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Week 6 Handout

Overview
We will examine two additional product topics: developing new products and managing products through their
life cycles. New products are the lifeblood of an organization. However, new product development is risky, and
many new products fail. So, the first part of this chapter lays out a process for finding and growing successful
new products. Once introduced, marketers then want their products to enjoy long and happy lives.

You’ll see that every product passes through several life-cycle stages, and each stage poses new challenges
requiring different marketing strategies and tactics. Finally, we wrap up our product discussion by looking at
two additional considerations: social responsibility in product decisions and international product and services
marketing.

Learning Objectives
Below are the learning objectives for Module 6:

1. Explain how companies find and develop new product ideas. (01 New Product Development Strategy)
2. List and define the steps in the new product development process and the major considerations in
managing this process. (02 New Product Development Process)
3. Describe the stages of the product life cycle and how marketing strategies change during a product’s life
cycle. (03 Product Life-Cycle Strategies)
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Week 6 Handout

01 New Product Development Strategy

Introduction
A firm can obtain new products in two ways. One is through acquisition—by buying a whole company, a
patent, or a license to produce someone else’s product. The other is through the firm’s own new product
development efforts.

New products are important to both customers and the marketers who serve them: They bring new solutions and
variety to customers’ lives, and they are a key source of growth for companies. In today’s fast-changing
environment, many companies rely on new products for the majority of their growth.

Why do so many new products fail? There are several reasons. Although an idea may be good, the company
may overestimate market size. The actual product may be poorly designed. Or it might be incorrectly
positioned, launched at the wrong time, priced too high, or poorly advertised. A high-level executive might push
a favorite idea despite poor marketing research findings. Sometimes the costs of product development are
higher than expected, and sometimes competitors fight back harder than expected.

Watch this video to understand the "Apple Way." See how they use design thinking and innovation to create
their products. There are many methodologies in creating a product or service, but the underlying concept is that
design should be based on a certain customer need.

https://www.youtube.com/watch?v=ir3E-TEUk48

So, companies face a problem: They must develop new products, but the odds weigh heavily against success.
To create successful new products, a company must understand its consumers, markets, and competitors and
develop products that deliver superior value to customers.
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02 New Product Development Process

Rather than leaving new products to chance, a company must carry out strong new product planning and set up
a systematic, customer-driven new product development process for finding and growing new products.

Major Steps in New Product Development

1. Idea Generation

New product development starts with idea generation—the systematic search for new product ideas. A company
typically generates hundreds—even thousands—of ideas to find a few good ones. Major sources of new product
ideas include internal sources and external sources such as customers, competitors, distributors and suppliers,
and others.

2. Idea Screening

The first idea-reducing stage is idea screening, which helps spot good ideas and drop poor ones as soon as
possible. Product development costs rise greatly in later stages, so the company wants to go ahead only with
those product ideas that will turn into profitable products.

A framework in idea screening - Is It Real? Can We Win? Is It Worth Doing?

3. Concept Development and Testing

An attractive idea must then be developed into a product concept. It is important to distinguish between a
product idea, a product concept, and a product 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.

4. Marketing Strategy Development

The next step is the marketing strategy development, which involves designing an initial marketing strategy for
a new product based on the product concept. This process may require brainstorming and asking questions to
your target market to obtain insights on the new product.

5. Business Analysis
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Week 6 Handout

Once management has decided on its product concept and marketing strategy, it can evaluate the business
attractiveness of the proposal. Business analysis involves a review of the sales, 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

For many new product concepts, a product may exist only as a word description, a drawing, or perhaps a crude
mock-up. If the product concept passes the business test, it moves into product development. Here, R&D or
engineering develops the product concept into a physical product. The product development step, however, now
calls for a huge jump in investment. It will show whether the product idea can be turned into a workable
product.

7. Test Marketing

If the product passes both the concept test and the product test, the next step is test marketing, the stage at which
the product and its proposed marketing program are tested in realistic market settings. Test marketing gives the
marketer experience with marketing a product before going to the great expense of full introduction. It lets the
company test the product and its entire marketing program—targeting and positioning strategy, advertising,
distribution, pricing, branding and packaging, and budget levels.

8. Commercialization

If the company goes ahead with commercialization—introducing the new product into the market—it will face
high costs. For example, the company may need to build or rent a manufacturing facility. And, in the case of a
major new consumer product, it may spend hundreds of millions of dollars for advertising, sales promotion, and
other marketing efforts in the first year.

In talking about new product development, we may think that "new products" should be inventions never done
before. However, in this short video, the different types of "new products" are discussed
https://youtu.be/dggXAQxF_yo
Here is another video of a product designer sharing his insight on "the first secret of great design":
https://youtu.be/9uOMectkCCs

Additional Resources:

• Alternative methodology in new product development: http://qpc.adm.slu.se/SNPD_ver2/index.htm

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Week 6 Handout

03 Product Life-Cycle Strategies

Introduction
After launching the new product, management wants that product to enjoy a long and happy life. Although it
does not expect the product to sell forever, the company wants to earn a decent profit to cover all the effort and
risk that went into launching it. Management is aware that each product will have a life cycle, although its exact
shape and length is not known in advance.

Product Life Cycle

The PLC 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.
Not all products follow all five stages of the PLC. Some products are introduced and die quickly; others stay in
the mature stage for a long, long time. Some enter the decline stage and are then cycled back into the growth
stage through strong promotion or repositioning. It seems that a well-managed brand could live forever.
The table below summarizes the key characteristics of each stage of the PLC. It also lists the marketing
objectives and strategies for each stage.
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Week 6 Handout
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Week 6 Handout

Week 6: Wrap-up and Looking Ahead

Wrap-up
A company’s current products face limited life spans and must be replaced by newer products. But new
products can fail— the risks of innovation are as great as the rewards. The key to successful innovation lies in
a customer-focused, holistic, total- company effort; strong planning; and a systematic new product development
process.

Companies find and develop new product ideas from a variety of sources. Many new product ideas stem
from internal sources. Companies conduct formal R&D, or they pick the brains of their employees, urging them
to think up and develop new product ideas. Other ideas come from external sources. Companies track
competitors’ offerings and obtain ideas from distributors and suppliers who are close to the market and can pass
along information about consumer problems and new product possibilities.

Looking Ahead
Perhaps the most important sources of new product ideas are customers themselves. Companies observe
customers, invite them to submit their ideas and suggestions, or even involve customers in the new product
development process. Many companies are now developing crowdsourcing or open-innovation new product
idea programs, which invite broad communities of people—customers, employees, independent scientists and
researchers, and even the general public—into the new product innovation process. Truly innovative companies
do not rely only on one source for new product ideas.

For your marketing plans, developing a new product may not be a relevant topic, but attempt to understand how
your partner company designed their products and services. Check if they have customer-focus and what needs
do their products or services address for their intended market. This will be helpful for your group because
understanding their development process will help align your proposed marketing strategies.