PRODUCT LIFE CYCLES
AND NEW PRODUCT
DEVELOPMENT
Professor Chip Besio
Cox School of Business
Southern Methodist University
Stages of the product life cycle and its total
industry sales and total industry profit
How stages of the product life cycle relate to a
firm’s marketing objectives and marketing mix
actions
CHARTING THE PRODUCT LIFE
CYCLE
INTRODUCTION STAGE

Primary Demand

Selective Demand

Skimming Strategy

Penetration Pricing
Product life cycle for the stand-alone fax machine
for business use: 1970-2012
CHARTING THE PRODUCT LIFE CYCLE
GROWTH STAGE

Rapid Sales Growth

More Competitors

Repeat Purchasers

New Features

Broad Distribution
CHARTING THE PRODUCT LIFE CYCLE
MATURITY STAGE

Industry/Product
Sales Slow

Profit Declines

Product Differentiation

Fewer Competitors
CHARTING THE PRODUCT LIFE CYCLE
DECLINE STAGE

Industry/Product
Sales Drop

Environmental Changes

Deletion

Harvesting
CHARTING THE PRODUCT LIFE CYCLE
FOUR ASPECTS

Length of the Product Life Cycle

Shape of the Product Life Cycle
• Generalized Life Cycle
• High-Learning
Product
• Fashion
Product
• Low-Learning
product
• Fad
Product
Alternative product life cycle curves based on
product types
CHARTING THE PRODUCT LIFE CYCLE
FOUR ASPECTS

The Product Level: Class and Form
• Product Class
• Product Form
Prerecorded music product life cycles by product
form
Five categories and profiles of product adopters
(diffusion of innovation)
MANAGING THE PRODUCT LIFE CYCLE
ROLE OF A PRODUCT MANAGER

Product/Brand Manager Responsibilities
• Product Life Cycle
• New Product Development
• Marketing Program Implementation
• Data Analysis
 CDI
 BDI
11-16
MANAGING THE PRODUCT LIFE CYCLE
MODIFYING THE PRODUCT OR MARKET

Product Modification
• Product
Bundling

• New
Characteristics
Market Modification
• Finding New
Customers
• Increasing a
Product’s Use
• Creating a New
Use Situation
11-17
The Milk Processor Education Program
What factor triggered its repositioning?
11-18
MANAGING THE PRODUCT LIFE CYCLE
REPOSITIONING THE PRODUCT

Changing the Value Offered
• Trading Up
• Trading Down
• Downsizing
11-19
BRANDING AND BRAND MANAGEMENT

Branding

Brand Name
• Logotype (Logo)

Trade Name

Trademark
®
™
• Product Counterfeiting
11-20
BRANDING AND BRAND MANAGEMENT
BRAND PERSONALITY AND BRAND EQUITY

Brand Personality

Brand Equity
• Provides a Competitive Advantage
• Consumers Willing to Pay a Premium
11-21
GATORADE: QUENCHING
THE ACTIVE THIRST WITHIN YOU
Göt2b Hair Products and Degree Deodorant
What are their brand personalities?
The customer-based brand equity pyramid
BRANDING AND BRAND MANAGEMENT
BRAND PERSONALITY AND BRAND
EQUITY

Valuing Brand Equity
• Provides a Financial Advantage
• Brand Licensing
BRANDING AND BRAND MANAGEMENT
PICKING A GOOD BRAND NAME

Should Suggest Product Benefits

Should Be Memorable and Positive

Should Fit the Company or Product Image

Should Have No Legal or Regulatory Restrictions

Should Be Simple and Emotional
ALTERNATIVE BRANDING STRATEGIES
Kimberly-Clark’s Huggies
What branding strategy is used?
Black & Decker and DeWalt Tools
What branding strategy does each use?
“?” and Heinz Ketchup
What are the packaging benefits for each?
Lay’s STAX, Pringles and Celestial Seasonings
What are the packaging benefits for each?
PACKAGING AND LABELING PRODUCTS
PACKAGING AND LABELING
CHALLENGES AND RESPONSES

Connecting with Customers

Environmental Concerns

Health, Safety, and Security Issues
• Shelf Life

Cost Reduction
What Is A New Product?
New to the world
New to the company
Flankers
– Line extensions
– Brand extensions
Repositioning
Model changes
Dyson Products
Swiffer
Products
NEW PRODUCT DEVELOPMENT?
New product development is the most
important strategic activity of any firm
 However, it is the most risky venture
Most new products fail!
THE RISKS OF NEW PRODUCTS?
 Failure rates
– “…no more than 10% of all new products or services are
successful -- that is, still on the market and profitable after
three years” - Marketing Management (2003)
– 95% of new consumer products in US fail;90% of new
consumer products in Europe fail - Nielsen BASES and Ernst
& Young study (2002)
 Costs
– Introducing a new national brand can cost $20 million –
Marketing Management
– New Product News – “It probably costs $100 million to
introduce a truly new soft drink nationally and it costs $
10,000 to introduce a new flavor of ice cream in Minneapolis.
Somewhere in between is a worthless 'average' cost to
introduce a new product”
THE RISKS OF NEW PRODUCTS?
 Study by Assoc. of National Advertisers
(2004) --across all types of industries
– 27% of line extensions failed
– 31% of new brands introduced in categories
where company already had a product failed
– 46% of new products introduced to new
categories failed
 Only 1 in 7 new product ideas are carried to
the commercialization phase
NEW PRODUCTS AND WHY
THEY SUCCEED OR FAIL

Newness: The Organization’s Perspective
• Product Line Extension
• Significant Jump in Innovation
• True Innovation
10-39
Purina Elegant Medleys
What are the potential benefits and dangers
of incremental innovation?
10-40
WHY NEW PRODUCTS FAIL
 Poor planning and strategy
– Market is not attractive
 Poor concept
 Poor execution
 Poor use of research
 Poor technology
 Poor timing
– Changes in tastes/environment
 Bad support from channel
WHY NEW PRODUCTS SUCCEED
 Top-management commitment
 Start with the consumer -- not the factory
 Intelligent use of research
 Find a competitive advantage
 Move quickly
 Know when to get out
 Accept, but manage risk
NEW PRODUCTS AND WHY
THEY SUCCEED OR FAIL
LO3

Newness: The Consumer’s Perspective
• Continuous Innovation
• Dynamically Continuous Innovation
• Discontinuous Innovation
10-43
The degree of “newness” in a new product affects the
amount of learning effort consumers exert to use the
product
10-44
WHAT SEPARATES NEW-PRODUCT
WINNERS AND LOSERS
How a consumer product is classified affects which
products consumers buy and the marketing strategies
used
New Product Success Factors
Be close to the market
Set a strategic direction
Play to your strengths
Strong organizational support
Speed to market
THE SEVEN STAGES IN NEW-PRODUCT
DEVELOPMENT
THE NEW-PRODUCT PROCESS
STAGE 1: NEW-PRODUCT STRATEGY DEVELOPMENT


New-Product Process
New-Product Strategy Development
• Type of Strategy to Utilize
• SWOT Analysis Conducted
• Protocol Defined
• Strategic Role Identified
STRATEGIC ROLES OF MOST
SUCCESSFUL NEW PRODUCTS
THE NEW-PRODUCT PROCESS
STAGE 2: IDEA GENERATION
Idea Generation

• Open Innovation

Customer and Supplier Suggestions

Employee and Co-Worker Suggestions

Research and Development Laboratories

Competitive Products

Universities, Inventors, and Small Tech Firms
Volvo’s YCC
How are new-product ideas generated?
THE NEW-PRODUCT PROCESS
STAGE 3: SCREENING AND EVALUATION

Internal Approach
• Customer Experience Management (CEM)

External Approach
• Concept Tests
New Product Development Process
CONCEPT TESTING
 Goal
– Use primary market information to better
define the product, forecast likely demand, and
clarify target buyer
 Common tools
– Focus Groups
– Conjoint Analysis
THE NEW-PRODUCT PROCESS
STAGE 4: BUSINESS ANALYSIS

Prototype

Business Fit

Capacity Management

Off-Peak Pricing
New Product Development Process
BUSINESS ANALYSIS
Review Product Sales, Costs, and Profits Projections
to See if They Meet Company Objectives
If No, Eliminate
Product Concept
If Yes, Move to
Product Development
Source: Prentice Hall
THE NEW-PRODUCT PROCESS
STAGE 5: DEVELOPMENT
 Brainstorming
 Service Encounters
 Safety Tests
Product Development
TESTING NEW PRODUCTS
Advertising testing
Product quality testing
Laboratory tests
Expert evaluation
Customer tests
– Single-product evaluation
– Blind tests
– Experimental variations
THE NEW-PRODUCT PROCESS
STAGE 6: MARKET TESTING
Simulated
Test Market
Test in a simulated
shopping environment
to a sample of
consumers
Controlled
Test Market
A few stores that have
agreed to carry new
products for a fee
Standard
Test Market
Full marketing campaign
in a small number of
representative cities.
Source: Prentice Hall
SIX IMPORTANT TEST MARKETS – THE
WINNER IS WICHITA FALLS, TX
THE NEW-PRODUCT PROCESS
STAGE 7: COMMERCIALIZATION

Burger King’s French Fries
• Regional Rollouts

Risks with Grocery Products
• Slotting Fees
• Failure Fee
THE NEW-PRODUCT PROCESS
STAGE 7: COMMERCIALIZATION

Speed as a Factor in New-Product Success
• Time to Market (TtM)
• Parallel Development
• Fast Prototyping
Why Speed to Market?
 Markets are getting more specialized
 Intensified competition
 Changing technology
 Changing tastes
 Rampant copying
 Gaining shelf space early
Business Analysis
WHEN TO STOP A BAD IDEA
 Rule 1: Remember the sunk cost fallacy
 Rule 2: Set benchmarks for success
beforehand and stick to them
 Rule 3: Be sure to plan research so that it
will allow you to diagnose the cause of
problems
General Mills Fingos
Why did this product fail?
Thirsty Dog! and Thirsty Cat!
Why did these products fail?
Avert and Hey! There’s a Monster in My Room
Why did these products fail?