Transcript Document

New-Product
Development and
Life-Cycle Strategies
Chapter 9
Learning Goals
1. Learn how companies find and
develop new-product ideas
2. Understand the steps in the newproduct development process
3. Know the stages of the product life
cycle
4. Realize how marketing strategies
change during the product’s life cycle
9-1
Definition
• New Product Development
 Development of original products,
product improvements, product
modifications, and new brands
through the firm’s own R & D efforts.
9-2
Goal 1: Learn how companies find & develop new-product ideas
New Product
Development Strategy
• New products can be obtained via
acquisition or development.
• New products suffer from high
failure rates.
• Several reasons account for
failure.
9-3
Goal 1: Learn how companies find & develop new-product ideas
Causes of New Product Failures
• Overestimation of Market Size
• Product Design Problems
• Product Incorrectly Positioned, Priced or
Advertised
• Costs of Product Development
• Competitive Actions
• To create successful new products, the
company must:
 understand it’s customers, markets and
competitors
 develop products that deliver superior
value to customers.
9-4
Stages of the New Product
Development Process
• Stage 1: Idea Generation
 Internal idea sources:
•R&D
 External idea sources:
• Customers, competitors, distributors,
suppliers
9-5
Goal 2: Understand steps in the new-product development process
Stages of the New Product
Development Process
• Stage 2: Idea Screening
 Product development costs increase
substantially in later stages so poor
ideas must be dropped
 Ideas are evaluated against criteria;
most are eliminated
9-6
Goal 2: Understand steps in the new-product development process
New Product Development Process
Step 2. Idea Screening
• Process to spot good ideas and drop poor ones
as soon as possible.
• Many companies have systems for rating and
screening ideas which estimate:
 Market Size
 Product Price
 Development Time & Costs
 Manufacturing Costs
 Rate of Return
• Then, the idea is evaluated against a set of
general company criteria.
9-7
Stages of the New Product
Development Process
• Stage 3: Concept Development
and Testing
 Concept development creates a
detailed version of the idea stated in
meaningful consumer terms.
 Concept testing asks target
consumers to evaluate product
concepts.
9-8
Goal 2: Understand steps in the new-product development process
Stages of the New Product
Development Process
• Stage 4: Marketing Strategy
Development
• The target market, product positioning,
and sales, share, and profit goals for the
first few years.
• Product price, distribution, and
marketing budget for the first year.
• Long-run sales and profit goals and the
marketing mix strategy.
9-9
Goal 2: Understand steps in the new-product development process
Stages of the New Product
Development Process
• Stage 5: Business Analysis
 Sales, cost, and profit projections
• Stage 6: Product Development
 Prototype development and testing
9 - 10
Goal 2: Understand steps in the new-product development process
Stages of the New Product
Development Process
• Stage 7: Test Marketing
 Standard test markets
 Controlled test markets
 Simulated test markets
• Stage 8: Commercialization
9 - 11
Goal 2: Understand steps in the new-product development process
New Product Development Process
Step 7. Test Marketing
Standard
Test Market
Controlled
Test Market
Full marketing campaign
in a small number of
representative cities.
A few stores that have
agreed to carry new
products for a fee.
Simulated
Test Market
Test in a simulated
shopping environment
to a sample of
consumers.
9 - 12
Product Life-Cycle
Strategies
• The Product Life Cycle (PLC) has
Five Stages
 Product Development, Introduction,
Growth, Maturity, Decline
 Not all products follow this cycle:
• Fads
• Styles
• Fashions
9 - 13
Goal 3: Know the stages of the product life cycle process
Product Life Cycle
Sales and Profits Over the Product’s Life From
Introduction to Decline
Sales and
Profits ($)
Sales
Profits
Time
Product
Development
Introduction
Growth
Maturity
Decline
Losses/
Investments ($)
9 - 14
Product Life-Cycle
Strategies
• The product life cycle concept can
be applied to a:
 Product class (soft drinks)
 Product form (diet colas)
 Brand (Diet Dr. Pepper)
• Using the PLC to forecast brand
performance or to develop marketing
strategies is problematic
9 - 15
Goal 3: Know the stages of the product life cycle process
Product Life-Cycle
Strategies
PLC Stages
• Product development
• Begins when the
company develops a
new-product idea
• Introduction
• Sales are zero
• Growth
• Maturity
• Decline
• Investment costs
are high
• Profits are negative
9 - 16
Goal 4: Realize how marketing strategies change during the product life cycle
Product Life-Cycle
Strategies
PLC Stages
• Low sales
• Product development
• High cost per
customer acquired
• Introduction
• Negative profits
• Growth
• Innovators are
targeted
• Maturity
• Decline
• Little competition
9 - 17
Goal 4: Realize how marketing strategies change during the product life cycle
Marketing Strategies:
Introduction Stage
• Product – Offer a basic product
• Price – Use cost-plus basis to set
• Distribution – Build selective
distribution
• Advertising – Build awareness among
early adopters and dealers/resellers
• Sales Promotion – Heavy expenditures
to create trial
9 - 18
Goal 4: Realize how marketing strategies change during the product life cycle
Product Life-Cycle
Strategies
PLC Stages
• Rapidly rising sales
• Product development
• Average cost per
customer
• Introduction
• Rising profits
• Growth
• Early adopters are
targeted
• Maturity
• Decline
• Growing competition
9 - 19
Goal 4: Realize how marketing strategies change during the product life cycle
Marketing Strategies:
Growth Stage
• Product – Offer product extensions,
service, warranty
• Price – Penetration pricing
• Distribution – Build intensive
distribution
• Advertising – Build awareness and
interest in the mass market
• Sales Promotion – Reduce
expenditures to take advantage of
consumer demand
9 - 20
Goal 4: Realize how marketing strategies change during the product life cycle
Product Life-Cycle
Strategies
PLC Stages
• Sales peak
• Product development
• Low cost per
customer
• Introduction
• High profits
• Growth
• Middle majority are
targeted
• Maturity
• Decline
• Competition begins to
decline
9 - 21
Goal 4: Realize how marketing strategies change during the product life cycle
Marketing Strategies:
Maturity Stage
• Product – Diversify brand and models
• Price – Set to match or beat
competition
• Distribution – Build more intensive
distribution
• Advertising – Stress brand differences
and benefits
• Sales Promotion – Increase to
encourage brand switching
9 - 22
Goal 4: Realize how marketing strategies change during the product life cycle
Product Life-Cycle
Strategies
PLC Stages
• Declining sales
• Product development
• Low cost per
customer
• Introduction
• Declining profits
• Growth
• Laggards are targeted
• Maturity
• Declining competition
• Decline
9 - 23
Goal 4: Realize how marketing strategies change during the product life cycle
Marketing Strategies:
Decline Stage
• Product – Phase out weak items
• Price – Cut price
• Distribution – Use selective
distribution: phase out unprofitable
outlets
• Advertising – Reduce to level needed
to retain hard-core loyalists
• Sales Promotion – Reduce to minimal
level
9 - 24
Goal 4: Realize how marketing strategies change during the product life cycle
roduction Stage of the PLC
Summary of Characteristics, Objectives, & Strategies
Sales
Low sales
Costs
High cost per customer
Profits
Negative
Create product awareness
and trial
Marketing Objectives
Product
Offer a basic product
Price
Use cost-plus
Distribution
Advertising
Build selective distribution
Build product awareness among
early adopters and dealers 9 - 25
Growth Stage of the PLC
Summary of Characteristics, Objectives, &
Strategies
Sales
Rapidly rising sales
Costs
Average cost per customer
Profits
Rising profits
Marketing Objectives
Price
Maximize market share
Offer product extensions,
service, warranty
Price to penetrate market
Distribution
Build intensive distribution
Product
Advertising
Build awareness and interest in
the mass market
9 - 26
Maturity Stage of the PLC
Summary of Characteristics, Objectives, &
Strategies
Sales
Peak sales
Costs
Low cost per customer
Profits
High profits
Marketing Objectives
Product
Price
Distribution
Advertising
Maximize profit while defending
market share
Diversify brand and models
Price to match or best
competitors
Build more intensive distribution
Stress brand differences and
benefits
9 - 27
Decline Stage of the PLC
Summary of Characteristics, Objectives, &
Strategies
Sales
Declining sales
Costs
Low cost per customer
Profits
Declining profits
Marketing Objectives
Product
Price
Distribution
Advertising
Reduce expenditure and milk the
brand
Phase out weak items
Cut price
Go selective: phase out
unprofitable outlets
Reduce to level needed to retain
hard-core loyal customers 9 - 28