MKT 201 - Lect 5 - Part 2 -New Prod Dev

8/3/2019 MKT 201 - Lect 5 - Part 2 -New Prod Dev

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NEW PRODUCT DEVELOPMENT

Lecture 5 - Part 2


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New products can be addedto a companys portfolio

via:

Acquisition -

buying other companies

acquisition of patents from

other companies buying of license or

franchise from othercompanies.

Development

Development of newproducts in laboratorysetting or

Contract withindependent researchersor new product

development firms todevelop specificproducts.


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New Product Development

y The development of original products, product

improvements, product modifications and newbrands through the firm's own R & D efforts

y Kotler/Armstrong 12 Ed


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New products can be classified or grouped

according to the following dimensions:

1. New to the world products

2. New product lines

3. Additions to existing product lines

4. Improvements and revisions of existing products5. Repositioning

6. Cost reductions


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New Product Development Need

y Rapid changes inconsumer tastes

y

Advances in technology

y Competition fromemerging markets

yWhy new productsfail

y Overestimating the size ofthe market.

y Poor product design

y Improper timing launch

y Products are over priced

y Inadequate research

y Poorly advertised

y Underestimating thecompetition


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Factors associated with successful newproducts

y Understand the market the ability to identify customer

needs.

y

Use of existing company know-how

y Know the competition

y Develop new products in the company's core markets.

y Systematic new product development process- new

products


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Factors associated with successful new productsy Measurement of performance during the development

phase

y Screening & testing ideas prior to spending money on

development.

y Coordination between R & D and marketing

y An organizational environment that promotesentrepreneurship and risk taking

y Linking new product development to corporate goals


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Criteria Producers use when assessing whether to introduce newproducts

y Adequate market demands

y (Demand must be backedby purchasing power)

y Must satisfy key financialrequirements eg is

financing available,

y can sufficient profits maderealized from the newproduct.

y Compatibility withenvironment

y

Can the product fit in thecurrent market structure sales force distributionchannels.

y Must satisfy legal criteria


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What are some of the questions that should be askedwhen attempting to determine product line

compatibility

y Will the product assist us to:

y Establish our mission

y Meet corporate objectives

y Protect and promote our core business

y Protect & please our key customers

y Enhance existing product line

y Better utilize our resources

y (Kotler, Bowes, Maken)


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Stages in New-Product Development

IdeaGeneration

IdeaScreening

ConceptDevelopment

& testing

MarketingStrategy

development

CommercializatioTestMarketing

ProductdevelopmentBusiness

Analysis


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Steps in New Product DevelopmentSteps in New Product Development

Stage1:

Idea generation

Idea screening

y Concept developmentand testing

Stage 2

Market Strategyy Business Analysis

y Product development

Stage 3

y Market testing

y Commercialization

y Consumer adoptionprocess


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.

The systematic search for new-product ideas.y Internal Idea source

y External Idea Source

y The purpose of idea generation is to create a largenumber of ideas.

y

y The purpose of the screening stages is to reduce that

number.

y Product development costs rise greatly in later stages, sothat the company wants to go ahead only with theproduct ideas that will turn into profitable products.

Stage 1: Idea Generation


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Stage 1: Idea Screening

y Screening new-product ideas in order to spot goodideas and drop poor ones as soon as possible

y Many companies require their executives to writeup new-product ideas on a standard form that can

be reviewed by a new-product committee.


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Stage1:Idea screening

y The write-up describes:

The product

The target market The competition

Rough estimates of market size,

-product price,

- development time and costs,- manufacturing costs and rate of return.

The company then evaluates the idea against a set of general criteria.


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Stage 1 Concept Development & Testing

y Product Idea

y An idea for a possibleproduct that the company

can see itself offering tothe market.

y Product concepty Detailed version of the

new product idea stated inmeaningful consumerterms.

y Product Image

y How consumers perceive

the product an actual orpotential product

y See e.g. 265

Discover Jamaica Game


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Stage 2Market Strategy Development

y Is defined as designing an initial marketing strategy for a newproduct based on the product concept and for introduction tothe market. The marketing strategy statement consists ofthree parts:

I. The first part describes the target market; the plannedproduct positioning; and the sales, market share, and profitgoals for the next two years.

II. The second part outlines the products planned price,distribution, and marketing budget for the first year.

III. The third part of the marketing strategy describes theplanned long-run sales, profit goals, and marketing mixstrategy.


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Stage 2 Business Analysis

y Once management has decided on its product conceptand marketing strategy, it can evaluate the businessattractiveness of the proposal.

y Business analysis involves a review of the sales, costs,and profit projections for a new product to find out

whether they satisfy the companys objectives.

y If they do, the company can move to the productdevelopment stage.

y To estimate sales, the company might look at the saleshistory of similar products and conduct surveys of market opinion.


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Stage 2 - Business Analysis

After preparing the sales forecast, managementestimates the expected costs and profits for the productincluding:

marketing, R&D, operations, accounting, and financecosts.

The company then uses the sales and costs figures toanalyze the new products financial attractiveness.

Management needs to estimate whether sales will behigh enough to return a satisfactory profit to the firm.


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Product Developmenty So far, for many new-product concepts, the product may have

existed only as aword, description, a drawing, or perhaps acrude mock-up.

y If the product concept passes the business test, it moves into

product development.

y At this stage, R & D or engineering develops the productconcept into a physical product.

y

y This step calls for a large jump in investment. It will show whether the product idea can be turned into a workableproduct.

This stage will answer whether the product idea can be

translated into a technically and commercially feasible product.


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Product Development

The R&D department will develop and test one or morephysical versions of the product concept.

R&D hopes to find a prototype that will satisfy and excite

consumers and that can be produced quickly and at budgetedcosts. It must meet the following criteria:

Consumers see it as embodying the key attributes described inthe product-concept statement.

The prototype performs safely under normal use andconditions.

The prototype can be produced for the budgetedmanufacturing costs.


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Stage 2 - Business Analysis

The R&D department will develop and test one or more physicalversions of the product concept.

y R&D hopes to find a prototype that will satisfy and excite

consumers and that can be produced quickly and at budgetedcosts. It must meet the following criteria:

Consumers see it as embodying the key attributes described inthe product-concept statement.

The prototype performs safely under normal use and conditions.

The prototype can be produced for the budgeted manufacturingcosts.


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Stage 3Stage 3 --Market Testing

After management is satisfied with the products functionalAfter management is satisfied with the products functionalperformance, the product is ready to be dressed up with a brandperformance, the product is ready to be dressed up with a brandname, packaging, and a preliminary marketing program to test it inname, packaging, and a preliminary marketing program to test it inmore authentic/realistic consumer/market settings.more authentic/realistic consumer/market settings.

The purpose of the market testing is to learn how consumers andThe purpose of the market testing is to learn how consumers anddealers react todealers react to handling, using, and repurchasinghandling, using, and repurchasing the actual productthe actual productand how large the market is.and how large the market is.

Test marketing gives the marketer experience with marketing theTest marketing gives the marketer experience with marketing the

product before going to the great expense of full introduction.product before going to the great expense of full introduction.

It lets the company test the product and its entire marketing programIt lets the company test the product and its entire marketing program positioning strategy, advertising, distribution, pricing, branding,positioning strategy, advertising, distribution, pricing, branding,and packaging, and budget levels.and packaging, and budget levels.


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Stage 3Stage 3 Market TestingMarket Testing

The amount of test marketing needed varies with eachproduct.

Test marketing costs can be high, and it takes time thatmay allow competitors to gain advantages.

When the costs of developing and introducing the

product are low, or when management is already confident about the new product, the company may dolittle or no test marketing.


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y However, when introducing a new productrequires a big investment, or when management isnot sure of the product or marketing program, a

company may do a lot more test marketing.


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Test marketing does not guarantee success.

When using test marketing, consumer products

companies choose one of three approaches:

i. Standard Test Markets the company finds a smallnumber of representative test cities, conducts a fullmarketing campaign in these cities, and uses storeaudits, consumer and distributor surveys, and other

measures to gauge performance.

The results are used to forecast national sales andprofits, discover potential product problems, and fine-tune the marketing program.


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Competitors can monitor test market results or eveninterfere with them by cutting their prices in test cities,increasing their promotion, or even buying up theproduct being tested.

Test markets give competitors a look at the companysnew product well before it is introduced nationally.

T

hus competitors may have time to develop defensivestrategies, and may even beat the companys product tothe market.


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ii. Controlled Test Markets

Several research firms keepcontrolled panels of stores

that have agreed to carry

New products for a fee.

Controlled test marketing

Systems such as :

the BehaviourScan, - track

individual consumer behaviourfor new products from the

television set to the check out

counter.

In each BehaviourScan market,

Information Resources Inc

(IRI) maintains a panel of

shoppers who report all of their

purchases by showing anidentification card at check-out

in participating stores.

By using a handheld

scanner at home to record

purchases at non -participating

stores.


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ii. Controlled Test Markets

1 Within test stores, IRI(international resourceInc) controls such factorsas shelf placement, price,and in-store promotionsfor the product beingtested.

IRI also measures TVviewing in

each panel household andsends special commercialsto panel member televisionsets.

Controlled test markets

usually cost less than standard

test markets.

Because retail distribution is

forced in the first week of the

test, controlled test markets can

be completed much more quickly

than standard test markets.

As in standard test markets,

controlled test markets allow

competitors to get a look at the

companies new product


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Simulated Test Markets

Companies can also test new products in asimulated shopping environment.

The company or research firm show ads andpromotions for a variety of products, including the

new product being tested, to a sample ofconsumers.

It gives consumers a small amount of money andinvites them to a real laboratory store where theymay keep the money or use it to buy items.The researcher notes how many consumers buy thenew product and competing brands.

This simulation provides a measure of trial and thecommercials effectiveness against competing

commercials.


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iii. Simulated Test Markets

The researchers askconsumers the reasons for

their purchase or non

purchase.

Some weeks later, they

interview the consumers by

phone to determine product

attitudes, usage, satisfaction,and repurchase intentions.

Using sophisticated computermodels, the researchers thenproject national sales fromresults of the simulated test

market.

Simulated test marketsusually cost much less, can berun in 8 weeks, and keep the

new product out ofcompetitors view.


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Stage 3 - Commercialization

y Test marketing gives management the information neededto make a final decision about whether to launch the newproduct.

y If the company goes ahead with commercialization introducing the new product into the market it will faceits largest costs to date.

y Costs include building or renting a full-scalemanufacturing facility as well as marketing.


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Stage 3 - Commercialization

In launching a new product,the company must make fourdecisions. Decisions as to:

When (timing) whether it

is the right time to introducethe new product.

Where - (geographicalstrategy)

T

he company must decidewhether to launch theproduct in a single locality, aregion, several regions, thenational market, or theinternational market.

To Whom - -(Target-MarketProspects) Within the roll-outmarkets, the company musttarget its distribution andpromotion to the best prospectgroups. Presumably the company

has already profiled the primeprospects on the basis of earliermarket testing.

How - (Introductory Market

Strategy) developing an actionplan for introducing the newproduct into the rollout markets.It must allocate the budget amongthe marketing mix elements andsequence the various activities.


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Consumer-Adoption Process

c. The consumer-adoption process begins where thefirms innovation process leaves off.

d. It describes how potential customers learn about new

products, try them and adopt or reject them.Management must understand this process in orderto build an effective strategy for early marketpenetration.

New-product marketers aim at those consumers whoare likely to be the earlier adopters.

Early-adopter theoryholds that:


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Consumer-Adoption Process

y Persons within a target market differ in the amount of

time between their exposure to a new product and their

trial of the new product.

y Early adopters share some traits that differentiate them

from the late adopters.

y

Efficient media exist for reaching early-adopters types.

y Early-adopters end to ne opinion leaders and helpful in

advertising its new product to their potential buyers


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Concepts in Innovation Diffusion andAdoption

An innovation refers to any good, service, or idea that isperceived by someone as new.

The idea may have a long history but its is an innovationto the person who sees it as new.

y Innovation takes time to spread through the social system.

y The diffusion process is defined by Rogers as the thespread of a new idea from its source of invention orcreation to its ultimate users or adopters.


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Stages in the Adoption Process

Awareness the consumer becomes aware of the innovationbut lacks information about it.

Interest The consumer is stimulated to seek informationabout the innovation.

Evaluation - The consumer decided whether it would makesense to try the innovation.

Trial The consumer tries the innovation on a small scale toimprove his or her estimate of its value.

Adoption The consumer decides to make full and regular useof the innovation.

This progression suggests that the new-product marketer shouldthink about how to facilitate consumer movement through thesestages


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Tracking the progress of a newproduct

y How the product solved problems

y What are the benefits offered

y How does it satisfy demand

y How does it compete


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Review Questions

y Using a product of your choice, explain the processof new product development from the inception tocommercialization and launch.

y What promotional and pricing strategies are bestemployed with this product.


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Reminder March 1, 2012

y MID MODULE EXAMS

y

y 2.5 hours 5:45 pm 8:00 pm

y

y Group Meetings for Project : 8:00 8:30pm

MKT 201 - Lect 5 - Part 2 -New Prod Dev

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