LECTURE 8a

New Product Development

and Product Life-Cycle
Strategies

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GBUS 207: PRINCIPLES OF MARKETING
 Presentation Outline

New-Product Development Strategy

The New-Product Development Process
Managing New-Product Development
Product Life-Cycle Strategies
Additional Product and Service Considerations

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GBUS 207: PRINCIPLES OF MARKETING
 New Product Development
New-Product Development :- the development of original
products, product improvements, product modifications, and
new brands through the firms own product-development
efforts. (Kotler & Armstrong)

Firms can obtain new products in two ways: through

1. acquisition
2. the firms own internal new-product development efforts.

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GBUS 207: PRINCIPLES OF MARKETING
 The New-Product Development Process

Fig. 1 Major Stages in New-Product Development

Idea Idea Concept Marketing

Generation Screening development strategy
and testing development

Business Product Test

Commercialization
analysis development marketing

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GBUS 207: PRINCIPLES OF MARKETING
 The New-Product Development Process
1. Idea Generation
- internal idea sources e.g. employees
- external idea sources e.g. suppliers, distributors, customers
*Crowdsourcing
2. Idea Screening
- the first idea-reducing stage.
- defined as screening new-product ideas in order to spot good ideas and
drop poor ones asap.
- R-W-W (real, win, worth it) ie.
Is it real? Need , desire for the product? Will customers buy it? Is there a clear
product concept?
Can we win? Product offer sustainable competitive advantage? Do the needed
resources exist to ensure the success of the product?
Is it worth doing? Is sufficient profit attainable?
A YES answer to all these questions is a prerequisite to developing the idea further.
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GBUS 207: PRINCIPLES OF MARKETING
 The New-Product Development Process
3. Concept Development and Testing
- attractive ideas must be developed into product concepts.
Some definitions:
Product idea is an idea for a possible product that a company can see itself offering to the market;
product concept is a detailed version of the new-product idea stated in meaningful customer terms;
product image is the way consumers perceive an actual or potential product.
- concept testing is testing new-product concepts with a group of target
consumers to find out if the concepts have strong consumer appeal. The
concept that tests best is chosen for the next stage.

4. Market Strategy Development

- designing an initial marketing strategy for a new product based on the
product concept.
- The marketing strategy statement consists of 3 parts: 1st describes the target
market, planned value proposition and sales, market share & profit goals for
the first year. 2nd part focuses on the products planned price, distribution and
marketing budget for the first year. 3rd stage looks at the planned long-run
sales profit goals and marketing mix strategy. 6
GBUS 207: PRINCIPLES OF MARKETING
 The New-Product Development Process
5. Business Analysis
- need to evaluate the business attractiveness of the proposal.
- a review of the sales, costs and profit projections for a new-product is
necessary to determine whether these factors satisfy the companys
objectives. If they do, we move to the next stage.

6. Product Development
- developing the product concept into a physical product in order to ensure
that the product idea can be turned into a workable market offering.
- usually involves a substantial capital outlay.

7. Test Marketing
- the stage of new-product development in which the product and
marketing program are tested in realistic market settings.
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GBUS 207: PRINCIPLES OF MARKETING
 The New-Product Development Process
8. Commercialization
- the intro of a new product into the market.
- this means high costs therefore before launching a new product thought must
be given to the timing and the where. When is the best time to launch the
new product and in which location i.e. single location, a region, nationwide,
global etc.

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GBUS 207: PRINCIPLES OF MARKETING
 Managing New Product Development
Successful new-product development requires a customer-centered, team-
based, and systematic effort.

Customer-Centered New-Product Development

- focuses on finding new ways to solve customer problems and create more
customer-satisfying experiences.
- a recent study found that the most successful new products are ones that
differentiated, solve major customer problems and offer an attractive
customer value proposition.
- another study found that firms that directly engage their customers in the
new-product innovation process had twice the return on assets and triple the
growth in operating income of companies that dont.

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GBUS 207: PRINCIPLES OF MARKETING
 Managing New Product Development
Team-Based New-Product Development
- an approach to developing new products in which various company
departments work closely together, overlapping the steps in the product
development process to save time and increase effectiveness.
- team will usually include reps from marketing, finance, design,
manufacturing, legal
- a combination of a customer-centered approach with team-based new-
product development give companies a huge competitive edge by getting
the right products to market faster.
Systematic New-Product Development
- to avoid a situation in which a company only generates a few new ideas,
it can set up an innovation management system to collect, review, evaluate
and manage new-product ideas.
- an innovation manager can be appointed together with a cross-functional
innovation management committee whose task it would be to evaluate
proposed new-product ideas and help bring good ideas to the market.
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GBUS 207: PRINCIPLES OF MARKETING
 Managing New Product Development
Systematic New-Product Development contd
- recognition programs could be created to reward idea givers.
- this approach yields two good outcomes: firstly, it helps create an
innovation-oriented company culture showing that top mgt supports and
rewards innovation and secondly, it allows for a large number of new-
product ideas to be generated among which will be found good ones.

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GBUS 207: PRINCIPLES OF MARKETING
 Product Life-Cycle Strategies
Product Life-Cycle:- the course of a products sales and profits
over its lifetime. It involves the five distinct stages: product
development, introduction, growth, maturity and decline.

Product development begins when the firm finds and introduces a new-
product idea. At this stage sales are zero and investment costs are climbing.

Introduction a period of slow sales growth as the product is introduced in the

market. Profits are zero because of the huge capital outlay required in
product introduction.

Growth a period of rapid market acceptance and increasing profits.

Maturity a slowdown in sales growth because the product has achieved

acceptance by potential buyers. Profits stabilize or decline due increased
competition.

Decline Sales show a downward drift and profits drop. 12

GBUS 207: PRINCIPLES OF MARKETING
 Table 1. Summary of Product Life-Cycle Characteristics, Objectives & Strategies
Characteristics Introduction Growth Maturity Decline
Sales Low sales Rapidly rising sales Peak sales Declining sales
Costs High cost per cust. Avg. cost per cust. Low cost per cust. Low cost per cust.
Profits Negative Rising profits High profits Declining profits
Customers Innovators Early adopters Middle majority Laggards
Competitors Few Growing number Stable no. beginning Declining number
to decline
Marketing Objectives
Create product Maximize market Maximize profit while Reduce expenditure
awareness & trial share defending mkt. share & milk the brand
Strategies
Product Offer a basic product Offer product Diversify brand and Phase out weak
extensions, warranty models items
Price Use cost-plus Price to penetrate Price to match or beat Cut price
market or beat competitors
Distribution Build selective Build intensive Build more intensive Go selective: phase
distribution distribution distribution out poor outlets
Advertising Build awareness Builds awareness & Stress brand Reduce level needed
among early interest in the mass differences & benefits to retain hard core
adopters & dealers market loyals
Sales Promotion Use heavy sales Reduce to take adv. Increase to encourage Reduce to minimal
promo to entice trial of heavy demand brand switching level 13
GBUS 207: PRINCIPLES OF MARKETING
 Additional Product & Service Considerations
Product Decisions and Social Responsibility
Marketers should carefully consider public policy issues and
regulations regarding acquiring or dropping products, patent
protection, product quality & safety, and product warranty.

International Product and Services Marketing

International product & service marketers face special
challenges such as:
- deciding what products & services to introduce and in which countries
- deciding how much to standardize or adapt products for the int. market
- deciding on packaging eg. soft drink cans or in bottles, small milo sachets,
KFC different recipes in different countries
- with saturated home marketers, retailers etc are looking at global markets
for expansion opportunities. Knowledge of the various markets in important.
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GBUS 207: PRINCIPLES OF MARKETING
 Trial Questions
1. List and briefly discuss the sources of new-product
ideas.
2. Why might ad expenditures be high for products in the
introduction stage of the PLC?
3. Each product will have a life cycle, although its exact
shape and length is not known in advance. Briefly
explain each step in the PLC.
4. Taking the stages of introduction, growth, maturity, and
decline found in the product life cycle, briefly discuss
the strategies that might be used in product, price,
distribution, and advertising to guide the product
through the life cycle.
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GBUS 207: PRINCIPLES OF MARKETING