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Chapter 9
New-Product Development and Product Life-Cycle Strategies
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Road Map: Previewing the Concepts
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.Explain how marketing strategies change during the product’s life cycle.
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Original ProductsOriginal Products
ProductImprovements
ProductImprovements
ProductModifications
ProductModifications
NewBrandsNew
Brands
AcquiredCompaniesAcquired
Companies
Acquired Patents
Acquired Patents
AcquiredLicenses
AcquiredLicenses
New-Product DevelopmentStrategy
Strategies for Obtaining New-Product Ideas
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Causes of New-Product FailuresOne study estimated that as many as 80% of new consumer packaged products fail.Only about 40% of new consumer products are around 5 years after introduction.Why?
Overestimation of market size,Product design problems,Product incorrectly positioned, priced, or advertised,Product may have been pushed despite poor marketing research findings,Costs of product development, orCompetitive actions.
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Improving New-Product SuccessNew-product success depends on having a:
Unique superior product (one with higher quality, features, and value in use), and aWell-defined product concept (a defined target market, product requirements, and benefits).
To create successful new products, the company must:
understand its consumers, markets, and competitors, anddevelop products that deliver superior value to customers.
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Major Stages in New-Product Development (Fig. 9-1)
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Customers Competitors Distributors Suppliers
Systematic Search for New Product Ideas Obtained From Employees and Also
From:
New Product Development Process
New Product Development Process Step 1. Idea Generation
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New Product Development Process Step 2. Idea Screening
Helps spot good ideas and drop poor ones as soon as possible. Many companies have systems for rating and screening ideas which estimate:
Market Size Product Price Development Time & Costs Manufacturing Costs Rate of Return
Then, the idea is evaluated against a set of general company criteria.
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1. Develop New Product Ideas into Alternative Detailed
Product Concepts
2. Concept Testing - Test theNew-Product Concepts with Groups of Target Customers
3. Choose the One That Has theStrongest Appeal to Target
Customers
New Product Development Process Step 3. Concept Development
Product Image is the Way Consumers Perceive an Actual or Potential Product
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DaimlerChrysler’s Electric Car
The company’s task is to develop its fuel-cell powered electric car into alternative product concepts, find out how attractive each is to customers, and choose the best one.
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New Product Development Process Step 4. Marketing Strategy
Part One Describes Overall:Target Market
Planned Product PositioningSales, Market Share, & Profit Goals
Part One Describes Overall:Target Market
Planned Product PositioningSales, Market Share, & Profit Goals
Part Two Describes First-Year:Product’s Planned Price
DistributionMarketing Budget
Part Two Describes First-Year:Product’s Planned Price
DistributionMarketing Budget
Part Three Describes Long-Run:Sales & Profit Goals
Marketing Mix Strategy
Part Three Describes Long-Run:Sales & Profit Goals
Marketing Mix Strategy
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If No, Eliminate Product Concept
Business AnalysisReview of Product Sales, Costs, and Profits
Projections to See if They Satisfy Company Objectives
Business AnalysisReview of Product Sales, Costs, and Profits
Projections to See if They Satisfy Company Objectives
Step 5. Business AnalysisStep 6. Product Development
If Yes, Move to Product Development
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New Product Development ProcessStep 7. Test Marketing
Product and marketing program are introduced into more realistic market settings.Can be very expensive and time consuming.
Test the following:Positioning strategy,Advertising,Distribution,Pricing,Branding,Packaging,Budget levels.
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When is the Right Time to
IntroduceProduct?
Where to Launch a
New Product?
Introducing the New Product into the Market
New Product Development Process Step 8. Commercialization
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Form students into groups of three to five. Each group should read the opening vignette to the chapter about Microsoft and the software industry. Each group should then answer the following questions:
Comment on Microsoft’s ability to bring new products to the marketplace. What lies ahead for Microsoft? What secrets has Microsoft learned?
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Step 1
Step 2
Step 3
Step 4
Sequential
Speeding Up New-Product Development
Ste
p 1
Ste
p 2
Step 3
Step 4
Simultaneous (Team-Based)
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Time
ProductDevelop-
ment
Introduction
Profits
Sales
Growth Maturity Decline
Losses/Investments ($)
Sales andProfits ($)
Sales and Profits Over the Product’s Life From Inception to Demise
Product Life Cycle (Fig. 9-2)
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Applications of the Product Life Cycle
Product class which has the longest life cycles (i.e. gas-powered cars), Product form which tends to have the standard PLC shape (i.e. minivans),Brand which can change quickly because of changing competitive attacks and responses (i.e. Ford Taurus),Style which is a basic and distinctive mode of expression (formal clothing),Fashion which is a popular style in a given field (business casual),Fad which is a fashion that enters quickly, is adopted quickly, and declines fast (pet rocks).
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Problems Using the PLCTrouble
identifying Which Stage of the PLC the Product Is In
Difficult to Forecast the Sales Level, the Length of Each Stage, and Shape of the PLCStrategy is Both a
Cause and a Result of the Product’s Life
Cycle
The PLC Concept can be applied by marketers for describing how products and markets work, but may also present some problems:
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SalesSales
CostsCosts
ProfitsProfits
Marketing ObjectivesMarketing Objectives
ProductProduct
PricePrice
Low sales Low sales
High cost per customerHigh cost per customer
Negative or lowNegative or low
Create product awareness and trialCreate product awareness and trial
Offer a basic productOffer a basic product
Usually is highUsually is high
DistributionDistribution High distribution expensesHigh distribution expenses
AdvertisingAdvertising Spending is high to inform consumers
Spending is high to inform consumers
Summary of Characteristics, Objectives, & Strategies
Introduction Stage of the PLC
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SalesSales
CostsCosts
ProfitsProfits
Marketing ObjectivesMarketing Objectives
ProductProduct
PricePrice
Rapidly rising sales Rapidly rising sales
Average cost per customerAverage cost per customer
Rising profitsRising profits
Maximize market shareMaximize market share
Offer new product features and models
Offer new product features and models
Remain where they are or fall slightlyRemain where they are or fall slightly
DistributionDistribution Increase number of distribution outletsIncrease number of distribution outlets
AdvertisingAdvertising Educating consumers and meeting competition
Educating consumers and meeting competition
Summary of Characteristics, Objectives, & Strategies
Growth Stage of the PLC
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SalesSales
CostsCosts
ProfitsProfits
Marketing ObjectivesMarketing Objectives
ProductProduct
PricePrice
Begin to slowBegin to slow
Low cost per customerLow cost per customer
High profits, then lower profitsHigh profits, then lower profits
Maximize profits while defending market share
Maximize profits while defending market share
May modify product May modify product
May declineMay decline
DistributionDistribution Build more intensive distributionBuild more intensive distribution
AdvertisingAdvertising Stress brand differences and benefits
Stress brand differences and benefits
Summary of Characteristics, Objectives, & Strategies
Maturity Stage of the PLC
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Maturity Stage of the PLC
Company tries to increase
consumption of the current product
Changing characteristics such as quality, features, or styles to attract
new users
Company tries to improve sales by
changing one or more marketing mix elements
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SalesSales
CostsCosts
ProfitsProfits
Marketing ObjectivesMarketing Objectives
ProductProduct
PricePrice
Declining salesDeclining sales
Low cost per customerLow cost per customer
Declining profitsDeclining profits
Reduce expenditure and maintain, harvest, or drop the product
Reduce expenditure and maintain, harvest, or drop the product
Phase out weak itemsPhase out weak items
Cut priceCut price
DistributionDistribution Selective: phase out unprofitable outlets
Selective: phase out unprofitable outlets
AdvertisingAdvertising Reduce to level needed to retain hard-core loyal customers
Reduce to level needed to retain hard-core loyal customers
Summary of Characteristics, Objectives, & Strategies
Decline Stage of the PLC
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Pick a soft drink, car, or food product, and trace the product’s life cycle.Project when the product might enter a decline stage and discuss strategies to reverse the decline.
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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.Describe the stages of the product life cycle.Explain how marketing strategies change during the product’s life cycle.