Chapter 11: Developing and Managing Products Prepared by Amit Shah, Frostburg State University Designed by Eric Brengle, B-books, Ltd. Copyright 2010 by Cengage Learning Inc. All Rights Reserved 1 Learning Outcomes LO1 Explain the importance of developing new products and describe the six categories of new products LO2 Explain the steps in the new-product development process LO3 Explain why some products succeed and others fail Copyright 2010 by Cengage Learning Inc. All Rights Reserved 2 Learning Outcomes LO4 Discuss global issues in new-product development LO5 Explain the diffusion process through which new products are adopted LO6 Explain the concept of product life cycles Copyright 2010 by Cengage Learning Inc. All Rights Reserved 3 The Importance of New Products LO1 Explain the importance of developing new products and describe the six categories of new products. Copyright 2010 by Cengage Learning Inc. All Rights Reserved 4 New Product A product new to the world, the market, the producer, the seller, or some combination of these. Copyright 2010 by Cengage Learning Inc. All Rights Reserved 5 New Product Advantages Being first on the market has numerous advantages: •Increased sales through longer sales life •Increased margins •Increased product loyalty •More resale opportunities •Greater market responsiveness •A sustained leadership position Copyright 2010 by Cengage Learning Inc. All Rights Reserved 6 Categories of New Products New-to-the-World New Product Lines Product Line Additions Improvements or Revisions Repositioned Products Lower-Priced Products 7 Copyright 2010 by Cengage Learning Inc. All Rights Reserved LO1 Review Learning Outcome Developing New Products Copyright 2010 by Cengage Learning Inc. All Rights Reserved 8 The New Product Development Process LO2 Explain the steps in the new-product development process. Copyright 2010 by Cengage Learning Inc. All Rights Reserved 9 The New-Product Development Process New Product Success Factors Long-term commitment Company-specific approach Capitalize on experience Establish an environment Copyright 2010 by Cengage Learning Inc. All Rights Reserved 10 New-Product Development Process New-Product Strategy Idea Generation Idea Screening Business Analysis Development Test Marketing Commercialization New Product 11 Copyright 2010 by Cengage Learning Inc. All Rights Reserved Idea Generation Customers http://www.ideo.com Online Employees Distributors Vendors Sources of New-Product Ideas Competitors R&D Consultants 12 Copyright 2010 by Cengage Learning Inc. All Rights Reserved Brainstorming The process of getting a group to think of unlimited ways to vary a product or solve a problem. Copyright 2010 by Cengage Learning Inc. All Rights Reserved 13 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. Copyright 2010 by Cengage Learning Inc. All Rights Reserved 14 Concept Test A test to evaluate a new-product idea, usually before any prototype has been created. Copyright 2010 by Cengage Learning Inc. All Rights Reserved 15 Business Analysis Demand Considerations in Business Analysis Stage Cost Sales Profitability 16 Copyright 2010 by Cengage Learning Inc. All Rights Reserved Development Creation of prototype Marketing strategy Packaging, branding, labeling Promotion, price, and distribution strategy Manufacturing feasibility Final government approvals if needed Copyright 2010 by Cengage Learning Inc. All Rights Reserved 17 Simultaneous Product Development A team-oriented approach to new-product development. Copyright 2010 by Cengage Learning Inc. All Rights Reserved 18 Test Marketing The limited introduction of a product and a marketing program to determine the reactions of potential customers in a market situation. Copyright 2010 by Cengage Learning Inc. All Rights Reserved 19 Alternatives to Test Marketing • Single-source research using supermarket scanner data • Simulated (laboratory) market testing • Online test marketing http://www.newproductworks.com Online Copyright 2010 by Cengage Learning Inc. All Rights Reserved 20 Commercialization Production Inventory Buildup Distribution Shipments Sales Training Trade Announcements Customer Advertising 21 Copyright 2010 by Cengage Learning Inc. All Rights Reserved LO2 Review Learning Outcome New-Product Development Process Copyright 2010 by Cengage Learning Inc. All Rights Reserved 22 Why Some Products Succeed and Others Fail LO3 Explain why some products succeed and others fail. Copyright 2010 by Cengage Learning Inc. All Rights Reserved 23 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 Copyright 2010 by Cengage Learning Inc. All Rights Reserved 24 Success Factors Factors in Successful New Products Match between product and market needs Different from substitute products Benefit to large number of people 25 Copyright 2010 by Cengage Learning Inc. All Rights Reserved Success Factors Listening to customers Strong leadership Producing the best product Commitment to newproduct development Vision of future market Project-based team approach Getting every aspect right Willingness to fail occasionally 26 Copyright 2010 by Cengage Learning Inc. All Rights Reserved LO3 Review Learning Outcome Why Products Succeed or Fail Copyright 2010 by Cengage Learning Inc. All Rights Reserved 27 Global Issues in New-Product Development LO4 Discuss global issues in new-product development. Copyright 2010 by Cengage Learning Inc. All Rights Reserved 28 Global Issues Develop product for potential worldwide distribution Build in unique market requirements Design products to meet regulations and key market requirements Copyright 2010 by Cengage Learning Inc. All Rights Reserved 29 LO4 Review Learning Outcome Global Issues in New-Product Development Single product worldwide Modification of products Multiple products in multiple countries Copyright 2010 by Cengage Learning Inc. All Rights Reserved 30 The Spread of New Products LO5 Explain the diffusion process through which new products are adopted. Copyright 2010 by Cengage Learning Inc. All Rights Reserved 31 Diffusion The process by which the adoption of an innovation spreads. Copyright 2010 by Cengage Learning Inc. All Rights Reserved 32 Categories of Adopters Innovators Early Adopters Early Majority Late Majority Laggards 33 Copyright 2010 by Cengage Learning Inc. All Rights Reserved Product Characteristics and the Rate of Adoption Complexity Compatibility Relative Advantage Observability Trialability http://www.electronicgadgetdepot.com Online 34 Copyright 2010 by Cengage Learning Inc. All Rights Reserved Sales of New Audio Products 35 Copyright 2010 by Cengage Learning Inc. All Rights Reserved Marketing Implications of the Adoption Process Word of Mouth Communication Aids the Diffusion Process Direct from Marketer Copyright 2010 by Cengage Learning Inc. All Rights Reserved 36 LO5 Review Learning Outcome Diffusion Process for New Products Copyright 2010 by Cengage Learning Inc. All Rights Reserved 37 Product Life Cycles LO6 Explain the concept of product life cycle. Copyright 2010 by Cengage Learning Inc. All Rights Reserved 38 Product Life Cycle A biological metaphor that traces the stages of a product’s acceptance, from its introduction (birth) to its decline (death). Copyright 2010 by Cengage Learning Inc. All Rights Reserved 39 Product Life Cycle Growth Stage Maturity Stage Decline Stage Dollars Introductory Stage Sales Profits 0 Time Copyright 2010 by Cengage Learning Inc. All Rights Reserved 40 Product Life Cycles for Styles, Fashions, and Fads 41 Copyright 2010 by Cengage Learning Inc. All Rights Reserved U.S. Sales of Widgets 42 Copyright 2010 by Cengage Learning Inc. All Rights Reserved Introductory Stage • High failure rates • Little competition • Frequent product modification • Limited distribution • High marketing and production costs • Negative profits with slow sales increases • Promotion focuses on awareness and information • Communication challenge is to stimulate primary demand 43 Copyright 2010 by Cengage Learning Inc. All Rights Reserved Growth Stage • Increasing rate of sales • Entrance of competitors • Market consolidation • Initial healthy profits • Aggressive advertising of the differences between brands • Wider distribution 44 Copyright 2010 by Cengage Learning Inc. All Rights Reserved Maturity Stage • Sales increase at a decreasing rate • Saturated markets • Annual models appear • Lengthened product lines • Service and repair assume important roles • Heavy promotions to consumers and dealers • Marginal competitors drop out • Niche marketers emerge 45 Copyright 2010 by Cengage Learning Inc. All Rights Reserved Decline Stage • Long-run drop in sales • Large inventories of unsold items • Elimination of all nonessential marketing expenses • “Organized abandonment” 46 Copyright 2010 by Cengage Learning Inc. All Rights Reserved Diffusion Process and PLC Curve Introduction Growth Decline Maturity Sales Product life cycle curve Early majority Late majority Early adopters Innovators Laggards Diffusion curve 47 Copyright 2010 by Cengage Learning Inc. All Rights Reserved LO6 Review Learning Outcome Product Life Cycles INTRODUCTION Sales Product Strategy Distribution Strategy Promotion Strategy Pricing Strategy GROWTH MATURITY Limited models; Frequent changes More models; Frequent changes Large number of models Limited Wholesale/ retail distributors Expanded dealers; Longterm relations Extensive; Margins drop; Shelf space Aggressive ads. Stimulate demand Advertise; Promote heavily Awareness; Stimulate demand; Sampling High to recoup development costs Fall as result of competition & efficient production Prices fall (usually) DECLINE Eliminate unprofitable models Phase out unprofitable outlets Phase out promotion Prices stabilize at low level Time Copyright 2010 by Cengage Learning Inc. 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