Transcript New Product Development & Product Life Cycles

New Product Development &
Product Life Cycles
New Product Development Strategy
• How do companies develop and market new
products?
– Come up with own ideas.
• Brand new products
• Product improvements & modifications
– Acquire companies, patents, licenses.
New-Product Failures
• Only 10% of new consumer products succeed in the
long run.
• Why do most products fail?
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Don’t fulfill a real need or want
Overestimation of market size
Design problems that compromise functionality
Incorrectly positioned, priced or promoted (4 Ps)
Pushed despite poor marketing research findings
Development costs go over budget
Competitive response (usually unanticipated)
Major Stages in New-Product Development Process
Idea Generation
Where do ideas come from?
• Internal sources:
– Company employees at all levels: “Intrapraneuring”
• External sources:
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Customers
Competitors
Distributors
Suppliers
Outsourcing partners
Idea Screening
• Keep the good ideas and drop the poor ones.
– Often highly subjective and non-scientific.
– Strategic fit with core competencies and product
expertise.
– “Back-of-the-envelope” market size estimates
Concept Development and Testing
• Develop a working description and visualization
of the product idea and concept.
• Test ideas with real consumers.
The Concept Board helps
companies verbalize and visualize
product concepts for consumer
testing.
Business Analysis
• Assess economic viability of the concept.
• Potential Metrics:
– Sales
– Contribution (Profit)
– NPV, IRR, ROI
– ROMI
• Project must clear financial hurdles to move to
the product development phase.
Product Development
• Develop concept into physical product
prototype.
• Large jump in investment – “point of no
return”.
• Test and refine prototype until product passes
consumer and legal scrutiny.
Test Marketing
• Product / marketing
program introduced in
limited # of real market
settings.
• Avoids “broad launch”
mistakes.
• Competitive Retaliation
problems
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
• Broad launch of product if market test results
are positive. “Greenlighting”
• Timing of launch is important.
• Potential Rollout plans
– Local
– Regional
– National
– International
– “Wider Test Market” – more scattered sample
The Product Life Cycle
Product Life-Cycle Lengths
• Product need - longest life cycle (e.g., “phone”)
• Product form - standard PLC shape (e.g., landline telephone)
• Brand – shorter PLC cycles due to competitive attacks and
wearout (e.g., T-Mobile, Nokia, Sprint)
• Styles and Fashions – very short life cycles (different phone
designs)
• Fad - fashion with quick adoption, quick decline (e.g., pet rocks)
and backlash
• The trend towards shorter Product Life Cycles
Introduction Stage of PLC
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Sales: low
Costs: high cost per customer
Profits: negative
Marketing Objective: create product awareness and
trial
Product: offer a basic “core” product
Price: based primarily on cost
Distribution: build selective distribution
Promotion: heavy to entice product trial
Growth Stage of PLC
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Sales: rapidly rising
Costs: average cost per customer
Profits: rising
Marketing Objective: maximize market share
Product: offer peripheral benefits, i.e. service,
warranty, packages
• Price: penetration strategy
• Distribution: start building intensive distribution
• Promotion: reduce since demand is naturally growing
Maturity Stage of PLC
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Sales: reach their peak
Costs: lowest cost per customer
Profits: highest ever
Marketing Objective: “defend” high profits and
market share
Product: diversify brand and models
Price: match or beat competitors
Distribution: continue building intensive distribution
Promotion: increase to encourage brand switching
Maturity Stage of PLC
• Keeping Consumption High
• How?
– Find new users or new market segments. (McDonald’s goes global)
– Reposition the brand to appeal to a different segment. (“Not your
father’s Oldsmobile”)
– Look for ways to increase or revive usage among present customers.
(Arm & Hammer)
– Improve/Modify the product (Gilette)
– New Ad Campaign (Coke, Pepsi, McDonald’s)
– Discounting Price
Maturity Stage of PLC
Arm & Hammer gives consumers another use
for Baking Soda and avoids decline.
Modifying the Product
Gillette: Has mastered the
art of improving product.
Fusion razor:
precision trimmer blade
five blade shaving surface
flexible comfort guard
Enhanced Indicator Lubrastrip
(contains vitamin E and aloe)
Decline Stage of PLC
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Sales: declining
Costs: lower (but not lowest) cost per customer
Profits: declining
Marketing Objective: reduce expenditures and “milk”
the brand for residual sales
Product: phase out weak items
Price: cut price or raise price
Distribution: selective - phase out unprofitable
outlets
Promotion: reduce to “survival” level
Question du Jour
Is the PLC for real?