Principles of Marketing: Chapter 9 (New-Product Development and Product Life-Cycle Strategies)

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Slide 3

Note to Instructor New products are important—to both customers and the marketers who serve them. For companies, new products are a key source of growth. For customers, they bring new solutions and variety to their lives. Yet, innovation can be very expensive and very risky. New products face tough odds. According to one estimate, 90 percent of all new products in America fail. Each year, companies lose an estimated $20 billion to $30 billion on failed food products alone.

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Note to Instructor If you are running a marketing plan project in your class, this is a good time to ask why their project ideas might fail in the real market. You can then ask what they plan to do to prevent failure.

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Note to Instructor Discussion Question In groups of four come up with one ideas for a new products. It might be helpful if you assign each group a category including kitchen products, office supplies, laptop accessories, dessert products, bathroom accessories, children’s toys, baby products, etc. Students will realize this is very difficult.

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Note to Instructor It is not difficult to find examples of companies that are running contests where they ask consumers to send in ideas for new products. Dorito’s recently asked consumers to come up with a new flavor and new advertising. The Classic Mini Cooper brand was running Mini Mania’s the “Awesome New Product” Idea Contest. The grand prize winner received a 25 percent off promo code! Two second place winners will receive 15 percent off promo codes.

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Note to Instructor This Web link ties to a concept testing survey at Questionpro. It is helpful to point out to students that there are many online Web survey sites, which offer free surveys for market research. In this example, they supply a template for concept testing.

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Note to Instructor Many companies use their employees for product testing. Students might have worked at various consumer packaged goods companies, perhaps Quaker Oats, where they had to test cereal every day at lunch. The text gives the example: At Gillette, almost everyone gets involved in new-product testing. Every working day at Gillette, 200 volunteers from various departments come to work unshaven, troop to the second floor of the company’s gritty South Boston plant, and enter small booths with a sink and mirror. There they take instructions from technicians on the other side of a small window as to which razor, shaving cream, or aftershave to use. The volunteers evaluate razors for sharpness of blade, smoothness of glide, and ease of handling. In a nearby shower room, women perform the same ritual on their legs, underarms, and what the company delicately refers to as the “bikini area.” “We bleed so you’ll get a good shave at home,” says one Gillette employee.

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Note to Instructor Here is a list of the top 10 test markets 1. ALBANY—SCHENECTADY—TROY, NY 2. ROCHESTER, NY 3. GREENSBORO—WINSTON—SALEM—-HIGH POINT, NC 4. BIRMINGHAM, AL 5. SYRACUSE, NY 6. CHARLOTTE—GASTONIA—ROCK HILL, NC/SC 7. NASHVILLE, TN 8. EUGENE—SPRINGFIELD, OR 9. WICHITA, KS 10. RICHMOND—PETERSBURG, VA Source: Acxiom Corp., June 2004

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Note to Instructor 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 gauge product performance. Results are used to forecast national sales and profits, discover product problems, and fine-tune the marketing program. Controlled test markets are panels of stores that have agreed to carry new products for a fee. In general they are less expensive than standard test market, faster than standard test markets, but competitors gain access to the new product. 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. Provides measure of trial and the effectiveness of promotion. Researchers can interview consumers.

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Note to Instructor This Web link takes you to Decision Insight—a company involved with online market testing. You can click at many examples they offer of clients as well as their virtual shopping testing products.

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Note to Instructor Discussion Question Name a product at each stage of the PLC. This concept is very new to students. See if they can identify products or product categories that are in each stage of the model. Introduction might include online movie viewing software, growth might include MP3 players, maturity might include bottled water, and decline could include soda (actually in a decline) or videotape players.

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Note to Instructor Style is a basic and distinctive mode of expression. Fashion is a currently accepted popular style in a given field.

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Note to Instructor Cars are very mature products so companies are always coming up with new models and features. This is a link to a very funny YouTube ad about a new car product.

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Note to Instructor This link is for 1000 Uses of Glad Web site. It is described below, and in the book, as a way to modify the product. In modifying the market, the company tries to increase the consumption of the current product. It may look for new users and new market segments. The manager may also look for ways to increase usage among present customers. The company might also try modifying the product—changing characteristics such as quality, features, style, or packaging to attract new users and to inspire more usage. It can improve the product’s styling and attractiveness. It might improve the product’s quality and performance—its durability, reliability, speed, taste.

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Chapter Nine New-Product Development and Product Life-Cycle Strategies

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New-Product Development and Product Life-Cycle Strategies New-Product Development Strategy New-Product Development Process Managing New-Product Development Product Life-Cycle Strategies Additional Product and Service Considerations Topic Outline

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New-Product Development Strategy Acquisition refers to the buying of a whole company, a patent, or a license to produce someone else’s product New product development refers to original products, product improvements, product modifications, and new brands developed from the firm’s own research and development Two ways to obtain new products

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New-Product Development Reasons for new product failure

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New-Product Development Process Major Stages in New-Product Development

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New-Product Development Process Idea generation is the systematic search for new-product ideas Sources of new-product ideas Internal External Idea Generation

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New-Product Development Process Internal sources refer to the company’s own formal research and development, management and staff, and intrapreneurial programs External sources refer to sources outside the company such as customers, competitors, distributors, suppliers, and outside design firms Idea Generation

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New-Product Development Process Identify good ideas and drop poor ideas R-W-W Screening Framework: Is it real? Can we win? Is it worth doing? Idea Screening

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New-Product Development Process Product idea is an idea for a possible product that the company can see itself offering to the market Product concept is a detailed version of the idea stated in meaningful consumer terms Product image is the way consumers perceive an actual or potential product Concept Development and Testing

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New-Product Development Process Concept testing refers to testing new-product concepts with groups of target consumers Concept Development and Testing

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New-Product Development Process Marketing strategy development refers to the initial marketing strategy for introducing the product to the market Marketing strategy statement includes: Description of the target market Value proposition Sales and profit goals Marketing Strategy Development

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New-Product Development Process Business analysis involves a review of the sales, costs, and profit projections to find out whether they satisfy the company’s objectives Marketing Strategy Development

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New-Product Development Process Product development involves the creation and testing of one or more physical versions by the R&D or engineering departments Requires an increase in investment Marketing Strategy Development

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New-Product Development Process Test marketing is the stage at which the product and marketing program are introduced into more realistic marketing settings Provides the marketer with experience in testing the product and entire marketing program before full introduction Marketing Strategy Development

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New-Product Development Process Types of Test Markets

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New-Product Development Process Advantages of simulated test markets Less expensive than other test methods Faster Restricts access by competitors Disadvantages Not considered as reliable and accurate due to the controlled setting Marketing Strategy Development

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New-Product Development Process Marketing Strategy Development

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New-Product Development Process Commercialization is the introduction of the new product When to launch Where to launch Planned market rollout Marketing Strategy Development

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Managing New-Product Development Successful new-product development should be: Customer centered Team centered Systematic See the explanation in next slides

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Managing New-Product Development Customer-centered new product development focuses on finding new ways to solve customer problems and create more customer satisfying experiences Begins and ends with solving customer problems New-Product Development Strategies

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Managing New-Product Development Sequential new-product development is a development approach where company departments work closely together individually to complete each stage of the process before passing it along to the next department or stage Increased control in risky or complex projects Slow New-Product Development Strategies

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Managing New-Product Development Team-based new-product development is a development approach where company departments work closely together in cross-functional teams, overlapping in the product-development process to save time and increase effectiveness New-Product Development Strategies

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Managing New-Product Development Systematic new-product development is an innovative development approach that collects, reviews, evaluates, and manages new-product ideas Creates an innovation-oriented culture Yields a large number of new-product ideas New-Product Development Strategies

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Product Life-Cycle Strategies Product Life Cycle

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Product development Sales are zero and investment costs mount Introduction Slow sales growth and profits are nonexistent Growth Rapid market acceptance and increasing profits. Maturity Slowdown in sales growth and profits level off or decline Decline Sales fall off and profits drop Product Life-Cycle Strategies

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Product Life-Cycle Strategies Fads are temporary periods of unusually high sales driven by consumer enthusiasm and immediate product or brand popularity

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Product Life-Cycle Strategies

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Product Life-Cycle Strategies Slow sales growth Little or no profit High distribution and promotion expense Introduction Stage

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Product Life-Cycle Strategies Sales increase New competitors enter the market Price stability or decline to increase volume Consumer education Profits increase Promotion and manufacturing costs gain economies of scale Growth Stage

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Product Life-Cycle Strategies Slowdown in sales Many suppliers Substitute products Overcapacity leads to competition Increased promotion and R&D to support sales and profits Maturity Stage

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Product Life-Cycle Strategies Market modifying Product modifying Marketing mix modifying Maturity Stage Modifying Strategies

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Product Life-Cycle Strategies Maintain the product Harvest the product Drop the product Decline Stage

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Product Life-Cycle Strategies Summary of Product Life Cycle

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Additional Product and Service Considerations Public policy and regulations regarding developing and dropping products, patents, quality, and safety Product Decisions and Social Responsibility

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Additional Product and Service Considerations Determining what products and services to introduce in which countries Standardization versus customization Packaging and labeling Customs, values, laws International Product and Service Marketing—Challenges

Summary: Principles of Marketing: Chapter 9 (New-Product Development and Product Life-Cycle Strategies)

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