Chapter 9

New-Product Development and Product Life-Cycle Strategies

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Road Map: Previewing the Concepts

Explain how companies find and develop new-product ideas. List and define the steps in the newproduct development process. Describe the stages of the product life cycle. Explain how marketing strategies change during the products life cycle.
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New-Product Development Strategy

Strategies for Obtaining New-Product Ideas
Acquired Companies
Acquired Patents Acquired Licenses

Original Products
Product Improvements Product Modifications New Brands

Causes of New-Product Failures

One study estimated that as many as 80% of new consumer packaged products fail. Only about 40% of new consumer products are around 5 years after introduction. Why?
Overestimation of market size, Product design problems, Product incorrectly positioned, priced, or advertised, Product may have been pushed despite poor marketing research findings, Costs of product development, or Competitive actions. 4

Improving New-Product Success

New-product success depends on having a:
Unique superior product
(one with higher quality, features, and value in use), and a

To create successful new products, the company must:

understand its consumers, markets, and competitors, and develop products that deliver superior value to customers.
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Well-defined product concept (a defined

target market, product requirements, and benefits).

Major Stages in New-Product Development (Fig. 9-1)

New Product Development Process

Step 1. Idea Generation

Systematic Search for New Product Ideas Obtained From Employees and Also From:

Customers

Competitors

Distributors

Suppliers

New Product Development Process

Step 2. Idea Screening

Helps spot good ideas and drop poor ones as soon as possible. Many companies have systems for rating and screening ideas which estimate:
Market Size Product Price Development Time & Costs Manufacturing Costs Rate of Return

Then, the idea is evaluated against a set of general company criteria.

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New Product Development Process

Step 3. Concept Development

1. Develop New Product Ideas into Alternative Detailed Product Concepts

2. Concept Testing - Test the New-Product Concepts with Groups of Target Customers

Product Image is the Way Consumers Perceive an Actual or Potential Product

3. Choose the One That Has the Strongest Appeal to Target Customers
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DaimlerChryslers Electric Car

The companys task is to develop its fuel-cell powered electric car into alternative product concepts, find out how attractive each is to customers, and choose the best one.
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New Product Development Process

Step 4. Marketing Strategy

Part One Describes Overall:
Target Market Planned Product Positioning Sales, Market Share, & Profit Goals

Part Two Describes First-Year:

Products Planned Price Distribution Marketing Budget

Part Three Describes Long-Run:

Sales & Profit Goals Marketing Mix Strategy
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Step 5. Business Analysis Step 6. Product Development

Review of Product Sales, Costs, and Profits Projections to See if They Satisfy Company Objectives

Business Analysis

If No, Eliminate Product Concept If Yes, Move to Product Development

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New Product Development Process

Step 7. Test Marketing

Product and marketing program are introduced into more realistic market settings. Can be very expensive and time consuming. Test the following:
Positioning strategy, Advertising, Distribution, Pricing, Branding, Packaging, Budget levels.

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New Product Development Process

Step 8. Commercialization
Introducing the New Product into the Market
When is the Right Time to Introduce Product?

Where to Launch a New Product?

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Form students into groups of three to five. Each group should read the opening vignette to the chapter about Microsoft and the software industry. Each group should then answer the following questions:
Comment on Microsofts ability to bring new products to the marketplace. What lies ahead for Microsoft? What secrets has Microsoft learned?
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Speeding Up New-Product Development Simultaneous (Team-Based)

Step 1

Step 1 Step 3
Step 4
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Sequential

Step 2

Step 3

Step 4

Step 2

Product Life Cycle (Fig. 9-2)

Sales and Profits ($) Sales

Profits
Time

Product Development
Losses/ Investments ($)

Introduction

Growth

Maturity

Decline

Sales and Profits Over the Products Life From Inception to Demise 17

Applications of the Product Life Cycle

Product class which has the longest life cycles (i.e. gas-powered cars), Product form which tends to have the standard PLC shape (i.e. minivans), Brand which can change quickly because of changing competitive attacks and responses (i.e. Ford Taurus), Style which is a basic and distinctive mode of expression (formal clothing), Fashion which is a popular style in a given field (business casual), Fad which is a fashion that enters quickly, is adopted quickly, and declines fast (pet rocks).
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Problems Using the PLC

The PLC Concept can be Trouble identifying applied by marketers for Which Stage of the PLC the Product Is describing how products In and markets work, but may also present some Difficult to Forecast the Sales Level, the problems:
Length of Each Stage, and Shape of the PLC Strategy is Both a Cause and a Result of the Products Life Cycle

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Introduction Stage of the PLC

Summary of Characteristics, Objectives, & Strategies
Sales Low sales

Costs
Profits Marketing Objectives Product Price Distribution Advertising

High cost per customer

Negative or low Create product awareness and trial Offer a basic product Usually is high High distribution expenses Spending is high to inform consumers
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Growth Stage of the PLC

Summary of Characteristics, Objectives, & Strategies
Sales Costs Profits Marketing Objectives Product Price Distribution Advertising Rapidly rising sales Average cost per customer Rising profits Maximize market share Offer new product features and models Remain where they are or fall slightly Increase number of distribution outlets Educating consumers and meeting competition
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Maturity Stage of the PLC

Summary of Characteristics, Objectives, & Strategies
Sales Begin to slow

Costs
Profits Marketing Objectives Product Price Distribution Advertising

Low cost per customer

High profits, then lower profits Maximize profits while defending market share May modify product May decline Build more intensive distribution Stress brand differences and benefits
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Maturity Stage of the PLC

Company tries to increase consumption of the current product

Changing characteristics such as quality, features, or styles to attract new users

Company tries to improve sales by changing one or more marketing mix elements
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Decline Stage of the PLC

Summary of Characteristics, Objectives, & Strategies
Sales Costs Profits Marketing Objectives Product Price Distribution Advertising Declining sales Low cost per customer Declining profits
Reduce expenditure and maintain, harvest, or drop the product

Phase out weak items Cut price

Selective: phase out unprofitable outlets Reduce to level needed to retain hard-core loyal customers
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Pick a soft drink, car, or food product, and trace the products life cycle. Project when the product might enter a decline stage and discuss strategies to reverse the decline.

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Rest Stop: Reviewing the Concepts

Explain how companies find and develop new-product ideas. List and define the steps in the newproduct development process. Describe the stages of the product life cycle. Explain how marketing strategies change during the products life cycle.
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