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
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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
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3
The Importance of New Products
LO1
Explain the importance of
developing new products
and describe the six
categories of new products.
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4
New Product
A product new
to the world, the market, the
producer, the seller, or some
combination of these.
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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
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Categories of New Products
New-to-the-World
New Product Lines
Product Line Additions
Improvements or Revisions
Repositioned Products
Lower-Priced Products
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LO1
Review Learning Outcome
Developing New Products
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The New Product Development Process
LO2
Explain the steps
in the new-product
development process.
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9
The New-Product Development Process
New Product Success Factors
Long-term commitment
Company-specific approach
Capitalize on experience
Establish an environment
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10
New-Product Development Process
New-Product Strategy
Idea Generation
Idea Screening
Business Analysis
Development
Test Marketing
Commercialization
New Product
11
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Idea Generation
Customers
http://www.ideo.com
Online
Employees
Distributors
Vendors
Sources of
New-Product
Ideas
Competitors
R&D
Consultants
12
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Brainstorming
The process of getting a group
to think of unlimited ways to
vary a product or
solve a problem.
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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.
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14
Concept Test
A test to evaluate a
new-product idea,
usually before any prototype
has been created.
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Business Analysis
Demand
Considerations
in
Business
Analysis Stage
Cost
Sales
Profitability
16
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Development
 Creation of prototype
 Marketing strategy
 Packaging, branding,
labeling
 Promotion, price, and
distribution strategy
 Manufacturing feasibility
 Final government approvals
if needed
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Simultaneous Product Development
A team-oriented approach
to new-product development.
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Test Marketing
The limited introduction of a
product and a marketing
program to determine
the reactions of
potential customers in a
market situation.
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Alternatives to Test Marketing
• Single-source research using
supermarket scanner data
• Simulated (laboratory) market testing
• Online test marketing
http://www.newproductworks.com
Online
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20
Commercialization
Production
Inventory Buildup
Distribution Shipments
Sales Training
Trade Announcements
Customer Advertising
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LO2
Review Learning Outcome
New-Product Development Process
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22
Why Some Products Succeed
and Others Fail
LO3
Explain why some products
succeed and others fail.
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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
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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
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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
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LO3
Review Learning Outcome
Why Products Succeed or Fail
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27
Global Issues in New-Product
Development
LO4
Discuss global issues in
new-product development.
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28
Global Issues

Develop product for potential worldwide
distribution

Build in unique market
requirements

Design products to meet regulations and
key market requirements
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29
LO4
Review Learning Outcome
Global Issues in New-Product Development
Single product worldwide
Modification of products
Multiple products in
multiple countries
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The Spread of New Products
LO5
Explain the diffusion process
through which
new products are adopted.
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31
Diffusion
The process by
which the adoption of an
innovation spreads.
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Categories of Adopters
Innovators
Early Adopters
Early Majority
Late Majority
Laggards
33
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Product Characteristics and
the Rate of Adoption
Complexity
Compatibility
Relative Advantage
Observability
Trialability
http://www.electronicgadgetdepot.com
Online
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Sales of New Audio Products
35
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Marketing Implications
of the Adoption Process
Word of Mouth
Communication
Aids the
Diffusion Process
Direct from
Marketer
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LO5
Review Learning Outcome
Diffusion Process for New Products
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37
Product Life Cycles
LO6
Explain the concept of
product life cycle.
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38
Product Life Cycle
A biological metaphor that
traces the stages of a product’s
acceptance, from its
introduction (birth) to
its decline (death).
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Product Life Cycle
Growth
Stage
Maturity
Stage
Decline
Stage
Dollars
Introductory
Stage
Sales
Profits
0
Time
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Product Life Cycles for
Styles, Fashions, and Fads
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U.S. Sales of Widgets
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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
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Growth Stage
•
Increasing rate of sales
•
Entrance of competitors
•
Market consolidation
•
Initial healthy profits
•
Aggressive advertising of the
differences between brands
•
Wider distribution
44
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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
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Decline Stage
•
Long-run drop in sales
•
Large inventories of
unsold items
•
Elimination of all nonessential
marketing expenses
•
“Organized abandonment”
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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
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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
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48