new-product development and product life-cycle strategies
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Chapter 9New-Product Development and Product Life-Cycle Strategies
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Todays ObjectiveExplain how companies find and develop new-product ideas.List and define the steps in the new-product development process.Describe the stages of the product life cycle.Describe how marketing strategies change during the products life cycle.
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Case StudyNokiaFocus on InnovationNames its culture of continuous innovation renewalOrganizes into autonomous units, which helps foster innovationLarge R&D budget of $3 billion with 40% of employees involved in R&DCorporate ResultsAnnual sales of $36 billion across 130 countriesGlobal market share of 38%, greater than that of its nearest three rivals combined
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New-Product Development StrategyStrategies for obtaining new-product ideas:Acquisition of companies, patents, licensesNew product development, product improvements and modifications
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Nike acquired Converse in 2003 for $305 million
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New-Product FailuresOnly 10% of new consumer products are still on the market and profitable after 3 years.Industrial products failure rate as high as 30%.Why do products fail?Overestimation of market sizeDesign problemsIncorrectly positioned, priced, or advertisedPushed despite poor marketing research findingsDevelopment costsCompetition
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Discussion QuestionThink of products you have seen recently in stores. Can you think of any that seem doomed to fail?Why?
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Major Stages in New-Product DevelopmentIdea generationIdea screeningConcept development and testingMarketing strategy developmentBusiness analysisProduct developmentTest marketingCommercialization
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Major Stages in New-Product Development Process
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Idea GenerationInternal sources:Company employees at all levelsExternal sources:CustomersCompetitorsDistributorsSuppliersOutsourcing
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Idea ScreeningProcess used to spot good ideas and drop poor ones.Executives provide a description of the product along with estimates of market size, product price, development time and costs, manufacturing costs, and rate of return.Evaluated against a set of company criteria for new products.
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Concept Development and Testing Product Idea: idea for a possible product that the company can see itself offering.Product Concept: detailed version of the idea stated in meaningful consumer terms.Product Image: the way consumers perceive an actual or potential product.
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Pair up with another student and assume that you are in charge of the concept testing for the product shown at right.What questions would you ask of consumers who are evaluating this product concept? Lets Talk!
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Marketing Strategy DevelopmentPart One:Describes the target market, planned product positions, sales, market share, and profit goals.Part Two:Outlines the products planned price, distribution, and marketing budget.Part Three:Describes the long-run sales and profit goals, marketing mix strategy.
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Business AnalysisInvolves a review of the sales, costs, and profit projections to assess fit with company objectives.
If results are positive, project moves to the product development phase.
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Product DevelopmentDevelop concept into physical product.Calls for large jump in investment.Prototypes are made.Prototype must have correct physical features and convey psychological characteristics.
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Test MarketingProduct and program introduced in more realistic market setting.Not needed for all products.Can be expensive and time consuming, but better than making major marketing mistake.
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CommercializationMust decide on timing (i.e., when to introduce the product).Must decide on where to introduce the product (e.g., single location, state, region, nationally, internationally).Must develop a market rollout plan.
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Organizing New-Product DevelopmentSequential Approach: Each stage completed before moving to next phase of the project.
Simultaneous Approach: Cross-functional teams work through overlapping steps to save time and increase effectiveness.
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The Product Life CycleProduct developmentIntroductionGrowthMaturityDecline
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Sales and Profit over the Products Life from Inception to Decline
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Product Life-Cycle ApplicationsProduct class has the longest life cycle (e.g., gas-powered cars)Product form tends to have the standard PLC shape (e.g., dial telephone)Brand can change quickly because of changing competitive attacks and responses (e.g., Tide, Cheer)Style is a basic and distinctive mode of expression (e.g., formal clothing, Danish modern furniture)Fashion is a popular style in a given field (e.g., business casual)Fad is a fashion that enters quickly, is adopted quickly, and declines fast (e.g., pet rocks, and virtual pets)
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Styles, Fashions, Fads
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Practical Problems of PLCHard to identify which stage of the PLC the product is in.Hard to pinpoint when the product moves to the next stage.Hard to identify factors that affect products movement through stages.Hard to forecast sales level, length of each stage, and shape of PLC.Strategy is both a cause and result of the PLC.
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Introduction Stage of PLCSales: lowCosts: high cost per customerProfits: negativeMarketing Objective: create product awareness and trialProduct: offer a basic productPrice: use cost-plus formulaDistribution: build selective distributionPromotion: heavy to entice product trial
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Growth Stage of PLCSales: rapidly risingCosts: average cost per customerProfits: risingMarketing Objective: maximize market shareProduct: offer extension, service, warrantyPrice: penetration strategyDistribution: build intensive distributionPromotion: reduce to take advantage of demand
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Maturity Stage of PLCSales: peakCosts: low cost per customerProfits: highMarketing Objective: maximize profits while defending market shareProduct: diversify brand and modelsPrice: match or best competitorsDistribution: build more intensive distributionPromotion: increase to encourage brand switching
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Maturity Stage of the PLCModifying the Market: Increase the consumption of the current product.How?Look for new users and market segments.Reposition the brand to appeal to larger or faster-growing segment.Look for ways to increase usage among present customers.
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Maturity Stage of the PLCModifying the Product: Changing characteristics such as quality, features, or style to attract new users and to inspire more usage.How?Improve durability, reliability, speed, taste.Improve styling and attractiveness.Add new features.Expand usefulness, safety, convenience.
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Modifying the ProductGillettes Fusion razor combines a precision trimmer blade (on back) with a five blade shaving surface (on front). The flexible comfort guard and Enhanced Indicator Lubrastrip (containing vitamin E and aloe) enhance shaving comfort.Marketing in Actionhttp://www.gillette.com/homepage.asp
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Maturity Stage of the PLCModifying the Marketing Mix: Improving sales by changing one or more marketing mix elements.How?Cut prices.Launch a better ad campaign.Move into larger market channels.
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Maturity Stage of PLCModifying the Marketing Mix: Improving sales by changing one or more marketing mix elements.How? One method is to launch aggressive sales promotion programs, such as rebates.
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Decline Stage of PLCSales: decliningCosts: low cost per customerProfits: decliningMarketing Objective: reduce expenditures and milk the brandProduct: phase out weak itemsPrice: cut priceDistribution: selective--phase out unprofitable outletsPromotion: reduce to minimal level
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Product developmentIntroductionGrowthMaturityDeclineWhich stage of the PLC?How do you know?
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Product developmentIntroductionGrowthMaturityDeclineWhich stage of the PLC?How do you know?
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DiscussionHow can marketers help products bounce back from the decline stage?
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Copyright 2005 Brainy Betty, Inc.Nike is no stranger to new products. They design continuously. They also acquire new products, including Converse retro style sneakers.Copyright 2005 Brainy Betty, Inc.Common reasons for failure include:-Overestimation of market size-Poor design-Incorrect positioning-Priced too high-Advertised poorly-High level managers pushing idea with poor research findings-Development costs too high-CompetitionCopyright 2005 Brainy Betty, Inc.Depends whether talking about milk or low carbCopyright 2005 Brainy Betty, Inc.They can reposition to a new target or to the existing target with new benefits.They can change features and attributes.If it is a style, it often returns at the whim of fashion designers.Copyright 2005 Brainy Betty, Inc.Copyright 2005 Brainy Betty, Inc.