Chapter 9

New-Product Development and

Product Life-Cycle Strategies

Causes of New Product

Failure (pp. 336-337)
~ 80% of new consumer packaged goods fail (most
are line extensions)
Only about 40% of new consumer products & 30%
of new industrial products are around 5 years after
introduction

Why?

Overestimation of market size

Product design problems
Product incorrectly positioned, priced, or promoted
Product may have been pushed despite poor marketing
research findings
Costs of product development
Competitive actions

Improving New-Product
Success (pp. 336-337, continued)
New product success depends upon having a:

Unique superior product (one with higher quality,

and higher value in use as defined by customers)
Well-defined product concept (i.e., well-defined
target market, product requirements, and benefits)

To create successful new products, a company

must:
understand its customers, markets, and competitors
develop products that deliver superior value to
customers

Major Stages in New-Product

Development
(Figure 9.1, pp. 337-352)

To speed up simultaneous (team-based) vs. sequential

(pp. 352-353)

4. Marketing
Strategy

3. Concept Development
& Testing
Alternative versions,
describe in consumer terms

2. Idea
Screening

5. Business
Analysis
6. Product
Development
Physical product, $$$

7. Test
Marketing

Reduce # quickly

1. Idea
Generation

8. Commercialization

Many -- employees, customers, suppliers, distributors, competitors

New-Product Development
Step 7. Test Marketing

(pp. 346-349)

Product (& marketing program) are tested in realistic market

settings
Reduces risk tests customer interest & acceptance
company can find & correct problems early

Budget levels
Packaging
Branding
Pricing

Product
Elements that
may be test
marketed

Positioning
Advertising

Distribution
5

New-Product Development
Step 7. Test Marketing

(pp. 346-349)

But has some risks costly & time consuming

exposes to competition copy, sabotage

Sometimes not used - costs low, confident - e.g., Revlon, Rubbermaid

Standard
Test Market
Full marketing effort
in a small number of
representative cities
+ most realistic
+ tests entire strategy
- time consuming, costly
- exposes to competition

Controlled
Test Market

Simulated
Test Market

Test in cooperating
stores with
consumer panel

Test in a simulated
shopping environment
(e.g., laboratory store)

(Nielsen, IRI)

+ faster, less costly

- less realistic
(fewer cities, small
sample, no test of
channel acceptance)
- exposes to competition

+ fastest, least costly

+ no exposure to
competition
- least realistic
- no test of repeat
purchasing
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+ good pre-test

Product Life Cycle

(Figure 9.2, pp. 353-361)
Sales and
profits ($)
(or losses/
investment)

Rapid growth,
competition

Sales
Slow growth

+$
-$

Product
Development

Introduction

Profits
Growth

Growth slows,
Longest stage,
Most marketing
management
Not inevitable:
activity
revive?
reposition?

Maturity

Tim
e
Decline

Shapes:
Product class (e.g., gas-powered automobile) longest
Product form (e.g., minivan) most likely to be standard shape
Brand any shape, can change rapidly
Other shapes: fad, style, extended maturity / no decline, revival
CAUTION: Strategy is both an effect and a cause

Introduction Stage of the PLC

(p. 356 & Table 9.2)

Summary of Characteristics, Objectives, & Strategies

Sales

Low sales

Costs

High cost per customer

Profits

Negative or low

Mktg. Objectives

Build product awareness & stimulate trial

Product

Offer a basic product

Price

Usually is high

Distribution

High distribution expenses

Promotion

Build product awareness among early

adopters, & secure distribution

Growth Stage of the PLC

(pp. 356-357 & Table 9.2)

Summary of Characteristics, Objectives, & Strategies

Sales

Rapidly rising sales

Costs

Average cost per customer

Profits

Rising profits

Mktg. Objectives

Maximize market share

Product

Offer new product features,

extensions, service

Price

Price to penetrate market

Distribution

Increase number of distribution outlets

Promotion

Build awareness and interest in the

mass market

Maturity Stage of the PLC

(p. 357 & Table 9.2)

Summary of Characteristics, Objectives, & Strategies

Sales

Peak sales (growth slows, levels off)

Costs

Low cost per customer

Profits

High profits, then lower profits

Mktg. Objectives

Maximize profits while defending

market share

Product

Diversify brand (many line extensions)

Price

Price to match or best competitors

Distribution

Build more intensive distribution

Promotion

Stress brand differences and benefits

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Decline Stage of the PLC

(pp. 360-361 & Table 9.2)

Summary of Characteristics, Objectives, & Strategies

Sales

Declining sales

Costs

Low cost per customer

Profits

Declining profits (or profitable niche)

Mktg. Objectives

Reduce expenditure and maintain, harvest,

or drop the product; or reposition & revive

Product

Phase out weak items (back to basics)

Price

Cut price

Distribution

Selective (phase out unprofitable outlets)

Promotion

Reduce to level needed to retain

loyal customers & distribution

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Review of Concept
Connections
Explain how companies find and develop
new-product ideas
List and define the steps in the newproduct development process
Describe test markets, and the 3 types
Describe the stages of the product lifecycle
Describe how marketing strategies change
during a products life-cycle
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