11
Developing and Managing
Products
Dr. Close
New Product Development (1)
• New Product: different or new in ANY way
(Pentium)
• Various categories of new products
- New to world
- New to market
- New to seller
- New to producer
New Product Development (2)
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New product process includes:
1. New Product Strategy (NPD process to match
objectives)
2. Idea Generation and Sources
• Customers (Food Lion)
• Employees
• Competitors (reverse engineer; US – Japan
autos)
• Need formal program: R&D
• Any source of idea is good
New Product Development (3)
3. 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 (4)
4. Business Analysis
• Examine consumer perceptions (Coors banquet
beer)
• Consider view of retailers and wholesaler (Frito
Lay)
5. 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!)
New Product Development (5)
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6. Test Marketing and
Commercialization
Select Test Cities (Panama City or
Dayton Ohio?)
Does skipping test marketing save
money?
Sometimes, line extensions are not
tested (Quaker Chewy)
Commercialization takes a substantial
amount of $ (New Coke)
Some firms “roll out” their products
gradually (movies; Pixar)
Product Life Cycle (1)
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Product life cycle (4 stages): for product
IDEA, not individual firms.
1. Introduction (phones with net access; plasma
TV)
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High marketing costs (inform)
Slow sales increase
Low or no profit (Amazon.com)
Low competition
Price often high (ex. Calculator)
What other products can you think of that are
in introduction?
Advertising is key
in the intro stage…
Product Life Cycle (2)
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Product life cycle (cont…)
2. Growth (solar changing lens)
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High marketing expense (inform and persuade)
Many small competitors – market entry (athletic
apparel)
Little price competition
Industry profits rise/peak and sales
increasing
What other products
are in growth?
Product Life Cycle (3)
3. Maturity (Beer and Auto)
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Industry sales level off; profits down
Promotions stop rising: moderate marketing expense
(persuade)
Fewer, stronger competitors: tough competition in
general
Many consumers view product as homogeneous; price
competition
What other products can you think of that are in
maturity?
Budweiser: in a mature market
Product Life Cycle (4)
4. Decline: being replaced (VCR)
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Decrease in industry sales/profits
Low marketing expense; small groups remain loyal
Dropouts: few competitors; most gone
What other products can you think of that are
in decline?
Are your old toys in decline?
Product Life Cycle (5)
• Criticisms:
– Self fulfilling prophecy (Is beer always going
to be a mature product?)
– All do not follow pattern (fads; fashion;
scooters: comeback)
– Product may be in different stages by the
market (B&W T.V.; Coke)
• What do you see are the advantages of
the PLC? Why should m.managers care?
Product Life Cycle (6)
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Factors that may speed products through
PLC:
1. Ease of trial (supermarkets, no risk, test drive)
2. Ease of use (some assembly required; Toys R
Us (bike); Gateway store)
3. Easy to communicate advantages (Always low
price; cars)
4. Compatible with customer experience (Poland &
free samples)
Zara: Fashion Changes Quickly
Spread of New Products
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Global and Domestic: Perceived as “new”
Diffusion of Innovation
Who are you?
Early adopter (first 2.5% to adopt)
Early majority (next 13.5%)
Late majority (next 34%)
Laggard (last 16% to adopt)
How to Have New Product Failure
– New product failure (70-80% of brands; 80%
packaged goods)
– How to fail:
• Offer no unique benefit (Pepsi’s clear soda vs.
Secret’s clear deodorant)
• Race to market (Ford Pinto, Ford school bus,
Netscape)
• Give little thought to promotion (Chevy NoVa)
• Give little thought to competition (Wal-mart’s impact)
• Skip research or conduct sloppy research
• Try just one new product (top consumer goods
companies average trying 75 new products a year)
Historic product failures
Diversify with new products
Summary
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Categories of New Products
NPD Process
Product life cycle
Global/spread of new products
Diffusion of Innovations
New product failures