product life cycles and new product development professor chip besio cox school of business southern...

PRODUCT LIFE CYCLES AND NEW PRODUCT DEVELOPMENT

PRODUCT LIFE CYCLES AND NEW PRODUCT DEVELOPMENT

Professor Chip BesioCox 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

Repeat Purchasers

New Features

Broad Distribution

More Competitors

CHARTING THE PRODUCT LIFE CYCLE MATURITY STAGE

Product Differentiation

Fewer Competitors

Industry/ProductSales Slow

Profit Declines

CHARTING THE PRODUCT LIFE CYCLE DECLINE STAGE

Deletion

Harvesting

Environmental Changes

Industry/ProductSales Drop

CHARTING THE PRODUCT LIFE CYCLE FOUR ASPECTS

Length of the Product Life Cycle

Shape of the Product Life Cycle

• Generalized Life Cycle

• High-LearningProduct

• FashionProduct

• FadProduct

• Low-Learningproduct

Alternative product life cycle curves based on product types

The Product Level: Class and Form

• Product Class

• Product Form

CHARTING THE PRODUCT LIFE CYCLE FOUR ASPECTS

Prerecorded music product life cycles by product form

Five categories and profiles of product adopters (diffusion of innovation)

MANAGING THE PRODUCT LIFE CYCLEROLE OF A PRODUCT MANAGER

Product/Brand Manager Responsibilities

• Product Life Cycle

• Marketing Program Implementation

• New Product Development

• Data Analysis

CDI BDI

11-16

MANAGING THE PRODUCT LIFE CYCLEMODIFYING THE PRODUCT OR MARKET

Product Modification

• ProductBundling

• NewCharacteristics

Market Modification

• Finding NewCustomers

• Increasing aProduct’s Use

• Creating a NewUse Situation

11-17

The Milk Processor Education ProgramWhat factor triggered its repositioning?

11-18

Changing the Value Offered

• Trading Up

• Trading Down

• Downsizing

MANAGING THE PRODUCT LIFE CYCLEREPOSITIONING THE PRODUCT

11-19

Branding

Brand Name

• Logotype (Logo)

• Product Counterfeiting

BRANDING AND BRAND MANAGEMENT

Trade Name

Trademark ® ™

11-20

Brand Personality

Brand Equity

BRANDING AND BRAND MANAGEMENTBRAND PERSONALITY AND BRAND EQUITY

• Provides a Competitive Advantage

• Consumers Willing to Pay a Premium

11-21

GATORADE: QUENCHINGTHE ACTIVE THIRST WITHIN YOU

Göt2b Hair Products and Degree DeodorantWhat are their brand personalities?

The customer-based brand equity pyramid

BRANDING AND BRAND MANAGEMENTBRAND PERSONALITY AND BRAND

EQUITY

Valuing Brand Equity

• Provides a Financial Advantage

• Brand Licensing

BRANDING AND BRAND MANAGEMENTPICKING A GOOD BRAND NAME

Should Suggest Product Benefits

Should Fit the Company or Product Image

Should Be Memorable and Positive

Should Have No Legal or Regulatory Restrictions

Should Be Simple and Emotional

ALTERNATIVE BRANDING STRATEGIES

Kimberly-Clark’s HuggiesWhat branding strategy is used?

Black & Decker and DeWalt ToolsWhat branding strategy does each use?

“?” and Heinz Ketchup What are the packaging benefits for each?

Lay’s STAX, Pringles and Celestial SeasoningsWhat are the packaging benefits for each?

PACKAGING AND LABELING PRODUCTSPACKAGING AND LABELING

CHALLENGES AND RESPONSES

Environmental Concerns

Health, Safety, and Security Issues

Cost Reduction

Connecting with Customers

• Shelf Life

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 is the most important strategic activity of any firm

However, it is the most risky venture

Most new products fail!

NEW PRODUCT DEVELOPMENT?

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

THE RISKS OF NEW PRODUCTS?

NEW PRODUCTS AND WHYTHEY SUCCEED OR FAIL

• Product Line Extension

• Significant Jump in Innovation

• True Innovation

Newness: The Organization’s Perspective

10-39

Purina Elegant MedleysWhat are the potential benefits and dangers

of incremental innovation?

10-40

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 FAIL

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

WHY NEW PRODUCTS SUCCEED

LO3

Newness: The Consumer’s Perspective

• Continuous Innovation

• Dynamically Continuous Innovation

• Discontinuous Innovation10-43

NEW PRODUCTS AND WHYTHEY SUCCEED OR FAIL

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 Be close to the market

Set a strategic direction Set a strategic direction Play to your strengths Play to your strengths

Strong organizational support Strong organizational support Speed to market Speed to market

THE SEVEN STAGES IN NEW-PRODUCT DEVELOPMENT

THE NEW-PRODUCT PROCESSSTAGE 1: NEW-PRODUCT STRATEGY DEVELOPMENT

New-Product Process

• SWOT Analysis Conducted

New-Product Strategy Development• Type of Strategy to Utilize

• Strategic Role Identified

• Protocol Defined

STRATEGIC ROLES OF MOST SUCCESSFUL NEW PRODUCTS

THE NEW-PRODUCT PROCESSSTAGE 2: IDEA GENERATION

Idea Generation

Employee and Co-Worker Suggestions

Customer and Supplier Suggestions

Research and Development Laboratories

Competitive Products

Universities, Inventors, and Small Tech Firms

• Open Innovation

Volvo’s YCCHow are new-product ideas generated?

THE NEW-PRODUCT PROCESSSTAGE 3: SCREENING AND EVALUATION

External Approach

Internal Approach

• Customer Experience Management (CEM)

• 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 Focus Groups – Conjoint AnalysisConjoint Analysis

THE NEW-PRODUCT PROCESSSTAGE 4: BUSINESS ANALYSIS

Prototype

Business Fit

Capacity Management

Off-Peak Pricing

New Product Development Process

BUSINESS ANALYSIS

Review Product Sales, Costs, and Profits Projectionsto See if They Meet Company Objectives

Review Product Sales, Costs, and Profits Projectionsto See if They Meet Company Objectives

If Yes, Move to Product Development

If Yes, Move to Product Development

If No, Eliminate Product Concept

If No, Eliminate Product Concept

Source: Prentice HallSource: Prentice Hall

THE NEW-PRODUCT PROCESSSTAGE 5: DEVELOPMENT

Service Encounters

Brainstorming

Safety Tests

Product DevelopmentTESTING NEW PRODUCTS Advertising testing Product quality testing Laboratory tests Expert evaluation Customer tests

– Single-product evaluation– Blind tests– Experimental variations

StandardTest Market

Full marketing campaignin a small number of representative cities.

StandardTest Market

Full marketing campaignin a small number of representative cities.

SimulatedTest Market

Test in a simulated shopping environment

to a sample of consumers

SimulatedTest Market

Test in a simulated shopping environment

to a sample of consumers

Controlled Test Market

A few stores that have agreed to carry newproducts for a fee

Controlled Test Market

A few stores that have agreed to carry newproducts for a fee

Source: Prentice HallSource: Prentice Hall

THE NEW-PRODUCT PROCESS

STAGE 6: MARKET TESTING

SIX IMPORTANT TEST MARKETS – THE WINNER IS WICHITA FALLS, TX

THE NEW-PRODUCT PROCESSSTAGE 7: COMMERCIALIZATION

Burger King’s French Fries

Risks with Grocery Products

• Slotting Fees

• Failure Fee

• Regional Rollouts

Speed as a Factor in New-Product Success

• Time to Market (TtM)

• Parallel Development

• Fast Prototyping

THE NEW-PRODUCT PROCESSSTAGE 7: COMMERCIALIZATION

Why Speed to Market?

Markets are getting more specialized Intensified competition Changing technology Changing tastes Rampant copying Gaining shelf space early

Business AnalysisWHEN 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 FingosWhy did this product fail?

Thirsty Dog! and Thirsty Cat!Why did these products fail?

Avert and Hey! There’s a Monster in My RoomWhy did these products fail?