new-product development and product life-cycle strategies new-product development and product...

New-Product New-Product Development and Development and Product Life-Cycle Product Life-Cycle

StrategiesStrategies

Chapter Eight

8-1

Marketing : An IntroductionMarketing : An IntroductionAn Asian PerspectiveAn Asian Perspective© Armstrong, Kotler & da Silva© Armstrong, Kotler & da Silva 8-2

Important topics

• Explain 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 product’s life cycle.


New-Product Development Strategy

Strategies for Obtaining New-Product Ideas

Acquisition of:

Companies

Patents

Licenses

Acquisition of:

Companies

Patents

Licenses

New Products:

Original Products

Improvements

Modifications

New Products:

Original Products

Improvements

Modifications


New-Product Failures

• Only 10% of new products are still on the market and profitable after 3 years.

• Texas instruments lost $660 million in home computer business

• New coke ( coca cola company)• Zap mail-email ( FedEx company)• Arch Delux sandwitches ( Mc Donald's)


New-Product Failures

• Failure rate for industrial products is as high as 30%.Why?

– Overestimation of market size– Design problems– Incorrectly positioned, priced, or advertised– Pushed despite poor marketing research findings– Development costs– Competition


Major Stages in New-Product Development

Figure 8.1


Company EmployeesCompany Employees

CustomersCustomers

CompetitorsCompetitors

DistributorsDistributors

SuppliersSuppliers

Idea Generation


Idea Generation

When Heinz asked kids what would make the product more fun, they said, “Change the color!” Change the color!” so, Heinz developed and launched EZ Squirt, now in a variety of colors targeted at kids. The EZ Squirt bottle’s special nozzle also emits a thin stream so tykes can autograph their burgers.


Idea Screening

• Process to spot good ideas and drop poor ones.

• Develop system to estimate: market size, product price, development time and costs, manufacturing costs, and rate of return.

• Evaluate these findings against set of company criteria for new products.


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.

Marketing : An IntroductionMarketing : An IntroductionAn Asian PerspectiveAn Asian Perspective© Armstrong, Kotler & da Silva© Armstrong, Kotler & da Silva

New product concept and Image

8-11


Concept testing

• Testing new product concepts with a group of target consumers.

• The concept may be presented to the customers symbolically or physically.

• Customers may be asked many questions regarding their perception towards the new product.


• The company’s task is to develop its fuel-cell-powered electric car into alternative product concepts, find out how attractive each is to customers, and choose the best one.

DiamlerChrysler’s Fuel-Cell-Powered Electric Car


Concept testing


Marketing Strategy Development

Part One Describes:The Target Market

Planned Product PositioningSales, Market Share, & Profit Goals

Part One Describes:The Target Market

Planned Product PositioningSales, Market Share, & Profit Goals

Part Two Outlines the First-Year’s:Product’s Planned Price

DistributionMarketing Budget

Part Two Outlines the First-Year’s:Product’s Planned Price

DistributionMarketing Budget

Part Three Describes Long-Run:Sales & Profit Goals

Marketing Mix Strategy

Part Three Describes Long-Run:Sales & Profit Goals

Marketing Mix Strategy


Business Analysis

• Involves a review of the sales, costs, and profit projections to assess fit with company objectives.

• If yes, move to the product development phase.


Product Development

• Develop concept into physical product

• Calls for large jump in investment

• Prototypes are made• Prototype must have

correct physical features and convey psychological characteristics


Test Marketing

• Product 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.

After test marketing the “Go Active” meal (an adult happy meal) in 150 markets in Indiana, McDonald’s decided to sell it across the U.S.


Commercialization

• Must 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 plan.


Product Life Cycle• Product Life Cycle (PLC) is the course of a products

sales and profits over its lifetime.• It involves five distinct stages: product development,

introduction, growth, maturity and decline.

8-20


The Product Life Cycle Applied to the Digital Video Market

Figure 8.4


Practical Problems of PLC

Hard to identifywhich stage of the

PLC the product is in

Hard to pinpointwhen the product

moves to next stage

Hard to identifyfactors that affect

product’s movementthrough stages

Hard to forecastsales level, length of

each stage, andshape of PLC

Strategy is both acause and result of

the PLC


SalesSales

CostsCosts

ProfitsProfits

Marketing ObjectivesMarketing Objectives

ProductProduct

PricePrice

LowLow

High cost per customerHigh cost per customer

NegativeNegative

Create product awareness and trialCreate product awareness and trial

Offer a basic productOffer a basic product

Use cost-plus formulaUse cost-plus formula

DistributionDistribution Build selective distributionBuild selective distribution

PromotionPromotion Heavy to entice product trialHeavy to entice product trial

Summary of Characteristics, Objectives, & Strategies

Introduction Stage of the PLC


SalesSales

CostsCosts

ProfitsProfits


ProductProduct

PricePrice

Rapidly risingRapidly rising

Average cost per customerAverage cost per customer

RisingRising

Maximize market shareMaximize market share

Offer extension, service, warrantyOffer extension, service, warranty

Penetration strategyPenetration strategy

DistributionDistribution Build intensive distributionBuild intensive distribution

PromotionPromotion Reduce to take advantage of demandReduce to take advantage of demand


Growth Stage of the PLC


SalesSales

CostsCosts

ProfitsProfits


ProductProduct

PricePrice

PeakPeak

Low cost per customerLow cost per customer

HighHigh

Maximize profits while defending market share

Maximize profits while defending market share

Diversify brand and models Diversify brand and models

Match or best competitorsMatch or best competitors

DistributionDistribution Build more intensive distributionBuild more intensive distribution

PromotionPromotion Increase to encourage brand switchingIncrease to encourage brand switching


Maturity Stage of the PLC



• Modifying 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



• Modifying 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



• Modifying 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– Offer new or improved services to buyers


SalesSales

CostsCosts

ProfitsProfits


ProductProduct

PricePrice

DecliningDeclining

Low cost per customerLow cost per customer

DecliningDeclining

Reduce expenditures and milk the brandReduce expenditures and milk the brand

Phase out weak itemsPhase out weak items

Cut priceCut price

DistributionDistribution Selective: phase out unprofitable outletsSelective: phase out unprofitable outlets

PromotionPromotion Reduce to minimum levelReduce to minimum level


Decline Stage of the PLC


Successful and Failed PLC

Management Strategies

Figure 8.6


Rest Stop: Reviewing the Concepts

• Explain 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.

new-product development and product life-cycle strategies new-product development and product...

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