principles of MARKETING
Chapter 9
New Product
Development and Life
Cycle Strategies
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Chapter Objectives
• Explain how to find and develop new product
ideas
• Explain the new-product development process
• Describe stages of the product life cycle
• Describe how marketing strategies change
over the product life cycle
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New Product Development:
Overview
Two major challenges
• New product development
– New to replace aging
• Life-cycle strategies
– Adapt to changing:
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New Product Development
Strategy
• Two sources of new products
– Acquisition - company, patent, licence
– New product development internally
• New product development meaning
– Original products, product improvements, or
product modifications, and new brands through
the firm’s own R & D efforts
• Risk and failure rates are high
© 2002 Pearson Education Canada
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New Product Development Strategy:
Why Do New Products Fail?
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Overestimated market
Poor design
Incorrect positioning
Error in pricing
Poor marketing
communication
• Production-orientation
• Cost overrun
• Competition © 2002 Pearson Education Canada
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New Product Development Strategy:
Success Factors
• Unique
superior product
• Well defined product
concept from startup
• Specific criteria
• Specific strategic role
• Systematic newproduct process
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New-Product Development Process:
Major Stages
Marketing
strategy
Business
analysis
Concept
development
and testing
Product
development
Idea screening
Test marketing
Idea generation
Commercialization
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New-Product Development Process:
Idea Generation
• Major Sources of New-Product Ideas
– Internal sources
• Employees, sales people, R & D, managers
• Intrapreneurial programs
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Customers
Competitors
Distributors and suppliers
Entrepreneurs
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New-Product Development Process:
Idea Generation
• Systematic process
– Idea manager
– Multidisciplinary
committee
– Toll-free number
– Staff encouragement
– Formal recognition
• Yields
– innovation culture
– more ideas
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New-Product Development Process:
Idea Screening
• Purpose
– Identify good ideas
drop poor ones fast
• Challenge
– Maintain creativity and
stream of ideas
• Standard format
• Criteria and rating
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New-Product Development Process:
Concept Development and Testing
• Product concept
– New-product idea in detail stated in meaningful
consumer terms
• Concept development
– Expanding the new-product idea into various
alternative forms
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New-Product Development Process:
Concept Development and Testing
• Concept testing
– Target consumers
exposed to newproduct concepts
– Word or picture
description
– Physical presentation
of the concept
– Question reactions
© 2002 Pearson Education Canada
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New-Product Development Process:
Marketing Strategy Development
• Marketing Strategy Statement - Part one
– Target market
– Planned product positioning
– Sales, market share and profit goals
• Marketing Strategy Statement - Part two
– Outline price, distribution and first year
marketing budget
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New-Product Development Process:
Marketing Strategy Development
• Marketing Strategy Statement - Part three
– Planned long-run sales
– Profit goals
– Marketing mix strategy
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New-Product Development Process:
Business Analysis
• Review sales, costs and profit projections
• Compare projected results to objectives
• Estimate maximum and minimum sales
– Company history and market opinion
• Assess risk
• Estimate product costs and profits
• Analyze attractiveness using sales and costs
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New-Product Development Process:
Product Development
• Performed by
engineering or R & D
• Transform product
concept into a physical
product
• Prototype - functional
and psychological
• Major investment
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New-Product Development Process:
Test Marketing
Advantages
• Reduce uncertainty
about product and
marketing approach
• Saves risk and
expense of full launch
• Gain experience
Disadvantages
• High cost
• Longer time-to-market
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New-Product Development Process:
Standard Test Markets
• Use small number of
representative test cities
• Conducts full marketing campaign
• Store audits, consumer/distributor
surveys gauge performance
• Costly and time consuming
• Competitor reaction
• Most popular approach
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New-Product Development Process:
Controlled Test Markets
• Controlled panel of stores - fee
basis
• Client specifies stores and
locations
• Shelf space/location, displays,
promotion and price controlled
• Sales tracked
• Less time, lower costs
• Representativeness and
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competition
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New-Product Development Process:
Simulated Test Markets
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Use real or laboratory store
Consumers view test and competitive ads
Given shopping money to spend or keep
Interview on reasons for purchasing or not
Phone follow-up on attitudes, purchase plans
Costs less, short duration, competition
Risk from small sample, artificial situation
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New-Product Development Process:
Commercialization
• Major investment in manufacturing
facilities
• High initial advertising and promotion
expense
• Introduction timing critical
• Launch location?
• Local, regional roll-out, national, or global?
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New-Product Development:
Speeding Up the Process
• Sequential product
development traditional
• Simultaneous or teambased approaches
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Shorter cycle-times
First-mover advantage
Time is money
Higher risk and tension
Watch quality
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Product Life-Cycle Strategies
Sales
Profit
($)
Sales
Profits
Loss
($)
Development
Introduction
Growth
Maturity
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Decline
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Product Life-Cycle Strategies
• Can describe a:
– Product class
– Product form
– Brand
Style
Time
Fashion
• Applicable to:
– Styles
– Fashion
– Fads
Time
Fad
Time
© 2002 Pearson Education Canada
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Product Life-Cycle Strategies
Characteristics Introduction
Growth
Maturity
Decline
Sales
Low
Rapidly rising
Peak
Declining
Costs
High per customer
Average per
customer
Low per customer
Low per
customer
Profits
Negative
Rising
High
Declining
Customers
Innovators
Early adopters
Middle majority
Laggards
Competitors
Few
Growing number
Declining number
Marketing
Objectives
Create product
awareness and trial
Maximize market
share
Stable number
beginning to
decline
Maximize profit
while defending
market share
© 2002 Pearson Education Canada
Inc.
Reduce
expenditures and
milk the brand
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Product Life-Cycle Strategies
Strategies
Product
Introduction
Growth
Maturity
Decline
Offer basic product
Offer product
extensions, service,
warranty
Diversify brand and
models
Phase out weak items
Price
Use cost-plus
Price to penetrate
market
Price to match or best
competitors
Cut price
Distribution
Build selective
Build intensive
Build more intensive
Go selective, phase out
unprofitable outlets
Advertising
Build product
Build awareness and
awareness among early interest in the mass
adopters and dealers
market
Stress brand
differences and
benefits
Reduce to level needed
to retain hard-core
loyals
Sales
Promotion
Use heavy sales
promotion to entice
trial
Increase to encourage
brand switching
Reduce to minimal
level
Reduce to take
advantage of heavy
consumer demand
© 2002 Pearson Education Canada
Inc.
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Chapter Review
• How do companies find and develop new
product ideas?
• What are the steps in the new-product
development process?
• What is the product life cycle? How do
strategies change over the product life
cycle?
© 2002 Pearson Education Canada
Inc.
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