8
New-Product Development and
Product Life-Cycle Strategies
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.
• Describe how marketing strategies
change during the product’s life cycle.
8-2
New-Product Development
Strategy
Strategies for Obtaining New-Product Ideas
Acquisition of:
New Products:
Companies
Original Products
Patents
Improvements
Licenses
Modifications
8-3
New-Product Failures
• Only 10% of new products are still on the
market and profitable after 3 years.
• Failure rate for industrial products is 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
8-4
Major Stages in New-Product
Development
8-5
Idea Generation
Company Employees
Customers
Competitors
Distributors
Suppliers
8-6
Idea Generation
When Heinz asked kids
what would make the
product more fun, they
said, “Change the color!”
so, Heinz developed and
launched EZ Squirt, now
in a variety of colors
targeted at kids. The EZ
Squirt bottle’s special
nozzle also emits a thin
stream so tykes can
autograph their burgers.
8-7
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.
8-9
DiamlerChrysler’s Fuel-CellPowered Electric Car
• The company’s task is
to develop its fuelcell-powered electric
car into alternative
product concepts, find
out how attractive
each is to customers,
and choose the best
one.
8-10
Interactive Student
Assignment
• Choose a partner and cast yourself back
in time. Try to figure out how you might
convert the idea of a personal computer
into a concept that could be tested.
8-11
Marketing Strategy Development
Part One Describes:
The Target Market
Planned Product Positioning
Sales, Market Share, & Profit Goals
Part Two Outlines the First-Year’s:
Product’s Planned Price
Distribution
Marketing Budget
Part Three Describes Long-Run:
Sales & Profit Goals
Marketing Mix Strategy
8-12
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.
8-13
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
8-14
Product Development
Click the picture above to play video
Dunkin’ Donuts
takes its product
development
process very
seriously in order to
meet consumers’
needs.
8-15
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.
8-16
Test Marketing
Nokia test-marketed its new N-Gage cell phone/mobile game player extensively
before introducing it worldwide.
8-17
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.
8-18
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.
8-19
Product Life Cycle
Sales and
Profits ($)
Sales
Profits
Product
Development
Introduction
Growth
Maturity
Time
Decline
Losses/
Investments ($)
Sales and Profits Over the Product’s Lifetime
8-20
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)
8-21
Alternative PLC Shapes
8-22
Practical Problems of PLC
Hard to identify
which stage of the
PLC the product is in
Hard to pinpoint
when the product
moves to 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
8-23
Introduction Stage of the PLC
Summary of Characteristics, Objectives, & Strategies
Sales
Low
Costs
High cost per customer
Profits
Negative
Marketing Objectives
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
8-24
Growth Stage of the PLC
Summary of Characteristics, Objectives, & Strategies
Sales
Rapidly rising
Costs
Average cost per customer
Profits
Rising
Marketing Objectives
Maximize market share
Product
Offer extension, service, warranty
Price
Penetration strategy
Distribution
Build intensive distribution
Promotion
Reduce to take advantage of demand
8-25
Maturity Stage of the PLC
Summary of Characteristics, Objectives, & Strategies
Sales
Peak
Costs
Low cost per customer
Profits
High
Marketing Objectives
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
8-26
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
8-27
Modifying the Market
The WD-40
company’s knack
for finding new
uses has made
this popular
substance one of
the truly essential
survival items in
most American
homes.
www.wd40.com
8-28
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
8-29
Modifying the Product
http://www.crayola.com
Crayola has added a steady stream of new colors, forms, and packages
8-30
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
8-31
Modifying the Marketing Mix
New ads and promotions to reposition and revitalize mature product.
8-32
Decline Stage of the PLC
Summary of Characteristics, Objectives, & Strategies
Sales
Declining
Costs
Low cost per customer
Profits
Declining
Marketing Objectives
Reduce expenditures and milk the brand
Product
Phase out weak items
Price
Cut price
Distribution
Selective: phase out unprofitable outlets
Promotion
Reduce to minimum level
8-33
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 product’s life cycle.
8-34