principles of marketing chapter 8: developing new products and managing the product life-cycle

Principles of Marketing

Chapter 8:Developing New Products

And ManagingThe Product Life-Cycle

New Product Development

• Pertains to:• Not only the development of original products,• But also improvements, modifications, and new brands• Involves great amounts of: (all data reported below pertain to the CPG market & sourced from

the American Association of Advertising Agencies’ “Research Matters” report on June 6, 2007)

Risk• Only 10% new in ‘04 had sales of $20 million in ’05• Over 80% of new fail due to lack of differentiation• As of ‘07, 49% of line extensions, and 74% of more innovative NPD resulted in

failure

And expense• Total average marketing cost (only) for a major product launch as of ’05 was

$68.3 million (includes adv.; slotting fees; in-market testing; etc.)• Advertising spending alone in 2007 was over $500 million for Vista and $50

million for Cadbury Schweppes’ Accelerade sports drink

Dr. James Carver – Auburn University

NPD’s Most Common Outcome:Failure

• Food Industry:Average $20-$30 billion lost annually

• Reasons for:• Overestimation of market size.• Product design problems.• Incorrectly positioned, priced, or advertised.• Pushed by high level executives despite poor marketing

research findings.• Excessive development costs.• Competitive reaction.


NPD Process

• Steps involved:1. Idea screening

2. Concept development and testing

3. Marketing strategy development

4. Business analysis

5. Product development

6. Test marketing

7. Commercialization


Idea Generation

• Ideas can come from: Internal sources:

• Company employees at all levels.

External sources:• Customers• Competitors• Distributors• Suppliers• Outsourcing (design firms, product consultancies,

online collaborative communities)


Idea Screening

• Idea screening:Process 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.


Concept Development & Testing

• Concept development and testing:Product idea:

• Idea for a possible product that the company can see itself offering to the market.

Product concept: • Detailed version of the new-product idea stated in

meaningful consumer terms.

Concept testing: • Testing new-product concepts with groups of target

consumers to find out if the concepts have strong consumer appeal.


Marketing Strategy Development

• Marketing strategy development:Part One:

• Describes the target market, planned value proposition, sales, market share, and profit goals.

Part Two:• Outlines the product’s planned price, distribution, and

marketing budget.

Part Three:• Describes the planned long-run sales and profit goals,

marketing mix strategy.


Business Analysis

• Involves 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.


Product Development

• Product development:Where a concept transforms into a physical good

Requires a large jump in investment.• Prototypes are made.

Must have correct physical features and convey psychological characteristics.

Prototypes are then subjected to physical tests.


Test Marketing

• Involves:The product and marketing program being introduced

in a more realistic market setting.• Not necessary for all products, but can decrease risk• “If it plays in Peoria…”

An old marketing adage about test marketing But no longer the “top dog” Top 5 cities: (Acxiom(R) Corporation’s “Mirror on America” study)

1. Albany, NY

2. Rochester, NY

3. Greensboro, NC

4. Birmingham, AL

5. Syracuse, NY


Commercialization

• Is a function:Timing

• When to introduce the product

Where (to introduce)• A single location, state, region, nationally,

internationally

Etc.

Everything builds into a market rollout plan


The Product Life Cycle (PLC)*


Introduction Growth

Sales($)

Sales

Maturity

Profits

Decline

Time

Problems with the PLC

• When used carefully, the PLC may help develop good marketing strategies.

However, in practice, it is difficult to: Forecast sales level, length of each stage, and shape of PLC. Develop marketing strategy because strategy is both a cause

and result of the PLC.

As a result, the PLC is more of a descriptive tool for general strategy and life of a product, but not a predictive (i.e., theoretical) tool


General Characteristics and Strategies Given Stage

• Intro:

Characteristics:• Sales are low; profits are generally negative till end;

customers tend to be innovators; and competition is low

Strategic Problem Faced:• Get out of “Intro” as fast as you can, so

Create product awareness and trial



• Growth:

Characteristics:• Fastest rise in sales and profits; profits peak here;

customers tend to be early adopters; and competition is growing because of success

Strategic Problem Faced:• Maximize one’s market share and monitor the entry and

effects of competitors, while simultaneously ensuring product availability to hold stage as long as possible.



• Maturity:

Characteristics:• Sales peak here; profit growth is now in decline (but

still positive); customers tend to be the middle majority; and competition is stable and beginning to decline

Strategic Problem Faced:• Maintain market share and maximize profits available

as they’re shrinking; look to begin a new PLC* As one cannot return to earlier stages*



• Decline:

Characteristics:• Sales are declining; profits are still declining; customers

tend to be laggards; and competition is declining still

Strategic Problem Faced:• Reduce expenditures and milk the brand• Consider dropping underperforming models or entirely

Dropping will affect resellers and customers• May be needed by resellers to “complete” image or “drive” traffic


principles of marketing chapter 8: developing new products and managing the product life-cycle

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