Summary of Key Points for Chapter 9
Chapter Objectives:
1. Explain how companies find and develop new-product ideas.
2. List and define the steps in the new-product development process and the major
considerations in managing this process.
3. Describe the stages of the product life cycle and how marketing strategies change
during the product’s life cycle.
4. Discuss two additional product and services issues: socially responsible product
decisions and international product and services marketing.
NEW-PRODUCT DEVELOPMENT STRATEGY
A firm can obtain new products in two ways.
1. Acquisition—by buying a whole company, a patent, or a license to produce
someone else’s product.
2. New-product development efforts.
New products are original products, product improvements, product modifications,
and new brands that the firm develops through its own research-and-development
efforts.
According to one estimate, 90% of all new products fail (e.g. Harley-Davidson cakedecorating kits). There are a number of reasons for failure e.g. overestimation of the
market size, poor design, incorrectly positioned, launched at the wrong time, priced
too high or poorly advertised.
THE NEW-PRODUCT DEVELOPMENT PROCESS
Figure 9.1 (pg. 283) shows the eight major steps in the new-product development
process. This systematic process is for finding and growing new products.
1. Idea Generation- to create a large number of ideas
Idea generation is the systematic search for new-product ideas. The best ideas
are developed into profitable products.
Internal Idea Sources
Using internal sources, the company can find new ideas through formal research and
development. Or, it can get ideas from their employees (e.g. Samsung’s Value
Innovation Program Center, pg. 284) — from executives to scientists, engineers, and
manufacturing staff to salespeople.
External Idea Sources
Companies can also obtain good new-product ideas from external sources, such as
distributors and suppliers or even competitors. Trade magazines, seminars,
marketing research firms, university and commercial labs, design firms (e.g. IDEO,
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ZIBA) and inventors are other external idea sources.
Perhaps the most important source of new-product ideas is customers themselves e.g.
through online collaborative communities (e.g. Dell - pg 285) and personal
interactions with customers (LEGO (pg 285). However, customers may not know
what they want or need in terms of highly technical products e.g. innovation in mobile
phones, other software and hardware.
2. Idea Screening – to reduce the number of ideas
The first idea-reducing stage is idea screening, which helps spot good ideas and drop
poor ones as soon as possible. The company only wants to go ahead with ideas that
will turn into profitable products.
3. Concept Development and Testing – idea, concept, image
A product idea is an idea for a possible product that the company can see itself
offering to the market.
A product concept is a detailed version of the idea stated in meaningful consumer
terms.
A product image is the way consumers perceive an actual or potential product.
Concept Development
In concept development, several descriptions of the product are generated to find out
how attractive each concept is to customers. From these concepts, the best one is
chosen. Four product concepts for an electric car are described on pg. 287.
Concept Testing
Concept testing calls for testing new-product concepts with groups of target
consumers. Sometimes, a word description or picture is used. At other times the
physical representation of the object is shown to consumers, increasing the reliability
of the concept test.
Refer to Table 9.1 (pg. 287) for examples of questions consumers may be asked about
the concept (of a battery-powered electric car).
4. Marketing Strategy Development
Marketing strategy development is designing an initial marketing strategy for
introducing this car to the market.
The marketing strategy statement consists of three parts.
1. A description of the target market; the planned value proposition; and the
sales, market share, and profit goals for the first few years.
2. Outline of the product’s planned price, distribution, and marketing budget for
the first year.
3. Description of the planned long-run sales, profit goals, and marketing mix
strategy.
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5. Business Analysis
Business analysis involves a review of the sales (review the sales history of similar
products and conduct market surveys), costs (e.g. marketing, R&D, operations,
finance and other costs), and profit projections for a new product to find out whether
they satisfy the company’s objectives. If they do, the product can move to the product
development stage.
6. Product Development
In product development, R&D or engineering develops the product concept into a
physical product.
The product development step calls for a large jump in investment. Often, products
undergo rigorous tests to make sure they perform safely and effectively (e.g. Louis
Vuitton, Gillette –pg. 288, pg 289). The new product must have the required
functional features and the intended psychological characteristics (e.g. comfortable,
safe for a car; beautiful and special for a handbag).
7. Test Marketing
Test marketing is the stage at which the product and marketing program are
introduced into realistic market settings (e.g. KFC test-marketed its new Kentucky
Grilled Chicken product for 3 years, before rolling it out widely- pg 289). It tests the
product and its entire marketing program– targeting and positioning strategy,
advertising, distribution, pricing, branding, packaging and budgeting. But, companies
often do not test-market simple line extensions or when management is already
confident about the new product.
Drawbacks/disadvantages include:
1. Costly
2. Time consuming
3. Competitors can monitor results
4. Competitors get an early look at your new product.
Test marketing also does not guarantee success.
When using test marketing, consumer products companies usually choose one of the
following approaches: standardized test markets, controlled test markets and
simulated test markets.
8. Commercialization
Test marketing gives management the information needed to make a final decision
about whether to launch the new product. If management goes ahead with
commercialization, it will introduce the new product into the market (e.g. Sunsilk
hair care launched by Unilever -pg. 292).
Decisions must be made concerning:
 Timing (e.g. if the economy is down, the company may delay the launch),
 Where to launch the new product (in a single location, region, country or
international market)
 Market rollout (rollout could be in stages)
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MANAGING NEW-PRODUCT DEVELOPMENT
Companies must manage this process with a customer-centred, team-based and
systematic effort.
1.
Customer-Centered New-Product Development
New-product development must be customer centered. It must not just rely on
technical research in R&D labs.
Customer-centered new-product development focuses on finding new ways to
solve customer problems and create more customer-satisfying experiences. Read Real
Marketing 9.1 (pg. 294-295) on IDEO’s customer-centered design process.
2.
Team-Based New-Product Development
Under the sequential product development approach (Fig 9.1, pg 283), one company
department works individually to complete its stage of the process before passing the
new product along to the next department and stage. This orderly, step-by-step
process can help bring control to complex and risky projects. But it also can be
dangerously slow.
In order to get their new products to market more quickly, many companies use a
team-based new-product development approach. Under this approach, company
departments work closely together in cross-functional teams, to save time and
increase effectiveness. Instead of passing the new product from department to
department, the company assembles a team of people from various departments that
stay with the new product from start to finish.
It has some limitations. For example, it sometimes creates more organizational
tension and confusion than the more orderly sequential approach. But, for rapidly
changing industries with increasingly shorter product life cycles, the benefits of faster
and flexible product development is greater than the risks. Combining this approach
with team-based new prodcut development can get the right products to market faster.
3.
Systematic New-Product Development
An innovation management system can be used to collect, review, evaluate, and
manage new-product ideas, so that new ideas will be encouraged and these ideas will
not be lost. It can be web-based and encourage all company stakeholders to be
involved in finding and developing new products.
The innovation management system approach yields two favorable outcomes.
1. It helps create an innovation-oriented company culture.
2. It will yield a larger number of new-product ideas, among which will be found
some especially good ones.
PRODUCT LIFE-CYCLE STRATEGIES
After the launch of a new product, management wants the product to enjoy a long and
profitable life. Figure 9.2 (pg. 297) shows a typical product life cycle (PLC), the
course that a product’s sales and profits take over its lifetime.
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The product life cycle has five distinct stages:
1. Product development begins when the company finds and develops a new-product
idea. During product development, sales are zero and the company’s investment
costs mount.
2. Introduction is a period of slow sales growth as the product is introduced in the
market. Profits are nonexistent in this stage because of the heavy expenses of
product introduction.
3. Growth is a period of rapid market acceptance and increasing profits.
4. Maturity is a period of slowdown in sales growth because the product has
achieved acceptance by most potential buyers. Profits level off or decline because
of increased marketing outlays to defend the product against competition.
5. Decline is the period when sales fall off and profits drop.
NOTE: Not all products follow this life cycle. Some products die quickly, others stay
in the mature stage for a very long time, some enter the decline stage and are then
cycled back into the growth stage through innovation, strong promotion (e.g. Apple)
etc.
The PLC concept can describe a product class (gasoline-powered automobiles), a
product form (SUVs), or a brand (the Ford Escape).
Product classes have the longest life cycles. Product forms have the standard PLC
shape. Product brand PLC can change quickly because of changing competitive
attacks and responses.
The PLC can be applied to styles, fashions, and fads (Figure 9.3, pg 298).
 A style is a basic and distinctive mode of expression. It may last for
generations, going in and out of vogue (renewed interest).
 A fashion is a currently accepted or popular style in a given field. Fashions
tend to grow slowly, remain popular for a while and then decline slowly.
 Fads are temporary periods of unusually high sales driven by consumer
enthusiasm and immediate product or brand popularity (e.g. low-carb diets)
The PLC concept can be applied by marketers as a useful framework for describing
how products and markets work. And, it can help in developing good marketing
strategies for different stages of the product life cycle but marketers should not just
push products through the traditional stages of the product life-cycle.
Strategies for each of the other life-cycle stages
Table 9.2, pg. 303 is very useful as a Summary of PLC characteristics, objectives and
strategies, from the Introduction stage.
Introduction Stage
The introduction stage starts when the new product is first launched. In this stage,
profits are negative or low, promotion spending is relatively high, only basic versions
of the product are produced.
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Growth Stage
The growth stage is where sales begin to climb quickly. New competitors will enter
the market. They will introduce new product features, and the market will expand.
The increase in competitors leads to an increase in the number of distribution outlets.
Prices remain stable. Profits increase during the growth stage.
Maturity Stage
The maturity stage is characterized by slowing product growth. The slowdown in
sales growth results in many producers with many products to sell.
Competitors begin marking down prices, increasing their advertising and sales
promotions, and upping their product-development budgets to find better versions of
the product. These steps lead to a drop in profit.
Product managers should consider modifying the market, product, and marketing mix.
In modifying the market, the company tries to increase the consumption of the current
product. It may look for new users and new market segments (e.g. Gator, pg. 301) and
also look for ways to increase usage among current customers (e.g. Glad products, pg.
301-302).
In modifying the product, the company tries changing characteristics such as quality,
features, style, or packaging to attract new users and to inspire more usage (e.g.
Tabasco has been around for 130 years with new flavours and new products, pg 302).
In modifying the marketing mix, the company tries changing one or more marketing
mix elements.
Decline Stage
The sales of most product forms and brands eventually dip. This is the decline stage.
Management may decide to maintain its brand without change in the hope that
competitors will leave the industry.
Management may decide to harvest the product, which means reducing various costs
(plant and equipment, maintenance, R&D, advertising, sales force) and hoping that
sales hold up. If successful, harvesting will increase profits in the short-term.
Management may decide to drop the product from the line. It can sell or liquidate it
(e.g. some of P&G’s lesser-known or declining brands, pg. 303).
NOTE: There will be a QUIZ on Chapters 5, 7, 8 on Saturday, 18 December. 5
multiple-choice and 5 True/False questions (marked over 5%).
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End-of-Week Questions:
1.
Discuss the benefits and drawbacks of test marketing and explain why some
companies use or do not use test marketing for new products. Name the three
approaches to test marketing.
2.
Review the stages of the Product Life Cycle (PLC) contained in Fig 9.2 (pg.
297) and Table 9.2 (p. 303). Answer the following questions:
a. What are two products you consider to be in the Decline stage of the PLC?
Justify your answer.
b. Apple’s iPod seems to be all the rage today. In which stage of the PLC would
you place the iPod? Why?
c. How do you know when a product has moved from the Growth stage to the
Maturity stage of the PLC?
3.
Coca-Cola has sustained success in the maturity stage of the product life-cycle
for many years. Visit Coca-Cola’s Web site
(http://www.thecoca-colacompany.com/heritage/ourheritage.html) and discuss how
Coca-Cola has evolved over they years. Identify ways that Coca-Cola can continue to
evolve to meet changing consumer needs and wants.
4.
Explain the difference between styles, fashions and fads and give an
example of each.
5.
Read the Company Case on Nintendo (pg. 309- 310).
In which stage of the product life cycle is the Wii? Based on this stage, is Nintendo
employing good marketing mix strategies?
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