Chapter 9

New-Product Development
and Product Life-Cycle
Strategies

New Products and

Important Issues
New Products: WiFi, NECAR5 and other
hybrid fuel cell cars, Hybrid SUVs/SUTs,
PVRs/DVD variations, Video on
demand/digital cable, 3rd generation cell
phones, Flat-panel computer displays
Product: a need-satisfying offering of a
firm.
Most important aspect of a product? The
core benefit(s) sought
2

Why Do We Develop New

Products?

Increase sales and profits

First brand in market has twice the
sales of 2nd
Product life cycle and having products
in every stage/shorter cycles (85 new
items/day)
Correlation between R&D and profits
Consumers & change/product
obsolescence
3

Causes of New Product

Failures

Only about 40% of new consumer products

are around 5 years after introduction (60%
failure) (p. 337). Failure rates for industrial
products average 30%.
Why?

Overestimation of market size,

Product design problems,
Product incorrectly positioned, priced or advertised,
Product may have been pushed despite poor
marketing research findings,
Costs of product development, or
Competitive actions
4

Improving New-Product
Success
New product success depends on having a:

Unique superior product (one with higher quality,

features, and value in use), &
Well-defined product concept (a defined target
market, product requirements, and benefits).

To create successful new products, the

company must:

understand its customers, markets and

competitors, &
develop products that deliver superior value to
customers.

Major Stages in NewProduct Development (Fig.

Marketing
Strategy

9.1, p. 340)
Concept
Development
and Testing

Idea
Screening

Idea
Generation

Business
Analysis

Product
Development

Test
Marketing

Commercializatio
n
6

New Product Development

Process
Idea Generation is the Systematic Search for
New Product Ideas Obtained Internally From
Employees and Also From:

Customers

Competitors

Distributors

Suppliers

New Product Development

Process Step 1. Idea

Step 1: Idea Generation/

New-Product Strategies
Strategies for Obtaining New Product
Ideas
Acquired
Acquired
Companies
Companies

Original
Original
Products
Products

Acquired
Acquired
Patents
Patents

Product
Product
Improvements
Improvements

Acquired
Acquired
Licenses
Licenses

Product
Product
Modifications
Modifications
New
New
Brands
Brands

New Product Development

Process Step 2. Idea

Screening
Process
to spot good ideas and drop poor
ones as soon as possible.
Many companies have systems for rating
and screening ideas which estimate:

Market Size
Product Price
Development Time & Costs
Manufacturing Costs
Rate of Return

Then, the idea is evaluated against a set of

general company criteria.
9

New Product Development

Process Step 3. Concept

Development

Product Image is
the Way
Consumers
Perceive an
Actual or
2. Concept Testing - Test thePotential Product
New Product Concepts with
Groups of Target Customers

1. Develop New Product Ideas

into Alternative Detailed
Product Concepts

3. Choose the One That Has the

Strongest Appeal to Target
Customers
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New Product Development

Process Step 4. Marketing

Strategy

Part One Describes Overall:

Target Market
Planned Product Positioning
Sales & Profit Goals
Market Share

Part Two Describes First-Year:

Products Planned Price
Distribution
Marketing Budget

Part Three Describes Long-Term:

Sales & Profit Goals

11

Step 5. Business Analysis

Step 6. Product
Development
Business
Business Analysis
Analysis

Do
Do Projected
Projected Sales,
Sales, Costs,
Costs, &
& Profits
Profits Meet
Meet Company
Company Objectives?
Objectives?
Methods:
Methods: payback,
payback, ROI,
ROI, BE,
BE, NPV,
NPV, IRR,
IRR, project
project numbers
numbers

If No, Eliminate
Product Concept
If Yes, Move to
Product Development
12

Test Marketing is the Stage Where the Product and

Marketing Program are Introduced into More Realistic
Market Settings.
Budget
Budget Levels
Levels
Packaging
Packaging
Branding
Branding
Pricing
Pricing

Product
Product

Elements that
May be Test
Marketed by a
Company

Positioning
Positioning
Advertising
Advertising

Distribution
Distribution
13

New Product Development

Process

Step
7. Test Market
Types
Standard
Controlled
Test Market

Test Market

Full marketing campaign

in a small number of
representative cities.

A few stores that have

agreed to carry new
products for a fee.

Electronic Test
Market

Simulated
Test Market

Use split-cable
technology and
scanner
data

Test in a simulated
shopping environment
to a sample of
consumers.

14

Step 7: Test Marketing

Characteristics of Good Test Markets

.2 to 1.5% of the population

Good media coverage

Appropriate demographics
* Isolated media and distribution *
Length of the test = repurchase cycle

Limitations of Test Markets

Expensive
Delays to market
Sabotage
Artificial
Industrial products

15

New Product Development

Process
Commercialization
is the Introduction of
Step 8. Commercialization
the New Product into the Marketplace.
When
When is
is the
the
Right
Right Time
Time to
to
Introduce
Introduce
Product?
Product?

Where
Where to
to
Launch
Launch aa
New
New
Product?
Product?

16

Product Life Cycle

(Fig. 9.2, p.

354)
Sales and
Profits ($)

Sales

Profits
Time
Product
Development

Introduction

Growth

Maturity

Decline

Losses/
Investments ($)

Sales and Profits Over the Products Life From Inception

to Demise
17

Applications of the
Product Life Cycle

The PLC concept can describe a:

Product class which has the longest life cycles

(i.e. gas-powered cars),
Product form which tend to have the standard
PLC shape (i.e. minivans),
Brand which can change quickly because of
changing competitive attaches and responses
(i.e. Ford Taurus),
Style which is a basic and distinctive mode of
expression,
Fashion which is a popular style in a given field,
Fad which is a fashion that enters quickly, is
adopted quickly and declines fast.

Style

Modifying the Product; Meeting the competition.

To yotas RAV4 i s
mor e com pa ct and
mor e modernlo oking than most
other SUVs.
What do o ther
SUVs, considered
new pro ducts in
the ni ne tie s, lo ok
li ke ?

Click or pre ss sp ac eba r to retu rn.

18

Problems Using the PLC as

Suggested in Forget the
The PLC
Concept
Can
Trouble
PLC!

Help in Developing
identifying Which
Stage of the PLC
Marketing Strategies
the Product Is In
for Different Stages of
the Product Life-Cycle, Difficult to Forecast
the Sales Level, the
However Some
Length of Each
Problems Can Arise: Stage, and Shape
of the
Strategy is Both
a PLC
Cause and a
Result of the
Products Life
Cycle

19