Transcript Principles of MKTG - Auburn University

Principles of
Marketing
Chapter 8:
Developing New Products
And Managing
The 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
•
•
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
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:
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•
•
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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.
Dr. James Carver – Auburn University
NPD Process
• Steps involved:
Idea screening
2. Concept development and testing
3. Marketing strategy development
4. Business analysis
5. Product development
6. Test marketing
7. Commercialization
1.
Dr. James Carver – Auburn University
Idea Generation
• Ideas can come from:
 Internal
•
sources:
Company employees at all levels.
 External
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•
•
•
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sources:
Customers
Competitors
Distributors
Suppliers
Outsourcing (design firms, product consultancies,
online collaborative communities)
Dr. James Carver – Auburn University
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.
Dr. James Carver – Auburn University
Concept Development & Testing
• Concept development and testing:
 Product
•
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
•
idea:
testing:
Testing new-product concepts with groups of target
consumers to find out if the concepts have strong
consumer appeal.
Dr. James Carver – Auburn University
Marketing Strategy Development
• Marketing strategy development:
 Part
•
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
•
One:
Three:
Describes the planned long-run sales and profit goals,
marketing mix strategy.
Dr. James Carver – Auburn University
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.
Dr. James Carver – Auburn University
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.

Dr. James Carver – Auburn University
Test Marketing
• Involves:
 The
product and marketing program being
introduced in a more realistic market setting.
•
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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.
2.
3.
4.
5.
Albany, NY
Rochester, NY
Greensboro, NC
Birmingham, AL
Syracuse, NY
Dr. James Carver – Auburn University
Commercialization
• Is a function:
 Timing
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When to introduce the product
 Where
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(to introduce)
A single location, state, region, nationally,
internationally
 Etc.
 Everything
builds into a market rollout plan
Dr. James Carver – Auburn University
The Product Life Cycle (PLC)*
Sales
($)
Sales
Profits
Time
Introduction
Growth
Dr. James Carver – Auburn University
Maturity
Decline
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
Dr. James Carver – Auburn University
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
Dr. James Carver – Auburn University
General Characteristics and
Strategies Given Stage
• 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
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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.
Dr. James Carver – Auburn University
General Characteristics and
Strategies Given Stage
• 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
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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*
Dr. James Carver – Auburn University
General Characteristics and
Strategies Given Stage
• Decline:
 Characteristics:
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Sales are declining; profits are still declining; customers
tend to be laggards; and competition is declining still
 Strategic
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Problem Faced:
Reduce expenditures and milk the brand
Consider dropping underperforming models or entirely

Dropping will affect resellers and customers
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May be needed by resellers to “complete” image or “drive” traffic
Dr. James Carver – Auburn University