New-Product Development

and Product Life-Cycle

Strategies

Chapter 10
 Objectives

Understand how companies find and

develop new-product ideas.
Learn the steps in the new-product
development process.
Know the stages of the product life
cycle.
Understand how marketing
strategies change during the
product’s life cycle.
10- 1
 Microsoft
c

$50 billion in Innovation is

profits over 27 critical to
years Microsoft’s future
success
Early new product
Much of R & D
development relied efforts are Internet
heavily on copying related
the competition Many new products
$4.2 billion and services are in
annually invested development
in R & D
10- 2
 Definition

New Product Development

 Development of original
products, product
improvements, product
modifications, and new
brands through the firm’s
own R & D efforts.

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New Product Development
Strategy

New products can be obtained via

acquisition or
development.
New products suffer
from high failure rates.
Several reasons
account for failure.
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 Discussion Question

Why do products fail?

See if you can identify the
fatal flaw in the brands
below and at right.

Ben-Gay Asprin Buttermilk Shampoo Fruit of the Loom

Laundry Detergent
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 Figure 10-1:
Major Stages in
New-Product Development

10- 6
New Product Development
Strategy

New Product Development Process:

 Stage 1: Idea Generation
 Internal idea sources:
• R&D
 External idea sources:
• Customers,
competitors,
distributors, suppliers
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3M’s corporate
culture
encourages,
supports, and
rewards new
product ideas
and innovation

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 Using the Web to Solicit Product Ideas
Procter and Gamble
To see how P&G solicits ideas from
customers, visit the Procter and
Gamble home page, click on the
Resources and Offers button, then Procter & Gamble
select the Share Your Thoughts listing.

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New Product Development
Strategy

New Product Development Process:

 Stage 2: Idea Screening
 Product development
costs increase dramatically
in later stages.
 Ideas are evaluated
against criteria;
most are eliminated.
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New Product Development
Strategy

New Product Development Process:

 Stage 3: Concept Development and
Testing
 Product concepts provide
detailed versions of new
product ideas.
 Consumers evaluate
ideas in concept tests.
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New Product Development
Strategy

New Product Development Process:

 Stage 4: Marketing Strategy Development
 Strategy statements describe:
• The target market, product positioning, and
sales, share, and profit goals for the first few
years.
• Product price, distribution, and marketing
budget for the first year.
• Long-run sales and profit goals and the
marketing mix strategy.

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New Product Development
Strategy

New Product Development Process:

 Stage 5: Business Analysis
 Sales, cost, and profit
projections
 Stage 6: Product
Development
 Prototype development
and testing
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Daimler is currently road-testing its
prototype NECAR 5 (New Electric Car)

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BusinessNow

Sensable Video Clip

Computer modeling
is being used to aid
in product design

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New Product Development
Strategy

New Product Development Process:

 Stage 7: Test Marketing
 Standard test markets
 Controlled test markets
 Simulated test markets

 Stage 8:
Commercialization

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New Product Development
Strategy

IRI BehaviorScan
provides an in-
market laboratory
for testing new
products and
marketing programs

IRI BehaviorScan

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Simulated Test Markets (STM)
In-Depth
Advantages: Types of STMs:
 Reduces risk – capital,  ASSESSOR
marketing dollars,  BASES
cannibalization  MarkeTest
 Increases efficiency  Merwyn
 Maintains security –  And others
competitors have less time
to plan counter strategies
 Saves the company time

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Simulated Test Markets (STM)
In-Depth
Model Inputs:
 The market's size
 Copy testing results
 Advertising budget for the
test product and
competitors.
 Media schedule,
Consumer promotion,
Trade promotion by
month.
Model Inputs:
 Price
 The proportion of
stores carrying the test
product and the
number of shelf facings
by month.
 Expected marketing
costs and margin
contribution.
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Simulated Test Markets (STM)
In-Depth
Do‘s & Don’ts of STMs
 Be a champion for your
new product--but be
objective
 Choose the proper sample.
 Expose people to your
product and its advertising
in a way that best simulates
the real world.
 Use proven research
technology to forecast
market behavior and sales.
Do‘s & Don’ts of STMs
 Calculate different levels
of competitive response.
 Don't estimate a level of
support in a simulated
market that you would not
maintain nationally.
 Be very careful in
estimating all marketing
input factors—the more
you guess incorrectly, the
less accurate the forecast.
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 Figure 10-2:
Sales and Profits
Over A Product’s Life

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 Product Life-Cycle
Strategies

The Typical Product Life Cycle

(PLC) Has Five Stages
 Product Development, Introduction,
Growth, Maturity, Decline
 Not all products follow this cycle:
 Fads
 Styles
 Fashions

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 Figure 10-3:
Styles, Fashions, and Fads

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Companies
want their
products to
enjoy a long
life cycle.
Hershey’s
actively
promotes
the fact that
it has been
“unchanged
since 1899”

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 Product Life-Cycle
Strategies

Additional marketing
investments can
move a product back
into the growth stage,
as in the case of
Cracker Jack.

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 Product Life-Cycle
Strategies

The product life cycle concept can

be applied to a:
 Product class (soft drinks)
 Product form (diet colas)
 Brand (Diet Dr. Pepper)
 Using the PLC to forecast brand
performance or to develop marketing
strategies is problematic
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Product Life-Cycle Strategies

PLC Stages Begins when the

company
Product develops a new-
product idea
development
Sales are zero
Introduction
Investment costs
Growth are high
Maturity Profits are
Decline negative
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Product Life-Cycle Strategies

PLC Stages Low sales

High cost per
Product customer
development acquired
Introduction Negative profits
Growth Innovators are
Maturity targeted
Decline Little competition
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 Marketing Strategies:
Introduction Stage

Product – Offer a basic product

Price – Use cost-plus basis to set
Distribution – Build selective distribution
Advertising – Build awareness among
early adopters and dealers/resellers
Sales Promotion – Heavy expenditures to
create trial

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Product Life-Cycle Strategies

PLC Stages Rapidly rising

sales
Product Average cost per
development customer
Introduction Rising profits
Early adopters are
Growth targeted
Maturity Growing
Decline competition
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 Marketing Strategies:
Growth Stage

Product – Offer product extensions,

service, warranty
Price – Penetration pricing
Distribution – Build intensive distribution
Advertising – Build awareness and
interest in the mass market
Sales Promotion – Reduce expenditures
to take advantage of consumer demand

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Product Life-Cycle Strategies

PLC Stages Sales peak

Low cost per
Product customer
development High profits
Introduction Middle majority
Growth are targeted
Maturity Competition
Decline begins to decline
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 Marketing Strategies:
Maturity Stage

Product – Diversify brand and models

Price – Set to match or beat competition
Distribution – Build more intensive
distribution
Advertising – Stress brand differences
and benefits
Sales Promotion – Increase to encourage
brand switching

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Product Life-Cycle Strategies

PLC Stages Declining sales

Low cost per
Product customer
development Declining profits
Introduction Laggards are
Growth targeted
Maturity Declining
Decline competition
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 Marketing Strategies:
Decline Stage

Product – Phase out weak items

Price – Cut price
Distribution – Use selective distribution:
phase out unprofitable outlets
Advertising – Reduce to level needed to
retain hard-core loyalists
Sales Promotion – Reduce to minimal
level

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