9.

3 NEW PRODUCT DEVELOPMENT STRATEGY & PRODUCT LIFE CYCLE

- A new product can be defined as anything that can be offered to a market for
attention, acquisition, use or consumption and that might satisfy a want or need.

- The definition of a new product encompasses; original products, product

improvement, product modifications and new brands that the firm develops through
its own research and development efforts.

- The new product development process takes the following eight steps:

1. Idea generation
2. Idea Screening
3. Concept development and testing
4. Marketing strategy development
5. Business analysis
6. Product development
7. Test marketing
8. Commercialization

1. Idea Generation
- A company has to brainstorm and generate many ideas in order to find a few
good ones. There are two main sources of new product ideas i.e. internal
sources and external sources.

- Internal sources include a company top management, manufacturing staff, the

sales people and the research and development departments.

- External sources include customers, competitors, distributors, suppliers etc.

2. Idea Screening
 - Involves filtering new product ideas in order to spot good ideas and drop poor
ones as soon as possible. Ideas are subjected to selection criteria that include
affordability, acceptability, and reversibility.

3. Concept Development and Testing

- An attractive idea must be developed into a product concept. A product
concept is a detailed version of the new product idea stated in meaningful
consumer terms i.e. presenting the consumer with descriptions and drawings
to get their reactions.

- Concept testing involves testing new product ideas with groups of target
consumers e.g. using questionnaire to ask customers of their opinion of a new
product.

4. Marketing Strategy Development

- Involves designing an initial marketing strategy for a new product based on

the product concept.
- The marketing strategy statement consist of three parts:
(a) Target market, market segment, the product positioning
(b) Market mix i.e. product, pricing, distribution and promotion.
(c) Projecting possible viability of the product.

5. Business Analysis
- Business analysis involves a review of the sales, costs and profit projections
for a new product to find out whether they satisfy the company’s objectives.

- If they do, the product moves to the product development stage.

- To estimate sales, the company might study the sales history of similar
products and conduct surveys of market opinion.
6. Product Development

- Involves the development of the product concept into a physical product in

order to ensure that the product idea can be turned into a workable product.

- At this stage, the research and development department develops a sample or

prototype of the product. Development of a successful prototype may go into
weeks, months or years.

7. Test Marketing

- This is a stage in which the product and marketing program are tested in a
more realistic market setting.

- At this stage the company tests the entire marketing program i.e. positioning
strategy, advertising, distribution, pricing, branding and packaging. Three
approaches to test market:

(a) Standard test markets – Is where a company selects a city or town, conducts a
full marketing campaign in this town and uses shop audits, consumer and
distribution surveys to gauge product performance. The results are used to
forecast national sales and profits discover problems and fine tune the
marketing programme.
(b) Controlled Test markets – A group of customers are selected, they are directed to
participating shops. Within the shops the company researchers have control
factors such as shelf placement, price packaging and promotions for the
product being tested. Behaviourscan is used to track the consumer behaviour
for new products from a television set to a checkout counter. Detailed scanner
information on each consumer purchases is fed into a central computer where
it is combined with the consumer demographic and TV viewing information,
and analysis done and conclusions drawn based on a daily or weekly report.
 (c) Simulated test markets – The Company shows advertisements and promotions
for a variety of products, including the new product being tested to a sample
of consumers. It then gives the consumers a small amount of money and
invites them to a real or laboratory store where they are allowed to buy
anything using the money. The researchers note how many consumers will
buy the new product or competing brands. The researcher then asks the
consumers the reason for purchase or non purchase. Some weeks later, they
interview the consumers by phone to determine product attitude, usage,
satisfaction and repurchase intentions.

8. Commercialization

- Test marketing gives management the information needed to make a final

decision about whether to launch the new product or not.

- If the company decides to go ahead then it commercializes the product.

Commercialization is the introduction of a new product into the market.
- The company launching a new product must first decide on:
(i) Introduction timing – Depending on economic trends.
(ii) Where to launch the product – In a single location, region, the whole
nation or internationally. act

PRODUCT LIFE CYCLE

Management of every organisation knows that each product has a life cycle that starts at
conception of product idea and ends at the death of a product. The company therefore aims
at maximizing its profits before the products useful life ends.

Assumptions of the PLC

i) A product has a limited life

 ii) Product sales pass through distinct stages each posing different challenges to
the seller
iii) Product profit rise and fall at different stages
iv) Each stage requires different financial, marketing, manufacturing, purchasing
and personnel strategies.
Stages in the Life Cycle

1. Product development CONCEPTION

2. Introduction BORN
3. Growth GROWTH
4. Maturity MATURITY
5. Decline DEATH

Profits & Losses

Innovators Early Middle Laggards

Adopters majority

PLC
curve
Sales curve

Profits curve
Time
Product
Development Growth Maturity Decline
Introduction
stage

The diagram above shows the sales and profits over the products life from inception to
demise.

NB: The PLC shape presented above is a general shape but different products will have
different shapes.

MARKETING STRATEGIES AT THE VARIOUS STAGES OF THE PLC

 1. INTRODUCTION STAGE
Product development begins when the company finds and develops a new product idea.
During product development sales are zero and the company’s investment costs mount. The
introduction stage starts when the new product is first launched.

In this stage, profits are negative or low because of low sales and high distribution and
promotional expenses.

A company that is pioneering a market must choose a launch strategy that is consistent with
the intended production positioning.

Firms therefore focus their selling to those buyers who are most ready to buy and not on
maximizing profits. These groups of first time buyers are also called innovators.
 Strategies at the Introductory Stage
There are four possible strategies at this stage and these are displayed in the table below.

LOW
HIGH PROMOTION
RAPID SKIMMING SLOW SKIMMING
HIGH
High Profile Strategy Selective Penetration Strategy

PRICE
RAPID PENETRATION SLOW PENETRATION
LOW Pre-emptive Penetration Strategy Low Profile Strategy

(i) Rapid Skimming

An organisation can decide to employ rapid skimming if;

 Large Part of the market is unaware of the product

 Market willing to buy at high price
 Competition is present
 Market is large
For Example Safaricom mobile phone service provider

(ii) Slow Skimming

An organisation may decide to employ slow skimming if;

 Market is relatively limited in size

 Large part of the market is unaware of the product
 Market is willing to pay high prices
 A little threat in competition

(iii) Rapid Penetration

An organisation may decide to employ rapid penetration if;

 Market is large in size
 Market is relatively unaware of the product
 Market is price sensitive
 Potential competition exists
 For Example EABL and Alvaro
(iv) Slow Penetration
An organisation may decide to employ slow penetration if;

 Market is large
 Market is aware of the product
 Market is price sensitive
 Established competitors exist

For Example entry of Orange mobile phone service providers into Kenya

2. GROWTH STAGE

- In the growth stage, sales climb quickly. The early adopters start to buy the product
especially after hearing favourable word of mouth about the product.
- The increasing profits soon attract new competitors who join the market in the hope
of gaining from this opportunity.
- The increase in competitors leads to an increase in the number of distribution outlets
and sales jump up.
- Educating the market remains key to marketers, while keeping watch of competition.
- Profits increase as promotions are spread, while per unit cost falls as indicated by the
first growing profit curves.

Strategies here include:

i) The company improves product quality and adds new product features to beat
competition.
ii) The company opens new distribution channels.
iii) It shifts advertising from building product awareness to building product
conviction and loyalty.
iv) Prices may be lowered to attract new buyers or as a means of creating
competitive advantage.
- A sustained effort on product improvement, promotion and distribution may lead the
company to capturing a dominant position.

3. MATURITY STAGE
- This is the stage in the PLC in which sales growth slows or levels off. This stage
usually lasts longer than the growth stage.

- Most products die at this stage, because competition is greatest at this point. It is
divided into three:

a) Growth Maturity: This is the point where the growth rate starts to decline
though some laggard buyers continue to come in.

b) Stable Maturity: A stage where sales level off because the market is
saturated.

c) Decaying Maturity: A stage where there is absolute decline of sales because

customers are seeking substitute products. Competitors begin reducing prices,
increase their advertising and sales promotion and increase their research and
development budgets to find better versions of the product. This eventually leads
to a drop in profits.

Strategies here include:

i) In modifying the market, the company tries to increase the consumption of

the current segments. It also looks for ways of increasing usage among
present customers. The company can also move into a new market segment.

ii) In modifying the product, quality, features, styles and designs are upgraded to
inspire more consumers to use it. Alternatively, the company might add new
features that expand the products usefulness, safety or convenience.

iii) In modifying the promotional strategy, the company’s objective will be to

improve sales. It can cut prices to attract new users and lure competitor’s
 customers. It can launch a better advertising campaign or use aggressive sales
promotions, trade deals, price offs and contests.

iv) In terms of pricing, the company can maintain current prices as long as they
are competitive. The company might reduce prices if doing so gives them a
competitive advantage.

4. DECLINE STAGE

- This is the PLC stage in which a products sales decline. Sales may plunge to zero or
they may drop to low levels where they continue for many years.
- As sales decline, many competitors exit the market, drop smaller market segments or
cut off promotional budgets and reduce their prices further.
- A weak product can be costly to maintain. It takes a lot of management time, it
requires advertising and sales force attention.
- Management therefore needs to identify the aging products and decide whether to
maintain, harvest or drop each of them.

Strategies here include:

i) Management may decide to maintain the product in the hope that competitors will exit
the industry, leaving the company with an advantage.
ii) Harvest the declining product - which means reducing various costs (e.g advertising
sales force, research and development etc.) and hope that sales hold up. If successful,
harvesting increases the company’s profits in the short run.
iii) Management may decide to drop the product. It can sell it to another firm or simply
liquidate it at salvage value.
iv) Management may decide to divest. Divesting strategies enables management to do away
with a product whose performance is below expectation. Two approaches can be used;
a) Concentric diversification - Diversification is the creation of products similar to
the one existing or creating products completely different from existing ones but
 which may appeal to existing and new customers e.g. Coca cola deciding to
produce and sell Dasani water

b) Conglomerate diversification - Conglomerate diversification is the involvement in

production of products or provision of services that are not related with the
current products and services e.g. EABL deciding to produce Alvaro.