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New-Product Development and
Product Life-Cycle Strategies
2
Road Map: Previewing the
Concepts
 Explain how companies find and develop
new-product ideas.
 List and define the steps in the new-product
development process.
 Describe the stages of the product life cycle.
 Describe how marketing strategies change
during the product’s life cycle.
3
New-Product Development
Strategy
• Strategies for Obtaining New-Product
Ideas:
 Acquisition of companies, patients,
licenses
 Original products, improvements,
modifications
4
New-Product Failures
 Only 10% of new products still on the market and
profitable after 3 years.
 Failure rate for industrial products as high as 30%.
 Why?
 Overestimation of market size
 Design problems
 Incorrectly positioned, priced, or advertised
 Pushed despite poor marketing research findings
 Development costs
 Competition
5
Major Stages in New-Product
Development
• Idea generation
• Idea screening
• Concept development and testing
• Marketing strategy development
• Business analysis
• Product development
• Test marketing
• Commercialization
6
Idea Generation
• Company employees
• Customers
• Competitors
• Distributors
• Suppliers
7
Idea Screening
 Process to spot good ideas and drop poor
ones.
 Develop system to estimate: market size,
product price, development time and costs,
manufacturing costs, and rate of return.
 Evaluate these findings against set of
company criteria for new products.
8
Concept Development and
Testing
 Product Idea: 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.
9
Marketing Strategy
Development
• Part One Describes:
 The target market, planned product positions,
sales, market share, and profit goals
• Part Two Outlines the First Year’s:
 Product’s planned price, distribution, and
marketing budget
• Part Three Describes Long-Run:
 Sales and profit goals, marketing mix strategy
10
Business Analysis
 Involves a review of the sales, costs,
and profit projections to assess fit with
company objectives.
 If yes, move to the product
development phase.
11
Product Development
 Develop concept into physical product
 Calls for large jump in investment
 Prototypes are made
 Prototype must have correct physical
features and convey psychological
characteristics
12
Test Marketing
 Product and program introduced in
more realistic market setting.
 Not needed for all products.
 Can be expensive and time consuming,
but better than making major marketing
mistake.
13
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.
14
Organizing New-Product
Development
 Sequential Approach: each stage
completed before moving to next phase
of the project.
 Simultaneous Approach: Cross-
functional teams work through
overlapping steps to save time and
increase effectiveness.
15
The Product Life Cycle
• Product development
• Introduction
• Growth
• Maturity
• Decline
16
Product Life Cycle Applications
 Product class has the longest life cycle (e.g., gas-powered
cars)
 Product form tends to have the standard PLC shape (e.g.,
dial telephone)
 Brand can change quickly because of changing competitive
attacks and responses (e.g., Tide, Cheer)
 Style is a basic and distinctive mode of expression (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, and
declines fast (e.g., pet rocks)
17
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.
18
Introduction Stage of PLC
• Sales: low
• Costs: high cost per customer
• Profits: negative
• Marketing Objective: create product
awareness and trial
• Product: offer a basic product
• Price: use cost-plus formula
• Distribution: build selective distribution
• Promotion: heavy to entice product trial
19
Growth Stage of PLC
• Sales: rapidly rising
• Costs: average cost per customer
• Profits: rising
• Marketing Objective: maximize market share
• Product: offer extension, service, warranty
• Price: penetration strategy
• Distribution: build intensive distribution
• Promotion: reduce to take advantage of demand
20
Maturity Stage of PLC
• Sales: peak
• Costs: low cost per customer
• Profits: high
• Marketing Objective: maximize profits while
defending market share
• Product: diversify brand and models
• Price: match or best competitors
• Distribution: build more intensive distribution
• Promotion: Increase to encourage brand switching
21
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
22
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
 Expand usefulness, safety, convenience
23
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 larger market channels
 Offer new or improved services to buyers
24
Decline Stage of PLC
• Sales: declining
• Costs: low cost per customer
• Profits: declining
• Marketing Objective: reduce expenditures and milk
the brand
• Product: phase out weak items
• Price: cut price
• Distribution: selective--phase out unprofitable
outlets
• Promotion: reduce to minimal level
25
Rest Stop: Reviewing the Concepts
 Explain how companies find and develop
new-product ideas.
 List and define the steps in the new-product
development process.
 Describe the stages of the product life cycle.
 Explain how marketing strategies change
during the product’s life cycle

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New product development and product life-cycle strategies

  • 1. New-Product Development and Product Life-Cycle Strategies
  • 2. 2 Road Map: Previewing the Concepts  Explain how companies find and develop new-product ideas.  List and define the steps in the new-product development process.  Describe the stages of the product life cycle.  Describe how marketing strategies change during the product’s life cycle.
  • 3. 3 New-Product Development Strategy • Strategies for Obtaining New-Product Ideas:  Acquisition of companies, patients, licenses  Original products, improvements, modifications
  • 4. 4 New-Product Failures  Only 10% of new products still on the market and profitable after 3 years.  Failure rate for industrial products as high as 30%.  Why?  Overestimation of market size  Design problems  Incorrectly positioned, priced, or advertised  Pushed despite poor marketing research findings  Development costs  Competition
  • 5. 5 Major Stages in New-Product Development • Idea generation • Idea screening • Concept development and testing • Marketing strategy development • Business analysis • Product development • Test marketing • Commercialization
  • 6. 6 Idea Generation • Company employees • Customers • Competitors • Distributors • Suppliers
  • 7. 7 Idea Screening  Process to spot good ideas and drop poor ones.  Develop system to estimate: market size, product price, development time and costs, manufacturing costs, and rate of return.  Evaluate these findings against set of company criteria for new products.
  • 8. 8 Concept Development and Testing  Product Idea: 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.
  • 9. 9 Marketing Strategy Development • Part One Describes:  The target market, planned product positions, sales, market share, and profit goals • Part Two Outlines the First Year’s:  Product’s planned price, distribution, and marketing budget • Part Three Describes Long-Run:  Sales and profit goals, marketing mix strategy
  • 10. 10 Business Analysis  Involves a review of the sales, costs, and profit projections to assess fit with company objectives.  If yes, move to the product development phase.
  • 11. 11 Product Development  Develop concept into physical product  Calls for large jump in investment  Prototypes are made  Prototype must have correct physical features and convey psychological characteristics
  • 12. 12 Test Marketing  Product and program introduced in more realistic market setting.  Not needed for all products.  Can be expensive and time consuming, but better than making major marketing mistake.
  • 13. 13 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.
  • 14. 14 Organizing New-Product Development  Sequential Approach: each stage completed before moving to next phase of the project.  Simultaneous Approach: Cross- functional teams work through overlapping steps to save time and increase effectiveness.
  • 15. 15 The Product Life Cycle • Product development • Introduction • Growth • Maturity • Decline
  • 16. 16 Product Life Cycle Applications  Product class has the longest life cycle (e.g., gas-powered cars)  Product form tends to have the standard PLC shape (e.g., dial telephone)  Brand can change quickly because of changing competitive attacks and responses (e.g., Tide, Cheer)  Style is a basic and distinctive mode of expression (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, and declines fast (e.g., pet rocks)
  • 17. 17 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.
  • 18. 18 Introduction Stage of PLC • Sales: low • Costs: high cost per customer • Profits: negative • Marketing Objective: create product awareness and trial • Product: offer a basic product • Price: use cost-plus formula • Distribution: build selective distribution • Promotion: heavy to entice product trial
  • 19. 19 Growth Stage of PLC • Sales: rapidly rising • Costs: average cost per customer • Profits: rising • Marketing Objective: maximize market share • Product: offer extension, service, warranty • Price: penetration strategy • Distribution: build intensive distribution • Promotion: reduce to take advantage of demand
  • 20. 20 Maturity Stage of PLC • Sales: peak • Costs: low cost per customer • Profits: high • Marketing Objective: maximize profits while defending market share • Product: diversify brand and models • Price: match or best competitors • Distribution: build more intensive distribution • Promotion: Increase to encourage brand switching
  • 21. 21 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
  • 22. 22 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  Expand usefulness, safety, convenience
  • 23. 23 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 larger market channels  Offer new or improved services to buyers
  • 24. 24 Decline Stage of PLC • Sales: declining • Costs: low cost per customer • Profits: declining • Marketing Objective: reduce expenditures and milk the brand • Product: phase out weak items • Price: cut price • Distribution: selective--phase out unprofitable outlets • Promotion: reduce to minimal level
  • 25. 25 Rest Stop: Reviewing the Concepts  Explain how companies find and develop new-product ideas.  List and define the steps in the new-product development process.  Describe the stages of the product life cycle.  Explain how marketing strategies change during the product’s life cycle