New-Product Development and Product Life-Cycle Strategies

Definition
New

Product Development Development of original products, product improvements, product modifications, and new brands through the firms own R & D efforts.
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New Product Development Strategy New products can be obtained via acquisition or development. New products suffer from high failure rates. Several reasons account for failure.
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Causes of failure of new product

Overestimation

of Market Size Product Design Problems Product Incorrectly Positioned, Priced or Advertised Costs of Product Development Competitive Actions

To create successful new products, the company must: understand its customers, markets and competitors develop products that deliver superior value to customers.

New Product Development Strategy New Product Development

Process: Stage 1: Idea Generation Internal idea sources: R & D External idea sources: Customers, competitors, distributors, suppliers

New Product Development Process

Step 2. Idea Screening

Process

to spot good ideas and drop poor ones Criteria Market Size Product Price Development Time & Costs Manufacturing Costs Rate of Return

New Product Development Process

Step 3. Concept Development & Testing

1. Develop Product Ideas into Alternative Product Concepts

2. Concept Testing - Test the Product Concepts with Groups of Target Customers 3. Choose the Best One

New Product Development Process Step 4. Marketing Strategy Development

Short term Target Market Planned Product Positioning Sales & Profit Goals Market Share
Short term Price Distribution Marketing Budget Long-Term: Sales & Profit Goals Marketing Mix Strategy

New Product Development Process

Step 5. Business Analysis Step 6. Product Development
Business

Analysis

Review of Product Sales, Costs, and Profits Projections to See if They Meet Company Objectives
If No, Eliminate Product Concept If Yes, Move to Product Development

New Product Development Process

Step 7. Test Marketing

Standard Test Market

Controlled 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.

Simulated Test Market

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

New Product Development Strategy

New Product Development Process:

Stage 7: Test Marketing

Standard test markets Controlled test markets Simulated test markets

Stage

8: Commercialization
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Product Life-Cycle Strategies

The

Typical Product Life Cycle (PLC) Has Five Stages Product Development, Introduction, Growth, Maturity, Decline Not all products follow this cycle: Fads Styles Fashions

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Product Life Cycle

Sales and Profits ($) Sales

Profits
Time Product Development Losses/ Investments ($) Introduction Growth Maturity Decline

Product Life-Cycle Strategies

PLC Stages
Product Begins

development
Introduction Growth Maturity Decline

when the company develops a newproduct idea

Sales

are zero
costs

Investment

are high
Profits

are negative

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Product Life-Cycle Strategies

PLC Stages High cost per customer Product acquired development Introduction Negative profits Growth Innovators are Maturity targeted Decline Low sales Little competition

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Marketing Strategies: Introduction Stage Product Offer a basic product

Use cost-plus basis to set Distribution Build selective distribution Advertising Build awareness among early adopters and dealers/resellers Sales Promotion Heavy expenditures to create trial
Price

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Product Life-Cycle Strategies

Rapidly

rising sales

PLC Stages

Average Rising

cost per customer profits

Product development Introduction

Growth
Maturity Decline

Early

adopters are targeted

competition
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Growing

Marketing Strategies: Growth Offer product extensions, Product Stage

service, warranty Price Penetration pricing Distribution Build intensive distribution Advertising Build awareness and interest in the mass market Sales Promotion Reduce expenditures

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Product Life-Cycle Strategies

Sales

PLC Stages

Product development Introduction Growth

Maturity

Decline

peak Low cost per customer High profits Middle majority are targeted Competition begins to decline
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Marketing Strategies: Maturity Stage Product Diversify brand and models

Price

Set to match or beat competition

Distribution

Build more intensive

distribution
Advertising
Sales

Stress brand differences and benefits

Promotion Increase to encourage brand switching
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Product Life-Cycle Strategies

sales Low cost per PLC Stages customer Product development Declining profits Introduction Laggards are Growth targeted Maturity Declining Decline competition
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Declining

Marketing Strategies: Decline Stage Product Phase out weak items

Price

Cut price

Distribution Advertising Sales

Use selective distribution: phase out unprofitable outlets Reduce to level needed to retain hard-core loyalists Promotion Reduce to minimal
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level