PRODUCT LIFE CYCLES AND NEW PRODUCT DEVELOPMENT

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PRODUCT LIFE CYCLES AND NEW PRODUCT DEVELOPMENT

• Professor Chip Besio
• Cox School of Business
• Southern Methodist University

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Stages of the Product Life Cycle
Time
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Introduction StageISSUES

• Supply side
• Technological leap-froging
• Assume industry-wide start-up costs
• Demand side
• Some uncertainty in market size
• Some uncertainty in market tastes
• Innovators critical

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Introduction StageSTRATEGIES

• Market pioneers
• Very risky
• Need financial resources
• The bleeding edge
• Pricing
• Skimming
• Penetration

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Growth StageSTRATEGIES

• Early followers
• Emergence of repeat buyers
• Options
• Imitate
• Innovate
• Differentiate

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Maturity StageISSUES

• Technical certainty
• Initial costs covered
• Experienced, well-informed buyers
• Replacement sales greater than initial sales
• Problem - Commoditization

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Maturity Stage STRATEGIES

• Pioneer new segment
• Head-to-head competition with leader
• Low cost strategy
• Catch leader asleep

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Decline StageSTRATEGIES

• Understanding reasons for decline
• Options in order...
• Maintain
• Harvest
• Drop

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What Is A New Product?

• New to the world
• New to the company
• Flankers
• Line extensions
• Brand extensions
• Repositioning
• Model changes

Dyson Products
Swiffer Products
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New Product Development

• New product development is the most important
  strategic activity of any firm
• However, it is the most risky venture
• Most new products fail!

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New Product Development Risks

• Study by Assoc. of National Advertisers (2004)
  --across all types of industries
• 27 of line extensions failed
• 31 of new brands introduced in categories where
  company already had a product failed
• 46 of new products introduced to new categories
  failed
• Only 1 in 7 new product ideas are carried to the
  commercialization phase

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Why New Products Fail

• Poor planning and strategy
• Market is not attractive
• Poor concept
• Poor execution
• Poor use of research
• Poor technology
• Poor timing
• Changes in tastes/environment
• Bad support from channel

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How New Products Succeed

• Top-management commitment
• Start with the consumer -- not the factory
• Intelligent use of research
• Find a competitive advantage
• Move quickly
• Know when to get out
• Accept, but manage risk

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New Product Success Factors

• Be close to the market (trends)

• Set a strategic direction

• Play to your strengths

• Strong organizational support

• Speed to market

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Why Speed to Market?

• Markets are getting more specialized
• Intensified competition
• Changing technology
• Changing tastes
• Rampant copying
• Gaining shelf space early

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New Product Development Process

• Commercialization

• Idea
• Generation

• Test
• Marketing

• Product
• Development

• Business
• Analysis

• Marketing
• Strategy

• Concept
• Development
• and Testing

• Idea
• Screening

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New Product Development ProcessIDEA GENERATION

• Gaps
• Are there unfilled current consumer needs?
• Growth
• Are there unfilled future needs?
• Synergies
• Is there unfilled potential in the firms
  existing product portfolio?

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New Product Development ProcessSOURCES OF NEW
IDEAS

• Technology
• Market needs and user solutions
• Competitors and other firms
• Channels of distribution and suppliers
• Management and employees
• Environmental changes

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New Product Development ProcessCONCEPT TESTING

• Goal
• Use primary market information to better define
  the product, forecast likely demand, and clarify
  target buyer
• Common tools
• Focus Groups
• Conjoint Analysis
• Web-based Panels

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New Product Development ProcessBUSINESS ANALYSIS

• Review Product Sales, Costs, and Profits
  Projections
• to See if They Meet Company Objectives

• If No, Eliminate
• Product Concept

• If Yes, Move to
• Product Development

• Source Prentice Hall

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Business AnalysisWHEN TO STOP A BAD IDEA

• Rule 1 Remember the sunk cost fallacy
• Rule 2 Set benchmarks for success beforehand and
  stick to them
• Rule 3 Be sure to plan research so that it will
  allow you to diagnose the cause of problems

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New Product Development ProcessTEST MARKETING

• Standard
• Test Market
• Full marketing campaign
• in a small number of
• representative cities.

• Controlled
• Test Market
• 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

• Source Prentice Hall