principles of MARKETING

New Product
Development and Life
Cycle Strategies

© 2002 Pearson Education Canada 9-1

Inc.
 Chapter Objectives
• Explain how to find and develop new product
ideas
• Explain the new-product development process
• Describe stages of the product life cycle
• Describe how marketing strategies change
over the product life cycle

© 2002 Pearson Education Canada 9-2

Inc.
 New Product Development:
Overview
Two major challenges
• New product development
– New to replace aging
• Life-cycle strategies
– Adapt to changing:

© 2002 Pearson Education Canada 9-3

Inc.
 New Product Development
Strategy
• Two sources of new products
– Acquisition - company, patent, licence
– New product development internally
• New product development meaning
– Original products, product improvements, or
product modifications, and new brands through
the firm’s own R & D efforts
• Risk and failure rates are high
© 2002 Pearson Education Canada 9-4
Inc.
New Product Development Strategy:
Why Do New Products Fail?
• Overestimated market
• Poor design
• Incorrect positioning
• Error in pricing
• Poor marketing
communication
• Production-orientation
• Cost overrun
• Competition © 2002 Pearson Education Canada 9-5
Inc.
New Product Development Strategy:
Success Factors
• Unique
superior product
• Well defined product
concept from startup
• Specific criteria
• Specific strategic role
• Systematic new-
product process
© 2002 Pearson Education Canada 9-6
Inc.
New-Product Development Process:
Major Stages
Marketing Business
strategy analysis
Concept
Product
development
development
and testing

Idea screening Test marketing

Idea generation Commercialization

© 2002 Pearson Education Canada 9-7

Inc.
New-Product Development Process:
Idea Generation
• Systematic search for new idea
• Major Sources of New-Product Ideas
– Internal sources
• Employees, sales people, R & D, managers
– Customers
– Competitors
– Distributors and suppliers
– Entrepreneurs
© 2002 Pearson Education Canada 9-8
Inc.
New-Product Development Process:
Idea Screening
• Purpose
– Identify good ideas drop poor ones
fast
• Standard format
• Product description, customer
value proposition, target
market, cost, rate of return etc

© 2002 Pearson Education Canada 9-10

Inc.
New-Product Development Process:
Idea Screening
• Screening framework
– Is it real?
• Is there a real need and will customer buy it?
– Can we win?
• Does the product offer competitive advantage?
• Does the company have enough resources to make
such a product a success.
– Is it worth doing?
• Does it offer sufficient growth strategy?
© 2002 Pearson Education Canada 9-11
Inc.
 New-Product Development Process:
Idea Screening
• Process to spot good ideas and drop poor ones
– Two types of errors
• Go error
• Drop error
• Criteria
– Market Size
– Product Price
– Development Time & Costs
– Manufacturing Costs
– Rate of Return
New-Product Development Process:
Concept Development and Testing
• Product concept
– Product concept is a detailed version of the
idea stated in meaningful consumer terms.
• Concept development
– Expanding the new-product idea into various
alternative forms

© 2002 Pearson Education Canada 9-13

Inc.
New-Product Development Process:
Concept Development and Testing
• Three questions to ask for concept development
• ( Idea is a nutritious drink in Bangladesh):
1. Who will use the product? Infants, children,
teenagers, young or middle-aged adults, or older
adults.
2. What primary benefit should this product offer?
Taste, nutrition, refreshment, energy.
3. When will people consume this product? Breakfast,
midmorning, lunch, mid-afternoon, dinner, late
evening?

© 2002 Pearson Education Canada 9-14

Inc.
New-Product Development Process:
Concept Development and Testing
• Develop several concepts:
• Concept 1: An instant breakfast drink for
adults who want a quick nutritious drink
without preparation (Tropicana Juice).
• Concept 2: A tasty drink for children to
drink as a midday refreshment.
• Concept 3: A health supplement for older
adults to drink in the late evening before
they go to bed.
© 2002 Pearson Education Canada 9-15
Inc.
New-Product Development Process:
Concept Development and Testing
• Concept testing
• Testing new-product concepts with a group
of target consumers through consumer
research to find out if the concepts have
strong consumer appeal/demand.

© 2002 Pearson Education Canada 9-16

Inc.
New-Product Development Process:
Concept Development and Testing
• Concept testing
– Target consumers
exposed to new-
product concepts
– Word or picture
description
– Physical presentation
of the concept
– Question reactions

© 2002 Pearson Education Canada 9-17

Inc.
New-Product Development Process:
Marketing Strategy Development
• Marketing Strategy Statement - Part one
– Target market
– Planned product positioning
– Sales, market share
• Marketing Strategy Statement - Part two
– Price, distribution and first year marketing
budget

© 2002 Pearson Education Canada 9-18

Inc.
New-Product Development Process:
Marketing Strategy Development
• Marketing Strategy Statement - Part three
– Planned long-run sales
– Profit goals
– Marketing mix strategy

© 2002 Pearson Education Canada 9-19

Inc.
 New-Product Development Process:
Marketing Strategy Development
Part One Describes Overall:
Target Market-Young
Planned Product Positioning-low price,good quality
Sales & Profit Goals
Market Share-10% to 14%
Part Two Describes First-Year:
Product’s Planned Price
Distribution-allowances, free samples
Marketing Budget-adv on tv n print

Part Three Describes Long-Term:

Sales & Profit Goals-25% mkt share,12% investment
Marketing Mix Strategy
New-Product Development Process:
Business Analysis
• Review sales, costs and profit projections
• Estimate maximum and minimum sales
– Company history and market opinion
• Assess risk
• Assess organizational capabilities
• Estimate product costs and profits
• Analyze financial attractiveness using sales
and costs © 2002 Pearson Education Canada 9-21
Inc.
New-Product Development Process:
Product Development
• Transform product
concept into a physical
product
• Performed by
engineering or R & D
• Prototype
• Major investment

© 2002 Pearson Education Canada 9-23

Inc.
New-Product Development Process:
Test Marketing
• Test Marketing: Product and marketing
program are tested in realistic market
setting.

© 2002 Pearson Education Canada 9-24

Inc.
New-Product Development Process:
Test Marketing
Standard Controlled
Test Market Test Market

Full marketing campaign A few stores that have

in a small number of agreed to carry new
representative cities. products for a fee.

Simulated
Test Market

Test in a simulated
shopping environment
to a sample of
consumers.
New-Product Development Process:
Commercialization
• Major investment in manufacturing
facilities
• High initial advertising and promotion
expense
• Introduction timing
• Launch location?

© 2002 Pearson Education Canada 9-31

Inc.
 Commercialization
Production

Inventory Buildup

Distribution Shipments

Sales Training
Steps in
Marketing a Trade Announcements
New Product
Customer Advertising
Characteristics of success product
development
• Unique • Correct positioning
superior product • Appropriate pricing
• Match between • Effective promotion
product and market
• Management support
needs
• Specific strategic role
• Benefit to large
number of people • Good product design
• Correct estimation
market size

9-33
 New-Product Development:
Speeding Up the Process
• Sequential product
development traditional
• Simultaneous or team-
based approaches
– Shorter cycle-times
– First-mover advantage
– Time is money
– Higher risk and tension
– Watch quality
© 2002 Pearson Education Canada 9-34
Inc.
 Product Life-Cycle Strategies
Sales
Profit Sales
($)

Profits

Loss
($)
Development Introduction Growth Maturity Decline
© 2002 Pearson Education Canada 9-35
Inc.
 Product Life-Cycle Strategies
• Can describe a: Style

– Product class
– Product form Time
Fashion
– Brand
• Applicable to:
Fad
– Styles Time

– Fashion
– Fads Time

© 2002 Pearson Education Canada 9-36

Inc.
 Product Life-Cycle Strategies
Characteristics Introduction Growth Maturity Decline

Sales Low Rapidly rising Peak Declining

Costs High per customer Average per Low per customer Low per
customer customer

Profits Negative Rising High Declining

Customers Innovators Early adopters Middle majority Laggards

Competitors Few Growing number Stable number Declining number

beginning to
decline
Marketing Create product Maximize market Maximize profit Reduce
awareness and trial share while defending expenditures and
Objectives market share milk the brand

© 2002 Pearson Education Canada 9-37

Inc.
 Product Life-Cycle Strategies
Strategies Introduction Growth Maturity Decline
Offer basic product Offer product Diversify brand and Phase out weak items
Product extensions, service, models
warranty
Use cost-plus Price to penetrate Price to match or best Cut price
Price market competitors

Build selective Build intensive Build more intensive Go selective, phase out
Distribution unprofitable outlets

Build product Build awareness and Stress brand Reduce to level needed
Advertising awareness among early interest in the mass differences and to retain hard-core
adopters and dealers market benefits loyals
Use heavy sales Reduce to take Increase to encourage Reduce to minimal
Sales promotion to entice advantage of heavy brand switching level
Promotion trial consumer demand

© 2002 Pearson Education Canada 9-38

Inc.
 Chapter Review
• How do companies find and develop new
product ideas?
• What are the steps in the new-product
development process?
• What is the product life cycle? How do
strategies change over the product life
cycle?

© 2002 Pearson Education Canada 9-39

Inc.