1. Developing New Products Developing New Products and Managing the Product Life-Cycle Chapter 8

2. Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall8 - 2 1. Explain how companies find and develop new- product ideas. 2. List and define the steps in the new-product development process and the major considerations in managing this process. 3. Describe the stages of the product life cycle and how marketing strategies change during the product’s life cycle. 4. Discuss two additional product and services issues: socially responsible product decisions and international product and services marketing. Rest Stop: Previewing the Concepts

3. Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall8 - 3 Google: Innovation Excellence First Stop Google’s Success  Highly Innovative: Google topped Fast Company’s list of the world’s most innovative firms, and regularly ranks within top 3 on other lists.  Market Share: In a competitive market, Google’s core business (online search) market share of 63% is twice the combined share of its two closest competitors.  Ad Revenues: Google captures 70% of all U.S. search-related ad revenues. How They Did It  Light Speed Innovation: New product planning looks ahead only four to five months; firm strives to take the fastest path to new product development.  Idea Generation: Ideas come from any source or employee. Engineers spend 20% of time developing their own new ideas.  New Product Testing: New applications are launched on Google Labs; users test and provide feedback. Product development is iterative.

4. Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall8 - 4 New-Product Development The development of original products, product improvements, product modifications, and new brands through the firm’s own product development efforts. New product development and innovation is very expensive and very risky.

5. Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall8 - 5 New-Product Failures  Why do new products fail? –Overestimation of market size. –Product design problems. –Incorrectly positioned, priced, or advertised. –Pushed by high level executive despite poor marketing research findings. –Excessive development costs. –Competitive reaction.

6. Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall8 - 6 Marketing in Action The Arbor Strategy group maintains a huge showcase of product failures. Visit their Web site to see some historical failures, as well as predictions on which new products available today will succeed!Visit their Web site

7. Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall8 - 7 Figure 8.1: Major Stages in New-Product Development

8. Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall8 - 8 New-Product Development Process  Idea generation: –Internal sources: Company employees at all levels. Example: Samsung built a special Value Innovation Program Center in which firm engineers, designers, and researchers comingle to come up with creative new- product ideas.

9. Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall8 - 9 New-Product Development Process  Idea generation: –External sources: Customers Competitors Distributors Suppliers Outsourcing (design firms, product consultancies, online collaborative communities)

10. Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall8 - 10 Fuel for Thought Consumers are often excellent sources of new product ideas. What type of new product would you like to see commercialized? Think about the products you use now— can they be changed or improved? What do you wish you could buy that currently is not available?

11. Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall8 - 11 New-Product Development Process  Idea screening: –Process used to spot good ideas and drop poor ones. –Executives provide a description of the product along with estimates of market size, product price, development time and costs, manufacturing costs, and rate of return. –Evaluated against a set of company criteria for new products.

12. Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall8 - 12  Concept development and testing: –Product idea: Idea for a possible product that the company can see itself offering to the market. –Product concept: Detailed version of the new-product idea stated in meaningful consumer terms. –Concept testing: Testing new-product concepts with groups of target consumers to find out if the concepts have strong consumer appeal. New-Product Development Process

13. Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall8 - 13 New-Product Development Process  Marketing strategy development: –Part One: Describes the target market, planned value proposition, sales, market share, and profit goals. –Part Two: Outlines the product’s planned price, distribution, and marketing budget. –Part Three: Describes the planned long-run sales and profit goals, marketing mix strategy.

14. Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall8 - 14 New-Product Development Process  Business analysis: –Involves a review of the sales, costs, and profit projections to assess fit with company objectives. –If results are positive, project moves to the product development phase.

15. Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall8 - 15 New-Product Development Process  Product development: –Develops concept into a physical product. –Calls for a large jump in investment. –Prototypes are made. –Prototypes must have correct physical features and convey psychological characteristics. –Prototypes are subjected to physical tests.

16. Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall8 - 16 Marketing in Action Gillette uses employee-volunteers to test new shaving products.

17. Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall8 - 17  Testing marketing: –Product and marketing program are introduced in a more realistic market setting. –Not needed for all products. –Can be expensive and time consuming, but better than making a major marketing mistake. New-Product Development Process

18. Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall8 - 18 Marketing in Action Test marketing is appropriate when a large investment is required, when the risk is high, or when management is not sure of the product or marketing program. KFC test-marketed its new Kentucky Grilled Chicken for three years before rolling it out nationally.

19. Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall8 - 19  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. New-Product Development Process

20. Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall8 - 20 Customer-Centered New-Product Development Focuses on finding new ways to solve customer problems and create more customer- satisfying experiences. New product development must focus on creating customer value.

21. Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall8 - 21 Marketing in Action Customer-centered new-product development: PNC’s Virtual Wallet puts real-time money management at the fingertips of the Millennial generation. Virtual Wallet

22. Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall8 - 22  Team-based new-product development: –Various company departments work closely together, overlapping the steps in the product development process to save time and increase effectiveness.  Systematic new-product development: –Innovation management systems collect, review, evaluate, and manage new-product ideas. Managing New-Product Development

23. Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall8 - 23 Figure 8.2: Sales and Profits Over the Product’s Life from Inception to Decline

24. Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall8 - 24 Marketing in Action Some products die quickly, while others stay in the mature stage for a long, long time. TABASCO® sauce is “over 130 years old and yet still able to whup your butt!”

25. Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall8 - 25 Applying the Product Life-Cycle  Product class has the longest life cycle.  Product form tends to have the standard PLC shape.  Brand can change quickly because of changing competitive attacks and responses.  Style is a basic and distinctive mode of expression.  Fashion is a popular style in a given field.  Fads result in a temporary period of unusually high sales driven by consumer enthusiasm. Fads decline quickly.

26. Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall8 - 26 Figure 8.3: Styles, Fashions, and Fads

27. Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall8 - 27 Practical Problems of PLC  When used carefully, the PLC may help develop good marketing strategies.  However, in practice, it is difficult to: –Forecast sales level, length of each stage, and shape of PLC. –Develop marketing strategy because strategy is both a cause and result of the PLC.  Marketers should avoid blindly pushing products to next stage and instead seek ways to rescue products and growth sales.

28. Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall8 - 28 Introduction Stage of PLC  Sales: Low  Costs: High cost per customer  Profits: Negative or low  Customers: Innovators  Competitors: Few  Marketing objective: Create product awareness and trial.

29. Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall8 - 29 Introduction Stage of PLC  Marketing strategies: –Product: Offer a basic product. –Price: Use cost-plus pricing. –Distribution: Build selective distribution. –Advertising: Build product awareness among early adopters and dealers. –Promotion: Use heavy promotion to entice product trial.

30. Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall8 - 30 Growth Stage of PLC  Sales: Rapidly rising  Costs: Average cost per customer  Profits: Rising profits  Customers: Early adopters  Competitors: Growing number  Marketing objective: Maximize market share.

31. Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall8 - 31 Growth Stage of PLC  Strategies: –Product: Offer product extensions, service, warranty. –Price: Price to penetrate the market. –Distribution: Build intensive distribution. –Advertising: Build awareness and interest in the mass market. –Promotion: Reduce to take advantage of heavy consumer demand.

32. Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall8 - 32 Maturity Stage of PLC  Sales: Peak sales  Costs: Low cost per customer  Profits: High profits  Customers: Middle majority  Competitors: Stable number beginning to decline  Marketing objective: Maximize profits while defending market share.

33. Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall8 - 33 Maturity Stage of PLC  Strategies: –Product: Diversify brand and models. –Price: Match or best competitors. –Distribution: Build more intensive distribution. –Advertising: Stress brand differences and benefits. –Promotion: Increase to encourage brand switching.

34. Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall8 - 34 Maturity Stage of the PLC  Strategies used to manage the PLC during maturity include: –Modifying the market –Modifying the product –Modifying the marketing mix

35. Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall8 - 35 Maturity Stage of the PLC  Modifying the market: –Increase the consumption of the current product.  How? –Look for new users and market segments. –Reposition the brand to appeal to larger or faster-growing segment. –Look for ways to increase usage among present customers.

36. Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall8 - 36 Maturity Stage of the PLC  Modifying the product: –Changing characteristics such as quality, features, or style to attract new users and to inspire more usage.  How? –Improve durability, reliability, speed, taste. –Improve styling and attractiveness. –Add new features.

37. Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall8 - 37 Maturity Stage of the PLC  Modifying the marketing mix: –Improving sales by changing one or more marketing mix elements.  How? –Cut prices. –Launch a better ad campaign. –Move into new market channels.

38. Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall8 - 38 Marketing in Action As part of its market modification efforts, 101-year old card marketer American Greetings created Kiwee.com to reach out to younger consumers. The site makes use of social-networking widgets, instant messaging channels and more! Kiwee.com

39. Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall8 - 39 Decline Stage of PLC  Sales: Declining sales  Costs: Low cost per customer  Profits: Declining profits  Customers: Laggards  Competition: Declining number  Marketing objective: Reduce expenditures and milk the brand.

40. Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall8 - 40  Strategies: –Product: Phase out weak items. –Price: Cut price. –Distribution: Go selective—phase out unprofitable outlets. –Advertising: Reduce to level needed to retain hard-core loyals. –Promotion: Reduce to minimal level. Decline Stage of PLC

41. Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall8 - 41 Additional Considerations  Product decisions and social responsibility: –Consider public policy issues, regulations regarding acquiring or dropping products, patent protection, product quality and safety, and warranties.

42. Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall8 - 42 Additional Considerations  International product and service marketing: –Must determine which products and services to introduce in which countries, and how much to standardize or adapt the offering. –Packaging presents new challenges for international marketers. –Many services businesses are global.

43. Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall8 - 43 Marketing in Action The Kit Kat chocolate bar benefits from a coincidental similarity between the bar’s name and the Japanese phrase, kitto katsu, which roughly translates to “Surely you win!”

44. Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall8 - 44 1. Explain how companies find and develop new- product ideas. 2. List and define the steps in the new-product development process and the major considerations in managing this process. 3. Describe the stages of the product life cycle and how marketing strategies change during the product’s life cycle. 4. Discuss two additional product and services issues: socially responsible product decisions and international product and services marketing. Rest Stop: Reviewing the Concepts

45. Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall8 - 45 All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Printed in the United States of America. Copyright © 2011 Pearson Education, Inc. Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall