Chapter 9: New Product Development

1
Chapter 9New Product Development Life Cycle
Strategies

• June 12, 2001

2
New Product Development
Gillettes Growth Drivers

• RD
• Capital investment
• Advertising expense
• Annual earnings growth 17
• 45 of Duracell sales outside North America

3
New Product Developmentimpact of product
life-cycle
Two major challenges

• New product development
• New to replace dying products
• Need to constantly over-innovate to compensate
  for high failure rates
• Life-cycle strategies
• Adapt products to changing marketing environment
• tastes
• technologies
• competition

4
New Product Development Strategy

• New products include
• Continuous Innovations
• product improvements, or product modifications
• Discontinuous Innovations
• Original products, new brands
• Two sources of new products
• Acquisition - company, patent, licence
• Research development (RD) internally

5
Why do 80 of new products fail?

• Overestimated demand
• Incorrect targeting and positioning
• 4Ps
• Poor product design
• Error in pricing
• Poor Promotion
• Improper Distribution
• Cost overrun
• Underestimation of Competition

6
New Product Success Factors

• Unique superior product
• quality, features, value
• Well defined product concept from startup
• at all three levels
• New Product Planning
• Specific acceptance criteria
• Specific strategic role
• Systematic new-product process in place

7
New-Product Development Processmajor stages
Idea screening
Concept Development testing
Idea generation
8 Steps
Commercialization
Marketing strategy
Test marketing
Business analysis
Product development
8
Step 1 Idea Generation

• Need to constantly generate lots of new ideas in
  order to find a few successful ones
• Major Sources of New-Product Ideas
• Internal sources
• employees, sales people, RD, managers
• Customers - surveys, complaints, focus groups
• Competitors - reverse engineering
• Distributors suppliers - Point of Purchase
• In other words - marketing intelligence and
  research

9
Step 2 Idea Screening

• Purpose is to identify good ideas drop poor
  ones fast (triage) - prioritization
• Challenge is to maintain creativity a stream of
  new ideas
• Standardized write-up format developed for easy
  comparison
• Target market potential, 4Ps, costs
• Criteria and rating to select one
• Usefulness, image consistency, strategic fit
  (core competencies), marketability with 4Ps
• Point system can be used

10
Step 3 Concept Development testing

• Defining the Product concept
• New-product idea in detail stated in meaningful
  consumer terms - 3 layers
• Concept development
• Expanding the new-product idea into various
  alternative product concepts with different
  approaches to targeting, positioning and the 4Ps
• Concept testing
• Target consumers exposed to new-product concepts
  - good use of focus groups
• Word or picture description or physical
  presentation of the concept (prototype)
• Questions asked and reactions observed

11
Step 4 Marketing strategy development

• Strategic Decisions in bringing a product concept
  to market
• Target market
• Planned product positioning
• Sales, market share and profit goals
• Outline price, distribution and first year
  marketing budget
• Planned long-run sales
• Profit goals
• Marketing mix strategy - 4Ps

12
Step 5 Business Analysis

• Estimate maximum and minimum sales
• company history and market opinion
• Estimate product costs and profits
• Analyze projected sales, costs and profit in
  consideration of companys strategic objectives
• Determine the attractiveness of the proposal to
  the bottom line

13
Step 6 Prototype Development

• Performed by engineering or RD
• Transform product concept into a physical product
  that can be test marketed

• Prototype - functional and psychological to
  stimulate interest
• Major investment of time and money

14
Step 7 Test marketing
Testing the prototype and marketing program
possibilities in a realistic market setting

• Advantages
• Reduces uncertainty about product and marketing
  approach
• Saves risk and expense of full launch
• Disadvantages
• High cost
• Longer time-to-market
• Tips off competitors

15
Types of test markets

• Standard (Most popular approach)
• Use small number of representative test cities
• Store audits, consumer surveys, sales figures
• Costly time consuming
• Competitor reaction obscures results
• Controlled - panel of stores on a fee basis
• Client specifies stores and locations
• Shelf space/location, displays, promotion and
  price controlled
• Sales tracked
• Simulated - laboratory setting

16
Product Development Processsimulated test
markets

• Use real or laboratory store
• Consumers view test and competitive ads
• Given shopping money to spend or keep
• Interview on reasons for purchasing or not
• Phone follow-up on attitudes, purchase plans
• Costs less - can be done in eight weeks
• Risk from small sample, artificial situation

17
Product Development Processtest marketing
business products

• Product use tests - beta testing
• Demonstrations at trade shows
• Evaluate performance and buying plans
• Standard or test market sales territories

18
Step 8 Commercialization

• Major investment in manufacturing facilities
• High initial advertising and promotion expense
• Considerations
• Timing - time of year, business cycle
• Launch location - Local, regional roll-out,
  national or global

19
Speeding Up the Development Process

• Sequential process is traditionally used
• Other options
• Concurrent or team-based approaches
• Parallel Development
• Shorter cycle-times
• First-mover advantage
• Time is money
• Higher risk tension

20
Buyer Decision Process for new products
(pp.183-184)

• Individual Adoption Process
• Mental process
• Stages
• Awareness
• Interest
• Evaluation
• Trial
• Adoption

21
Influence of Product Characteristics on Rate of
Adoption

• Relative advantage - superiority over existing
  products
• Compatibility - with values, experience,
  lifestyles of users
• Complexity - easier to understand (use and
  purpose) the better - e.g. Internet
• Divisibility - degree of trialability in small
  low-risk doses
• Communicability/Observability - can product
  concept be observed and described to/by others?

22
Adopter Categorizationrelative time of adoption
34 Early majority
34 Late majority
13.5
Early adopters
16 Laggards
2.5 Innovators
Time of adoption of innovations
23
Adopter Categories

• Can be used as a basis for segmentation
• Require different Marketing Mix Approaches
• e.g. Early adopters need less promotion, and
  act as opinion leaders for others
• Laggards wait until quality and price are
  stabilized

24
Product Life-Cycle Strategies
S-Curve
Sales Profit ()
Sales
Profits
Loss ()
Growth
Decline
Development
Maturity
Introduction
25
PLC Stages - see Table 9-3, p. 333

• Introduction
• Product awareness (sellers consumers) is top
  priority - Promotion
• high cost, investment in the future
• Growth
• sales and profits increase as majority begins to
  adopt
• All 4Ps important, especially product and
  distribution
• Gaining market share is key

26
PLC Stages (2)

• Maturity
• longest life-cycle stage, so many products on the
  market are there at any given time
• Manage market - new uses, more users, more usage
• Manage Product - improvement of features
• Manage other Ps
• Decline
• Sales and profits slide
• Maintain, Harvest or Drop the product