principles of marketing - chapter 9 - copy

New-Product Development Strategy

Every product has to go through a life cycle – It is born, goes through several phases, and eventually dies as newer products come along that better serve consumer needs.

- A firm can obtain new products through:- A firm can obtain new products through:

Acquisition New-product development

AcquisitionAcquisition refers to the buying of a whole company, a patent, or a license to produce someone else’s product.

New product developmentNew product development refers to original products, product improvements, product modifications, and new brands developed from the firm’s own research and development.


Reasons for new product Reasons for new product failurefailure::

• Overestimation of market size

• Poor design• Incorrect positioning• Wrong timing• Priced too high• Ineffective promotion• Management influence• High development costs• Competition



IdeaIdeaGenerationGeneration

IdeaIdeaScreeningScreening

ConceptConceptDevelopmentDevelopmentand Testingand Testing

MarketingMarketingStrategyStrategy

Development Development

BusinessBusinessAnalysisAnalysis

ProductProductDevelopmentDevelopment

TestTestMarketingMarketing

CommercializationCommercialization

Idea Generation

The systematic search for new product ideas.

- Internal sourcesInternal sources refer to the company’s own formal research and development, management and staff, and entrepreneurial programs.

- External sourcesExternal sources refer to sources outside the company such as customers, competitors, distributors, suppliers, and outside design firms


Idea screening refers to reviewing new-product ideas in order to spot good ideas and drop poor ones as soon as possible

- Considering factors while screening:• Target market and market size• Product price, development time and cost• Rate of return and potentiality

Idea Screening


Concept Development and Testing

Product concept is a detailed version of the idea stated in meaningful consumer terms. An attractive idea must be develop into a product concept.

For instance: Facing the utmost shortage of transport fuel thinking about an effective alternative like CNG technology.


Concept testing refers testing the new-product concepts with a groups of target consumers to find out whether the product has strong consumer appeal or not?

- For the concept testing, a word or picture description might be sufficient. But we can make a dummy of the product to make it more practical and reliable to customers.

Concept Development and Testing


Marketing Strategy Development

Marketing strategy development refers designing an initial marketing strategy for a new product based on the product concept

The marketing strategy statement consists of three parts:

1. The first part describes the target market, the planned product positioning, sales, market share and profit goals for the first year.


Marketing Strategy Development

2. The second part describes the product’s planned price, distribution and marketing budget for the first year.

3. The third part describe the planned long-run sales, profit goals and marketing mix strategy.


Business Analysis

Business analysis involves a review of the sales, costs, and profit projections to find out whether they satisfy the company’s objectives

- To estimate the sales, company might look at the sales history of similar product and conduct surveys of market opinion.



If No, Eliminate Product Concept

Business AnalysisReview of Product Sales, Costs, and Profits Projections to See if They Meet Company Objectives

Business AnalysisReview of Product Sales, Costs, and Profits Projections to See if They Meet Company Objectives

If Yes, Move to Product Development

Product Development

Product development involves the creation and testing of one or more physical versions by the R&D or engineering departments in order to ensure that the product idea can be turned into a workable product.

• It requires an increase in investment and direct involvement of different departments.


Test Marketing

Test marketing is the stage at which the product and marketing program are introduced into more realistic marketing settings.

- Test marketing provides the marketer with experience in testing the product and entire marketing program before full introduction.



AdvertisingAdvertising

PackagingPackaging

ProductProductBudget LevelsBudget Levels

Positioning Positioning

DistributionDistributionPricingPricing

BrandingBranding

Elements that May be Test

Marketed by a Company

Test Marketing is the Stage Where the Product and Marketing Program are Introduced into More Realistic Market Settings.

Approaches to test marketing:

• Standard test markets• Controlled test markets• Simulated test markets

Test Marketing for Consumer Products


Test Marketing

Standard test markets are small representative markets where the firm conducts a full marketing campaign and uses store audits, consumer and distributor surveys, and other measures to estimate product performance.

- Results are used to forecast national sales and profits, discover product problems, and fine-tune the marketing program.


Test Marketing

- Characteristics of Standard test markets:

• May be very costly• Can take long time• Competitors can monitor the test results• Competitor interference by cutting price• Competitors gain access to the new

product before introduction


Test Marketing

Controlled test markets are panels of stores monitored by some research firms that carry new products for a fee.

- Characteristics of Controlled test markets:• Less expensive than standard test

markets• Faster than standard test markets• Competitors gain access to the new

product


Test Marketing

Simulated test markets are events where the firm will create a shopping environment and note how many consumers buy the new product and competing products.

Ex: Participating in Trade shows and arranging internal Fair/Exhibitions highlighting the products.


Test Marketing

- Advantages of simulated test markets:

• Less expensive than other test methods• Faster and direct response• Restricts access by competitors

- Disadvantages:

• Not considered as reliable and accurate due to the controlled setting


Commercialization

Commercialization is the introduction of the new product in the mass market. Based on the results from test marketing marketer decide the following things while commercialization.

• When to launch?• Where to launch?• How to launch?


Managing New-Product Development

Successful new product development should be:

• Customer-centered product development

• Team-centered product development• Systematic product development

Customer-centered new-product development

focuses on finding new ways to solve customer problems and create more customer-satisfying experiences. Ex. GP’s Community Information Center (CIC) offering internet services for the villagers.

• It begins and ends with identifying and solving customer needs and values. Massive R&D activity and involvement is needed to do so.


Team-based new-product development is a development approach where company’s various departments work closely together in cross-functional teams, overlapping in the product-development process to save time and increase effectiveness.


Systematic new-product development is an innovative development approach that collects, reviews, evaluates and manages new-product ideas from the stakeholders.

• It Creates an innovation-oriented culture.• Company can form a innovative

management system to collect and evaluate ideas.


Product Life-Cycle Strategies

Product Life CycleProduct Life Cycle (PLC)(PLC) is the course of a product’s sales and profits over its lifetime.

- It involves five distinct stages:

• Product development • Introduction• Growth• Maturity• Decline


Sales and Profits Over the Product’s Life From Inception to Demise

TimeProduct

Development Introduction

Profits

Sales

Growth Maturity Decline

Losses/Investments ($)

Sales andProfits ($)

Product Development Stage Product Development Stage begins when the company finds and develops a product idea to offer to the market.

• During the product development stage, sales are zero as it is not introduced to the market and the company’s investment costs increase.


Introduction Stage Introduction Stage is when the new product is first launched to the market and made available for purchase.

- Characteristics of Introduction stage:

• Takes time to be introduced• Slow sales growth• Little or no profit• High distribution and promotion expense

needed to make awareness among customers


Growth Stage Growth Stage is when the new product start to satisfy the markets and the sales climb quickly

- Characteristics of Growth stage:

• Sales increase quickly• Price stability or decline is needed to increase

sale • New competitors enter the market• Profits increase with sales volume• Product quality & features need to increase• New market segments and distribution

channels are entered to support the demand


Maturity Stage Maturity Stage is a long-lasting stage of a product that has gained consumer acceptance

- Characteristics of Maturity stage:

• Rate of sales growth slowdown• Many suppliers/competitors enter to market• Substitute products are also available• Increased promotion and R&D to support sales

and profits


Modifying Strategies in Maturity Stage

• Market modifying• Product modifying• Marketing mix modifying


Modifying Strategies

Market Modifying Strategy Market Modifying Strategy is when a company tries to increase the consumption of the current product.

• Increase usage rate of existing users • Searching for new users • New market segments



Product Modifying Strategy Product Modifying Strategy is when a company tries to change the characteristics of a current product.

• Changing quality & features • Adding new tastes & packaging • Offering different sizes, model



Marketing Mix Modifying Strategy Marketing Mix Modifying Strategy is when a company changes one or more of the marketing mix elements

• Price • Promotion • Distribution channels • Increasing support services


Decline stage Decline stage refers when sales decline or level off for an extended time because of technological advancement, shift in consumer demand and increased competition.

- Options to marketer while Decline stage:

• Maintain the product • Harvest the product • Drop the product


Introduction Stage of Product Life-Cycle (PLC)

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 high; use cost-plus formulaUsually is high; use cost-plus formula

DistributionDistribution High distribution expensesHigh distribution expenses

AdvertisingAdvertising Build product awareness among early adopters and dealers

Build product awareness among early adopters and dealers

Summary of Characteristics, Objectives, & Strategies

Growth Stage of Product Life-Cycle (PLC)


SalesSales

CostsCosts

ProfitsProfits


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, extensions, service, and warranty

Offer new product features, extensions, service, and warranty

Price to penetrate marketPrice to penetrate market

DistributionDistribution Increase number of distribution outletsIncrease number of distribution outlets

AdvertisingAdvertising Build awareness and interest in the mass market

Build awareness and interest in the mass market

CostsCosts

ProfitsProfits


ProductProduct

PricePrice

DistributionDistribution

Maturity Stage of Product Life-Cycle (PLC)


Peak salesPeak sales

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

Diversify brand and modelsDiversify brand and models

Price to match or best competitorsPrice to match or best competitors

Build more intensive distributionBuild more intensive distribution

Stress brand differences and benefitsStress brand differences and benefits

SalesSales

AdvertisingAdvertising

CostsCosts

ProfitsProfits


ProductProduct

PricePrice

DistributionDistribution

principles of marketing - chapter 9 - copy

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