Chapter 10Developing and Managing Products

There are degrees of “newness”New to the World

Discontinuous innovation

Dynamically Continuous Innovation

Continuous InnovationsLine extensionsBrand extensionsProduct modifications

New-Product Development Process

New-Product New-Product StrategyStrategyIdea GenerationIdea Generation

Idea ScreeningIdea Screening

Business AnalysisBusiness Analysis

DevelopmentDevelopment

Test MarketingTest Marketing

CommercializationCommercialization

New ProductNew Product

Idea Generation

Customers

Employees

Distributors

Competitors

Vendors

R & D

Consultants

Sources ofSources ofNew-ProductNew-Product

IdeasIdeas

BrainstormingBrainstorming The process of getting a group to think of unlimited ways to vary a product or solve a problem.

Brainstorming

ScreeningScreening

Idea ScreeningThe first filter in the product development process, which eliminates ideas that are inconsistent with the organization’s new-product strategy or are inappropriate for some other reason.

Concept Test

Concept TestConcept Test A test to evaluate a new-product idea, usually before any prototype has been created.

Business Analysis

ConsideratioConsiderations in ns in

Business Business Analysis Analysis

StageStage

ConsideratioConsiderations in ns in

Business Business Analysis Analysis

StageStage

Demand

Cost

Sales

Profitability

Simultaneous Product Development

SimultaneousProduct

Development

SimultaneousProduct

DevelopmentA new team-oriented approach to new-product development where all relevant functional areas and outside suppliers participate in the development process.

TestMarketing

TestMarketing

The limited introduction of a product and a marketing program to determine the reactions of potential customers in a market situation.

Test Marketing

CommercializationProductionProduction

Inventory BuildupInventory Buildup

Distribution ShipmentsDistribution Shipments

Sales TrainingSales Training

Trade AnnouncementsTrade Announcements

Customer AdvertisingCustomer Advertising

Why New Products Fail No discernible benefits Poor match between features and

customer desires Overestimation of market size Incorrect positioning Price too high or too low Inadequate distribution Poor promotion Inferior product

Success Factors

Match between product and market needs

Different from substitute products

Benefit to large number of people

Global Issues in New-Product Development

Single product worldwideSingle product worldwide

Modification of productsModification of products

Multiple products in multiple countriesMultiple products in multiple countries

Diffusion

The process by which the adoption of an innovation spreads.

Categories of Adopters

LaggardsLaggards

Late MajorityLate Majority

Early MajorityEarly Majority

Early AdoptersEarly Adopters

InnovatorsInnovators

Product Characteristics and the Rate of Adoption

TrialabilityTrialability

ObservabilityObservability

Relative AdvantageRelative Advantage

CompatibilityCompatibility

ComplexityComplexity

Marketing Implications of the Adoption Process

Direct fromMarketer

Direct fromMarketer

Word of MouthWord of Mouth

CommunicationAids the

Diffusion Process

CommunicationAids the

Diffusion Process

ProductLife Cycle

ProductLife Cycle

Product Life CycleA concept that provides a way to trace the stages of a product’s acceptance, from its introduction (birth) to its decline (death).

Product Life Cycle

Time

Dollars

Profits

SalesSales

IntroductoryIntroductoryStageStage

GrowthGrowthStageStage

MaturityMaturityStageStage

DeclineDeclineStageStage

0

Introductory Stage High failure rates Little competition Frequent product modification Limited distribution High marketing and production costs Negative profits with slow sales increases Promotion focuses on awareness and

information Communication challenge is to stimulate

primary demand

Growth Stage Increasing rate of sales

Entrance of competitors

Market consolidation

Initial healthy profits

Aggressive advertising of the differences between brands

Wider distribution

Maturity Stage Sales increase at a decreasing rate Saturated markets Annual models appear Lengthened product lines Service and repair assume important roles Heavy promotions to consumers and dealers Marginal competitors drop out Niche marketers emerge

Decline Stage Long-run drop in sales

Large inventories of unsold items

Elimination of all nonessential marketing expenses

“Organized abandonment”

Diffusion Process and PLC Curve

Innovators

Early adopters

Early majorityLate majority

Laggards

ProductProductlife cyclelife cyclecurvecurve

DiffusionDiffusioncurvecurve

Introduction Growth Maturity Decline

Sale

s

Product Life Cycles

Time

INTRODUCTION GROWTH MATURITY DECLINE

ProductStrategy

DistributionStrategy

PromotionStrategy

PricingStrategy

Limited modelsFrequent changes

More modelsFrequent changes.

Large number of models.

Eliminate unprofitable

models

LimitedWholesale/

retail distributors

Expanded dealers. Long-term relations

Extensive.Margins drop.Shelf space

Phase out unprofitable

outlets

Awareness. Stimulate

demand.Sampling

Aggressive ads.Stimulatedemand

Advertise. Promote heavily

Phase outpromotion

High to recoupdevelopment

costs

Fall as result ofcompetition &

efficient produc-tion.

Prices fall (usually).

Prices stabilize at low level.

Sale

s