Developing and Managing Products Chapter 10 Prepared by Deborah Baker Texas Christian University Chap. 10 Marketing 7e Lamb Hair McDaniel ©2004 South-Western/Thomson Learning 1 Learning Objectives 1. Explain the importance of developing new products and describe the six categories of new products. 2. Explain the steps in the new-product development process. 3. Explain why some products succeed and others fail. Chap. 10 Marketing 7e Lamb Hair McDaniel ©2004 South-Western/Thomson Learning 2 Learning Objectives (continued) 4. Discuss global issues in new-product development. 5. Explain the diffusion process through which new products are adopted. 6. Explain the concept of product life cycles. Chap. 10 Marketing 7e Lamb Hair McDaniel ©2004 South-Western/Thomson Learning 3 1 Learning Objective On Line http://www.chrysler.com Explain the importance of developing new products and describe the six categories of new products. Chap. 10 Marketing 7e Lamb Hair McDaniel ©2004 South-Western/Thomson Learning 4 1 New Product A product new to the world, the market, the producer, the seller, or some combination of these. Chap. 10 Marketing 7e Lamb Hair McDaniel ©2004 South-Western/Thomson Learning 5 1 On Line http://www.newproductworks.com Chap. 10 Marketing 7e Lamb Hair McDaniel ©2004 South-Western/Thomson Learning New Product Introductions, 1964-2000 6 1 Categories of New Products New-To-The-World New Product Lines Six Categories of New Products Product Line Additions Improvements/Revisions Repositioned Products Chap. 10 Marketing 7e Lamb Hair McDaniel ©2004 South-Western/Thomson Learning Lower-Priced Products 7 2 Learning Objective Explain the steps in the new-product development process. Chap. 10 Marketing 7e Lamb Hair McDaniel ©2004 South-Western/Thomson Learning 8 The New-Product Development Process 2 Long-Term Commitment New Product Strategy Capitalize on Experience New Product Success Factors Chap. 10 Marketing 7e Lamb Hair McDaniel ©2004 South-Western/Thomson Learning Establish an Environment 9 New-Product Development Process 2 New-Product Strategy Idea Generation Idea Screening Business Analysis Development Test Marketing Commercialization New Product Chap. 10 Marketing 7e Lamb Hair McDaniel ©2004 South-Western/Thomson Learning 10 2 Idea Generation On Line http://www.ideo.com Customers Employees Distributors Competitors Sources of New-Product Ideas R&D Consultants Creative Thinking Chap. 10 Marketing 7e Lamb Hair McDaniel ©2004 South-Western/Thomson Learning 11 2 Brainstorming The process of getting a group to think of unlimited ways to vary a product or solve a problem. Chap. 10 Marketing 7e Lamb Hair McDaniel ©2004 South-Western/Thomson Learning 12 2 Idea Screening The first filter in the product development process, which eliminates ideas that are inconsistent with the organization’s new-product strategy or are inappropriate for some other reason. Chap. 10 Marketing 7e Lamb Hair McDaniel ©2004 South-Western/Thomson Learning 13 2 Concept Test A test to evaluate a new-product idea, usually before any prototype has been created. Chap. 10 Marketing 7e Lamb Hair McDaniel ©2004 South-Western/Thomson Learning 14 2 Business Analysis Demand Considerations in Business Analysis Stage Cost Sales Profitability Chap. 10 Marketing 7e Lamb Hair McDaniel ©2004 South-Western/Thomson Learning 15 2 Development Creation of prototype Marketing strategy Packaging, branding, labeling Manufacturing feasibility Final government approvals if needed Chap. 10 Marketing 7e Lamb Hair McDaniel ©2004 South-Western/Thomson Learning 16 Simultaneous Product Development 2 A new team-oriented approach to new-product development. Chap. 10 Marketing 7e Lamb Hair McDaniel ©2004 South-Western/Thomson Learning 17 2 Test Marketing On Line http://www.google.com The limited introduction of a product and a marketing program to determine the reactions of potential customers in a market situation. Chap. 10 Marketing 7e Lamb Hair McDaniel ©2004 South-Western/Thomson Learning 18 Checklist for Selecting Test Markets 2 Chap. 10 Marketing 7e Lamb Hair McDaniel ©2004 South-Western/Thomson Learning 19 2 Alternatives to Test Marketing Single-source research using supermarket scanner data Simulated (laboratory) market testing Chap. 10 Marketing 7e Lamb Hair McDaniel ©2004 South-Western/Thomson Learning 20 2 Commercialization Production Inventory Buildup Distribution Shipments Sales Training Steps in Marketing a New Product Trade Announcements Customer Advertising Chap. 10 Marketing 7e Lamb Hair McDaniel ©2004 South-Western/Thomson Learning 21 3 Learning Objective Explain why some products succeed and others fail. Chap. 10 Marketing 7e Lamb Hair McDaniel ©2004 South-Western/Thomson Learning 22 3 Why New Products Fail No discernible benefits Poor match between features and customer desires Overestimation of market size Incorrect positioning Price too high or too low Inadequate distribution Poor promotion Inferior product Chap. 10 Marketing 7e Lamb Hair McDaniel ©2004 South-Western/Thomson Learning 23 3 Success Factors On Line http://www.jnj.com Factors in Successful New Products Match between product and market needs Benefit to large number of people Unique but superior product Chap. 10 Marketing 7e Lamb Hair McDaniel ©2004 South-Western/Thomson Learning 24 3 Success Factors Chap. 10 Marketing 7e Lamb Hair McDaniel ©2004 South-Western/Thomson Learning 25 4 Learning Objective Discuss global issues in new-product development. Chap. 10 Marketing 7e Lamb Hair McDaniel ©2004 South-Western/Thomson Learning 26 4 Global Issues On Line http://www.levi.com Develop product for potential worldwide distribution Build in unique market requirements Design products to meet regulations and key market requirements Chap. 10 Marketing 7e Lamb Hair McDaniel ©2004 South-Western/Thomson Learning 27 5 Learning Objective Explain the diffusion process through which new products are adopted. Chap. 10 Marketing 7e Lamb Hair McDaniel ©2004 South-Western/Thomson Learning 28 5 Diffusion The process by which the adoption of an innovation spreads. Chap. 10 Marketing 7e Lamb Hair McDaniel ©2004 South-Western/Thomson Learning 29 5 Categories of Adopters Innovators Early Adopters Categories of Adopters in the Diffusion Process Early Majority Late Majority Laggards Chap. 10 Marketing 7e Lamb Hair McDaniel ©2004 South-Western/Thomson Learning 30 5 Diffusion of Three Familiar Products among U.S. Households Chap. 10 Marketing 7e Lamb Hair McDaniel ©2004 South-Western/Thomson Learning 31 5 Percentage of Adopters Categories of Adopters Early Innovators Adopters 2.5% 13.5% Early Majority 34% Late Majority 34% Laggards 16% Time Chap. 10 Marketing 7e Lamb Hair McDaniel ©2004 South-Western/Thomson Learning 32 5 On Line http://www.electronicgadgetdepot.com Product Characteristics and the Rate of Adoption Complexity Compatibility Product Characteristics Predict Rate of Adoption Relative Advantage Observability Trialability Chap. 10 Marketing 7e Lamb Hair McDaniel ©2004 South-Western/Thomson Learning 33 Marketing Implications of the Adoption Process 5 Word of Mouth Communication Aids the Diffusion Process Direct from Marketer Chap. 10 Marketing 7e Lamb Hair McDaniel ©2004 South-Western/Thomson Learning 34 6 Learning Objective Explain the concept of product life cycles. Chap. 10 Marketing 7e Lamb Hair McDaniel ©2004 South-Western/Thomson Learning 35 6 Product Life Cycle A concept that provides a way to trace the stages of a product’s acceptance, from its introduction (birth) to its decline (death). Chap. 10 Marketing 7e Lamb Hair McDaniel ©2004 South-Western/Thomson Learning 36 6 Product Life Cycle Introductory Growth Stage Stage Maturity Stage Decline Stage Product Dollars Category Sales Product Category Profits 0 Chap. 10 Marketing 7e Lamb Hair McDaniel ©2004 South-Western/Thomson Learning Time 37 Product Life Cycles for Styles, Fashions, and Fads 6 Chap. 10 Marketing 7e Lamb Hair McDaniel ©2004 South-Western/Thomson Learning 38 6 Extending the PLC Change product Change product use Change product image Change product positioning Chap. 10 Marketing 7e Lamb Hair McDaniel ©2004 South-Western/Thomson Learning 39 6 Introductory Stage Full-Scale Launch High failure rates of New Products Little competition Frequent product modification Limited distribution High marketing and production costs Negative profits Promotion focuses on awareness and information Intensive personal selling to channels Chap. 10 Marketing 7e Lamb Hair McDaniel ©2004 South-Western/Thomson Learning 40 6 Growth Stage Offered in more Increasing rate of sales sizes, Entrance of competitors flavors, options Market consolidation Initial healthy profits Promotion emphasizes brand ads Goal is wider distribution Prices normally fall Development costs are recovered Chap. 10 Marketing 7e Lamb Hair McDaniel ©2004 South-Western/Thomson Learning 41 6 Maturity Stage On Line http://www.mcdonalds.com Many consumer products are in Maturity Stage Declining sales growth Saturated markets Extending product line Stylistic product changes Heavy promotions to dealers and consumers Marginal competitors drop out Prices and profits fall Niche marketers emerge Chap. 10 Marketing 7e Lamb Hair McDaniel ©2004 South-Western/Thomson Learning 42 6 Decline Stage Long-run drop in sales Large inventories of unsold items Elimination of all nonessential marketing expenses Rate of decline depends on change in tastes or adoption of substitute products Chap. 10 Marketing 7e Lamb Hair McDaniel ©2004 South-Western/Thomson Learning 43 6 Marketing Strategies for PLC INTRODUCTION 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 Higher/recoup development costs Fall as result of competition & efficient production. Chap. 10 Marketing 7e Lamb Hair McDaniel ©2004 South-Western/Thomson Learning 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. 44 6 Diffusion Process and PLC Curve Introduction Growth Decline Maturity Sales Product life cycle curve Early majority Late majority Early adopters Innovators Laggards Diffusion curve Chap. 10 Marketing 7e Lamb Hair McDaniel ©2004 South-Western/Thomson Learning 45