Chapter 8

Developing New Products

and Managing the Product Life-Cycle

Veronica Mak

8 -1
Copyright 2011 Pearson Education

New-product Development
Strategy
New-product
development is the
development of original
products, product
improvements, product
modifications, and new
brands through the
firms own productdevelopment efforts.
8 -2
Copyright 2011 Pearson Education

New-Product Failures
Overestimation of
market size
Design problems
Incorrect pricing
or positioning
High development
costs
Competitor
reaction

Each product failure

represents squandered
dollars and hopes

8-3
Copyright 2011 Pearson Education

8 -3

The New-product Development

Process

8 -4
Copyright 2011 Pearson Education

Idea Generation
-is the systematic search for newproduct ideas.

Internal sources: includes formal research and development.

External sources: includes distributors and suppliers; competitors; online
collaborative; customers.
Copyright 2011 Pearson Education

8 -5

Idea Generation
Analyze customer
questions and
complaints to find
new products that
better solve
consumer
problems
Invite customers to
share suggestions
and ideas
Copyright 2011 Pearson Education

To harness customer newproduct input, 3M has

opened customer innovation
centers, which generate
customer-driven newproduct ideas and help 3M
establish long-term
customer relationships

8 -6

Crowdsourcing
Invites customers,
employees,
independent
scientists and
researchers, and
even the public at
large, into the
new-product
innovation process

When Netflix wanted ideas for

improving the accuracy of its
online recommendation system,
it decided to open it up to the
world, promising a $1 million
prize for the best solution
8 -7
8-7

Copyright 2011 Pearson Education

Idea screening
Screening
new-product
ideas in
order to spot
good ideas
and drop
poor ones as
soon as
possible.

Real? Win? Worth It?

8 -8

Copyright 2011 Pearson Education

Idea screening
- Criteria of Selection
P&G
- Successful rate: 50% vs average
25%
Criteria of Choice:
Differentiated
Solve Problem
Compelling Customer Value
proposition
8 -9
Copyright 2011 Pearson Education

Concept Development and

Testing
Product idea: An
idea for a possible
product that the
company can see
itself offering to
the market

8 - 10
Copyright 2011 Pearson Education

8 - 10

Concept Development and

Testing
Product
concept is a
detailed version
of the newproduct idea
stated in
meaningful
consumer
terms.
8 - 11
Copyright 2011 Pearson Education

Concept Development and

Testing
Product
image:
The way
consumers
perceive an
actual or
potential
product

Copyright 2011 Pearson Education

8 - 12

Concept Development
To develop a new
product into
alternative product
concepts, find out
how attractive
each concept is to
customers, and
choose the best
one

Teslas initial all-electric

roadster, will be followed
by more-affordable massmarket models

8 - 13
Copyright 2011 Pearson Education

8 - 13

Concept Testing
Testing new-product concepts with a
group of target consumers to find out
if the concepts have strong consumer
appeal
Using a description,
picture or model of
the product
Asking consumers
about their reactions
8 - 14
Copyright 2011 Pearson Education

Concept Testing Questions

- Would you Buy?

8 - 15
Copyright 2011 Pearson Education

8 - 16
Copyright 2011 Pearson Education

8 - 16

Marketing Strategy
Statement
Describes the target market,
planned value proposition, sales,
market share, and profit goals
Outlines the products planned price,
distribution, and marketing budget
Describes the planned long-run sales
and profit goals, marketing mix
strategy
8 - 17
Copyright 2011 Pearson Education

Business Analysis
A review of the sales, costs, and
profit projections for a new product
to find out whether these factors
satisfy the companys objectives

8 - 18
Copyright 2011 Pearson Education

8 - 18

Product Development
Developing the product concept into
a physical product to ensure that the
product idea can be turned into a
workable market offering
Prototypes are made
Consumer tests
are conducted

8 - 19
Copyright 2011 Pearson Education

8 - 19

Test Marketing
Introducing the
product and
marketing
program in
realistic market
settings

Starbucks spent 20 years

developing Starbucks VIA
instant Coffee and several
months testing the product in
Starbucks shops in Chicago and
Seattle before releasing the
product nationally
8 - 20

Copyright 2011 Pearson Education

8 - 20

Test Marketing
Standard test markets are usually
extensive and costly to use
Simulated test markets

Researchers measure consumer responses

to in laboratory stores or simulated online
shopping environments

Controlled test markets

New products and tactics are tested

among controlled panels of shoppers and stores

8 - 21
Copyright 2011 Pearson Education

Commercialization
Introducing a new product into the
market
Companies must decide:
When to introduce the product
Where to introduce the product
Single location, state, region, nationally,
internationally

8 - 22
Copyright 2011 Pearson Education

8 - 22

Managing New-Product
Development
Companies must take a holistic
approach to new product
development
This requires:
Customer-centered new-product
development
Team-based new-product development
Systematic new-product development
8 - 23
Copyright 2011 Pearson Education

Customer-Centered NewProduct
Development
New-product
development that
focuses on finding
new ways to solve
customer problems
and create more
customer-satisfying
experiences

Customers are urged to

submit their own ideas for
new products and
services on P&Gs
crowdsourcing site
Connect + Develop
8 - 24

Copyright 2011 Pearson Education

8 - 24

Marketing at Work
Faced with falling
sales, LEGO began
new-product
development by
listening to
customers and
including them in
the design process

LEGOs Design By Me site lets

customers download 3D design
software, create a LEGO toy, and
then order the kit to build it

8 - 25
Copyright 2011 Pearson Education

8 - 26
Copyright 2011 Pearson Education

Figure 8.2 - Sales and Profits Over

the Products Life From Inception
to Decline

8 - 27
Copyright 2011 Pearson Education

8 - 27

The Product Life Cycle

All products do
not follow all five
stages of the PLC
Marketers can
apply the PLC as
a framework for
describing how
products and
markets work

Some products die

quickly, while others stay
in the mature stage for a
long, long time like
TABASCO sauce
8 - 28

Copyright 2011 Pearson Education

Applying the Product Life-Cycle

Concept

The PLC concept can

describe a product class, a
product form , or a brand

Product class has the longest

life cycle
Product form tends to the
standard PLC shape
PLCs for brands can change
quickly because of changing
competitive attacks and
responses

The PLC concept also can be

applied to what are known
as styles, fashions, and fads
8 - 29

Copyright 2011 Pearson Education

8 - 29

Figure 8.3 - Styles, Fashions,

and Fads

8 - 30
Copyright 2011 Pearson Education

8 - 30

8 - 31
Copyright 2011 Pearson Education

Summary of Product Life-Cycle

Characteristics, Objectives, and
Strategies
(pp276)

8 - 32
Copyright 2011 Pearson Education

Introduction Stage
Characteristics

Sales: Low
Costs: High cost per customer
Profits: Negative or low
Customers: Innovators
Competitors: Few
Marketing objective: Create product
awareness and trial
8 - 33

Copyright 2011 Pearson Education

8 - 33

Introduction Stage
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
8 - 34
Copyright 2011 Pearson Education

8 - 34

Growth Stage
Characteristics

Sales: Rapidly rising

Costs: Average cost per customer
Profits: Rising profits
Customers: Early adopters
Competitors: Growing number
Marketing objective: Maximize
market share
8 - 35

Copyright 2011 Pearson Education

8 - 35

Growth Stage 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
8 - 36
Copyright 2011 Pearson Education

8 - 36

Maturity Stage
Characteristics

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
8 - 37
Copyright 2011 Pearson Education

8 - 37

Maturity Stage Strategies

Product: Diversify brand and models
Price: Match or beat competitors
Distribution: Build more intensive
distribution
Advertising: Stress brand differences
and benefits
Promotion: Increase to encourage
brand switching
8 - 38
Copyright 2011 Pearson Education

8 - 38

Maturity Stage Strategies

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
8 - 39
Copyright 2011 Pearson Education

8 - 39

Maturity Stage Strategies

Modifying the product
Changing characteristics such as quality,
features, style or packaging to attract
new users and inspire more usage

How?
Improve durability, reliability, speed,
taste
Improve styling and attractiveness
Add new features
8 - 40
Copyright 2011 Pearson Education

8 - 40

Maturity Stage Strategies

Modifying the marketing mix
Improving sales by changing one or
more marketing mix elements

How?

Offer new or improved services

Cut prices
Launch a better ad campaign
Move into new market channels
8 - 41

Copyright 2011 Pearson Education

8 - 41

Maturity Stage Strategies

Reinvigorating a
mature brand: Kellogg
kept its 55-year-old
Special K brand
growing by turning it
into a healthful,
slimming lifestyle
brand

8 - 42
Copyright 2011 Pearson Education

8 - 42

Decline Stage
Characteristics

Sales: Declining sales

Costs: Low cost per customer
Profits: Declining profits
Customers: Laggards
Competition: Declining number
Marketing objective: Reduce
expenditures and milk the brand
8 - 43

Copyright 2011 Pearson Education

8 - 43

Decline Stage Strategies

Product: Phase out weak items
Price: Cut price
Distribution: Go selectivephase out
unprofitable outlets
Advertising: Reduce to level needed
to retain hard-core loyals
Promotion: Reduce to minimal level
8 - 44
Copyright 2011 Pearson Education

8 - 44

Summary of Product Life-Cycle

Characteristics, Objectives, and
Strategies

8 - 45
Copyright 2011 Pearson Education

Marketing at Work
Swatch is
constantly evolving
to meet changing
consumer needs
With Swatch,
people started to
purchase multiple
watches to match
their mood or
activity.
8 - 46
Copyright 2011 Pearson Education

Product Decisions and Social

Responsibility
Companies must consider
Public policy issues
Regulations regarding acquiring or dropping
products
Patent protection
Product quality and safety, and warranties

8 - 47
Copyright 2011 Pearson Education

8 - 47

International Product and

Services Marketing
Companies face

challenges in the
international
market
They can

Standardize

products across
markets
Adapt products to
local tastes

Copyright 2011 Pearson Education

Kit Kat benefits from a

coincidental similarity between
the bars name and the Japanese
phrase, kitto katsu, which
roughly translates to Surely you
8 - 48
win!
8 - 48

Review
New Product Development
Product Life-Cycle and Marketing
Strategies
International product and services
marketing
Skip: Social Responsibility in product
decisions
8 - 49
Copyright 2011 Pearson Education

Individual Marketing Plan

Proposal

Half-page, includes the following:

Name and brief description of the
product (not yet launched in HK)
Background of the company

8 - 50
Copyright 2011 Pearson Education

 The End

8 - 51
Copyright 2011 Pearson Education