated in meaningful consumer terms.
Product Image:
the way consumers perceive an actual or potential product.

15. Concept Development (Example)
A large food processing company gets the idea of producing a powder to add to milk to increase its nutritional value and taste ğ The product idea
The product idea should be transformed to product concept by answering some questions:
Who will use the product?
What primary benefits should this product provide?
When will people consume this drink?

16. Concept Development (Example)
Concept 1: An instant breakfast drink for adults who want a quick nutritious breakfast without preparing breakfast
Concept 2: A tasty snack for children to drink as a midday refreshment
Concept 3: A healthy supplement for older adults to drink in the evening before they go to bed

17. Concept Testing
Presenting the product concept to appropriate target consumers and getting their reactions
Computer-aided design
Virtual reality programs that stimulate the reality
Presenting consumers an elaborated version of the concept (see example)
Description of the new concept should include:
Basic benefits and functions of the product
Package size
Price level or price range
Some product dimensions are evaluated based on the answers of consumers

18. Concept Testing (Example)
Elaboration of Concept 1:
“Our product is a powdered mixture that is added to milk to make an instant breakfast that gives the person all the needed breakfast nutrition along with good taste and high convenience.
The product would be offered in 3 flavors: chocolate, vanilla, and strawberry; and would come in individual packets, 6 to a box, at $2.49 a box.”

19. Concept Testing Do you understand the concept?
What do you see as the benefits of the new product compared with a conventional product?
Do you believe the claims about that product?
What improvements can you suggest?
Would you prefer to use this type of product?
What do you think the price of the product?
Would you buy the product.?
Who would use this product and when and how often will the product be used?

20. Product & Brand Positioning
(a) Product-positioning
map
(breakfast market)
b) Brand-positioning
map
(instant breakfast market)
Expensive
Slow
Inexpensive
Quick
High price
Low in calories
Low price
High in calories
Brand C
Brand B
Brand A
Bacon
and
eggs
Pancakes
Instant
breakfast
Cold
cereal
Hot

21. NPD Process Step 4. Marketing Strategy
Part One Describes Overall:
Target Market size, structure & behavior
Planned Product Positioning
Sales Market Share
& Profit Goals
Part Two Describes First-Year:
Product’s Planned Price
Distribution Strategy &
Marketing Budget
Part Three Describes Long-Term:
Sales & Profit Goals
Marketing Mix Strategy over Time

22. Business Analysis Estimating total sales :
Total estimated sales are the sum of estimated first-time
sales,replacement sales and repeat sales.
2. Estimating Costs and Profits :
Costs are estimated by the R&D , manufacturing, marketing and finance departments
3. Projected five-year cash flow statement
Break-even analysis or risk analysis are other financial measures.

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

24. NPD Process Step 6. Product Development
Developing concept into physical product.
Translating target customer requirements into a working prototype by using QFD
Taking the list of desired customer attributes and turning them into engineering attributes
Improves communication betw. marketers, engineering & manufacturing
Prototypes must have correct physical features and convey psychological characteristics.
Functional & use (consumer) tests
Laboratory tests
In-home placement tests

25. Product development (Samsonite example)
1- A qualitative research- “luggage exploratory” “---to focus
on the issues that people have when they travel
2. Initial Concept testing ( a series of black and
white drawings)
3. Development of a prototype of the new product
(hard-side case with wheels)
4. Production model of the Piggyback was tested
5. A quantitative research---reaction towards the marketing
mix and perceived benefits of the product compared to
its competitors.

26. NPD Process Step 7. Test Marketing
Budget Levels
Product
Stage where the product and marketing program are introduced into more realistic market settings
Packaging
Positioning
Branding
Advertising
Elements that May be Test Marketed by a Company
Pricing
Distribution

27. Test Marketing - Approaches
Controlled
Test Market
A few stores that have
agreed to carry new
products for a fee.
Simulated
Test Market
Test in a simulated
shopping environment
to a sample of
consumers.
Sales-
Wave
Research
Test offering trial to
a sample of
consumers in
successive
periods.
Standard
Test Market
Full marketing campaign
in a small number of
representative cities.

28. NPD Process Step 8. Commercialization
Main issues in commercialization:
Must decide on timing (i.e., when to introduce the product).
Must decide on where to introduce the product (e.g., single location, state, region, nationally, internationally).
Must develop a market rollout plan (to whom to introduce new product, etc.)

29. Consumer Adoption Process
Innovation ğ good, service or idea that is perceived by someone as “new”
Innovation diffusion process ğ the spread of a new idea from its source of invention/creation to its ultimate users or adopters
Adopters move through ğ awareness – interest – evaluation – trial – adoption

30. Adoption of Innovations
Interrelated concepts
Diffusion
ADOPTION Within the mind of consumer
DIFFUSION Among members of a social system

31. Adoption of Innovations
Adoption ğ a decision to make full use of innovation as a best course of action (Rogers, 1976) or
Adoption ğ to use and continued use of a new item; involves commitment rather than purchase or trial
Purchase or Trial ?

32. Adoption of Innovations
Innovativeness ADOPTION
Innovativeness ğ the degree to which an individual is relatively earlier in adopting an innovation than other members of the system
Innovativeness ğ the degree to which an individual is receptive to new ideas and makes decisions independently of the communicated experience of others
Innovativeness has been considered as one of the core concepts of adoption.
Rogers (1971) defines innovativeness as:
In this definition ‘relatively earlier’ is meant earlier in terms of actual time of adoption, rather than whether the individual perceives he adopted the innovation relatively earlier than others in his system.
However, another definition states that innovativeness is......

33. Adopter Categorization (on the Basis of Relative Time of Adoption of Innovations)
2 1/2%
Innovators
13 1/2%
Early
adopters
34%
Early
majority
34%
Late
majority
16%
Laggards
Time of adoption innovations

34. Consumer Adoption Process
New-product marketers aim at consumers who are early adopters.
Early-adopter theory:
- Persons within a target market differ in the amount
of elapsed time between their exposure to a new
product and their trying it.
- Early adopters share some traits
- Early adopters tend to be opinion leaders

35. Stages in the Adoption Process
1. Awareness
2. Interest
3. Evaluation
4. Trial
5. Adoption
The marketer should facilitate consumer movement through these stages

36. Influence of Product Characteristics on the Rate of Adoption
Relative Advantage
Is the innovation
superior to existing
products?
Communicability
Can results be easily
observed or described
to others?
Divisibility
Can the innovation
be used on a
trial basis?
Compatibility
Does the innovation
fit the values and
experience of the
target market?
Complexity
Is the innovation
difficult to
understand or use?

37. Sales & Profit Life Cycles
Time
Sales & profits ($)
Introduction
Growth
Maturity
Decline

38. Product Life-Cycle
Product has a life cycle and as the product passes through each
stage of the life cycle, the changes are normally made.
Product have a limited life.
2. Product sales pass through distint stages----different challenges,
opportunities and problems to the seller
3. Profits rise and fall
4. Products require different marketing, financial, manufacturing
and human resource strategies at different stages.

39. Product Life Cycle (PLC)
Sales and Profits Over the Product’s Life from Inception to Demise

40. Applications of the PLC
The PLC concept can describe a:
Product class which has the longest life cycles (e.g., gas-powered cars),
Product form which tends to have the standard PLC shape (e.g., dial telephone),
Brand which can change quickly because of changing competitive attacks and responses

41. Other Shapes of PLC Not all products exhibit a bell-shaped PLC.
Growth-slump-maturity pattern
Sales grow rapidly, then fall to a “petrified” level.At this level late adopters buy, early adopters replace the product.
Cycle-recyle pattern
Sales of new drugs. The product aggressively promoted. This produce the first cycle. Sales start declining. Then new promotion push is given and second cycle begins.
Scalloped PLC
As the new uses are discoverd, the product’s sales pass through a succession of life cycles

42. Figure 11.4: Cost Product Life-Cycle Patterns
Other Shapes of PLC
Figure 11.4: Cost Product Life-Cycle Patterns

43. Other Shapes of PLC 3 special categories of PLC:
Style is a basic and distinctive mode of expression; can last for generations, going in and out of vogue (e.g., formal clothing, Danish modern furniture)
Fashion is a popular style in a given field (e.g. business casual)
Fad is a fashion that enters quickly, is adopted quickly, peak early and declines fast; they do not satisfy a strong need (e.g., pet rocks, and virtual pets)

44. Style, Fashion, and Fad Life Cycles
Other Shapes of PLC
Style, Fashion, and Fad Life Cycles

45. Practical Problems of PLC
Hard to identify which stage of the PLC the product is in.
Hard to pinpoint when the product moves to the next stage.
Hard to identify factors that affect product’s movement through stages.
Hard to forecast sales level, length of each stage, and shape of PLC.
Strategy is both a cause and result of the PLC.
“Clearly, the PLC is a dependent variable determined by market actions; it is not an independent variable to which companies should adapt their marketing programs”

46. Introduction Stage of the PLC
Summary of Characteristics, Objectives, & Strategies
Sales
Costs
Profits
Marketing Objectives
Product
Price
Low sales
High cost per customer
Negative or low
Create product awareness and trial
Offer a basic product
Usually is high; use cost-plus formula
Distribution
High distribution expenses
Promotion
Build awareness among early adopters and dealers

47. Four Introductory Marketing Strategies
Price
Low
High
Promotion
Rapid-
skimming
strategy
Slow-
skimming
strategy
Rapid-
penetration
strategy
Slow-
penetration
strategy

48. Growth Stage of the PLC
Summary of Characteristics, Objectives, & Strategies
Sales
Costs
Profits
Marketing Objectives
Product
Price
Rapidly rising sales
Average cost per customer
Rising profits
Maximize market share
Offer new product features, extensions, service, and warranty
Price to penetrate market
Distribution
Increase number of distribution outlets-build intensive distribution
Promotion
Build awareness and interest in the mass market

49. Maturity Stage of the PLC
Summary of Characteristics, Objectives, & Strategies
Sales
Peak sales
Costs
Low cost per customer
Profits
High profits, then lower profits
Marketing Objectives
Maximize profits while defending market share
Product
Diversify brand and models
Price
Price to match or beat competitors
Distribution
Build more intensive distribution
Promotion
Stress brand differences and benefits—encourage brand switching

50. Maturity Stage of the PLC (cont.)
Modifiying the Market
Company tries to increase consumption of the current product.
Modifying the Product
Changing characteristics such as quality, features, or styles to attract new users.
Modifying the Marketing Mix
Company tries to improve sales by changing one or more marketing mix elements.

51. Maturity Stage of the PLC (cont.) Market modification
Increase the consumption of the current product:
Sales volume = number of brand users x usage rate per user
To expand the number of brand users :
Convert nonusers
Enter new market segments
Win competitors’ customers
To convince current brand users to increase their usage of the brand:
Use the product more frequently
Use more of the product on each occasion
Discover new product uses

52. Maturity Stage of the PLC (cont.) Product Modification
To modify the product characteristics through:
Quality improvement ğ to increase product functional performance (improve durability, reliability, speed, taste, etc)
Expand usefulness, safety, convenience
Feature improvement ğ to add new features (size, weight, materials, accessories)
New features ğ serve to build the company’s image as an innovator and win the loyalty of market segments that value these features
Style improvement ğ to increase the product’s aesthetic appeal (improve styling and attractiveness)

53. Maturity Stage of the PLC (cont.) Marketing Mix Modification
Improving sales by changing one or more marketing mix elements
Prices: Would a price cut attract new buyers?
Would it be better to raise the price to signal high quality?
Distribution: Can more outlets be penetrated?
Can the company introduce the product into new distribution channels?
Promotion: Should advertising axpenditures be increased? Should the media mix be changed?
Should the number or quality of salespeople increased?

54. Decline Stage of the PLC
Summary of Characteristics, Objectives, & Strategies
Sales
Costs
Profits
Marketing Objectives
Product
Price
Declining sales
Low cost per customer
Declining profits
Reduce expenditure and maintain, reposition, harvest or drop the product
Phase out weak items
Cut price
Distribution
Go selective: phase out unprofitable outlets
Promotion
Reduce to minimal level needed to retain loyal customers