Principles of Marketing

Principles of MarketingDr. Karim Kobeissi

Chapter 9: New-Product Development and Product Life-Cycle Strategies 2KeywordsPatent refers to the exclusive right granted by a government to an inventor to manufacture, use, or sell an invention for a certain number of years (usually 20 years). License refers to an increasingly popular method of intellectual property protection.Licenses allow the buyer to use the product but restrict duplication or distribution.

IntroductionIn this chapter, we examine two product topics: developing new products and managing products through their life cycles. New products are the lifeblood of an organization. However, new-product development is risky, and many new products fail. So, the first part of this chapter lays out a process for finding and growing successful new products. Once introduced, marketers want their products to enjoy long and happy lives. In the second part of this chapter, we will see that every product passes through several life-cycle stages, and each stage poses new challenges requiring different marketing strategies and tactics. Finally, we wrap up our product discussion by looking at two additional considerations: social responsibility in product decisions and international product and services marketing.

New-Product Development StrategyTwo ways by which a firm obtain new products:Acquisition refers to the buying of a whole company, a patent, or a license to produce someone elses product.

2) New product development refers to original products, product improvements, product modifications, and new brands developed from the firms own research and development (R&D) department.How Companies Find & Develop New Products Ideas?Note to InstructorNew products are importantto both customers and the marketers who serve them. For companies, new products are a key source of growth. For customers, they bring new solutions and variety to their lives. Yet, innovation can be very expensive and very risky. New products face tough odds. According to one estimate, 90 percent of all new products in America fail. Each year, companies lose an estimated $20 billion to $30 billion on failed food products alone.

5New Product Development

New-Product DevelopmentReasons for new product failure

Note to InstructorIf you are running a marketing plan project in your class, this is a good time to ask why their project ideas might fail in the real market. You can then ask what they plan to do to prevent failure.

7New-Product Development ProcessMajor Stages in New-Product Development

8Idea generation is the systematic search for new-product ideas.

Sources of new-product ideasInternal ExternalStage 1: Idea Generation

Note to Instructor

Discussion QuestionIn groups of four come up with one ideas for a new products. It might be helpful if you assign each group a category including kitchen products, office supplies, laptop accessories, dessert products, bathroom accessories, childrens toys, baby products, etc. Students will realize this is very difficult.9Internal sources refer to the companys own formal research and development, management and staff, and entrepreneurial programs

External sources refer to sources outside the company such as customers, competitors, distributors, suppliers, and outside design firmsSources of New Product Ideas

Note to InstructorIt is not difficult to find examples of companies that are running contests where they ask consumers to send in ideas for new products. Doritos recently asked consumers to come up with a new flavor and new advertising. The Classic Mini Cooper brand was running Mini Manias the Awesome New Product Idea Contest. The grand prize winner received a 25 percent off promo code! Two second place winners will receive 15 percent off promo codes.

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Identify good ideas and drop poor ideas R-W-W Screening Framework:Is it real?Can we win?Is it worth doing?Stage 2: Idea Screening

12An attractive idea must be developed into a product concept. It is important to distinguish between a product idea, a product concept, and a product image:- Product idea is an idea for a possible product that the company can see itself offering to the market- Product concept is a detailed version of the idea stated in meaningful consumer terms.- Product image is the way consumers perceive an actual or potential productStage 3: Concept Development & Testing

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Concept Development and Testing

Many firms routinely test new-product concepts with consumers before attempting to turn them into actual new products. For some concept tests, a word or picture description might be sufficient. However, a more concrete presentation of the concept will increase the reliability of the concept test. After being exposed to the concept, consumers then may be asked to react to it by answering questions similar to those in table I.Concept testing refers to testing new-product concepts with groups of target consumersConcept Development and Testing

Note to InstructorThis Web link ties to a concept testing survey at Questionpro. It is helpful to point out to students that there are many online Web survey sites, which offer free surveys for market research. In this example, they supply a template for concept testing.15

Marketing strategy development refers to the initial marketing strategy for introducing the product to the marketMarketing strategy statement includes:Description of the target marketValue propositionSales and profit goalsStage 4: Marketing Strategy Development

17Business analysis involves a review of the sales, costs, and profit projections to find out whether they satisfy the companys objectives.Stage 5: Business Analysis

18Product development involves the creation and testing of one or more physical versions by the R&D or customers.

Requires an increase in investment.Stage 6: Product Development

Note to InstructorMany companies use their employees for product testing. Students might have worked at various consumer packaged goods companies, perhaps Quaker Oats, where they had to test cereal every day at lunch. The text gives the example:At Gillette, almost everyone gets involved in new-product testing. Every working day at Gillette, 200 volunteers from various departments come to work unshaven, troop to the second floor of the companys gritty South Boston plant, and enter small booths with a sink and mirror. There they take instructions from technicians on the other side of a small window as to which razor, shaving cream, or aftershave to use. The volunteers evaluate razors for sharpness of blade, smoothness of glide, and ease of handling. In a nearby shower room, women perform the same ritual on their legs, underarms, and what the company delicately refers to as the bikini area. We bleed so youll get a good shave at home, says one Gillette employee.

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Test marketing is the stage at which the product and marketing program are introduced into more realistic marketing settings.

Provides the marketer with experience in testing the product and entire marketing program before full introduction.

Stage 7: Test Marketing

Note to InstructorHere is a list of the top 10 test markets1. ALBANYSCHENECTADYTROY, NY2. ROCHESTER, NY3. GREENSBOROWINSTONSALEM-HIGH POINT, NC4. BIRMINGHAM, AL5. SYRACUSE, NY6. CHARLOTTEGASTONIAROCK HILL, NC/SC7. NASHVILLE, TN8. EUGENESPRINGFIELD, OR9. WICHITA, KS10. RICHMONDPETERSBURG, VASource: Acxiom Corp., June 2004

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Types of Test Markets

Note to InstructorStandard test markets are small representative markets where the firm conducts a full marketing campaign and uses store audits, consumer and distributor surveys, and other measures to gauge product performance. Results are used to forecast national sales and profits, discover product problems, and fine-tune the marketing program.Controlled test markets are panels of stores that have agreed to carry new products for a fee. In general they are less expensive than standard test market, faster than standard test markets, but competitors gain access to the new product. Simulated test markets are events where the firm will create a shopping environment and note how many consumers buy the new product and competing products. Provides measure of trial and the effectiveness of promotion. Researchers can interview consumers.

23Advantages of simulated test marketsLess expensive than other test methodsFasterRestricts access by competitors

Disadvantages of simulated test marketsNot considered as reliable and accurate due to the controlled settingAdvantages & Disadvantages of Test Markets

24Note to InstructorThis Web link takes you to Decision Insighta company involved with online market testing. You can click at many examples they offer of clients as well as their virtual shopping testing products.25Commercialization is the introduction of the new productWhen to launchWhere to launchPlanned market rolloutStage 8: Commercialization

26New-Product Development Strategies

Successful new-product development might be:1- Customer Centered2- Sequential3- Team Centered4- Systematic27New-Product Development Strategies1- Customer Centered New Product Development Focuses on finding new ways to solve customer problems and create more customer satisfying experiencesBegins and ends with solving customer problems (needs, wants, and interest).28

New Product Development Strategies

2- Sequential New Product Development Is a development approach where company departments work individually to complete each stage of the process before passing it along to the next department or stage.Increased control in risky or complex projectsSlow313- Team Based New Product Development Is a development approach where company departments work closely together in cross-functional teams, overlapping in the product-development process to save time and increase effectiveness.New-Product Development Strategies

324- Systematic new-product development Is an innovative development approach that collects, reviews, evaluates, and manages new-product ideasCreates an innovation-oriented cultureYields a large number of new-product ideasNew-Product Development Strategies

33Product Life Cycle (PLC)

Note to Instructor

Discussion QuestionName a product at each stage of the PLC.

This concept is very new to students. See if they can identify products or product categories that are in each stage of the model. Introduction might include online movie viewing software, growth might include MP3 players, maturity might include bottled water, and decline could include soda (actually in a decline) or videotape players.34Stage 1: Product Development

Sales are zero and investment costs mountProduct Life Cycle (PLC)35Stage 2: Introduction

Slow sales growth and profits are nonexistent Product Life Cycle (PLC)36Stage 3: Growth

Rapid market acceptanceSales increaseNew competitors enter the marketPrice stability or decline to increase volumeProfits increasePromotion and manufacturing costs gain economies of scale

Product Life Cycle (PLC)37Stage 4: Maturity Slowdown in sales growth and profits level off or declineMany suppliersSubstitute productsOvercapacity leads to competition

Product Life Cycle (PLC)38Stage 5: Decline

- Sales fall off and profits dropProduct Life Cycle (PLC)39REMARKNot all products follow all five stages of the PLC. Some products are introduced and die quickly; others stay in the mature stage for a long, long time. Some enter the decline stage and are then cycled back into the growth stage through strong promotion or repositioning. It seems that a well-managed brand could live forever.

Marketing Strategies During PLC

Stage 1: Product Development StageWe looked at the product development stage of the PLC in the first part of this chapter. We now look at strategies for each of the other life cycle stages.

Marketing Promotion During PLC

2. IntroductionAdvertising and public relations awarenessSales promotion trialPersonal selling distribution

3. GrowthAdvertising and PR brand loyaltyLess emphasis on sales promotion4. MaturityAdvertising persuasion, reminderSales promotion market share

5. DeclineReduction in advertising and PRMore emphasis on sales promotions temporary sales

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Possible Strategies During Maturity Stage

Market modifyingProduct modifyingMarketing mix modifying

Note to InstructorThis link is for 1000 Uses of Glad Web site. It is described below, and in the book, as a way to modify the product. In modifying the market, the company tries to increase the consumption of the current product. It may look for new users and new market segments. The manager may also look for ways to increase usage among present customers. The company might also try modifying the productchanging characteristics such as quality, features, style, or packaging to attract new users and to inspire more usage. It can improve the products styling and attractiveness. It might improve the products quality and performanceits durability, reliability, speed, taste. 45

Possible Strategies During Decline Stage

Maintain the productHarvest the productDrop the product

47Additional Product and Service ConsiderationsDetermining what products and services to introduce in which countriesStandardization versus CustomizationPackaging and labeling Customs, values, laws

International Product and Service MarketingChallenges

48International Product Customization

Additional Product and Service ConsiderationsPublic policy and regulations regarding developing and dropping products, patents, quality, and safetyProduct Decisions and Social Responsibility

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