NEW PRODUCT DEVELOPMENT

PART 1

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Product-Market Grid Analysis ANSOFF MATRIX

• The matrix consists of four strategies.

• Following are the strategies available under this model:

1. Market penetration

2. Market development

3. Product development

4. Diversification

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Product-Market Grid Analysis ANSOFF MATRIX

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Product-Market Grid Analysis ANSOFF MATRIX

• Market penetration (existing markets, existing products):

Market penetration Market penetration occurs when a company enters/penetrates a market with current products.

The best way to achieve this is by attracting competitors' customers (part of their market share).

Other ways include attracting non-users of your product or convincing current clients to use more of your product/service, with advertising or other promotions.

Market penetration is the least risky way for a company to grow.

Company has to look at ways to increase use or consumption of the product. One way is to offer new ways of using the product or promoting the product to new buyers in the market.

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Product-Market Grid Analysis ANSOFF MATRIX

• Market development (New markets, existing products)

company takes its current product and introduces it to new target segments or buyers in different countries.

An established product in the marketplace can be targeted to a different customer segment, as a strategy to earn more revenue for the firm.

This is the process of finding new market for the new customer to increase company performance by increasing sales and profits.

Companies can develop market on geographical such as city, country, region, state etc and demographical such as age, sex, gender, class etc.

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Product-Market Grid Analysis ANSOFF MATRIX

• Market development (New markets, existing products)

A marketing manager has to think about the following questions before implementing a market development strategy:

Is it profitable? Will it require the introduction of new or modified products? Is the customer and channel well enough researched and understood?

The marketing manager uses these four groups to give more focus to the market segment decision:

existing customerscompetitor customersnon-buying in current segmentsnew segments.

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Example of Market Development

Lucozade was first marketed for sick children and then re-branded to target athletes. This is a good example of developing a new market for an existing product. Again, the market need not be new in itself, the point is that the market is new to the company. To success, it calls for intensive distribution and promotion.

Pakistan State Oil (PSO) developing new market by exporting oil to Afghanistan.

Chinese products developed new market for their product worldwide.

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Product-Market Grid Analysis ANSOFF MATRIX

• Product development (existing markets, new products)

Product may be modified in some way and sold to the company’s current target segments

A firm with a market for its current products might also embark on a strategy of developing other products catering to the same market (although these new products need not be new to the market; the point is that the product is new to the company).

Frequently, when a firm creates new products, it can gain new customers for these products. Hence, new product development can be a crucial business development strategy for firms to stay competitive.

This strategy takes time and money for developing a new product.

Marketing Manager must conduct a detailed survey to find out whether it is feasible to introduce new product in the current market.

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Example of Product Development

McDonald's is always within the fast-food industry, but frequently markets new burgers.

Coca-Cola is also develop new products for its existing market. Diet Coke, Vanilla Coke, Ginger Coke, are examples of new products created by the Coca Cola to leverage the Coke brand.

Google developed a new browser Chrome for the existing Internet user.

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Product-Market Grid Analysis ANSOFF MATRIX

• Diversification (new markets, new products)The company comes out with a completely new product and

sells it in a market which is completely new to the company.

Diversification strategy is adopted by the company if the current market is saturated due to which revenues and profits are lower.

At the corporate level, it is generally very risky and interesting strategy for entering a promising business outside of the scope of the existing business unit.

This resulted in the company entering new markets where it had no presence before.

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Example of Product Diversification

Virgin Cola, Virgin Megastores, Virgin Airlines, Virgin Telecommunications are examples of new products created by the Virgin Group of UK, to leverage the Virgin brand.

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New Product Development

• Think of the companies who are well-known for constantly introducing innovative products into the market.

• The 3M company, Microsoft, Dell Computers and Sony are the ones which immediately come to mind.

• In order for the above organizations to introduce a constant stream of new products into the market, it requires substantial amounts of financial backing

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New Product Development

• Idea generation-the management personnel sit together for brain storming sessions in order to generate new product ideas

• Idea screening-sorting of good ideas from the poor ones

• Concept development-a detailed version of the product idea is expressed at this stage

• Concept testing-the product concept is tested inside and outside the firm

• Marketing strategy development-this involves three parts-First part identify the target market, the planned product positioning and the sales, profit and market share goals for the first year. Second part calls for the company to select the product’s planned price, distribution and the marketing budget for the first year. The third part calls for outlining the planned long-term sales, profit goals and the marketing mix strategy for the product

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New Product Development

• Business Analysis-involves a review of the sales, costs and profit projections for the new product to assess if they satisfy the company’s objectives. If the answer is “yes” the product moves to the next stage which is product development

• Product development-samples of the product are developed

• Test marketing-the company picks a specific location in the market and once the 4P plan is ready implements the plan in that location. The purpose of the test marketing is to evaluate the strengths and weaknesses of the 4P plan

• Commercialization-if the test marketing stage shows any weaknesses in the 4P plan, the marketer must take care of the weaknesses before introducing the product nationally

PRODUCT LIFE CYCLE

PART 2

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Every product whether new or mature in the market will have a life cycle. The product life cycle (PLC) has five distinct stages.

Product Life Cycles

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• The product is newly introduced in the market.

• Consumers are ignorant and they are not aware of the introduction of the product and profits are very low or negative at the moment.

• This is caused by the heavy expenses incurred during the product introduction stage and low sales volume.

Product Life Cycle Strategies(INTRODUCTION)

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• Product just introduced into the market. The quality and performance of the

product is suspect

• Price since demand is low and operating costs is high, the product makes a loss

• Place manufacturer has to offer incentives in order to get middlemen to carry

or buy his product

• Promotion need for heavy investment on promotion in order to create awareness

Product Life Cycle Strategies(INTRODUCTION)

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• At the growth stage, sales increases tremendously.

• Consumers are aware of the existence of the product in the market and they have purchased the product for the first time.

• Profit increases and is at a profit-making level. Competitors start entering the market and offer the same or similar products.

Product Life Cycle Strategies(GROWTH)

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• Product quality and performance problems of the product is solved. Company can

consider introducing different versions of the product to other segments of the market.

• Price price stabilizes as demand goes up and the company is able to cover costs and

make a small profit

• Place need for continued incentives to be offerd to middlemen

• Promotion need for continued spending on promotion at same level

****competitors motivated to come into the market and offer similar products****

Product Life Cycle Strategies(GROWTH)

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• At the maturity stage, profits and sales start to reach the maximum level.

• The other companies start to offer similar or identical products. Therefore, consumers have options.

• At this moment, competition is tough and there are many competitors in the market.

Product Life Cycle Strategies (MATURITY)

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• Product well-established in the market

• Price price is at stable level. Company is making healthy profit

• Place incentives to middlemen can be reduced

• Promotion the spending on promotion can be reduced

• ***At some point, the sales and profits of the company start to fall. This signals the onset of the decline stage***

Product Life Cycle Strategies (MATURITY)

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• At the decline stage, sales and profits decline until no sales or profits anymore.

• This happens because there is a better product replacement, new technology exists, or the consumers are bored of the old product

• They don’t want to purchase them anymore.

Product Life Cycle Strategies(DECLINE)

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• Product company can try to reduce all operating costs and try to make some profit before

withdrawing then product from the market. Company can also pull out of unprofitable segments of the market

• Price company may have to reduce the price of the product if it wants to continue selling the

product in the market

• Place need for incentives to be introduced in the market as middlemen are unwilling to carry or

buy the manufacturer’s product

• Promotion need for company to carry out promotion campaign for its product using promotional

channels which can help it reach the profitable segments it continues to serve

***the company could also try repositioning or repackaging the product***

Product Life Cycle Strategies(DECLINE)

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Weaknesses of the Product Life Cycle

• It works best for physical products. Difficult to use it to study the life of services

• Not all products go through all the stages of the product life cycle • The product life cycle model cannot tell a marketer how long a product

will be in a particular stage of the PLC• The PLC can guide a marketer on what to do when his product is in a

particular stage of the PLC but the PLC does not give guidance to a marketer on what he should do to get his product to move from one stage to the next

• It is not always easy for a marketer to identify with precision what stage a product is in

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CONCLUSIONS• There are 5 stages of product life cycle namely product

development stage, introduction stage, growth stage, maturity stage and finally the decline stage.

• The product lifecycle curves may be in 3 forms namely (FaStSea) Fad curve, Style curve and Seasonal curve.

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TUTORIALS

1. Explain stages in product life-cycle.

2. Discuss marketing strategies for each stage in product life-cycle.

3. List and explain the stages in the new product development