New product development and life cycle strategies

Chapter 9New-Product

Development and Product Life-Cycle

Strategies

Learning Goals

1. Explain how companies find and develop new-product ideas

2. List and define the steps in the new-product development process

3. Describe the stages of the product life cycle

4. Describe how marketing strategies change during the product’s life cycle

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Case StudyNokia

Focus on Innovation• Names its culture of

continuous innovation “renewal”

• Organizes into autonomous units, which helps foster innovation

• Large R&D budget of $3 billion with 40% of employees involved in R&D

Corporate Results• Annual sales of $36

billion across 130 countries

• Global market share of 38%, greater than that of its nearest three rivals combined

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http://www.nokia.com/nokia/0,,67286,00.html

Learning Goals





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Definition

• New Product Development– Development of original

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

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Video SnippetAMEX introduces a

new product

New Product Development Strategy

• New products can be obtained via acquisition or development.

• New products suffer from high failure rates.

• Several reasons account for failure.

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Nike acquired Converse in 2003 for $305 million

Marketing in Action9 - 7

Discussion Question

• Think of products you have seen recently in stores. Can you think of any that seem doomed to fail?

• Why?

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Learning Goals





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Stages of the New Product Development Process

Figure 9.1

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• Stage 1: Idea Generation– Internal idea sources:

•R & D

– External idea sources: •Customers, competitors,

distributors, suppliers

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Intuit, a marketer of financial software, asks for

new product ideas from customers

Marketing in Action

Click on screenshot for website 9 - 12

http://altserv.intuit.com/orien/qpayroll_enhance.html


• Stage 2: Idea Screening– Product development costs

increase substantially in later stages so poor ideas must be dropped

– Ideas are evaluated against criteria; most are eliminated

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• Stage 3: Concept Development and Testing– Concept development creates a

detailed version of the idea stated in meaningful consumer terms.

– Concept testing asks target consumers to evaluate product concepts.

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MIT Virtual Research

MIT has developed

online techniques

to gain consumer

feedback on new product

ideas

Marketing in Action


http://conjoint.mit.edu/newdemo/


• Stage 4: Marketing Strategy Development

•The target market, product positioning, and sales, share, and profit goals for the first few years.

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

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

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• Stage 5: Business Analysis– Sales, cost, and profit

projections

• Stage 6: Product Development– Prototype development and

testing

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• Stage 7: Test Marketing– Standard test markets– Controlled test markets– Simulated test markets

• Stage 8: Commercialization

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Online Test MarketingIs it in the Near Future?

• Silicon Valley startup called There launched their site in 2003.

• Users enter a virtual world where they can network, hang out, dress up and try new products.

• There is catching marketers’ attention as a tool to test brands and products.

• There will also help marketers identify leaders and heavy users of their products.

Marketing in ActionSource: Advertising Age


http://www.there.com/

Online Test MarketingIs it in the Near Future?

• Levi and Nike have partnered with There for market research data.

• Levi’s has found that jeans and jean jacket buyers were more likely to be virtual club-goers.

• They can also track how long people wear a certain jean or jacket in their virtual world.

• Discussion Question: Do you believe the Internet can supply valuable test marketing data?


Learning Goals





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Stages of the PLCFigure 9.2

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Alternative Product Life Cycles

Figure 9.3

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Product Life-Cycle Strategies

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

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

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Learning Goals





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• Product development

• Introduction• Growth• Maturity• Decline

• Begins when the company develops a new-product idea

• Sales are zero• Investment costs

are high• Profits are

negative 9 - 26

PLC Stages PLC Stages




• Low sales• High cost per

customer acquired

• Negative profits• Innovators are

targeted• Little

competition 9 - 27


Which stage of the PLC?How do you

know?




Marketing Strategies: Introduction Stage

• Product – Offer a basic product• Price – Use cost-plus basis to set• Distribution – Build selective

distribution• Advertising – Build awareness

among early adopters and dealers/resellers

• Sales Promotion – Heavy expenditures to create trial

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• Rapidly rising sales

• Average cost per customer

• Rising profits• Early adopters

are targeted• Growing

competition 9 - 30


Marketing in Action


know?



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Marketing Strategies: Growth Stage

• Product – Offer product extensions, service, warranty

• Price – Penetration pricing• Distribution – Build intensive

distribution• Advertising – Build awareness and

interest in the mass market• Sales Promotion – Reduce expenditures

to take advantage of consumer demand

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• Sales peak• Low cost per

customer• High profits• Middle majority

are targeted• Competition

begins to decline 9 - 33



know?




Marketing Strategies: Maturity Stage

• Product – Diversify brand and models• Price – Set to match or beat competition• Distribution – Build more intensive

distribution• Advertising – Stress brand differences

and benefits• Sales Promotion – Increase to encourage

brand switching

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• Declining sales• Low cost per

customer• Declining profits• Laggards are

targeted• Declining

competition9 - 36


Marketing Strategies: Decline Stage

• Product – Phase out weak items• Price – Cut price• Distribution – Use selective distribution:

phase out unprofitable outlets• Advertising – Reduce to level needed to

retain hard-core loyalists• Sales Promotion – Reduce to minimal

level

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Discussion

• How can marketers help products bounce back from the decline stage?

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Low-dose Aspirin Ad

• Baby Aspirin has been in the decline stage for over 10 years after discovery that it may have dangerous side effects for children.

• Recently it has been discovered it helping to prevent heart attacks in adults and is now marketed to this new target.

Click on screenshot for website with products


http://www.stjosephaspirin.com/

Education

New product development and life cycle strategies