UNIT 2: Developing New Products And Managing The Product Cycle

NEW PRODUCT DEVELOPMENT STRATEGY

Ways to Obtain New Products
Acquisition refers to the buying of a whole company, a patent, or a license to produce someone
else’s product.
New product development refers to original products, product improvements, product
modifications, and new brands developed from the firm’s own research and development.
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. Yet innovation can be very expensive and very risky. New products face tough odds.
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.

NEW PRODUCT DEVELOPMENT PROCESS

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.

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Internal Idea Sources
They refer to the company’s own formal research and development, management and staff, and
intrapreneurial programs. Many companies have developed successful internal social networks
and intrapreneurial programs that encourage employees to develop new product ideas.
External Idea Sources
They refer to sources outside the company such as customers, competitors, distributors, suppliers,
and outside design firms. Distributors are close to the market and can pass along information about
consumer problems and new product possibilities. Suppliers can tell the company about new
concepts, techniques, and materials that can be used to develop new products. Companies watch
competitors’ ads to get clues about their new products.
Crowdsourcing
Crowdsourcing involves inviting broad communities of people—customers, employees,
independent scientists and researchers, and even the public at large—into the new product
innovation process. Crowdsourcing can produce a flood of innovative ideas.

Idea Screening
The purpose of idea generation is to create a large number of ideas. The purpose of the succeeding
stages is to reduce that number. 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.
One marketing expert describes an R-W-W (“real, win, worth doing”) new product screening
framework that asks three questions.10 First, Is it real? Is there a real need and desire for the
product, and will customers buy it? Is there a clear product concept, and will such a product satisfy
the market? Second, Can we win? Does the product offer a sustain-able competitive advantage?
Does the company have the resources to make such a product a success? Finally, Is it worth doing?
Does the product fit the company’s overall growth strategy? Does it offer sufficient profit
potential? The company should be able to answer yes to all three R-W-W questions before
developing the new product idea further.

Concept Development and Testing

Product idea is an idea for a possible product that the company can see itself offering to the
market.
Product concept is a detailed version of the idea stated in meaningful consumer terms.
Product image is the way consumers perceive an actual or potential product.

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Concept testing refers to testing new product concepts with groups of target consumers. Many
firms routinely test new product concepts with consumers before attempting to turn them into
actual new products. For some concept tests, a word or picture description might be sufficient.
However, a more concrete and physical presentation of the concept will increase the reliability of
the concept test.

Marketing Strategy Development

Marketing strategy development is designing an initial marketing strategy for a new product
based on the product concept.
Marketing strategy statement consists of:
• Target market description. describes the tar-get market; the planned value proposition; and the
sales, market-share, and profit goals for the first few years.
• Value proposition planned. Outlines the product’s planned price, distribution, and marketing
budget for the first year:
• Sales, market-share, and marketing mix

Business Analysis
Business analysis is a review of the sales, costs, and profit projections for a new product to find
out whether these factors satisfy the company’s objectives.
To estimate sales, the company might look at the sales history of similar products and conduct
market surveys. It can then estimate minimum and maximum sales to assess the range of risk.
After preparing the sales forecast, management can estimate the expected costs and profits for the
product, including marketing, R&D, operations, accounting, and finance costs. The company then
uses the sales and cost figures to analyze the new product’s financial attractiveness.

Product Development
Product development is developing the product concept into a physical product to ensure that the
product idea can be turned into a workable market offering.
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. The R&D department will develop and test
one or more physical versions of the product concept. R&D hopes to design a prototype that will
satisfy and excite consumers and that can be produced quickly and at budgeted costs. Developing
a successful prototype can take days, weeks, months, or even years depending on the product and

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prototype methods. Often, products undergo rigorous tests to make sure that they perform safely
and effectively or that consumers will find value in them.
Marketers often involve actual customers in product development and testing. A new product must
have the required functional features and also convey the intended psychological characteristics.
The all-electric car, for example, should strike consumers as being well built, comfortable, and
safe.

Test Marketing
Test marketing is the stage of new product development in 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.

Commercialization
Test marketing gives management the information needed to make a final decision about whether
to launch the new product. 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.
A company launching a new product must first decide on introduction timing. If the new product
will eat into the sales of other company products, the introduction may be delayed. If the product
can be improved further or if the economy is down, the company may wait until the following year
to launch it. However, if competitors are ready to introduce their own competing products, the
company may push to introduce its new product sooner.
Next, the company must decide where to launch the new product—in a single location, a region,
the national market, or the international market. Some companies may quickly introduce new
models into the full national market. Companies with international distribution systems may
introduce new products through swift global rollouts.

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MANAGING NEW PRODUCT DEVELOPMENT
Successful new product development should be customer centered, team based and systematic.
Customer-Centered New Product Development
Customer-centered new product development focuses on finding new ways to solve customer
problems and creating more customer-satisfying experiences.
One study found that the most successful new products are ones that are differentiated, solve major
customer problems, and offer a compelling customer value proposition. Another study showed that
companies that directly engage their customers in the new product innovation process had twice
the return on assets and triple the growth in operating income of firms that did not. Thus, customer
involvement has a positive effect on the new product development process and product success.
Thus, today’s innovative companies get out of the research lab and connect with customers in
search of fresh ways to meet customer needs. Customer-centered new product development begins
and ends with understanding customers and involving them in the process.

Team-Based New Product Development

Team-based new product development involves various company departments working closely
together, overlapping the steps in the product development process to save time and increase
effectiveness.
Company departments work closely together in cross-functional teams, overlapping the steps in
the product development process 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 stays with the new product from start to finish. Such teams usually include
people from the marketing, finance, design, manufacturing, and legal departments and even
supplier and customer companies. In the sequential process, a bottleneck at one phase can seriously
slow an entire project. In the team-based approach, however, if one area hits snags, it works to
resolve them while the team moves on.
The team-based approach does have some limitations, however. For example, it sometimes creates
more organizational tension and confusion than the more orderly sequential approach. However,
in rapidly changing industries facing increasingly shorter product life cycles, the rewards of fast
and flexible product development far exceed the risks.

Systematic New Product Development

Finally, the new product development process should be holistic and systematic rather than
compartmentalized and haphazard. Otherwise, few new ideas will surface, and many good ideas
will sputter and die. To avoid these problems, a company can install an innovation management
system to collect, review, evaluate, and manage new product ideas.

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 - Creates an innovation-oriented company culture
- Yields a large number of new product ideas

New Product Development in Turbulent Times

- Tempted to reduce spending
- May become less competitive

PRODUCT LIFE-CYCLE STRATEGIES

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 PLC concept can describe a product class (gasoline-powered automobiles), a product form
(SUVs), or a brand (the Ford Escape). The PLC concept applies differently in each case. Product
classes have the longest life cycles; the sales of many product classes stay in the mature stage for
a long time. Product forms, in contrast, tend to have the standard PLC shape. Product forms such
as dial telephones, VHS tapes, and film cameras passed through a regular history of introduction,
rapid growth, maturity, and decline.

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A specific brand’s life cycle can change quickly because of changing competitive attacks and
responses. For example, although laundry soaps (product class) and powdered detergents (product
form) have enjoyed fairly long life cycles, the life cycles of specific brands have tended to be much
shorter.
The PLC concept also can be applied to what are known as styles, fashions, and fads. A style is a
basic and distinctive mode of expression. For example, styles appear in homes, clothing (formal,
casual), and art (realist, surrealist, abstract). Once a style is invented, it may last for generations,
passing in and out of vogue. A style has a cycle showing several periods of renewed interest.
Fashion is a currently accepted or popular style in a given field. For example, the more formal
“business attire” look of corporate dress of the 1980s and 1990s gave way to the “business casual”
look of the 2000s and 2010s. 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.

Introduction Stage
The introduction stage starts when a new product is first launched. Introduction takes time, and
sales growth is apt to be slow. Well-known products such as frozen foods lingered for many years
before they entered a stage of more rapid growth.
In this stage, as compared to other stages, profits are negative or low because of the low sales
and high distribution and promotion expenses. Much money is needed to attract distributors and
build their inventories. Promotion spending is relatively high to inform consumers of the new
product and get them to try it. Because the market is not generally ready for product refinements
at this stage, the company and its few competitors produce basic versions of the product.
A company, especially the market pioneer, must choose a launch strategy that is consistent with
the intended product positioning. It should realize that the initial strategy is just the first step in a
grander marketing plan for the product’s entire life cycle.

Growth Stage
If the new product satisfies the market, it will enter a growth stage in which sales will start
climbing quickly. The early adopters will continue to buy, and later buyers will start following
their lead, especially if they hear favorable word of mouth. Attracted by the opportunities for profit,
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,
and sales jump just to build reseller inventories. Prices remain where they are or decrease only
slightly. Companies keep their promotion spending at the same or a slightly higher level. Educating
the market remains a goal, but now the company must also meet the competition.

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Profits increase during the growth stage as promotion costs are spread over a large volume and
as unit manufacturing costs decrease. It enters new market segments and new distribution channels.
It shifts some advertising from building product awareness to building product conviction and
purchase, and it lowers prices at the right time to attract more buyers.

Maturity Stage
At some point, a product’s sales growth will slow down, and it will enter the maturity stage. This
maturity stage normally lasts longer than the previous stages, and it poses strong challenges to
marketing management. Overcapacity leads to competition. Increased promotion and R&D to
support sales and profits
The slowdown in sales growth results in many producers with many products to sell. In turn, this
overcapacity leads to greater competition. 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. Some of the weaker competitors start
dropping out, and the industry eventually contains only well-established competitors.
In modifying the market, the company tries to increase consumption by finding new users and new
market segments for its brands. The company may also look for ways to increase usage among
present customers.
The company might also try modifying the product—changing characteristics such as quality,
features, style, packaging, or technology platforms to retain current users or attract new ones. Thus,
to freshen up their products for today’s technology-obsessed children, many classic toy and game
makers are creating new digital versions or add-ons for old favorites.
Finally, the company can try modifying the marketing mix—improving sales by changing one or
more marketing mix elements. The company can offer new or improved services to buyers. It can
cut prices to attract new users and competitors’ customers. It can launch a better advertising
campaign or se aggressive sales promotions—trade deals, cents-off, premiums, and con-tests. In
addition to pricing and promotion, the company can also move into new marketing channels to
help serve new users.

Decline Stage
Sales decline for many reasons, including technological advances, shifts in consumer tastes, and
increased competition. As sales and profits decline, some firms withdraw from the market. Those
remaining may prune their product offerings. In addition, they may drop smaller market segments
and marginal trade channels, or they may cut the promotion budget and reduce their prices further.
For these reasons, companies must identify products in the decline stage and decide whether to
maintain, harvest, or drop them. Management may decide to maintain its brand, repositioning or
reinvigorating it in hopes of moving it back into the growth stage of the product life cycle.

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Management may decide to harvest the product, which means reducing various costs (plant and
equipment, maintenance, R&D, advertising, sales force), hoping that sales hold up. If successful,
harvesting will increase the company’s profits in the short run. Finally, management may decide
to drop the product from its line. The company can sell the product to another firm or simply
liquidate it at salvage value. If the company plans to find a buyer, it will not want to run down the
product through harvesting.

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ADDITIONAL PRODUCT AND SERVICE CONSIDERATIONS
Product Decisions and Social Responsibility
Public policy and regulations regarding developing and dropping products, patents, quality, safety,
and product warranties should be considered carefully.
Regarding new products, the government may prevent companies from adding products through
acquisitions if the effect threatens to lessen competition. Companies dropping products must be
aware that they have legal obligations, written or implied, to their sup-pliers, dealers, and
customers who have a stake in the dropped product. Companies must also obey U.S. patent laws
when developing new products. A company cannot make its product illegally similar to another
company’s established product.
If consumers have been injured by a product with a defective design, they can sue manufacturers
or dealers. A recent survey of manufacturing companies found that product liability was the
second-largest litigation concern, behind only labor and employment matters.
Some companies are now appointing product stewards, whose job is to protect consumers from
harm and the company from liability by proactively ferreting out potential product problems.

International Product and Service Marketing

International product and services marketers face special challenges. First, they must figure out
what products and services to introduce and in which countries. Then they must decide how much
to standardize or adapt their products and services for world markets.
On the one hand, companies would like to standardize their offerings. Standardization helps a
company develop a consistent worldwide image. It also lowers the product design, manufacturing,
and marketing costs of offering a large variety of products. On the other hand, markets and
consumers around the world differ widely. Companies must usually respond to these differences
by adapting their product offerings.
Service marketers also face special challenges when going global. Some service industries have a
long history of international operations. For example, the commercial banking industry was one
of the first to grow internationally.
Retailers are among the latest service businesses to go global.
The trend toward growth of global service companies will continue, especially in banking, airlines,
telecommunications, and professional services. Today, service firms are no longer simply
following their manufacturing customers. Instead, they are taking the lead in international
expansion.

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