MARKETING MANAGEMENT
PRODUCT
Shrini Vempali, AUSIB
THEORETICAL UNDERPINNINGS OF PLC
PLC concept derives its strong intuitive logic from the Diffusion of Innovation Theory,
and the Theory of Monopolistic Competition from Economics.
“Diffusion of Innovation (DOI) Theory,
developed by E M Rogers in 1962, is one of
the oldest social science theories. It
originated in communication to explain how,
over time, an idea or product gains
momentum and diffuses (or spreads) through
a specific population or social system. The
end result of this diffusion is that people, as
part of a social system, adopt a new idea,
behavior, or product.”
ADOPTER
CATEGORIES
Diffusion of Innovation Theory
THEORETICAL UNDERPINNINGS OF PLC
Theory of Monopolistic Competition
Monopolistic competition describes a market structure where
many firms are selling the products that are similar, but not
perfect substitutes for each other. In the initial stage the number
of firms in the business will be lower, because of the risk
involved in the new product. As the acceptance, and adoption of
the product picks up more firms would enter the market, this
leads to the growth in the market. During the maturity stage,
the number of firms entering and number of firms leaving the
market would be more or less equal. On the decline, only those
firms, which choose to specialize, would stay in the market and
others would leave the market.
WHAT IS A PLC?
Technically speaking, PLC is the graph we obtain
when product sales [Y-axis] are plotted against time
[X-axis]. Metaphorically, it delineates the life-stages
of a product.
STAGES IN
PLC
The product life cycle is the concept that a
product goes through several stages in the
course of its life:
1.
2.
3.
4.
5.
Product Development,
Introduction,
Growth,
Maturity, &
Decline
PLC STAGES &
CASHFLOWS
[Typical] Product Life-Cycle
STAGE I:
PRODUCT
DEVELOPMENT
The first Stage in Product Life Cycle is Product
Development, during which the firm develops a new
product to exploit a market opportunity. A product
generally undergoes several changes in this Stage –
involving a lot of investment, effort, and time – before it
is exposed to target customers via test market.
At this Stage, sales are zero and
cash-flows are negative.
STAGE II:
INTRODUCTION
The Introduction stage of the product life cycle occurs
when the product is first introduced to its target market.
This Stage is characterized by large expenditure on
promotion and advertising. The company has to be
prepared to spend a lot of money and get only a small
proportion of that back.
At this stage, sales are low,
production costs tend to be high
and profit is negative or very low.
STAGE III:
GROWTH
As more and more customers adopt the new product,
demand for the new product starts increasing rapidly and
the firm sees a sharp rise in sales revenues. This is the
right time to focus on increasing the market share
because innovators move from the trial to repeat
purchase if they are satisfied with the product.
Innovators may influence others
by word of-mouth, which is often
considered the most effective
mode of communication. A new
growing market catches the
attention of the competitors. At
this Stage, sales rise, revenues
increase and the firm starts
making cash profits.
STAGE IV:
MATURITY
The Maturity stage of the product life cycle occurs when
the original forecasts for demand have been met, or
exceeded, and the sales reach the highest level and
maintain the same for a relatively long period of time.
PLC reaches a plateau.
This Stage of life cycle is the
longest phase for most products.
Competition is most intense
during this Stage. At this stage,
sales reach their highest level.
The firm enjoys the largest
market share.
STAGE V:
DECLINE
The Decline Stage of product life cycle sets in when sales
continue a strong downward drift and profits erode
rapidly. The typical reason for a product decline is the
entry of new products coupled with a decrease in
consumer interest in the product.
Product decline occurs even
when most customers no longer
buy the product, only a few loyal
customers remain. The latter
continue buying the product in
spite of no advertising or
promotional support. The firm
may decide to follow a `milking
strategy‘.
DIFFERENT
PLC
PATTERNS
DIFFERENT
PLC
PATTERNS
Product Life-Cycle Characteristics, Objectives, and Strategies
ADOPTER
CATEGORIES
PLC Stages & Marketing-Mix
PLC Stages & BCG Matrix
MARKETING MANAGEMENT
NEW
PRODUCT
DEVELOPMENT
Shrini Vempali, AUSIB
Why develop new
products?
According to Joseph A Schumpeter, “the strategic stimulus
to economic development is innovation, defined as the
commercial or industrial application of something new – a
new product, process or method of production, a new
market or source of supply, a new form of commercial,
business or financial organization.”
Why develop new products?
 In an economy of rapid change, continuous innovation
is a necessity. Companies that fail to develop new
products leave themselves vulnerable to changing
customer needs and tastes, shortened product life
cycles, increased domestic and foreign competition, and
especially new technologies.
 To
be able to seize new market opportunities that
emerge due to the changes in external environment,
firms have to be highly innovative, and should be able
to develop and launch new products, or services
quickly.
Why develop new products?
 The competency of a firm to take advantage of new
market opportunities by developing suitable products,
or services can be a source of sustained competitive
advantage.
 The
excitement, imagination, and growth associated
with the introduction of a new product invigorate the
company’s best people. New products build confidence
and momentum.
Types of New Products
 New Product Development is a ceaseless, continuous
process – which enables firms to increase revenues,
profits, & profitability; and ensures long-term survival.
 Technically speaking, a new product is an addition to
the firm’s existing product-mix.
A
new product essentially lengthens, widens, or
deepens the product-mix of an organization.
Types of New Products
 New products range from new-to-the-world items that create
an entirely new market to minor improvements or revisions of
existing products.
 Most new-product activity is devoted to improving existing
products – known as incremental innovation. Research suggests
that fewer than 10 percent of all new products are truly
innovative and new-to-the-world – resulting from disruptive
innovation.
Disruptive innovation, typically the domain of startups, or newly
established companies, not only creates a new product line and a
new market, but also is likely to alter the competitive space.
NPD
PROCESS
Many top companies use the Stage-gate Model to divide New Product
Development process into 8 stages, with a gate or checkpoint at the end of
each.
[ Fuzzy Front-end ]
1.
2.
3.
Idea
Generation
Idea Screening
Concept Development
& Testing
Is the idea
worth
considering?
NO
YES
Is the product idea
compatible with company
objectives, strategies, and
resources?
NO
DISCARD
YES
Can we find a
good concept
consumers say
they would try?
NO
cont.
YES
NPD
PROCESS
cont.
The project leader, working with a cross-functional team, must bring a set of
known deliverables to each gate before the project can pass to the next
stage.
4.
5.
6.
Mktg Strategy
Development
Business
Analysis
Product Development
Can we find a costYES
effective, affordable
marketing strategy?
Will this
product meet YES
our profit
goal?
NO
DISCARD
Have we got a
technically and
commercially
sound product?
NO
cont.
YES
NPD
PROCESS
8.
Market Testing
Commercialization
Have product
sales met
expectations?
cont.
Product Development
7.
YES
Send the idea
back for product
development?
NO
DISCARD
Are product sales
meeting
expectations?
YES
NO
Modify the product
or marketing
program?
Manage the PLC
YES
YES
NPD
PROCESS
New-product
development
requires senior
management to
define business
domains,
product
categories, and
specific criteria
for selecting
new product
ideas.
Stage I: Idea Generation
Ideas can originate from various sources – consumers,
sales teams, product managers, and trade. Also, an
innovation in materials, or processes can trigger new
product ideas.
In specific, various consumer
research methods; and idea
generation techniques such as
brainstorming, & focus group
interviews are used to generate
new product ideas.
NPD
PROCESS
 Time-tomarket
 Market
potential, &
Market Growth
Rate
 Gross Margins,
& ROI
 Probability to
achieve
technical or
market
leadership.
Stage II: Idea Screening
Ideas are screened using a list of criteria, such as:
 Does the product meet a need?
 Would it offer superior value?
 Can it be distinctively advertized or promoted?
 Is the product idea compatible
with the overall strategy and
philosophy of the company?
 Does the company have the
necessary know-how and
resources?
 Will the new product deliver the
expected sales volume, sales
growth, and profit?
NPD
PROCESS
When the product
idea is expressed
in terms of
meaningful
consumer
benefits, it is
converted into a
product concept.
Stage III: Concept Development & Testing
This Stage involves converting ideas into meaningful
product concepts [consumer benefits]; tentative
product
positioning;
shortlisting
of
concepts;
developing different designs; & estimating costs for
development.
Concept testing involves presenting
the product concept to target
consumers in a tangible [physical] or
intangible [say, digital], and getting
their reactions. Different designs,
price points, promotion concepts are
also tested.
NPD
PROCESS
Marketing
Strategy for the
new product
might also include
launch, and rollout strategies.
Stage IV: Development of Marketing Strategy
A preliminary three-part marketing strategy for introducing
the new product into the market is developed. The first part
describes the target market’s size, structure, and behavior; the
brand positioning; and sales, market share, and profit
forecasts/targets for the first few years.
The second part outlines the pricing,
& distribution strategies, and
marketing budget for the first year.
The third part of the strategic plan
describes the long-run sales and
profit goals and marketing-mix
strategy over time.
NPD
PROCESS
The Fourt-Woodlock
equation is a market
research tool to
estimate the total
volume of consumer
product purchases
per year based on
households which
initially make a trial
purchase of the
product and those
households which
make a repeat
purchase within the
first year.
Stage V: Business Analysis
Business Analysis is carried out to evaluate the proposal’s
business attractiveness. This analysis involves preparation of
sales, cost, and profit projections to determine whether they
satisfy company objectives.
 Sales: First-time [trial] / replacement /
repeat sales
 Costs and Profits: Costs are estimated by
the R&D, manufacturing, marketing, and
finance departments.
 To evaluate the merit of a new product
proposal, companies use different
financial measures such as break-even
analysis, cash flow projections, & RoI
estimates.
NPD
PROCESS
“People don't
know what they
want until you
show it to
them”.
~Steve Jobs
Stage VI: Product Development
At this stage a prototype is developed for each of the product
concepts that survive business analysis. Prototype helps
marketers to more completely define the final characteristics
and features of the product concept, ensuring that the idea
can be translated into a product.
When the prototypes are ready, they
are first tested for functionality
within the firm to see how it
performs in different applications;
and then with the customers to seek
their user experience & their
reactions to the various product
attributes.
NPD
PROCESS
Test Marketing
is like a dress
rehearsal, time
to streamline
manufacturing,
selling, and
delivering the
product to
consumers.
Stage VII: Test Marketing [1]
By now, the product is ready to be launched in market with
brand name, packaging, and pricing. Before full scale launching
the product, it is launched in a test market. The objectives of
test marketing are listed below.
 To obtain the best estimates of sales
volume and market share of the new
product.
 Some of the marketing mix elements
like trade support, advertisement
response, and sales promotion
efforts can be evaluated only in the
test marketing.
 Provides an opportunity to evaluate
the entire marketing strategy.
NPD
PROCESS
Consumerproducts test
marketing seeks
to estimate four
variables: trial,
first repeat,
adoption, and
purchase
frequency.
Stage VII: Test Marketing [2]
In designing a test market, management faces several
decisions: (1) How many test cities? (2) Which test cities?
(3) Length of the test? (4) Which information to collect? and
(5) What action to take?
To Test Market, or Not To Test
Market?
“We don’t think it is okay if things
aren’t perfect, but we’re willing
to innovate and have speed to
market trump a 100% guarantee that
it’s be perfect.”
NPD
PROCESS
Developing
products rapidly
and moving them
into the
marketplace
efficiently is
important for
long-term
corporate success.
Stage VIII: Commercialization
Culmination of the NPD Process, where the product is
launched across target market with a proper market strategy
and a roll-out plan. The firm may build or rent a full-scale
manufacturing facility, or it may need to contract for
manufacture of the product.
Most new-product campaigns also
require a sequenced mix of market
communication tools to build
awareness and ultimately preference,
choice, and loyalty.
“In many markets, 40 percent or more
of revenues come from products
introduced in the previous year.”
NPD
PROCESS
Commercialization
Plan must address
the following issues.
 WHEN [Timing]
 WHERE
[Geographic
Strategy]
 TO WHOM [Target
Market]
 HOW [Introductory
Market Strategy]
New Product Development
The eight Stages may be iterated as needed. Some Stages may
be eliminated. To reduce the time that the NPD process takes,
many companies are completing several steps at the same
time [Concurrent Engineering]. Most industry leaders see new
product development as a proactive process.
Resources are allocated to identify market
changes and seize upon new product
opportunities before they occur [in contrast to a
reactive strategy in which nothing is done until
problems occur or the competitor introduces an
innovation].
Many industry leaders see new product
development as an ongoing process [Continuous
Development] in which the entire organization is
actively looking for opportunities.
+91-9704-559-369
shrini.vempali@gmail.com
THANK YOU