New-Product Development
Strategies
Product Life-Cycle Strategies
Strategies for Obtaining New Product Ideas
Prof. P.V. Balakrishnan
Acquired
Acquired
Companies
Companies
Original
Original
Products
Products
Acquired
Acquired
Patents
Patents
Product
Product
Improvements
Improvements
Acquired
Acquired
Licenses
Licenses
Product
Product
Modifications
Modifications
New
New
Brands
Brands
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New Product Failures
Improving New-Product Success
One study estimated that as many as 80% of new
consumer packaged products failed.
Only about 40% of new consumer products are
around 5 years after introduction.
Why?
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Overestimation of market size,
Product design problems,
Product incorrectly positioned, priced or advertised,
Product may have been pushed despite poor marketing
research findings,
Costs of product development, or
Competitive actions
New product success depends on having a:
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Unique superior product (one with higher quality,
features, and value in use), &
Well-defined product concept (a defined target market,
product requirements, and benefits).
To create successful new products, the company
must:
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understand its customers, markets and competitors, &
develop products that deliver superior value to
customers.
3
Major Stages in New-Product
Development
Marketing
Strategy
Concept
Development
and Testing
Idea
Screening
Idea
Generation
4
New Product Development Process. Idea Generation
Business
Analysis
Idea Generation is the Systematic Search for New
Product Ideas Obtained Internally From Employees
and Also From:
Product
Development
Test
Marketing
Customers
Competitors
Distributors
Suppliers
Commercialization
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1
New Product Development Process. Test Marketing
New Product Development Process
Commercialization
Commercialization is the Introduction of
the New Product into the Marketplace.
Standard
Test Market
Controlled
Test Market
Full marketing campaign
in a small number of
representative cities.
A few stores that have
agreed to carry new
products for a fee.
When
When is
is the
the
Right
Right Time
Time to
to
Introduce
Introduce
Product?
Product?
Simulated
Test Market
Test in a simulated
shopping environment
to a sample of
consumers.
Where
Where to
to
Launch
Launch aa
New
New
Product?
Product?
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Product Life Cycle
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Applications of the Product Life Cycle
The PLC concept can describe a:
„
Sales and
Profits ($)
Sales
„
Profits
„
Time
Product
Development
Introduction
Growth
Maturity
Decline
„
„
Losses/
Investments ($)
„
Sales and Profits Over the Product’s Life From Inception to
Demise
Product class which has the longest life cycles (i.e.
gas-powered cars),
Product form which tend to have the standard PLC
shape (i.e. minivans),
Brand which can change quickly because of changing
competitive attaches and responses (i.e. Ford
Taurus),
Style which is a basic and distinctive mode of
expression,
Fashion which is a popular style in a given field,
Fad which is a fashion that enters quickly, is adopted
quickly and declines fast.
Style
Modifying the Product; Meeting the competition
To yota’s R AV 4 i s
mor e com pact and
mor e modernlo oking than most
other SUV ’s.
What do o ther
SUV’s, considered
new products in
the ni ne tie s, lo ok
li ke ?
Click or pre ss sp ac eba r to retu
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Egg Beaters had to first convince people that they needed an egg
substitute (overcom ing a strong negative response to “fake eggs”)
then demonstrate that their product was a perfect solution.
Problems Using the PLC
Introduction Stage of the PLC
The PLC Concept Can
Help in Developing Good
Marketing Strategies for
Different Stages of the
Product Life-Cycle,
However Some
Problems Can Arise:
Trouble identifying
Which Stage of the
PLC the Product Is
In
Difficult to Forecast
the Sales Level, the
Length of Each Stage,
and Shape of the PLC
Strategy is Both a
Cause and a Result
of the Product’s Life
Cycle
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Summary of Characteristics, Objectives, & Strategies
Sales
Sales
Low
Low sales
sales
Costs
Costs
High
High cost
cost per
per customer
customer
Profits
Profits
Negative
Negative or
or low
low
Marketing
Marketing Objectives
Objectives
Create
Create product
product awareness
awareness and
and trial
trial
Product
Product
Offer
Offer aa basic
basic product
product
Price
Price
Usually
Usually isis high;
high; use
use cost-plus
cost-plus formula
formula
Distribution
Distribution
High
High distribution
distribution expenses
expenses
Build
Build product
product awareness
awareness among
among early
early
adopters
adopters and
and dealers
dealers
Advertising
Advertising
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2
Growth Stage of the PLC
Strategic choices for share leaders
Summary of Characteristics, Objectives, & Strategies
Sales
Sales
Rapidly
Rapidly rising
rising sales
sales
Costs
Costs
Average
Average cost
cost per
per customer
customer
Profits
Profits
Rising
Rising profits
profits
Marketing
Marketing Objectives
Objectives
Maximize
Maximize market
market share
share
Offer
Offer new
new product
product features,
features, extensions,
extensions,
service,
and
warranty
service, and warranty
Price
Price to
to penetrate
penetrate market
market
Product
Product
Price
Price
Distribution
Distribution
Advertising
Advertising
Increase
Increase number
number of
of distribution
distribution outlets
outlets
Build
Build awareness
awareness and
and interest
interest in
in the
the
mass
mass market
market
Flanker strategy: Proactive / Reactive
Competitor
or potential
competitor
Confrontation
Strategy
Proactive /
Reactive
Fortress /
Position
defense
Contraction /
Strategic
withdrawal
Leader
Market
Expansion
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Strategic objectives for followers
Strategic choices for challengers
Capture repeat / replacement purchases from current customers of
the leader or other target competitor by:
„ Head-to-head positioning against competitor’s offering in
primary target market (athletic footwear, PCs)
„ Technological differentiation from target competitor’s
offering in a primary target market
Stimulate selective demand among later adopters by:
„ Head-to-head positioning against target competitor’s
offering in established market segments
„ Differentiated positioning focused on untapped or
underdeveloped segments
Leapfrog strategy
Flanking attack
Guerrilla
attacks
Target
competitor
Challenger
Frontal
Attack
Encirclement strategy
Maturity Stage of the PLC
Maturity Stage of the PLC
Summary of Characteristics, Objectives, & Strategies
Sales
Sales
Peak
Peak sales
sales
Costs
Costs
Low
Low cost
cost per
per customer
customer
Profits
Profits
Product
Product
High
High profits,
profits, then
then lower
lower profits
profits
Maximize
Maximize profits
profits while
while defending
defending
market
market share
share
Diversify
Diversify brand
brand and
and models
models
Marketing
Marketing Objectives
Objectives
Price
Price
Price
Price to
to match
match or
or best
best competitors
competitors
Distribution
Distribution
Build
Build more
more intensive
intensive distribution
distribution
Advertising
Advertising
Stress
Stress brand
brand differences
differences and
and benefits
benefits
Company tries to increase consumption of
the current product.
Changing characteristics such as quality,
features, or styles to attract new users.
Company tries to improve sales by changing
one or more marketing mix elements.
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Never t oo Lat e.
Vol kswagon made a comeback when one of i t s
hal l mar k pr oduct s was wel l past t he decl i ne st age.
Decline Stage of the PLC
Technology Adoption Life Cycle (TALC)
What ot her compani es have br ought
back pr oduct s f r om t he past?
Cl i ck or pr ess spacebar t o r et ur n.
Summary of Characteristics, Objectives, & Strategies
Sales
Sales
Declining
Declining sales
sales
Costs
Costs
Low
Low cost
cost per
per customer
customer
Profits
Profits
Declining
Declining profits
profits
Reduce
Reduce expenditure
expenditure and
and maintain,
maintain,
reposition,
harvest
or
reposition, harvest or drop
drop the
the product
product
Phase
Phase out
out weak
weak items
items
Marketing
Marketing Objectives
Objectives
Product
Product
ar
gg
La
ds
s
it y
or
aj
ity
or
aj
M
M
rly
te
La
Ea
r
te
op
Ad
Technology Adoption Life Cycle - Discontinuous Innovations
rly
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Ea
rs
to
va
no
Advertising
Advertising
Cut
Cut price
price
Go
Go selective:
selective: phase
phase out
out unprofitable
unprofitable
outlets
outlets
Reduce
Reduce to
to level
level needed
needed to
to retain
retain
hard-core
hard-core loyal
loyal customers
customers
In
Price
Price
Distribution
Distribution
Review of Concepts
Innovators = Technology enthusiasts
„
Technology eventually helps improve lives; No money; Have
influence; Gatekeepers to the life cycle; If they hate it implies
trouble
Early adopters = Visionaries
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Believe in competitive advantage via discontinuous innovation; Bring
$$ to table & demand modifications; Techies explore-visionaries
exploit
Early majority = Pragmatists
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Do not love technology for its own sake; Believe in evolution not
revolution; Want to improve organizational effectiveness; Difficult to
convince them to shift paradigms; Prefer to buy from market leaders
Late majority = Conservatives
„
Explain how companies find and develop newproduct ideas.
List and define the steps in the new-development
process.
Describe the stages of the product life-cycle.
Describe how marketing strategies change during
the product’s life-cycle.
Technology skeptics; Price sensitive; Demanding consumers; Largely
untapped opportunity for high tech
Laggards = Skeptics
„
Gadflies of high tech; Challenge the hype; Need to sell around them
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