kotler 10 new-product development and product life-cycle strategies moghimi
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New-Product Development and Product Life-Cycle Strategies MOGHIMITRANSCRIPT
Lecturer: Bahman MoghimiDoctor of Business AdministrationM.Sc. Of “Industrial Marketing & e-Commerce”
NewNew--Product Development and Product Product Development and Product LifeLife--Cycle strategies Cycle strategies University of Georgia
NewNew--Product Development Product Development and Product Lifeand Product Life--Cycle Cycle
StrategiesStrategies
Bahman MoghimiBahman MoghimiUniversity of GeorgiaUniversity of Georgia
Objectives
Understand how companies find and develop newUnderstand how companies find and develop new--product ideas.product ideas.
Learn the steps in the newLearn the steps in the new--product development process.product development process.
Know the stages of the product life cycle.Know the stages of the product life cycle.
Understand how marketing strategies change during the Understand how marketing strategies change during the
product’s life cycle.product’s life cycle.
$50 billion in profits over 27
years
Early new product
development relied heavily on
copying the competition
$4.2 billion annually invested
in R & D
Innovation is critical to
Microsoft’s future success
Much of R & D efforts are
Internet related
Many new products and
services are in development
cMicrosoftMicrosoft
New Product Development
Development Development of original products, product of original products, product
improvements, product modifications, improvements, product modifications,
and new and new Brands Brands through the firm’s through the firm’s
own own R&D R&D efforts.efforts.
New products can be obtained via acquisition or development.
New products suffer from high failure rates.
Several reasons account for failure.
New Product Development Strategy
Why do products fail?Why do products fail?See if you can identify the fatal See if you can identify the fatal flaw in the brands below and flaw in the brands below and at right.at right.
Discussion Question
Buttermilk ShampooButtermilk Shampoo Fruit of the Loom Fruit of the Loom Laundry DetergentLaundry Detergent
BenBen--Gay AsprinGay Asprin
Why Do New Products Fail ?• Overestimated market
• Poor design
• Incorrect positioning
• Error in pricing
• Poor marketing communication
• Production-orientation
• Cost overrun
• Competition
Why Do New Products Success?
• Unique
• superior product
• Well defined product concept
from startup
• Specific criteria
• Specific strategic role
• Systematic new-product process
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, •• CompetitorsCompetitors, , •• DistributorsDistributors•• SuppliersSuppliers
New Product Development Strategy
3M’s corporate culture
encourages, supports, and rewards new product ideas and innovation
New Product Development Process:New Product Development Process: Stage Stage 22: Idea Screening: 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.
New Product Development Strategy
New-Product Development Process:Idea Generation
Systematic processSystematic process Idea managerIdea manager Multidisciplinary committeeMultidisciplinary committee TollToll--free numberfree number Staff encouragementStaff encouragement Formal recognitionFormal recognition
YieldsYields innovation cultureinnovation culture more ideasmore ideas
New Product Development Process:New Product Development Process: Stage Stage 33: Concept Development and : 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.
New Product Development Strategy
New-Product Development Process:Idea Screening
•• PurposePurpose–– Identify good ideas drop Identify good ideas drop
poor ones fastpoor ones fast•• ChallengeChallenge
–– Maintain creativity and Maintain creativity and stream of ideasstream of ideas
•• Standard formatStandard format•• Criteria and rating Criteria and rating
• Product concept– New-product idea in
detail stated in meaningful consumer terms
• Concept development– Expanding the new-
product idea into various alternative forms
New-Product Development Process:Concept Development and Testing
•• Concept testingConcept testing–– Target consumers Target consumers
exposed to newexposed to new--product conceptsproduct concepts
–– Word or picture Word or picture descriptiondescription
–– Physical presentation Physical presentation of the conceptof the concept
–– Question reactionsQuestion reactions
New Product Development Process:New Product Development Process: Stage Stage 44: Marketing Strategy Development: 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.
•• LongLong--run sales and profit goals and the run sales and profit goals and the marketing mix strategy.marketing mix strategy.
New Product Development Strategy
New Product Development Process:New Product Development Process: Stage Stage 55: Business Analysis: Business Analysis
Sales, cost, and profit Sales, cost, and profit projectionsprojections
Stage Stage 66: Product : Product DevelopmentDevelopment Prototype development Prototype development
and testingand testing
New Product Development Strategy
New-Product Development Process:Business Analysis
•• Review sales, costs and profit projectionsReview sales, costs and profit projections•• Compare projected results to objectivesCompare projected results to objectives•• Estimate maximum and minimum salesEstimate maximum and minimum sales
–– Company history and market opinionCompany history and market opinion•• Assess riskAssess risk•• Estimate product costs and profitsEstimate product costs and profits•• Analyze attractiveness using sales and costs Analyze attractiveness using sales and costs
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 Simulated test marketsmarkets
New Product Development Strategy
•• Use small number of representative test citiesUse small number of representative test cities•• Conducts full marketing campaignConducts full marketing campaign•• Store audits, consumer/distributor surveys gauge Store audits, consumer/distributor surveys gauge
performanceperformance•• Costly and time consumingCostly and time consuming•• Competitor reactionCompetitor reaction•• Most popular approachMost popular approach
New-Product Development Process:Standard Test Markets
New-Product Development Process:Controlled Test Markets
•• Controlled panel of stores Controlled panel of stores -- fee basisfee basis•• Client specifies stores and locationsClient specifies stores and locations•• Shelf space/location, displays, promotion and price Shelf space/location, displays, promotion and price
controlledcontrolled•• Sales trackedSales tracked•• Less time, lower costsLess time, lower costs•• Representativeness and competitionRepresentativeness and competition
Advantages:Advantages: Reduces risk Reduces risk –– capital, 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 MarkeMarke--Test Test MerwynMerwyn And othersAnd others
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.
Simulated Test Markets (STM)In-Depth
Do‘s & Don’ts of STMsDo‘s & Don’ts of STMs Be a champion for your Be a champion for your
new productnew product----but be 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 factorsinput factors——the more the more you guess incorrectly, the you guess incorrectly, the less accurate the forecast. less accurate the forecast.
Simulated Test Markets (STM)In-Depth
New-Product Development Process:Stage 8 :Commercialization
•• Major investment in manufacturing facilitiesMajor investment in manufacturing facilities
•• High initial advertising and promotion expenseHigh initial advertising and promotion expense
•• Introduction timing criticalIntroduction timing critical
•• Launch location?Launch location?
•• Local, regional rollLocal, regional roll--out, national, or global?out, national, or global?
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
Companies want their
products to enjoy a long
life cycle. Hershey’s actively
promotes the fact that it has
been “unchanged since 1899”
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.
Product Life-Cycle Strategies
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 problematicstrategies is problematic
Product Life-Cycle Strategies
Product Product developmentdevelopmentIntroductionIntroductionGrowthGrowthMaturityMaturityDeclineDecline
Begins when the Begins when the
company develops a newcompany develops a new--
product ideaproduct idea
Sales are zeroSales are zero
Investment costs are highInvestment costs are high
Profits are negativeProfits are negative
PLC StagesPLC Stages
Product Life-Cycle Strategies
Product Product developmentdevelopmentIntroductionIntroductionGrowthGrowthMaturityMaturityDeclineDecline
Low salesLow salesHigh cost per High cost per customer acquiredcustomer acquiredNegative profitsNegative profitsInnovators are Innovators are targetedtargetedLittle competitionLittle competition
PLC StagesPLC Stages
Product Life-Cycle Strategies
Product Product –– Offer a basic productOffer a basic productPrice Price –– Use costUse cost--plus basis to setplus basis to setPlace Place –– Build selective distributionBuild selective distributionAdvertising Advertising –– Build awareness among early adopters and Build awareness among early adopters and dealers/resellersdealers/resellersSales PromotionSales Promotion –– Heavy expenditures to create trialHeavy expenditures to create trial
Marketing Strategies: Introduction Stage
Product Life-Cycle Strategies
Product Product developmentdevelopmentIntroductionIntroductionGrowthGrowthMaturityMaturityDeclineDecline
Rapidly rising salesRapidly rising salesAverage cost per Average cost per customercustomerRising profitsRising profitsEarly adopters are Early adopters are targetedtargetedGrowing competitionGrowing competition
PLC StagesPLC Stages
Product Product –– Offer product extensions, service, warrantyOffer product extensions, service, warrantyPrice Price –– Penetration pricingPenetration pricingDistribution Distribution –– Build intensive distributionBuild intensive distributionAdvertising Advertising –– Build awareness and interest in the mass Build awareness and interest in the mass marketmarketSales PromotionSales Promotion –– Reduce expenditures to take Reduce expenditures to take advantage of consumer demandadvantage of consumer demand
Marketing Strategies: Growth Stage
Product Product developmentdevelopmentIntroductionIntroductionGrowthGrowthMaturityMaturityDeclineDecline
Sales peakSales peakLow cost per Low cost per customercustomerHigh profitsHigh profitsMiddle majority are Middle majority are targetedtargetedCompetition begins Competition begins to declineto decline
PLC StagesPLC Stages
Product Life-Cycle Strategies
Product Product –– Diversify brand and modelsDiversify 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
Product Product developmentdevelopmentIntroductionIntroductionGrowthGrowthMaturityMaturityDeclineDecline
Declining salesDeclining salesLow cost per Low cost per customercustomerDeclining profitsDeclining profitsLaggards are Laggards are targetedtargetedDeclining Declining competitioncompetition
PLC StagesPLC Stages
Product Life-Cycle Strategies
Product Product –– Phase out weak itemsPhase out weak itemsPrice Price –– Cut priceCut priceDistribution Distribution –– Use selective distribution: phase out Use selective distribution: phase out unprofitable outletsunprofitable outletsAdvertising Advertising –– Reduce to level needed to retain Reduce to level needed to retain hardhard--core loyalistscore loyalistsSales PromotionSales Promotion –– Reduce to minimal levelReduce to minimal level
Marketing Strategies: Decline Stage
Product Life-Cycle Strategies
Characteristics Introduction Growth Maturity Decline
Sales Low Rapidly rising Peak Declining
Costs High per customer Average percustomer
Low per customer Low percustomer
Profits Negative Rising High Declining
Customers Innovators Early adopters Middle majority Laggards
Competitors Few Growing number Stable numberbeginning todecline
Declining number
MarketingObjectives
Create productawareness and trial
Maximize marketshare
Maximize profitwhile defendingmarket share
Reduceexpenditures andmilk the brand
Product Life-Cycle Strategies
Strategies Introduction Growth Maturity DeclineProduct Offer basic product Offer product
extensions, service,warranty
Diversify brand andmodels
Phase out weak items
Price Use cost-plus Price to penetratemarket
Price to match or bestcompetitors
Cut price
Distribution Build selective Build intensive Build more intensive Go selective, phase outunprofitable outlets
Advertising Build productawareness among earlyadopters and dealers
Build awareness andinterest in the massmarket
Stress branddifferences andbenefits
Reduce to level neededto retain hard-coreloyals
SalesPromotion
Use heavy salespromotion to enticetrial
Reduce to takeadvantage of heavyconsumer demand
Increase to encouragebrand switching
Reduce to minimallevel
