Transcript New Product Development

New-Product Development and
Life-Cycle Strategies
Chapter 9
New Product Development
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Development of original products, product improvements,
product modifications, and new brands through the firm’s
own R & D efforts
a) Newness compared with existing products
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if a product is functionally different from
existing product, it can be defined as new.
Additional features are added to an existing
product to try to make it appeal to more
customers
b) Newness in legal terms
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The term ‘new’ be limited to be use with a product up to 6
months after it enters regular distributions
c) Newness from the company’s perspective
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Successful companies are starting to view newness and
innovation in their products at 3 levels:
-lowest level (involved at least risk, is a product line
extension. Ex: diet coke
diet cherry coke or
curry maggi
Xtreme maggi);
-second level (is a significant jump in the innovation
/technology-Sony’s leap from the micro tape recorder to
walkman)
-third level (is positive innovation, a truly revolutionary new
product. Ex: first Apple computer in 1976)
• New products can be obtained via acquisition
or development.
• New products suffer from high failure rates.
• Several reasons account for failure.
Reasons for new product failures
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Insignificant point of difference
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a distinctive point of difference is essential for a
new product to defeat competitive ones-through
having superior characteristics that can deliver
unique benefits to the user.
Incomplete market and product definition before
product development start
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a new product needs a precise protocol, should
identifies: a well defined target market, specific
customers’ needs, wants and preferences and
what the product will be and do.
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Poor execution of the marketing mix
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Coca-Cola thought its Minute Maid Squeeze , fresh frozen
orange juice concentrate in a squeeze bottle was a hit.
Consumers loved the idea but the product was messy to use
and the advertising and packaging didn’t educate them
effectively on how to use it.
Poor production quality/sensitivity to
customer needs on critical factors
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this factor stresses that problem on one or more critical factors
can kill the product, even though the general quality is high.
Ex: Apple computers’ Newton personal digital assistant (PDA)
was a great idea but was too complicated for the usage of the
user.
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Bad timing
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The product is introduced too early, too late or a time when the
consumer taste and preferences are shifting dramatically. Eg:
IBM, killed several laptop computer prototype because
competitors introduced better, more advanced machines to the
marketplace before IBM could get there
No economical access to buyers
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Eg: grocery products. Today’s super/hypermarket carry more
than 33,000 new packaged goods products (food, beverage,
health and beauty, household and pet items), the fight for
exposure is tremendous in terms of costs for advertising,
distribution and shelf space
Stages of the New Product Development
Process
Stage 1: Idea Generation
– Internal idea sources:
• R & D (your employees)
– External idea sources:
• Customers (through watching and listening to customersthe company can analyze customer questions and
complaints to find new products that better solve
consumer problem), competitors (watching competitor’s
ads to get clues), distributors, suppliers (these channel
close to market and can pass along information about
consumer problems and new product possibilities)
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Stage 2: Idea Screening
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Product development costs increase substantially in later
stages so poor ideas must be dropped
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Ideas are evaluated against criteria; most are eliminated
– Write up new product ideas on standard form, decribes the
product, target market and the competition
– Estimates of market size, product price, development time
and costs, manufacturing costs.
– Questions:
i) Is the product truly useful to consumers and society?
ii) Is it good for our particular company?
iii) Does it mesh well with the company’s objectives and
strategies?
iv) Do we have the people, skills and resources it make to
succeed?
 In screening ideas, the company must avoid 2 types
of errors:
a) Drop error-when the company dismisses an
otherwise good idea
b) Go error-when the company permits a poor idea to
move into development and commercialization
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Stage 3: Concept Development and Testing
i)
Concept development creates a detailed version of the idea stated in
meaningful consumer terms
-an attractive idea must be developed into a product concept
-important to distinguish between a product idea, product concept
and product image
 Product idea can be turned into several concepts:
A large food processing company gets the idea of producing a
powder to add to milk to increase its nutritional value and taste.
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c)
Who will use this product?
What primary benefit should this product provide?
When will people consume this drink?
 A company can form several concept:
Concept 1: an instant breakfast drink for adults who want a quick
nutritious breakfast without preparing a breakfast
Concept 2: a tasty snack drink for children to drink as a refreshment
Concept 3: a health supplement for older adults to drink in the dinner
before they go to bed.
ii) Concept testing asks target consumers to evaluate product
concepts. Testing new product concepts with groups of target
consumers and presented symbolically or physically.
• 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.
• Stage 5: Business Analysis
– Sales (might look at the sales history of similar
products and conduct survey of market opinion, needs
to estimate whether sales will be high enough to yield
satisfactory profit), cost (for each department), and
profit projections
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Stage 6: Product Development
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Prototype development and testing
If the product concept passes the business test, it
moves into this stage, here R&D or engineering
develops the product concept into physical product.
– At this stage, the company will determine whether
the product idea can be translated into technically
and commercially feasible product
– When prototypes are ready, they must be put through
rigorous functional tests and customer test:
a) Functional tests: alpha testing and beta testing
b) Customer tests: bringing customers into a laboratory
to giving them samples to use in their home
• Stage 7: Test Marketing
– Standard test markets
o finds a small number of representatives test cities, conducts a full
o marketing campaign, use store audits (market share), consumer
and
o distributor surveys (attitudes and satisfaction)
o management faces: how many test cities? Which cities? (good
o media coverage), length of test?, what information to gain? (store
o audit, consumer panels-loyalty and switching)
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Controlled test markets
a research firm manages a panel of stores that will carry new
product for a fee. The company with the new product specifies the
number of stores and geographic locations it wants to test
the research firm delivers the product to the participating stores
and
o controls shelf position: number of facings, displays and point of
o purchase promotion and pricing. Sales results can be measured
o through electronic scanners at checkout.
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Simulated test markets
can also test new product in a simulated shopping environment
the company shows A&P for a variety of product, including the
new product being tested to a sample of consumers
finding 30 to 40 qualified shoppers and questioning them about
brand familiarity and preferences in specific product category
consumers are asked the reasons for their purchases or
nonpurchases, those who did not buy the new brand are given a
free
sample. Weeks later, they are reinterviewed by phone to
determine
product attitudes, usage satisfaction and repurchase intention
Stage 8: Commercialization
When (timing)
Where (geographic strategy)
To whom ( target market prospect)
How (introductory market strategy)
Managing New Product Development
• Successful new-product development requires a
– Customer-Centered New-Product Development
• Focuses on finding new ways to solve customer problems
and create more customer-satisfying experiences (Procter
and Gamble)
– Team-Based New-Product Development
• Company departments work together in cross-functional
teams
– Systematic New-Product Development
• Install innovation management system to collect, review,
evaluate and manage new-product ideas.
• Web-based idea management software. (3M, Procter and
Gamble, GE)
Product Life-Cycle Strategies
Sales and profits
Maturity
Growth
Introduction
Decline
Time
Product
development
stage
Product development
Characteristics :
• Begins when the company develops a newproduct idea
• Sales are zero
• Investment costs are high
• Profits are negative
Introduction
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Characteristic :
Low and slow sales
High cost per customer acquired
Negative or low profits because sales are low and distribution and A&P
expenses are high
• Innovators are targeted
• Little competition
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Marketing Strategies:
Product – Offer a basic product
Price – Use cost-plus basis
Distribution – Build selective distribution
Advertising – Build awareness among early adopters and dealers/resellers
Promotion – Heavy expenditures to create trial-sales promotion
Growth
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Characteristic:
Rapidly rising sales
Rising profits
Early adopters are targeted and continue to buy and later buyer will start
following
• Growing competition
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Marketing Strategies
Product – Offer product extensions, service, warranty
Price – Penetration pricing (setting a low price)
Distribution – Build intensive distribution
Advertising – Build awareness and interest in the mass market
Promotion – Reduce expenditures to take advantage of consumer demand
Maturity
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Characteristic:
Sales peak
At some point a product’s sales will slow down
At this stage normally lasts longer than the previous stage
High profits
Middle majority are targeted
Competition begins to decline because competitors begin marking down prices,
increasing their A&P and upping their R&D budgets to find better versions of products
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Marketing Strategies:
Product – Diversify brand and models
Price – Set to match or beat competition
Distribution – Build more intensive distribution
Advertising – Stress brand differences and benefits
Promotion – Increase to encourage brand switching
Decline
 Characteristic:
• Declining sales because of technological advances, shifts in consumer
tastes and increased competition
• Declining profits
• Laggards are targeted
• Declining competition
 Marketing Strategies:
• Product – Phase out weak items, pay attention to the aging product, decide
whether to maintain, harvest or drop each of these declining product
• Price – Cut price
• Distribution – Use selective distribution: phase out unprofitable outlets
• Advertising – Reduce to level needed to retain hard-core loyalists
• Promotion – Reduce to minimal level
Product Life-Cycle Strategies
Modifying Strategies
• Market modifying
• Product modifying
• Marketing mix modifying
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Product Life-Cycle Strategies
Modifying Strategies
Market modifying strategy is when a
company tries to increase consumption
of the current product
• New users
• Increase usage of existing users
• New market segments
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Product Life-Cycle Strategies
Modifying Strategies
Marketing mix modifying strategy is
when a company changes one or
more of the marketing mix elements
• Price
• Promotion
• Distribution channels
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Product Life-Cycle Strategies
Decline stage is when sales decline or
level off for an extended time,
creating a weak product
• Maintain the product
• Harvest the product
• Drop the product
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Additional Product and Service Considerations
Product Decisions and Social Responsibility
Public policy and regulations regarding
developing and dropping products,
patents, quality, and safety
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Additional Product and Service Considerations
International Product and Service Marketing
Challenges
• Determining what products and services to introduce in
which countries
• Standardization versus customization
• Packaging and labeling
• Customs, values, laws
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