Developing New Products and Managing the Product Life-Cycle

Chapter 8

Rest Stop: Previewing the Concepts

• Explain how companies find and develop new-product ideas

• List and define the steps in the new-product development process and the major considerations in managing this process

• Describe the stages of the product life cycle and how marketing strategies change during the product’s life cycle

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Rest Stop: Previewing the Concepts

• Discuss two additional product and services issues: socially responsible product decisions and international product and services marketing

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First Stop: Google—New-Product Innovation at the Speed of Light

• New product planning looks ahead only four to five months

• Engineers spend 20% of time developing their own new ideas

• New applications are launched on Google Labs; users test them and provide feedback

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New-Product Failures

• Overestimation of market size

• Design problems• Incorrect pricing or

positioning• High development

costs• Competitor reaction

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Each product failure represents squandered dollars and hopes

Figure 8.1 - Major Stages in New-Product Development

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Idea Generation

• Internal sources• The traditional R&D process• Intrapreneurs within the company

• External sources• Distributors and suppliers• Competitors and their products• Trade magazines and shows• Customers

• Crowdsourcing

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Idea Generation

• Analyze customer questions and complaints to find new products that better solve consumer problems

• Invite customers to share suggestions and ideas

To harness customer new-product input, 3M has opened customer innovation centers, which generate customer-driven new-product ideas and help 3M establish long-term customer relationships

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Crowdsourcing

• Invites customers, employees, independent scientists and researchers, and even the public at large, into the new-product innovation process

When Netflix wanted ideas for improving the accuracy of its online recommendation system, it decided to “open it up to the world,” promising a $1 million prize for the best solution

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Concept Development and Testing

• Product idea: An idea for a possible product that the company can see itself offering to the market

• Product concept: A detailed version of the new-product idea stated in meaningful consumer terms

• Product image: The way consumers perceive an actual or potential product

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Concept Development

• To develop a new product into alternative product concepts, find out how attractive each concept is to customers, and choose the best one

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Tesla’s initial all-electric roadster, will be followed by more-affordable mass-market models

Concept Testing

• Testing new-product concepts with a group of target consumers to find out if the concepts have strong consumer appeal• Using a description, picture or model of the

product• Asking consumers about their reactions

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Marketing Strategy Statement

• Describes the target market, planned value proposition, sales, market share, and profit goals

• Outlines the product’s planned price, distribution, and marketing budget

• Describes the planned long-run sales and profit goals, marketing mix strategy

Business Analysis

• A review of the sales, costs, and profit projections for a new product to find out whether these factors satisfy the company’s objectives

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Product Development

• Developing the product concept into a physical product to ensure that the product idea can be turned into a workable market offering • Prototypes are made• Consumer tests are conducted

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Test Marketing

• Introducing the product and marketing program in realistic market settings

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Starbucks spent 20 years developing Starbucks VIA instant Coffee and several months testing the product in Starbucks shops in Chicago and Seattle before releasing the product nationally

Test Marketing

• Standard test markets are usually extensive and costly to use

• Simulated test markets• Researchers measure consumer responses to in

laboratory stores or simulated online shopping environments

• Controlled test markets• New products and tactics are tested among

controlled panels of shoppers and stores

Commercialization

• Introducing a new product into the market• Companies must decide:

• When to introduce the product• Where to introduce the product

• Single location, state, region, nationally, internationally

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Managing New-Product Development

• Companies must take a holistic approach to new product development

• This requires:• Customer-centered new-product development• Team-based new-product development• Systematic new-product development

Customer-Centered New-ProductDevelopment

Customers are urged to submit their own ideas for new products and services on P&G’s crowdsourcing site Connect + Develop

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• New-product development that focuses on finding new ways to solve customer problems and create more customer-satisfying experiences

Team-Based New-Product Development

• Various company departments work closely together, overlapping the steps in the product development process to save time and increase effectiveness• Cross-functional teams lead to fast and flexible

development• Causes more organizational tension and

confusion than the sequential approach

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Systematic New-Product Development

• The new-product development process should be holistic and systematic

• Innovation management systems can help companies collect, review, evaluate, and manage new-product ideas• They help create an innovation-oriented

company culture• They yield a larger number of new-product ideas

Marketing at Work

• Faced with falling sales, LEGO began new-product development by listening to customers and including them in the design process

LEGO’s Design By Me site lets customers download 3D design software, create a LEGO toy, and then order the kit to build it

Figure 8.2 - Sales and Profits Over the Product’s Life From Inception to Decline

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The Product Life Cycle

• All products do not follow all five stages of the PLC

• Marketers can apply the PLC as a framework for describing how products and markets work

Some products die quickly, while others stay in the mature stage for a long, long time like TABASCO® sauce

Applying the Product Life-Cycle Concept

• The PLC concept can describe a product class, a product form , or a brand • Product class has the longest life cycle• Product form tends to the standard PLC shape• PLCs for brands can change quickly because of

changing competitive attacks and responses• The PLC concept also can be applied to what

are known as styles, fashions, and fads

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Figure 8.3 - Styles, Fashions, and Fads

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Introduction Stage Characteristics

• Sales: Low• Costs: High cost per customer• Profits: Negative or low• Customers: Innovators• Competitors: Few• Marketing objective: Create product

awareness and trial

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Introduction Stage Strategies

• Product: Offer a basic product• Price: Use cost-plus pricing• Distribution: Build selective distribution• Advertising: Build product awareness among

early adopters and dealers• Promotion: Use heavy promotion to entice

product trial

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Growth Stage Characteristics

• Sales: Rapidly rising• Costs: Average cost per customer• Profits: Rising profits• Customers: Early adopters• Competitors: Growing number• Marketing objective: Maximize market share

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Growth Stage Strategies

• Product: Offer product extensions, service, warranty

• Price: Price to penetrate the market• Distribution: Build intensive distribution• Advertising: Build awareness and interest in

the mass market• Promotion: Reduce to take advantage of

heavy consumer demand

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Maturity Stage Characteristics

• Sales: Peak sales• Costs: Low cost per customer• Profits: High profits• Customers: Middle majority• Competitors: Stable number beginning to

decline• Marketing objective: Maximize profits while

defending market share

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Maturity Stage Strategies

• Product: Diversify brand and models• Price: Match or beat competitors• Distribution: Build more intensive distribution• Advertising: Stress brand differences and

benefits• Promotion: Increase to encourage brand

switching

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Maturity Stage Strategies

• Modifying the market• Increase the consumption of the current product

• How?• Look for new users and market segments• Reposition the brand to appeal to larger or

faster-growing segment• Look for ways to increase usage among present

customers

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Maturity Stage Strategies

• Modifying the product• Changing characteristics such as quality,

features, style or packaging to attract new users and inspire more usage

• How?• Improve durability, reliability, speed, taste• Improve styling and attractiveness• Add new features

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Maturity Stage Strategies

• Modifying the marketing mix• Improving sales by changing one or more

marketing mix elements

• How?• Offer new or improved services• Cut prices• Launch a better ad campaign• Move into new market channels

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Maturity Stage Strategies

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• Reinvigorating a mature brand: Kellogg kept its 55-year-old Special K brand growing by turning it into a healthful, slimming lifestyle brand

Decline Stage Characteristics

• Sales: Declining sales• Costs: Low cost per customer• Profits: Declining profits• Customers: Laggards• Competition: Declining number• Marketing objective: Reduce expenditures

and milk the brand

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Decline Stage Strategies

• Product: Phase out weak items• Price: Cut price• Distribution: Go selective—phase out

unprofitable outlets• Advertising: Reduce to level needed to retain

hard-core loyals• Promotion: Reduce to minimal level

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Marketing at Work

• Over its 79-year history, the Zippo brand has evolved to meet changing market needs

• Broadened its focus from just selling lighters to selling “all things flame”

Product Decisions and Social Responsibility

• Companies must consider • Public policy issues• Regulations regarding acquiring or dropping

products• Patent protection• Product quality and safety, and warranties

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International Product and Services Marketing

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• Companies face challenges in the international market

• They can• Standardize

products across markets

• Adapt products to local tastes

Kit Kat benefits from a coincidental similarity between the bar’s name and the Japanese phrase, kitto katsu, which roughly translates to “Surely you win!”

Rest Stop: Reviewing the Concepts

• Explain how companies find and develop new-product ideas

• List and define the steps in the new-product development process and the major considerations in managing this process

• Describe the stages of the product life cycle and how marketing strategies change during the product’s life cycle

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Rest Stop: Reviewing the Concepts

• Discuss two additional product and services issues: socially responsible product decisions and international product and services marketing

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