4 New Product Development, Product Testing & Market

8/4/2019 4 New Product Development, Product Testing & Market

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New Product

DevelopmentPlanning & Testing


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Overestimation of Market Size

Product Design Problems

Product Incorrectly Positioned, Priced or Advertised

Costs of Product DevelopmentCompetitive Actions

To create successful new products, the company must: understand its customers, markets and competitors

develop products that deliver superior value to customers.

Causes of New ProductFailures


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Idea Generation and Screening

Concept Development and Testing

Marketing Strategy

Business Analysis

Product Development

Test Marketing

Commercialization

New Product

DevelopmentProcess


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New Product Development ProcessStep 1. Idea Generation

Systematic Search for New Product Ideas

Internal sources

Customers

Competitors

DistributorsSuppliers


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Process to spot good ideas and drop poorones

Criteria Market Size

Product Price

Development Time & Costs

Manufacturing Costs Rate of Return

New Product Development ProcessStep 2. Idea Screening


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New Product Development ProcessStep 3. Concept Development & Testing

1. Develop Product Ideas intoAlternative

Product Concepts

2. Concept Testing - Test theProduct Concepts with Groups

of Target Customers

3. Choose the Best One


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New Product Development ProcessStep 4. Marketing Strategy Development

Part Two - Short-Term:Products Planned Price

DistributionMarketing Budget

Part Three - Long-Term:Sales & Profit Goals

Marketing Mix Strategy

Marketing Strategy Statement Formulation

Part One - Overall:Target Market

Planned Product Positioning

Sales & Profit GoalsMarket Share


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New Product Development ProcessStep 5. Business AnalysisStep 6. Product Development

Business Analysis

Review of Product Sales, Costs,and Profits Projections to See ifThey Meet Company Objectives

If Yes, Move toProduct Development

If No, Eliminate

Product Concept


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New Product Development ProcessStep 7. Test Marketing

StandardTest Market

Full marketing campaign

in a small number ofrepresentative cities.

SimulatedTest Market

Test in a simulatedshopping environment

to a sample ofconsumers.

ControlledTest Market

A few stores that have

agreed to carry newproducts for a fee.


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Product Life

Cycle

Time

ProductDevelop-

ment

Introduction

Profits

Sales

Growth Maturity Decline

Losses/Investments ($)

Sales andProfits ($)


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IntroductionStage of the PLC

Sales

Costs

Profits

Marketing Objectives

Product

Price

Low sales

High cost per customer

NegativeCreate product awareness

and trial

Offer a basic product

Use cost-plus

Distribution Build selective distribution

Advertising Build product awareness amongearly adopters and dealers


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Growth Stage of the PLC

Sales

Costs

Profits


Product

Price

Rapidly rising sales

Average cost per customer

Rising profits

Maximize market share

Offer product extensions, service,warranty

Price to penetrate market

Distribution Build intensive distribution

Advertising Build awareness and interest inthe mass market


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Maturity Stage of the PLC

Sales

Costs

Profits


Product

Price

Peak sales

Low cost per customer

High profits

Maximize profit while defendingmarket share

Diversify brand and models

Price to match or best competitors

Distribution Build more intensive distribution

Advertising Stress brand differences andbenefits


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Decline Stage of the PLC

Sales

Costs

Profits


Product

Price

Declining sales

Low cost per customer

Declining profits

Reduce expenditure and milk thebrand

Phase out weak items

Cut price

Distribution Go selective: phase outunprofitable outlets

Advertising Reduce to level needed to retainhard-core loyal customers


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CHAPTERNINETEEN

Market Testing I:

Pseudo-Sales Methods


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What Is Market Testing?

Market testing is not test marketing!

Test marketing is one of many forms of market testing-- others include simulated test market, informal sale,

minimarket, rollout.Test marketing is also a much less common form now

due to cost and time commitments and otherdrawbacks.


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Where We Are Today inMarket Testing

Scanner systems allow for immediate collection of product sales data.

Mathematical sales forecasting models are readily available that can runon a relatively limited amount of data.

We are building quality in, testing the marketing components of theproduct at early stages (ads, selling visuals, service contracts, packagedesigns, etc.) rather than testing the whole product at the end.

Increased competition puts greater pressure on managers to accelerateproduct cycle time.

Market testing is a team issue, not solely the responsibility of the marketresearch department.


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Decision Matrix on When to Market Test

CostandTime

Savings

High

Low

Stages of the product development cycle

High

Low

ScopeofLearning

andA

ccuracy


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How Market Testing Relates to theOther Testing Steps


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Two Key Values Obtainedfrom Market Testing

Solid forecasts of dollar and unit sales volume. Diagnostic information to allow for revising and refining any

aspect of the launch.


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Deciding Whether to

Market Test Any special twists on the launch? (limited time or budget, need

to make high volume quickly)

What information is needed? (expected sales volumes,unknowns in manufacturing process, etc.)

Costs (direct cost of test, cost of launch, lost revenue that animmediate national launch would have brought)

Nature of marketplace (competitive retaliation, customer

demand) Capability of testing methodologies (do they fit the managerial

situation at hand)


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Types of Information That

May Be Lacking

Manufacturing process: can we ramp-up from pilot

production to full scale easily? Vendors and resellers: will they do as they have promised in

supporting the launch?

Servicing infrastructure: adequate?

Customers: will they buy and use the product as expected? Cannibalization: what will be the extent?


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Methods of Market

Testing, and Where Used


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Pseudo Sales Tests

Speculative Sale

STM (Simulated Test Market)


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Speculative Sale

Often used in business-to-business and consumer durables, similar to

concept and product use tests. Give full pitch on product, answer questions, discuss pricing, and

ask:

If we make this product available as I have described it, would you buyit?

Often conducted by regular salespeople calling on real targetcustomers.


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Conditions for Speculative

Sale Where industrial firms have very close downstream

relationships with key buyers.

Where new product work is technical, entrenched within a

firm's expertise, and only little reaction is needed from themarketplace.

Where the adventure has very little risk, and thus a costliermethod is not defendable.

Where the item is new (say, a new material or a completelynew product type) and key diagnostics are needed. Forexample, what set of alternatives does the potential buyersee, or what possible applications come to mind first.

S l d k


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Simulated Test Market(STM)

Create a false buying situation and observe what the customer does. Follow-up with customer later to assess likely repeat sales.

Often used for consumer nondurables.


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Simulated Test Market

Procedure Mall intercept.

Self-administered questionnaire.

Advertising stimuli. Mini-store shopping experience.

Post-exposure questionnaire.

Receive trial package.

Phone followup and offer to buy more.


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Possible Drawbacks toSTMs

Mathematical complexity

False conditions

Possibly faulty assumptions on data, such as number ofstores that will make the product available

May not be applicable to totally new-to-the-marketproducts, since no prior data available.

Does not test channel member response to the new product,only the final consumer

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