Developing and Managing Products
Chapter 11
“When you innovate,
you’ve got to be prepared
for everyone telling you
you’re nuts.”
Larry Ellison, Founder Oracle Corporation
2
http://www.achievement.org/autodoc/page/ell0bio-1
First flight! Dec. 17th 1903,
Orville at the controls,
12 seconds, 120 feet.
3
How do we create value through
innovation?
 Over half of all growth in the United States comes from new
products and services
 The greatest rewards go to companies that create new
business models
 First mover advantage
 And we are happy-..er…
Types of innovations
 ……………innovations - normal upgrading, no change in
user behaviors.
 New to the market
 New to seller
 New to producer
 ………………..innovations/Destructive creation – require
users to change behaviors. New-to-the-world products.
New Product Development Process
4. ...................
5. ……….marketing
3. Business Analysis
Alternative versions,
describe in consumer terms
6. Commercialization
2. ...........
Screening
Reduce # quickly
1. Idea
Generation
By many -- employees, customers, suppliers, distributors,
competitors
Physical product, $$$
New Product Development Process
2. Idea Screening (what do we have? +/-)
• In pharmacy, 1 of 5,000 new drug ideas is
common
• In autos, 1 of 20 new car concepts is made to
prototype
• Point? Brainstorm, then cut via research
• Short and long run $ performance
• Social issues:
• Consumer welfare (Ben and Jerry’s)
• Safety ( Marlboro cigarettes) – liability
(McDonald’s hot coffee)
New Product Development Process
3. Business Analysis
• Examine consumer perceptions
• Consider view of retailers and wholesaler
4. Development (can go hand-in-hand with analysis)
• Product tests (New Coke, movies)
• Risky: (leaks, skewed results)
• Virtual product development: examine without
construction
• Prototype product and marketing strategy
• Longest process (Minute Rice took 18 years!)
Concept Test
Concept Test
A test to evaluate a
new-product idea,
usually before any
prototype has been
created.
Test Marketing
+Costs
+Brand Equity
-Jamming
-Duplication
Standard
Test Market
Limited introduction in a small market
supported by a full-fledged marketing campaign to
gauge customer reactions
Product Life Cycle:PLC
A concept that provides a way to trace
the stages of a product’s acceptance,
from its introduction (birth) to its decline
(death).
Product Life Cycles
Introduction
…………
…………..
Decline
Dollars
Industry
………..
Industry
……….
0
Time
Product Life Cycles Strategies
INTRODUCTION
Sales
Product
Strategy
Limited models
Frequent
changes
GROWTH
More models
Frequent
changes.
MATURITY
Large number
Eliminate
of models.
unprofitable
models
Distribution
Strategy
Limited
Expanded
Wholesale/
dealers. Longretail distributors term relations
Extensive.
Margins drop.
Shelf space
Promotion
Strategy
Awareness.
Aggressive ads.
Stimulate
Stimulate
demand.Sampling
demand
Advertise.
Promote
heavily
Pricing
Strategy
High to recoup
development
costs
Fall as result of
competition &
efficient production.
Time
DECLINE
Prices fall
(usually).
Phase out
unprofitable
outlets
Phase out
promotion
Prices
stabilize at
low level.
Examples
INTRODUCTION
GROWTH
MATURITY
DECLINE
Third generation
mobile phones
Transition lenses
Personal
Computers
Typewriters
E-conferencing
Email
Faxes
Handwritten
letters
All-in-one racing
skin-suits
Breathable
synthetic fabrics
Beer, Autos
VCR
iris-based
personal identity
cards
Smart cards
Credit cards
Cheque books
Some misconceptions about PLC
 At the level of the category and not the brand – Cell
phones not CINGULAR wireless. However, in practice
is used both ways..
 Different products go through the stages differently.
 Timing of stages may vary substantially.
 What other advantages do you see for a M. Manager?
Product Life Cycles
INTRODUCTION
Sales
Product
Strategy
Limited models
Frequent
changes
GROWTH
More models
Frequent
changes.
Distribution
Strategy
Limited
Expanded
Wholesale/
dealers. Longretail distributors term relations
Promotion
Strategy
Awareness.
Aggressive ads.
Stimulate
Stimulate
demand.Sampling
demand
Pricing
Strategy
High to recoup
development
costs
Fall as result of
competition &
efficient production.
Time
MATURITY
DECLINE
Large number
Eliminate
of models.
unprofitable
models
Extensive.
Margins drop.
Shelf space
Advertise.
Promote
heavily
Prices fall
(usually).
Phase out
unprofitable
outlets
Phase out
promotion
Prices
stabilize at
low level.
Extending the PLC
 Change product
 Change product use
 Change product image
 Change product positioning
 What already presented tool can help us out here?
Product Life Cycle

Factors that may speed products through PLC:
1.
2.
3.
4.
Ease of trial
Ease of use
Easy to communicate advantages
Compatible with customer experience
The Consumer Adoption Process
 Adoption process: series of stages for which consumers
decide whether or not to become a regular user of a new
product, including:
 Awareness
 Interest
 Evaluation
 Trial
 Adoption or rejection
Diffusion
Diffusion
The process by
which the
………….of an
innovation spreads.
Adopter Categories
….
….
Diffusion Process and PLC Curve
Introduction
Growth
Decline
Maturity
Sales
Product
life cycle
curve
Early majority
Late majority
Early adopters
Innovators
Laggards
Diffusion
curve
How do we use the Diffusion of
innovation theory?
 - MM can predict which types of customers will buy their
products immediately after introduction or later
 Can develop effective MMix
Product Characteristics and
the Rate of Adoption
Complexity
Compatibility
Relative Advantage
Observability
Trialability