Kotler10 exd

New-Product New-Product Development and Development and

Product Life-Cycle Product Life-Cycle StrategiesStrategies

Chapter 10Chapter 10

10- 2

Objectives

Understand how companies find and Understand how companies find and develop new-product ideas.develop new-product ideas.Learn the steps in the new-product Learn the steps in the new-product development process.development process.Know the stages of the product life Know the stages of the product life cycle.cycle.Understand how marketing Understand how marketing strategies change during the strategies change during the product’s life cycle.product’s life cycle.

10- 3

$50 billion in profits $50 billion in profits over 27 yearsover 27 years

Early new product Early new product development relied development relied heavily on copying heavily on copying the competitionthe competition

$4.2 billion annually $4.2 billion annually invested in R & Dinvested in R & D

Innovation is critical Innovation is critical to Microsoft’s future to Microsoft’s future successsuccessMuch of R & D Much of R & D efforts are Internet efforts are Internet relatedrelatedMany new products Many new products and services are in and services are in developmentdevelopment

cMicrosoftMicrosoft

10- 4

Definition

New Product DevelopmentNew Product Development Development of original Development of original

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

10- 5

New products can be obtained via New products can be obtained via acquisition or acquisition or development.development.

New products suffer New products suffer from high failure rates.from high failure rates.

Several reasons Several reasons account for failure.account for failure.

New Product Development Strategy

10- 6

Why do products fail?Why do products fail?

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

Discussion Question

Buttermilk ShampooButtermilk Shampoo Fruit of the Loom Fruit of the Loom Laundry DetergentLaundry Detergent

Ben-Gay AsprinBen-Gay Asprin

10- 7

Figure 10-1:

Major Stages in New-Product Development

10- 8

New Product Development Process:New Product Development Process: Stage 1: Idea GenerationStage 1: Idea Generation

Internal idea sources: Internal idea sources: • R & DR & D

External idea sources: External idea sources: • Customers, Customers,

competitors, competitors, distributors, suppliersdistributors, suppliers


10- 9

3M’s corporate culture encourages, supports, and rewards new product ideas and innovation

10- 10

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

Procter & Gamble

Using the Web to Solicit Product Ideas

Procter and Gamble

10- 11


New Product Development Process:New Product Development Process: Stage 2: Idea ScreeningStage 2: Idea Screening

Product development Product development costs increase dramatically costs increase dramatically in later stages. in later stages.

Ideas are evaluated Ideas are evaluated against criteria; against criteria; most are eliminated. most are eliminated.

10- 12

New Product Development Process:New Product Development Process: Stage 3: Concept Development and Stage 3: Concept Development and

TestingTesting Product concepts provide Product concepts provide

detailed versions of new detailed versions of new product ideas. product ideas.

Consumers evaluate Consumers evaluate ideas in concept tests. ideas in concept tests.


10- 13

New Product Development Process:New Product Development Process: Stage 4: Marketing Strategy DevelopmentStage 4: Marketing Strategy Development

Strategy statements describe:Strategy statements describe:• The target market, product positioning, and The target market, product positioning, and

sales, share, and profit goals for the first few sales, share, and profit goals for the first few years.years.

• Product price, distribution, and marketing Product price, distribution, and marketing budget for the first year.budget for the first year.

• Long-run sales and profit goals and the Long-run sales and profit goals and the marketing mix strategy.marketing mix strategy.


10- 14

New Product Development Process:New Product Development Process: Stage 5: Business AnalysisStage 5: Business Analysis

Sales, cost, and profit Sales, cost, and profit projections projections

Stage 6: Product Stage 6: Product DevelopmentDevelopment Prototype development Prototype development

and testing and testing


10- 15

Daimler is currently road-testing its prototype NECAR 5 (New Electric Car)

10- 16

Sensable Video Clip

Computer modeling is being used to aid in product design

BusinessNow

10- 17

New Product Development Process:New Product Development Process: Stage 7: Test MarketingStage 7: Test Marketing

Standard test marketsStandard test markets Controlled test marketsControlled test markets Simulated test marketsSimulated test markets

Stage 8: Stage 8: CommercializationCommercialization


10- 18

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

IRI BehaviorScan


10- 19

Advantages:Advantages: Reduces risk – capital, Reduces risk – capital,

marketing dollars, marketing dollars, cannibalizationcannibalization

Increases efficiencyIncreases efficiency Maintains security – Maintains security –

competitors have less time competitors have less time to plan counter strategiesto plan counter strategies

Saves the company timeSaves the company time

Simulated Test Markets (STM) In-Depth

Types of STMs:Types of STMs: ASSESSORASSESSOR BASESBASES MarkeTest MarkeTest MerwynMerwyn And othersAnd others

10- 20

Model Inputs:Model Inputs: The market's size The market's size Copy testing resultsCopy testing results Advertising budget for the Advertising budget for the

test product and test product and competitors. competitors.

Media schedule, Media schedule, Consumer promotion, Consumer promotion, Trade promotion by Trade promotion by month. month.


Model Inputs:Model Inputs: PricePrice The proportion of The proportion of

stores carrying the test stores carrying the test product and the product and the number of shelf facings number of shelf facings by month. by month.

Expected marketing Expected marketing costs and margin costs and margin contribution. contribution.

10- 21

Do‘s & Don’ts of STMsDo‘s & Don’ts of STMs Be a champion for your Be a champion for your

new product--but be new product--but be objective objective

Choose the proper sample.Choose the proper sample. Expose people to your Expose people to your

product and its advertising product and its advertising in a way that best simulates in a way that best simulates the real world. the real world.

Use proven research Use proven research technology to forecast technology to forecast market behavior and sales. market behavior and sales.


Do‘s & Don’ts of STMsDo‘s & Don’ts of STMs Calculate different levels Calculate different levels

of competitive response.of competitive response. Don't estimate a level of Don't estimate a level of

support in a simulated support in a simulated market that you would not market that you would not maintain nationally. maintain nationally.

Be very careful in Be very careful in estimating all marketing estimating all marketing input factors—the more input factors—the more you guess incorrectly, the you guess incorrectly, the less accurate the forecast. less accurate the forecast.

10- 22

Figure 10-2:

Sales and Profits Over A Product’s Life

10- 23

The Typical Product Life Cycle The Typical Product Life Cycle (PLC) Has Five Stages(PLC) Has Five Stages Product Development, Introduction, Product Development, Introduction,

Growth, Maturity, DeclineGrowth, Maturity, Decline Not all products follow this cycle: Not all products follow this cycle:

FadsFads StylesStyles FashionsFashions

Product Life-Cycle Strategies

10- 24

Figure 10-3:

Styles, Fashions, and Fads

10- 25

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

10- 26

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


10- 27

The product life cycle concept can The product life cycle concept can be applied to a:be applied to a: Product class (soft drinks)Product class (soft drinks) Product form (diet colas)Product form (diet colas) Brand (Diet Dr. Pepper)Brand (Diet Dr. Pepper)

Using the PLC to forecast brand Using the PLC to forecast brand performance or to develop marketing performance or to develop marketing strategies is problematic strategies is problematic


10- 28


Product Product developmentdevelopmentIntroductionIntroductionGrowthGrowthMaturityMaturityDeclineDecline

Begins when the Begins when the company develops company develops a new-product ideaa new-product ideaSales are zeroSales are zeroInvestment costs Investment costs are highare highProfits are negativeProfits are negative

PLC StagesPLC Stages

10- 29



Low salesLow sales

High cost per High cost per customer acquiredcustomer acquired

Negative profitsNegative profits

Innovators are Innovators are targetedtargeted

Little competitionLittle competition


10- 30

Product –Product – Offer a basic product Offer a basic product

Price –Price – Use cost-plus basis to setUse cost-plus basis to set

Distribution Distribution –– Build selective distribution Build selective distribution

Advertising Advertising –– Build awareness among Build awareness among early adopters and dealers/resellersearly adopters and dealers/resellers

Sales PromotionSales Promotion – – Heavy expenditures to Heavy expenditures to create trialcreate trial

Marketing Strategies: Introduction Stage

10- 31



Rapidly rising salesRapidly rising salesAverage cost per Average cost per customercustomerRising profitsRising profitsEarly adopters are Early adopters are targetedtargetedGrowing Growing competitioncompetition


10- 32

Product –Product – Offer product extensions, Offer product extensions, service, warrantyservice, warrantyPrice –Price – Penetration pricingPenetration pricingDistribution Distribution –– Build intensive distribution Build intensive distributionAdvertising Advertising –– Build awareness and Build awareness and interest in the mass marketinterest in the mass marketSales PromotionSales Promotion – – Reduce expenditures Reduce expenditures to take advantage of consumer demandto take advantage of consumer demand

Marketing Strategies: Growth Stage

10- 33



Sales peakSales peak

Low cost per Low cost per customercustomer

High profitsHigh profits

Middle majority are Middle majority are targetedtargeted

Competition begins to Competition begins to declinedecline


10- 34

Product –Product – Diversify brand and models Diversify brand and modelsPrice –Price – Set to match or beat competitionSet to match or beat competitionDistribution Distribution –– Build more intensive Build more intensive distributiondistributionAdvertising Advertising –– Stress brand differences Stress brand differences and benefitsand benefitsSales PromotionSales Promotion – – Increase to encourage Increase to encourage brand switchingbrand switching

Marketing Strategies: Maturity Stage

10- 35



Declining salesDeclining sales

Low cost per Low cost per customercustomer

Declining profitsDeclining profits

Laggards are Laggards are targetedtargeted

Declining Declining competitioncompetition


10- 36

Product –Product – Phase out weak items Phase out weak itemsPrice –Price – Cut priceCut priceDistribution Distribution –– Use selective distribution: Use selective distribution: phase out unprofitable outletsphase out unprofitable outletsAdvertising Advertising –– Reduce to level needed to Reduce to level needed to retain hard-core loyalistsretain hard-core loyalistsSales PromotionSales Promotion – – Reduce to minimal Reduce to minimal levellevel

Marketing Strategies: Decline Stage