Chapter 9:New Product Development &

Life Cycle Strategies

June 12, 2001

New Product Development:impact of product life-cycle

• New product development– New to replace dying products

– Need to constantly “over-innovate” to compensate for high failure rates

• Life-cycle strategies– Adapt products to changing marketing

environment:• tastes• technologies• competition

Two major challenges:

New Product Development Strategy

• New products include:– Continuous Innovations:

• product improvements, or product modifications

– Discontinuous Innovations:• Original products, new brands

• Two sources of new products– Acquisition - company, patent, licence– Research & development (R&D) internally

Why do 80% of new products fail?• Overestimated demand• Incorrect targeting and

positioning• 4Ps:

– Poor product design– Error in pricing– Poor Promotion– Improper Distribution

• Cost overrun• Underestimation of

Competition

New Product Success Factors

• Unique superior product– quality, features, value

• Well defined product concept from startup– at all three levels

• New Product Planning:– Specific acceptance criteria– Specific strategic role– Systematic new-product

process in place

New-Product Development Process:major stages

Idea generationIdea generationIdea screening Concept

Development& testing

Marketingstrategy

Businessanalysis

Productdevelopment

Commercialization

Test marketing

8 Steps

Step 1: Idea Generation• Need to constantly generate lots of new

ideas in order to find a few successful ones• Major Sources of New-Product Ideas

– Internal sources• employees, sales people, R&D, managers

– Customers - surveys, complaints, focus groups

– Competitors - reverse engineering

– Distributors & suppliers - Point of Purchase

• In other words - marketing intelligence and research

Step 2: Idea Screening• Purpose is to identify good ideas &

drop poor ones fast (triage) - prioritization

• Challenge is to maintain creativity & a stream of new ideas

• Standardized write-up format developed for easy comparison– Target market potential, 4Ps, costs

• Criteria and rating to select one– Usefulness, image consistency,

strategic fit (core competencies), marketability with 4Ps

– Point system can be used

Step 3: Concept Development & testing• Defining the Product concept

– New-product idea in detail stated in meaningful consumer terms - 3 layers

• Concept development– Expanding the new-product idea into various alternative

product concepts with different approaches to targeting, positioning and the 4Ps

• Concept testing– Target consumers exposed to new-product concepts -

good use of focus groups– Word or picture description or physical presentation of

the concept (prototype)– Questions asked and reactions observed

Step 4: Marketing strategy development

• Strategic Decisions in bringing a product concept to market:– Target market– Planned product positioning– Sales, market share and profit goals– Outline price, distribution and first year

marketing budget – Planned long-run sales– Profit goals– Marketing mix strategy - 4Ps

Step 5: Business Analysis

• Estimate maximum and minimum sales– company history and market opinion

• Estimate product costs and profits

• Analyze projected sales, costs and profit in consideration of company’s strategic objectives

• Determine the attractiveness of the proposal to the bottom line

Step 6: Prototype Development

• Performed by engineering or R&D• Transform product concept into a physical

product that can be test marketed• Prototype -

functional and psychological to stimulate interest

• Major investment of time and money

Step 7: Test marketing

• Advantages:– Reduces uncertainty about product and

marketing approach– Saves risk and expense of full launch

• Disadvantages– High cost– Longer time-to-market– Tips off competitors

Testing the prototype and marketing program possibilities in a realistic market setting

Types of test markets• Standard (Most popular approach)

– Use small number of representative test cities

– Store audits, consumer surveys, sales figures

– Costly & time consuming

– Competitor reaction obscures results

• Controlled - panel of stores on a fee basis– Client specifies stores and locations

– Shelf space/location, displays, promotion and price controlled

– Sales tracked

• Simulated - laboratory setting

Step 8: Commercialization

• Major investment in manufacturing facilities

• High initial advertising and promotion expense

• Considerations:– Timing - time of year, business cycle

– Launch location - Local, regional roll-out, national or global

Speeding Up the Development Process

• Sequential process is traditionally used

• Other options:– Concurrent or team-

based approaches

– Parallel Development

• Shorter cycle-times• First-mover advantage• Time is money• Higher risk & tension

Buyer Decision Process for new products (pp.183-184)

• Individual Adoption Process:– Mental process

• Stages– Awareness– Interest– Evaluation– Trial– Adoption

Influence of Product Characteristics on Rate of Adoption

• Relative advantage - superiority over existing products

• Compatibility - with values, experience, lifestyles of users

• Complexity - easier to understand (use and purpose) the better - e.g. Internet

• Divisibility - degree of trialability in small low-risk doses

• Communicability/Observability - can product concept be observed and described to/by others?

Adopter Categorization:relative time of adoption

Time of adoption of innovations

2.5%Innovators

34%Early

majority

34%Latemajority

Earlyadopters

13.5%

16%Laggards

Adopter Categories

• Can be used as a basis for segmentation

• Require different Marketing Mix Approaches– e.g. Early adopters need less promotion,

and act as opinion leaders for others

–Laggards wait until quality and price are stabilized

Product Life-Cycle Strategies

Profits

Sales

DevelopmentIntroduction

Growth

Maturity

Decline

SalesProfit($)

Loss($)

“S-Curve”

PLC Stages - see Table 9-3, p. 333

• Introduction – Product awareness (sellers & consumers)

is top priority - Promotion

– high cost, investment in the future

• Growth– sales and profits increase as majority

begins to adopt

– All 4Ps important, especially product and distribution

– Gaining market share is key

PLC Stages (2)• Maturity

– longest life-cycle stage, so many products on the market are there at any given time

• Manage market - new uses, more users, more usage

• Manage Product - improvement of features• Manage other Ps

• Decline– Sales and profits slide

• Maintain, Harvest or Drop the product