New Product Development and LifeCycle strategies

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New Product Development and Life-Cycle strategies

• MGT 252 Chapter 10

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Learning Goals

• 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 products life cycle

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Learning Goals

• 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 products life cycle

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• Coloured ketchup? Who would've anticipated it?
• Heinz introduces green and purple ketchup.

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New-ProductDevelopment Strategy

• New Product Development
• The development of original products, product
  improvements, product modifications, and new
  brands through the firms own RD efforts.

Video Snippet AMEX introduces a new product
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New-ProductDevelopment Strategy

• New products can be obtained via acquisition or
  development.
• New products suffer from high failure rates.
• Several reasons account for failure.

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Nike acquired Converse in 2003 for 305 million
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Discussion Question

• Think of products you have seen recently in
  stores. Can you think of any that seem doomed to
  fail?
• Why?

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Learning Goals

• 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 products life cycle

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Figure 10.1Major Stages in New-Product
Development
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Stages of the New Product Development Process

• Stage 1 Idea Generation
• The systematic search for new product ideas
• Internal sources brainstorming, employees from
  all departments, R D
• External sources customers, competitors,
  distributors, suppliers, and others

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• Intuit, a marketer of financial software, asks
  for new product ideas from customers

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Stages of the New Product Development Process

• Stage 2 Idea Screening
• The purpose is to 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

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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.

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Stages of the New Product Development Process

• Stage 4 Marketing Strategy Development
• 1st statement describes the target market,
  product positioning, and sales, share, and profit
  goals for the first few years.
• 2nd statement outlines the products price,
  distribution, and marketing budget for the first
  year.
• 3rd statement describes the long-run sales and
  profit goals, and the marketing mix strategy.

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Stages of the New Product Development Process

• Stage 5 Business Analysis
• Review of the sales, costs, and profit
  projections for a new product to determine if
  they will satisfy company objectives
• Stage 6 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

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Stages of the New Product Development Process

• Stage 7 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
• Standard test markets
• Controlled test markets
• Simulated test markets
• Stage 8 Commercialization

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Stages of the New Product Development Process

• Stage 8 Commercialization, introducing a new
  product into the market
• Large investment required
• Need to decide on introduction timing and scale
  of event
• Market rollout or full-scale introduction

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Online Test MarketingIs it in the Near Future?

• Silicon Valley startup called There launched
  their site in 2003.
• Users enter a virtual world where they can
  network, hang out, dress up and try new products.
• There is catching marketers attention as a tool
  to test brands and products.
• There will also help marketers identify leaders
  and heavy users of their products.

Source Advertising Age
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Online Test MarketingIs it in the Near Future?

• Levi and Nike have partnered with There for
  market research data.
• Levis has found that jeans and jean jacket
  buyers were more likely to be virtual club-goers.
• They can also track how long people wear a
  certain jean or jacket in their virtual world.
• Discussion Question Do you believe the
  Internet can supply valuable test marketing data?

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Organizing forNew-Product Development

• Sequential product development working on one
  piece of the new product at a time
• Simultaneous (team-based) product development
  developing multiple pieces of the product at the
  same time todays method due to distributed
  computing

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Learning Goals

• 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 products life cycle

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Figure 10.2Stages of the PLC
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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

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Learning Goals

• 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 products life cycle

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Product Life-Cycle Strategies

• Introduction Stage
• 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 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

• 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

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Which stage of the PLC?How do you know?

• Product development
• Introduction
• Growth
• Maturity
• Decline

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Marketing StrategiesIntroduction Stage

• Product Offer a basic product
• Price Skimming or penetration pricing
• Distribution Build selective distribution
• Advertising Build awareness among early
  adopters and dealers/resellers
• Sales Promotion Heavy expenditures to create
  trial

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Which stage of the PLC?How do you know?

• Product development
• Introduction
• Growth
• Maturity
• Decline

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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

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Product Life-Cycle Strategies

• 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
• Modify the market
• Modify the product
• Modify the marketing mix

• Decline
• 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 set promotional spending at a
  level that maintains the share
• Competition has declined as weaker brands have
  left the market
• Decisions about the product
• Maintain spending levels to fight it out for what
  is left
• Harvest by cutting spending and riding it out
• Drop the product and move on to the next thing

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• Which stage of the PLC?How do you know?

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Discussion

• How can marketers help products bounce back from
  the decline stage?

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Low-dose Aspirin Ad

• Baby Aspirin has been in the decline stage for
  over 10 years after discovery that it may have
  dangerous side effects for children.
• Recently it has been discovered it helping to
  prevent heart attacks in adults and is now
  marketed to this new target.

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Learning Goals

• 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 products life cycle

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Next Class

• PRICING!