Transcript New-product development

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New Product Development and
Product Life-Cycle Strategies
•Chapter 11
•Powerpoint slides
•Extendit! version
•Instructor name
•Course name
•School name
•Date
Principles of Marketing: 6th Canadian Edition
Learning Objectives
11.2
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• After studying this chapter, you should be able to:
– 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
Principles of Marketing: 6th Canadian Edition
Copyright © 2005 Pearson Education Canada Inc.
Opening Vignette: Microsoft
11.3
• Began life with MS-DOS by Bill Gates approximately 30 years ago
• Market share: 97% of PC operating system software, 90% of Office
software market, 40% of business server market
• Not initially known for innovation, but have changed dramatically
• Spent $5.2 billion on R&D in 2003
• Founder of the company now focusing on
new product development instead of CEO
duties
• Innovation strategy based around Internet
• Future of software: providing services for
use by consumers; convergence of media
and information
• In the face of rapid technological change,
new products will be their lifeblood
Principles of Marketing: 6th Canadian Edition
Why New Product Development?
11.4
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• New-product development:
– The development of original products, product improvements,
modifications, and new brands
– Through the firm’s own R&D efforts
• Importance based on:
–
–
–
–
–
Remaining competitive
Keeping up with technological change
Changing consumer tastes
Following market trends
Diversifying the product offering to
lower risk
• The challenge is to overcome the high rate
of new product failure
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New Product Hall of Shame
11.5
• Robert McMath’s New Product Showcase and Learning Center:
– Gallery of 80,000 new product failures
– Represents $5.2 billion in new product investment
• Lessons learned from failure:
– Offer real value: such as what
customers really want
– Cherish thy brand: brands are a
matter of trust; do not abuse this trust
– Be different: me-too marketing
usually fails
– But not too different: need to relate
to the target customer
– Accentuate the positive: people do
not buy things to feel bad
Principles of Marketing: 6th Canadian Edition
Major Stages in New Product Development
11.6
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• Idea generation: the systematic search for new product ideas
– Internal sources: brainstorming, employees from all departments
– External sources: customers (could involve several competitors),
competitors, distributors, suppliers, and others
• Idea screening: the purpose is to
Figure 11.1
identify good ideas and drop poor
ones to avoid spending any more
money on developing them
– Criteria used:
• Usefulness to consumers
• Good fit with company
objectives and strategies
• Have the resources
• Add value
Principles of Marketing: 6th Canadian Edition
Major Stages in New Product Development
11.7
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• Concept development: detailed version of the product concept in
meaningful consumer terms; used for testing purposes (around the
different target markets or usefulness of the product)
• Concept testing: testing new-product concepts for consumer
appeal (physical specimen or words) – questionnaire 11.1
• Marketing strategy: designing an initial
Figure 11.1
strategy for a product concept:
– Target market, positioning, and sales,
market share, and profit goals
– Price, distribution, and marketing
budget
– Strategy statement, long-run sales, profit
goals, and marketing mix
Principles of Marketing: 6th Canadian Edition
Major Stages in New Product Development
11.8
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• Business analysis: review of the sales, costs, and profit
projections for a new product to determine if they will satisfy
company objectives
– Estimating potential sales is more
difficult than estimating costs to
produce and market
Figure 11.1
• Product development:
developing the product concept into a
physical product to ensure that it can be
done
– Requires large investment
– Building a prototype
– Testing for safety, durability, and
acceptability
Principles of Marketing: 6th Canadian Edition
Major Stages in New Product Development
11.9
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• Test marketing: testing the product and marketing program in
more realistic market settings
– To determine the target market profile
– Assess consumer acceptability, trial,
repeat purchase rate
– Evaluate trade reception and
distribution penetration
– Design effective media plans
Figure 11.1
Different test marketing approaches
– Standard test markets:
• Choose a small number of
representative test cities
• Conduct a full marketing campaign
within these markets
• Measure results
Principles of Marketing: 6th Canadian Edition
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Major Stages in New Product Development
11.10
• Controlled test markets:
– Using controlled panels of stores that agree to carry new products
for a fee; use scanner data to measure results from selected
shoppers (can results be representative of all target market?)
• Simulated test markets:
– Simulating the shopping
environment to measure consumer
interest in a new product
– May involve virtual reality store
shopping
• The greater control exerted, the
cheaper but less realistic the situation,
which may influence the validity of
the findings; trade-off with reliability
Figure 11.1
Principles of Marketing: 6th Canadian Edition
Major Stages in New Product Development
11.11
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• Commercialization: introducing a new product into the market
– Large investment required
– Need to decide on introduction timing and scale of event
– Market rollout (depends on budget)
or full-scale introduction (high tech
products)
Figure 11.1
Sequential product development:
working on one piece of the new
product development at a time
Simultaneous (team-based)
product development:
developing multiple pieces of the
product development at the same time;
today’s method due to distributed
computing
Principles of Marketing: 6th Canadian Edition
11.12
Product Life-Cycle Strategies
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• Product life cycle (PLC): the course of a product’s sales and
•
•
•
•
profits over its life; five distinct stages
The PLC can describe a product class, form, or brand
Not all products follow this exactly
Competition
and rate of
technology
change can
influence the
length of a PLC
Useful for
planning
purposes
Figure 11.2
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11.13
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Product Development Stage
• The stage where the product is being developed, as discussed
• Sales are zero, profits are negative which is the money spent on
development
• Products will vary in development costs; eg. pharmaceuticals
• Products should meet a need
that is not being addressed in
the marketplace
• The marketing mix is still to be
determined
• There is no competition at this
point
• Length of time in this stage
will vary by product
Figure 11.2
Principles of Marketing: 6th Canadian Edition
11.14
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Styles, Fashions, and Fads
• Style: basic and distinctive mode of expression (classical, art deco)
• Fashion: currently accepted or popular style in a given field (long
hair)
• Fad: a fashion the enters quickly, adopted with great zeal, peaks
early, and decline very fast
Figure 11.3
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Introduction Stage
11.15
• The new product is introduced to the market
• Sales start at zero and begin to climb slowly; profits continue to
decline due to costs of launching the product
• The main promotional goal is to make a big noise to attract attention
and to educate buyers about the new product concept
• Market pioneers take the most
risk but may reap the biggest
Figure 11.2
rewards, eg. Chrysler minivan
• Few product variants, no
competition to speak of
• Pricing strategy: skimming or
penetration
• Distribution: not all outlets
covered as some may not want
the risk
Principles of Marketing: 6th Canadian Edition
11.16
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Growth Stage
• Sales of the new product begin to climb quickly as awareness
within the target market(s) builds
• Profits may become positive as development and launch costs are
recovered and the company achieves economies of scale
• Competition notices and rushes their versions into production
• Product quality can be
improved, extra features and
versions developed to sustain
growth and differentiate from
competition
• Distribution increases as the
product becomes more known
• Pressure on pricing as
competition increases
Figure 11.2
Principles of Marketing: 6th Canadian Edition
11.17
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Maturity Stage
• Sales of the new product continue to climb and then peak as the
majority of the target market(s) have tried the product
• Profits continue to grow and stay positive throughout
• Competition is most intense at this stage; many versions and brands
• Strategies to prolong this stage:
– Reach new target markets
– Modify the product
– Modify the marketing mix
• Some products stay in this stage
for an indefinite period, eg.
Catsup
• Others are replace by new
technology and fade rapidly
Figure 11.2
Principles of Marketing: 6th Canadian Edition
11.18
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Decline Stage
• Sales of the new product drop quickly as the target market(s) move
on to other things
• Profits decline as competitive pressures force lower prices and
increased promotional spending to maintain share
• Competition has declined as weaker brands have left the market
• Companies need to make
decisions about what to do with
the declining product
– Maintain spending levels
to fight it out for what is left
– Harvest by cutting
spending
– Drop the product and move
on to the next thing
Figure 11.2
Principles of Marketing: 6th Canadian Edition
Copyright © 2005 Pearson Education Canada Inc.
11.19
Principles of Marketing: 6th Canadian Edition
In Conclusion…
11.20
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• The learning objectives for this chapter were:
– 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
Principles of Marketing: 6th Canadian Edition