NewProduct Development and Product LifeCycle Strategies

1
CHAPTER 8

• New-Product Development and Product Life-Cycle
  Strategies

2
APPLE COMPUTER Innovation at Work

• Firm History
• Steve Jobss creativity led to innovation in
  user friendliness of computers.
• LazerWriters and the Macintosh established Apple
  firmly in desktop publishing market.
• Status as market share leader and innovator was
  lost in the late 1980s after Jobs left the firm.

• Firm Recovery
• Steve Jobs returns in 1997 and revitalizes Apple
  by first launching the iMac.
• The Mac OS X next breaks ground and acts as a
  launching pad for a new generation of computers
  and software products.
• iPod and iTunes change the face of music and are
  the hit of the decade.

3
New-Product Development Strategy

• Strategies for obtaining new-product ideas
• Acquisition of companies, patents, licenses.
• New product development, product improvements and
  modifications.

4
New-Product Failures

• Only 10 of new consumer products are still on
  the market and profitable after 3 years.
• Industrial products failure rate as high as 30.
• Why do products fail?
• Overestimation of market size
• Design problems
• Incorrectly positioned, priced, or advertised
• Pushed despite poor marketing research findings
• Development costs
• Competition

5
Figure 8-1Major Stages in New-Product
Development Process
6
Idea Generation

• Internal sources
• Company employees at all levels
• External sources
• Customers
• Competitors
• Distributors
• Suppliers
• Outsourcing

7
Generating New Product Ideas
Marketing in Action

• The Industrial Scientific Corporation uses its
  Web site to solicit new product ideas from
  customers or other visitors. Visit the Web site
  to see what information is solicited.

http//www.indsci.com/sup_NewProd.asp
8
Idea Screening

• Process used to spot good ideas and drop poor
  ones.
• Executives provide a description of the product
  along with estimates of market size, product
  price, development time and costs, manufacturing
  costs, and rate of return.
• Evaluated against a set of company criteria for
  new products.

9
Concept Development and Testing

• Product Idea
• idea for a possible product that the company can
  see itself offering.
• Product Concept
• detailed version of the idea stated in meaningful
  consumer terms.
• Product Image
• the way consumers perceive an actual or potential
  product.

10
Concept Testing
Marketing in Action

• The Concept Board is a consulting firm that
  assists clients such as Motts, Citibank, HBO,
  IBM, Post, and others in verbalizing /
  visualizing product concepts for consumer testing.

http//theconceptboard.com/index.html
11
Lets Talk!

• Pair up with another student and assume that you
  are in charge of the concept testing for the
  product shown at right.
• What questions would you ask of consumers who are
  evaluating this product concept?

12
Marketing Strategy Development

• Part One (Marketing Strategy Statement)
• Describes the target market, planned product
  positions, sales, market share, and profit goals.
• Part Two
• Outlines the products planned price,
  distribution, and marketing budget.
• Part Three
• Describes the long-run sales and profit goals,
  marketing mix strategy.

13
Marketing Strategy Statementfor Daimler
Fuel-CellPowered Car
Marketing in Action

• The target market is younger, well-educated,
  moderate-to-high-income individuals, couples, or
  small families seeking practical, environmentally
  responsible transportation. The car will be
  positioned as more economical to operate, more
  fun to drive, and less polluting than todays
  internal combustion engine or hybrid cars. It is
  also less restricting than batter-powered
  electric cars, which must be recharged regularly.
  The company will aim to sell 100,000 cars in the
  first year, at a loss of not more than 15
  million. In the second year, the company will aim
  for sales of 120,000 cars and a profit of 25
  million.

14
Business Analysis

• Involves a review of the sales, costs, and profit
  projections to assess fit with company
  objectives.
• If results are positive, project moves to the
  product development phase.

15
Business Analysis - Example
End of Year 1 2
3 4 5 Assets Cash
300 236
512 669 489 Accounts Receivable 0
181 478 1,103 2,154 Inventory
100 264 559
1,185 2,519 Gr. Fixed Assets 1,523
1,523 1,803 2,423 3,220 Depreciation
0 99 331 680 1,179 Net Fix
Asset 1,153 1,424 1,973 1,743
1,941 Total Assets 1,923
1,633 1,999 3,272 7,773 Total Lia NW
1,923 1,633 1,999 3,272 7,773
16
Business Analysis - Example
End of Year 1
2 3 4
5 Cash Target
300 109 239 507 9051 Accts.
Receivable 0 181 478 1,103
2,154 Inventory 100 264 559
1,183 2,519 Net Fixed Assets 1,523
1,424 1,473 1,743 1,941
Total Assets 1,923 1,978
2,750 4,448 7,5202 Orig. Investment
2,078 2,078 2,078 2,078
2,078 Addl.Ann.Inv. Req 0 345 406
425 1,428 Prev.Ann.Inv.Req. 0
0 345 751 1,175 Total
Investments 2,078 2,423 2,829
3,253 3,253 Retained Earnings 155 445
79 1,194 5,695 Tot.Inv3NW
1,923 1,978 2,750 4,448 8,948
17
Product Development

• Develop concept into physical product.
• Calls for large jump in investment.
• Prototypes are made.
• Prototype must have correct physical features
  convey psychological characteristics.

Video Snippet
eGo bikes developed prototypes which were
subjected to extensive product testing by
consumers.
18
Test Marketing

• Product / marketing program introduced in more
  realistic market setting.
• Not for all products.
• Can be expensive and time consuming, but better
  than making a major marketing mistake.

After test marketing the Go Active meal (an
adult happy meal) in 150 markets in Indiana,
McDonalds decided to sell it across the U.S.
19
Commercialization

• Must decide on timing (i.e., when to introduce
  the product).
• Must decide on where to introduce the product
  (e.g., single location, state, region,
  nationally, internationally).
• Must develop a market rollout plan.

20
Organizing New-Product Development

• Sequential Approach
• Each stage completed before moving to next phase
  of the project.
• Simultaneous Approach
• Cross-functional teams work through overlapping
  steps to save time and increase effectiveness.

21
Figure 8-2Sales and Profit over the Products
Life from Inception to Decline
22
Product Life-Cycle Applications

• Product class has the longest life cycle (e.g.,
  gas-powered cars)
• Product form tends to have the standard PLC shape
  (e.g., dial telephone)
• Brand can change quickly because of changing
  competitive attacks and responses (e.g., Tide,
  Cheer)
• Style is a basic and distinctive mode of
  expression (e.g., formal clothing, Danish modern
  furniture)
• Fashion is a popular style in a given field
  (e.g., business casual)
• Fad is a fashion that enters quickly, is adopted
  quickly, and declines fast (e.g., pet rocks)

23
Figure 8-3Styles, Fashions, Fads
24
Practical Problems of PLC

• Hard to identify which stage of the PLC the
  product is in.
• Hard to pinpoint when the product moves to the
  next stage.
• Hard to identify factors that affect products
  movement through stages.
• Hard to forecast sales level, length of each
  stage, and shape of PLC.
• Strategy is both a cause and result of the PLC.

25
Introduction Stage of PLC

• Sales low
• Costs high cost per customer
• Profits negative
• Marketing Objective create product awareness and
  trial
• Product offer a basic product
• Price use cost-plus formula
• Distribution build selective distribution
• Promotion heavy to entice product trial

26
Growth Stage of PLC

• Sales rapidly rising
• Costs average cost per customer
• Profits rising
• Marketing Objective maximize market share
• Product offer extension, service, warranty
• Price penetration strategy
• Distribution build intensive distribution
• Promotion reduce to take advantage of demand

27
Maturity Stage of PLC

• Sales peak
• Costs low cost per customer
• Profits high
• Marketing Objective maximize profits while
  defending market share
• Product diversify brand and models
• Price match or beat competitors
• Distribution build more intensive distribution
• Promotion increase to encourage brand switching

28
Maturity Stage of PLC

• Modifying the Market
• Increase the consumption of the current product.
• How?
• Look for new users and market segments.
• Reposition the brand to appeal to larger or
  faster growing segment.
• Look for ways to increase usage among present
  customers.

29
Modifying the Market
Marketing in Action

• WD-40 invites visitors to its Web site to join
  the fan club. Fan club members can access a list
  of 2,000 uses for WD-40, and are invited to share
  their own stories.

http//fanclub.wd40.com/login_home.cfm
30
Maturity Stage of PLC

• Modifying the Product
• Changing characteristics such as quality,
  features, or style to attract new users and to
  inspire more usage.
• How?
• Improve durability, reliability, speed, taste.
• Improve styling and attractiveness.
• Add new features.
• Expand usefulness, safety, convenience.

31
Modifying the Product
Marketing in Action

• Gillettes Fusion razor combines a precision
  trimmer blade (on back) with a five blade shaving
  surface (on front). The flexible comfort guard
  and Enhanced Indicator Lubrastrip (containing
  vitamin E and aloe) enhance shaving comfort.

http//www.gillette.com/homepage.asp
32
Maturity Stage of PLC

• Modifying the Marketing Mix
• Improving sales by changing one or more marketing
  mix elements.
• How?
• One method is to launch aggressive sales
  promotion programs, such as rebates.

33
Maturity Stage of PLC

• Modifying the Marketing Mix, cont.
• Improving sales by changing one or more marketing
  mix elements.
• How Else Can This Be Accomplished?
• Cutting prices.
• Launching a better ad campaign.
• Moving into larger market channels, including
  mass merchandisers.
• Offering new or improved services to buyers.

34
Decline Stage of PLC

• Sales declining
• Costs low cost per customer
• Profits declining
• Marketing Objective reduce expenditures and milk
  the brand
• Product phase out weak items
• Price cut price
• Distribution selective--phase out unprofitable
  outlets
• Promotion reduce to minimal level