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{
New Product
DevelopmentPlanning & Testing
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Overestimation of Market Size
Product Design Problems
Product Incorrectly Positioned, Priced or Advertised
Costs of Product DevelopmentCompetitive Actions
To create successful new products, the company must: understand its customers, markets and competitors
develop products that deliver superior value to customers.
Causes of New ProductFailures
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Idea Generation and Screening
Concept Development and Testing
Marketing Strategy
Business Analysis
Product Development
Test Marketing
Commercialization
New Product
DevelopmentProcess
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New Product Development ProcessStep 1. Idea Generation
Systematic Search for New Product Ideas
Internal sources
Customers
Competitors
DistributorsSuppliers
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Process to spot good ideas and drop poorones
Criteria Market Size
Product Price
Development Time & Costs
Manufacturing Costs Rate of Return
New Product Development ProcessStep 2. Idea Screening
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New Product Development ProcessStep 3. Concept Development & Testing
1. Develop Product Ideas intoAlternative
Product Concepts
2. Concept Testing - Test theProduct Concepts with Groups
of Target Customers
3. Choose the Best One
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New Product Development ProcessStep 4. Marketing Strategy Development
Part Two - Short-Term:Products Planned Price
DistributionMarketing Budget
Part Three - Long-Term:Sales & Profit Goals
Marketing Mix Strategy
Marketing Strategy Statement Formulation
Part One - Overall:Target Market
Planned Product Positioning
Sales & Profit GoalsMarket Share
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New Product Development ProcessStep 5. Business AnalysisStep 6. Product Development
Business Analysis
Review of Product Sales, Costs,and Profits Projections to See ifThey Meet Company Objectives
If Yes, Move toProduct Development
If No, Eliminate
Product Concept
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New Product Development ProcessStep 7. Test Marketing
StandardTest Market
Full marketing campaign
in a small number ofrepresentative cities.
SimulatedTest Market
Test in a simulatedshopping environment
to a sample ofconsumers.
ControlledTest Market
A few stores that have
agreed to carry newproducts for a fee.
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Product Life
Cycle
Time
ProductDevelop-
ment
Introduction
Profits
Sales
Growth Maturity Decline
Losses/Investments ($)
Sales andProfits ($)
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IntroductionStage of the PLC
Sales
Costs
Profits
Marketing Objectives
Product
Price
Low sales
High cost per customer
NegativeCreate product awareness
and trial
Offer a basic product
Use cost-plus
Distribution Build selective distribution
Advertising Build product awareness amongearly adopters and dealers
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Growth Stage of the PLC
Sales
Costs
Profits
Marketing Objectives
Product
Price
Rapidly rising sales
Average cost per customer
Rising profits
Maximize market share
Offer product extensions, service,warranty
Price to penetrate market
Distribution Build intensive distribution
Advertising Build awareness and interest inthe mass market
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Maturity Stage of the PLC
Sales
Costs
Profits
Marketing Objectives
Product
Price
Peak sales
Low cost per customer
High profits
Maximize profit while defendingmarket share
Diversify brand and models
Price to match or best competitors
Distribution Build more intensive distribution
Advertising Stress brand differences andbenefits
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Decline Stage of the PLC
Sales
Costs
Profits
Marketing Objectives
Product
Price
Declining sales
Low cost per customer
Declining profits
Reduce expenditure and milk thebrand
Phase out weak items
Cut price
Distribution Go selective: phase outunprofitable outlets
Advertising Reduce to level needed to retainhard-core loyal customers
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{
CHAPTERNINETEEN
Market Testing I:
Pseudo-Sales Methods
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What Is Market Testing?
Market testing is not test marketing!
Test marketing is one of many forms of market testing-- others include simulated test market, informal sale,
minimarket, rollout.Test marketing is also a much less common form now
due to cost and time commitments and otherdrawbacks.
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Where We Are Today inMarket Testing
Scanner systems allow for immediate collection of product sales data.
Mathematical sales forecasting models are readily available that can runon a relatively limited amount of data.
We are building quality in, testing the marketing components of theproduct at early stages (ads, selling visuals, service contracts, packagedesigns, etc.) rather than testing the whole product at the end.
Increased competition puts greater pressure on managers to accelerateproduct cycle time.
Market testing is a team issue, not solely the responsibility of the marketresearch department.
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Decision Matrix on When to Market Test
CostandTime
Savings
High
Low
Stages of the product development cycle
High
Low
ScopeofLearning
andA
ccuracy
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How Market Testing Relates to theOther Testing Steps
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Two Key Values Obtainedfrom Market Testing
Solid forecasts of dollar and unit sales volume. Diagnostic information to allow for revising and refining any
aspect of the launch.
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Deciding Whether to
Market Test Any special twists on the launch? (limited time or budget, need
to make high volume quickly)
What information is needed? (expected sales volumes,unknowns in manufacturing process, etc.)
Costs (direct cost of test, cost of launch, lost revenue that animmediate national launch would have brought)
Nature of marketplace (competitive retaliation, customer
demand) Capability of testing methodologies (do they fit the managerial
situation at hand)
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Types of Information That
May Be Lacking
Manufacturing process: can we ramp-up from pilot
production to full scale easily? Vendors and resellers: will they do as they have promised in
supporting the launch?
Servicing infrastructure: adequate?
Customers: will they buy and use the product as expected? Cannibalization: what will be the extent?
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Methods of Market
Testing, and Where Used
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Pseudo Sales Tests
Speculative Sale
STM (Simulated Test Market)
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Speculative Sale
Often used in business-to-business and consumer durables, similar to
concept and product use tests. Give full pitch on product, answer questions, discuss pricing, and
ask:
If we make this product available as I have described it, would you buyit?
Often conducted by regular salespeople calling on real targetcustomers.
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Conditions for Speculative
Sale Where industrial firms have very close downstream
relationships with key buyers.
Where new product work is technical, entrenched within a
firm's expertise, and only little reaction is needed from themarketplace.
Where the adventure has very little risk, and thus a costliermethod is not defendable.
Where the item is new (say, a new material or a completelynew product type) and key diagnostics are needed. Forexample, what set of alternatives does the potential buyersee, or what possible applications come to mind first.
S l d k
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Simulated Test Market(STM)
Create a false buying situation and observe what the customer does. Follow-up with customer later to assess likely repeat sales.
Often used for consumer nondurables.
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Simulated Test Market
Procedure Mall intercept.
Self-administered questionnaire.
Advertising stimuli. Mini-store shopping experience.
Post-exposure questionnaire.
Receive trial package.
Phone followup and offer to buy more.
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Possible Drawbacks toSTMs
Mathematical complexity
False conditions
Possibly faulty assumptions on data, such as number ofstores that will make the product available
May not be applicable to totally new-to-the-marketproducts, since no prior data available.
Does not test channel member response to the new product,only the final consumer