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1
NEW PRODUCTS DEVELOPMENT
© 2000 South-Western College Publishing
2
THE IMPORTANCE OF NEW PRODUCTS
Sustain corporate growth and profits Replace obsolete items Improve quality of life Take advantage of new technology Better satisfy the needs of current and
future consumers Brand extensions
© 2000 South-Western College Publishing
3
CATEGORIES OF NEW PRODUCTS
New-to-the-world (discontinuous Innovations)
New product lines Additions to existing
product lines Improvements or revisions
of existing products Repositioned products Lower priced products
When first introduced, would include items like…
Telephone
FAX machines
Music CDs
© 2000 South-Western College Publishing
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CATEGORIES OF NEW PRODUCTS
New-to-the-world (discontinuous Innovations)
New product lines Additions to existing
product lines Improvements or revisions
of existing products Repositioned products Lower priced products
Levi Company adding product lines such as…
Shoes
Hats
Belts
© 2000 South-Western College Publishing
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CATEGORIES OF NEW PRODUCTS
New-to-the-world (discontinuous Innovations)
New product lines Additions to existing
product lines Improvements or revisions
of existing products Repositioned products Lower priced products
Hallmark greeting cards for...
Pets
Scented candlesDesign your own card kiosks
© 2000 South-Western College Publishing
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CATEGORIES OF NEW PRODUCTS
New-to-the-world (discontinuous Innovations)
New product lines Additions to existing
product lines Improvements or revisions
of existing products Repositioned products Lower priced products
Tissues with lotion
Turkeys with pop-out thermometers
Low fat microwave popcorn
© 2000 South-Western College Publishing
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CATEGORIES OF NEW PRODUCTS
New-to-the-world (discontinuous Innovations)
New product lines Additions to existing
product lines Improvements or revisions
of existing products Repositioned products Lower priced products
Arm & Hammer Baking Soda for your…
Refrigerator
Sock drawer
© 2000 South-Western College Publishing
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CATEGORIES OF NEW PRODUCTS
New-to-the-world (discontinuous Innovations)
New product lines Additions to existing
product lines Improvements or revisions
of existing products Repositioned products Lower priced products
In Computer technology…
Color printers for under $200
Digital Video Cameras for under $100
© 2000 South-Western College Publishing
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THE NEW PRODUCT DEVELOPMENT PROCESS
New-Product Strategy
Links the new-product development process with objectives of the...
Marketing Department
The Business unit
The Corporation
© 2000 South-Western College Publishing
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THE NEW PRODUCT DEVELOPMENT PROCESS
Idea Generation New-product ideas come from many sources, such as...
CustomersEmployeesDistributorsCompetitorsR & DConsultants
Brainstorming, Focus Groups and Computer Simulations
© 2000 South-Western College Publishing
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THE NEW PRODUCT DEVELOPMENT PROCESS
Idea Screening
Concept tests
Compatibility with corporate goals and objectives
Compatibility with other company product lines. Cannibalization potential
Does it possess the characteristics of a successful product?
© 2000 South-Western College Publishing
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THE NEW PRODUCT DEVELOPMENT PROCESS
Business Analysis
Estimated... demand costs sales profitability resource requirements return on investment
© 2000 South-Western College Publishing
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THE NEW PRODUCT DEVELOPMENT PROCESS
Business Analysis (continued)
Questions asked during this phase include… Potential market share?Cannibalization?Impact on total product mix?New facilities and personnel needed?Competitive response?Downside risk of failure?
© 2000 South-Western College Publishing
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THE NEW PRODUCT DEVELOPMENT PROCESS
Development Creation of prototype Packaging Branding Labeling Promotion strategy Pricing Distribution Technical production processes on a mass scale Final government approvals if needed
© 2000 South-Western College Publishing
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THE NEW PRODUCT DEVELOPMENT PROCESS
Development through field testing...
Similar to planned distribution outlets Relative isolation from other cities Appropriate demographics Not easily jammed by competitors Availability of cooperative supply chain partners Representative of total field environment
Alternatives to field testing?© 2000 South-Western
College Publishing
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THE NEW PRODUCT DEVELOPMENT PROCESS
Commercialization Full scale production and distribution Local, regional, national or international rollout Measurement and feedback of results against forecasts and benchmarks
© 2000 South-Western College Publishing
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SOMETIMES PRODUCTS STILL FAIL! Why?
Do not offer discernible benefits compared to existing products.
Poor match between product features and consumer desires.
Overestimation of market size Incorrect positioning, inappropriate marketing
mix. Poor timing Technical problems Poor execution of the marketing plan
© 2000 South-Western College Publishing
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CHARACTERISTICS OF A POTENTIALLY SUCCESSFUL PRODUCT INCLUDE...
Relative advantage Compatibility with
existing consumption patterns
Trialability Observability of
benefits Simple to understand,
use and operate
DVD PORTABLE VIDEO CAMERA
© 2000 South-Western College Publishing
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Companies that do succeed often share the following characteristics
A history of carefully listening to customers An obsession with producing the best product
possible A vision of what the market will like in the
future Strong leadership A commitment to new-product development A team approach to new-product development
© 2000 South-Western College Publishing
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ORGANIZING FOR NEW-PRODUCT DEVELOPMENT
Support from the top is essential Organizational development
structures New-product committee (cross-
functional membership) New-product department New venture team
Full time commitment Forms and disbands as needed
Intrapreneurs Simultaneous product development
© 2000 South-Western College Publishing
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THE SPREAD OF NEW PRODUCTS
Managers have a better chance of successfully marketing products if they understand how consumers learn about and adopt products. This process is usually referred to as the “Diffusion of Innovation”
© 2000 South-Western College Publishing
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THE DIFFUSION OF INNOVATION
An innovation is a product perceived as new by a potential adopter
A person who buys a new product never before tried may ultimately become an adopter if pleased by the purchase
Diffusion is the process by which the adoption of an innovation spreads.
© 2000 South-Western College Publishing
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THE DIFFUSION OF INNOVATION
Laggards (16%)
Late majority
(34%)
Early majority
(34%)
Early Adopters
(13.5%)
Innovators (2.5%)0 20 40
Innovators
Earlymajority
Laggards
Late Majority
Early Adopters
© 2000 South-Western College Publishing
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MARKETING IMPLICATIONS OF THE ADOPTION PROCESS
Diffusion occurs at different rates among different customers based upon word-of mouth communication or communication directly from the marketer to potential adopters
© 2000 South-Western College Publishing
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Time
PRODUCT LIFE CYCLE
Introduction Growth Maturity Decline
Style
Fashion
Fad
Sal
es
Innovators - Early Adopters - Early Majority - Late Majority - Laggards
Profits
© 2000 South-Western College Publishing
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STAGES IN THE PRODUCT LIFE CYCLE
Introductory High marketing costs Low Volume Aimed at Innovators Profits may be negative Promotion emphasizes
product awareness
Growth Sales grow at
increasing rate Competition enters
Growth (continued) Profits rise and reach
peak Brand advertising Distribution key
Maturity Usually longest stage Prices and profits fall Heavy promotional
advertising
© 2000 South-Western College Publishing
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STAGES IN THE PRODUCT LIFE CYCLE
Decline Sales of fads drop off
rapidly Sales of fashion taper
off Sales of styles rise and
fall over long cycles Profits become very
small Demand drops
© 2000 South-Western College Publishing
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IMPLICATIONS OF THE PRODUCT LIFE CYCLE TO MARKETING MANAGEMENT
The stage in the product life cycle and the
rate of movement through the four stages
of the adoption process provide vital clues
to marketing managers concerning the
best marketing mix to implement at any
point in time!
© 2000 South-Western College Publishing