Developing & Managing
Products
Strategic Marketing
Learning Objectives
1. Explain the importance of developing new products and describe the six
categories of new products
2. Explain the steps in the new-product development process
3. Explain the diffusion process through which new products are adopted
4. Explain the concept of product life cycles
Explain the importance of developing new products
New Product: A product new to the world, the market, the producer, the seller,
or some combination of these.
- Important to sustain growth
- Increase revenue & profits
- Replace obsolete items
- Innovation is difficult for companies to be good at
Roughly 70-80 new products are produced per year
- Apple, 3M, Microsoft, GE, & Sony are considered strong innovators
Six Categories of New Products
Category
Definition
Example
New to the world
(discontinuous
innovations)
Products create an entirely new market. Smallest category of new
products. Designed to increase market share among existing customers.
Penicillin
New product lines
New products that enter an established market.
Create new products for present markets
P&G Iams Dog Food
Additions to existing
product lines
New products that supplement a firms existing product line.
Designed to attract new customers to existing products
Diapers
Improvements or
revisions of existing
products
“New or Improved” product that can be significantly or slightly changed.
Can also include package revisions. Most new products fit into this
category. Geared towards Market Development
Gillette Razor
Repositioned products
Existing products targeted at new markets or market segments.
Diversification is key.
Cadillac
Lower-priced products
Products that offer performance similar to competing brands at a lower
price. Introduce new products into new markets.
Walmart
REVIEW LEARNING OUTCOME: Developing New Products
5
New-Product Development Process
New-Product Strategy
Idea Generation
Idea Screening
Business Analysis
Development
Test Marketing
Commercialization
New Product
L.O. #2: New-Product Development Process
New Product Strategy: A plan that links the new-product development process with the
objectives of the marketing development, the business unit, and the corporation.
Must be consistent & compatible
Provides general guidelines for generating, screening, & evaluating new product ideas
Example:
Gillette aims for 40% of annual sales to be generated
from products less than 5 years old
Step #1: Idea Generation
Source of New Ideas
Carried Out….
Customers
Marketing concept suggests this is main reason for product development.
Employees
Marketing personnel employees are good bc they analyze and are involved in
marketplace.
Distributors
Closer to customer so they know what concerns and needs customers have
Competitors
Monitor competition to determine what products should be copied.
Vendors
Done to create proprietary products
Research & Development
Carried out in 4 ways:
Basic research, applied research, product development & product modification.
Consultants
Examine a business & recommend product ideas.
Step #2: Idea Screening
Idea Screening
The first filter in the product development process, which eliminates ideas that are
inconsistent with the organization’s new-product strategy or are inappropriate for some
other reason.
You generate an idea  then you screen it  keep good; eliminate bad.
Majority of products are rejected in the screening stage
Concept Test: A test to evaluate a new product idea, usually before any prototype has been
created. Can be good line extensions but not for brand new items.
Step # 3: Business Analysis
Survive the screening process; advance
to Business Analysis:
The second stage of the screening
process where Preliminary figures for
demand, cost, sales, and profitability
are calculated.
Demand
Considerations
in
Business
Analysis Stage
Cost
Sales
Evaluate costs v. revenue
Profitability
At end of this stage management has a
good understanding of market
potential.
Stage #4: Development
Creation of prototype
Marketing strategy is outlined
Packaging, branding, labeling are identified
Promotion, price, and distribution strategy
Manufacturing feasibility
Final government approval is given
Consumer Product Safety Act requires companies do diligent product testing
Step #4: Development
Simultaneous Product Development:
A team-oriented approach to new-product development
where all relevant functional areas and outside suppliers
participate in the development process.
(R&D, Marketing, Engineering, Production, & Suppliers)
Step #5: Test Marketing
Test Marketing: The limited introduction of a product and a marketing program to determine
the reactions of potential customers in a market situation.
Understand if your marketing mix strategies work.
Alternatives to test marketing:
Single-source research using supermarket scanner data
Simulated (laboratory) market testing
Online test marketing
Step #6: Commercialization
Commercialization: The decision to market a product
Commercialization Involves:
 Ordering production materials & Starting production
 Building inventory
 Shipping the product to final destination
 Training sales force
 Announcing product to industry
 Advertising to customers
Overview of
Steps in the New Product Process
Learning Objective #3: Why Some Products Succeed & Some Don’t
70% – 90% of products fail within the first year
Why Do Products Fail?
Doesn’t differentiate between current products on market
Poor match between features and customer needs
Overestimate market size
Incorrect positioning
Price is too high or too low
Poor distribution & Promotion
Inferior product
Learning Objective #3:
Why Some Products Succeed & Some Don’t
Diffusion: The process by which the adoption of an innovation spreads.
• Word of mouth advertising speeds diffusion
Adopters: A consumer who was happy enough with his or her trial experience with a product
to use it again.
There are five categories of adopters that participate in the diffusion process
1. Innovators
2. Early adopters
3. Early majority
4. Late majority
5. Laggards
Categories of Adopters
Category
Definition
Innovators
2.5% of population. Eager and willing to try new products. Almost obsessive about having products first.
This is wealthy, free thinking group who bases opinion on research not on others opinion.
Early
Adopters
13.5% of population. Adopt early on but are influenced by societal norms. Categorized by respect from
others. Community minded individuals who buy early on.
Early
Majority
34% of population. Interested in products but do a lot of research and comparison shopping amongst
brands before buying. Categorized as deliberate.
Late
Majority
34% of population. Adopt once most of friends do. Buy to fit in. Skeptics who buy on word-of-mouth
advertising.
Laggards
16% of population. Low socio-economic group whose spending is very traditional. By the time they buy a
product it has probably already being replaced by a different product on market.
Explain & Predict the Rate of Acceptance
and Diffusion of a New Product
Product Characteristics
Definition
Complexity
The degree of difficulty in understanding and using a new product. More complex
the product, the slower its diffusion
Compatibility
How compatible a product is with the market it is being introduced to. Culture of a
region will impact how accepting they are of certain products
Relative Disadvantage
The degree to which a product is perceived as superior to existing substitutes
Observability
How easy it is to recognize the benefits and features of a product so that they can
be conveyed to the target market. Easy to see the functions of a car versus personal
care products.
Triability
Degree to which a product can be tried on a limited basis.
Easier to try products like toothpaste & cereal versus a car or computer.
Product Life Cycle
Product Life Cycle: Traces the stages of a product’s acceptance, from its introduction (birth) to
its decline (death)
Changes in a product, its use, its image, or its positioning can extend that product’s life cycle.
PLC doesn’t tell managers the length of a product’s life cycle or its duration in any stage.
Tool to forecast future events and develop appropriate strategies.
LO4
Product Life Cycle
Growth
Stage
Maturity
Stage
Decline
Stage
Sales
Dollars
Introductory
Stage
Profits
0
Time
LO4
Product Life Cycles for
Styles, Fashions, and Fads
Stage #1: Introductory
 High failure rates
 Little competition
 Frequent product modification
 Limited distribution
 High marketing and production costs
 Negative profits with slow sales increases
 Promotion focuses on awareness and information
 Communication challenge is to stimulate primary demand
Stage #2: Growth
 Increasing rate of sales
 Entrance of competitors
 Market consolidation
 Initial healthy profits
 Aggressive advertising of the differences between brands
 Wider distribution
Stage #3: Maturity
 Sales increase at a decreasing rate




Saturated markets
Annual models appear
Lengthened product lines
Service and repair assume important roles
 Heavy promotions to consumers and dealers
 Marginal competitors drop out
 Niche marketers emerge
Stage #4: Decline
Long-run drop in sales
Large inventories of unsold items
Elimination of all nonessential marketing expenses
“Organized abandonment”
Introduction
Growth
Decline
Maturity
Sales
Product
life cycle
curve
Early majority
Late majority
Early adopters
Innovators
Laggards
Diffusion
curve
27
REVIEW LEARNING OUTCOME
Product Life Cycles
INTRODUCTION
GROWTH
MATURITY
Limited models
Frequent
changes
More models
Frequent
changes.
Large number
of models.
Distribution
Strategy
Limited
Wholesale/
retail distributors
Expanded
dealers. Longterm relations
Promotion
Strategy
Awareness.
Stimulate
demand.Sampling
Sales
Product
Strategy
Pricing
Strategy
High to recoup
development
costs
Aggressive ads.
Stimulate
demand
Fall as result of
competition &
efficient production.
Time
Extensive.
Margins drop.
Shelf space
Advertise.
Promote
heavily
Prices fall
(usually).
DECLINE
Eliminate
unprofitable
models
Phase out
unprofitable
outlets
Phase out
promotion
Prices
stabilize at
low level.