New Product

Development & Product

Life-Cycle Strategies

“Business has only two functions - marketing and innovation.”

 New Product Development
◼ New products can be obtained via
◼ acquisition:
 acquired companies
 acquired patents
 acquired licences
or;
◼ development: original products, product
improvements, product modifications, and new
brands through the firm’s own R&D efforts
What is New Product?
• New-to-the world products new products that
create an entirely new market
• New product lines that allow a company to enter an
established market for the first time
• Additions to existing product lines new products
that supplement a company’s
established product lines
• Improvements and revisions new products that
provide improved performance or
greater perceived value
• Repositioning existing products that are targeted to
new markets
• Cost reductions new products that provide similar
performance at lower cost
 New Product Failures

◼ New products suffer from high failure rates

 Overestimation of market size
 Product design problems (poor design)
 Product incorrectly positioned, priced or advertised
(poor marketing execution)
 Product may have been pushed despite poor
marketing research findings
 High costs of product development
 Strong competitive reaction
 Challenges in NPD
▪ Idea shortage
▪ Fragmented markets
▪ Social and governmental constraints
▪ Cost
▪ Capital shortage
▪ Need for speed
▪ Shorter product life cycles
 Successful New Products

◼ Unique, superior product

◼ Well-defined product concept prior to development
◼ Technological and marketing synergy
◼ Quality of execution in all stages.
◼ Understanding of customer needs
◼ The earlier the product is introduced ahead of competition,
new product success is greater
◼ Top management support
◼ Cross-functional team-work

“You have to kiss a lot of frogs to find a prince”--- 3M

 Major Stages in New Product
Development (NPD) Process
Marketing Business
Strategy Analysis

Concept
Product
Development
Development
and Testing

Idea Test
Screening Marketing

Idea Commercialization
Generation
 NPD Process – Stages
◼ Stage 1: Idea Generation
Systematic search for new product ideas
 Internal idea sources:
◼ R&D
◼ Company employees at all levels
 External idea sources:
◼ Customers,
◼ Competitors,
◼ Distributors,
◼ Suppliers
◼ Outsourcing
 NPD Process – Stages
◼ Stage 2: Idea Screening
Process used to spot good ideas and drop poor
ones as soon as possible.

◼ Many companies have systems for rating and

screening ideas with estimates of:
 Market Size
 Product Price
 Development Time & Costs
 Manufacturing Costs
 Rate of Return
◼ Ideas are evaluated against a set of general
company criteria for new products.
 NPD Process – Stages

◼ Stage 3: Concept Development and

Testing
 Concept development creates a detailed
version of the idea stated in meaningful
consumer terms.
 Concept testing asks target consumers to
evaluate product concepts.
 Concept Development and Testing

1. Develop New Product Ideas Product Image is

into Alternative Detailed the Way Consumers
Product Concepts Perceive an Actual
or Potential Product

2. Concept Testing - Test the

New Product Concepts with
Groups of Target Customers

3. Choose the One That Has the

Strongest Appeal to Target
Customers
 Concept Development (Example)

◼ A large food processing company gets the idea

of producing a powder to add to milk to increase
its nutritional value and taste The product idea

◼ The product idea should be transformed to

product concept by answering some questions:

 Who will use the product?

 What primary benefits should this product provide?
 When will people consume this drink?
 Concept Development (Example)

◼ Concept 1: An instant breakfast drink for

adults who want a quick nutritious breakfast
without preparing breakfast

◼ Concept 2: A tasty snack for children to drink

as a midday refreshment

◼ Concept 3: A healthy supplement for older

adults to drink in the evening before they go
to bed
 Concept Testing

◼ Presenting the product concept to appropriate

target consumers and getting their reactions
◼ Computer-aided designs
◼ Virtual reality programs that stimulate the reality
◼ Presenting consumers an elaborated version of
the concept (see example)
◼ Description of the new concept should include:
 Basic benefits and functions of the product
 Package size
 Price level or price range
◼ Some product dimensions are evaluated based on the
answers of consumers
 Concept Testing (Example)

◼ Elaboration of Concept 1:
 “Our product is a powdered mixture that is added to
milk to make an instant breakfast that gives the
person all the needed breakfast nutrition along with
good taste and high convenience.

The product would be offered in 3 flavors: chocolate,

vanilla, and strawberry; and would come in individual
packets, 6 to a box, at $2.49 a box.”
 NPD Process – Stages
◼ Stage 4: Marketing Strategy Development
 Part one – for the first few years: describes the target
market, product positioning, and sales, share, and
profit goals

two – outlines the product price, distribution, and

 Part
marketing budget for the first year.

three – describes the long-run sales and profit

 Part
goals and the marketing mix strategy for the long-term.
Marketing Strategy – Part One (Example)

“The target market for the instant breakfast drink is

families with children who are receptive to a new,
convenient, nutritious and inexpensive form of
breakfast.
The brand will be positioned at the higher-price/
higher-quality end of the category.
The company will aim to sell 500.000 units or 10 %
of the market”
 NPD Process – Stages

◼ Stage 5: Business Analysis

 Involves a review of sales, costs, and profits
projections to see if they meet company
objectives
 If results are positive, project moves to the
product development phase.
 NPD Process – Stages

◼ Stage 6: Product Development

 Prototype development and testing
 Develop concept into physical product.
 Calls for large jump in investment.
 Prototype must have correct physical features
and convey psychological characteristics.
 NPD Process – Stages

◼ Stage 7: Test Marketing

 Product and program introduced in more realistic
market setting.
 Not needed for all products.
 Can be expensive and time consuming, but better
than making major marketing mistake.
 Different types (see next slide)
 Test Marketing - Approaches

Simulated Controlled
Test Market Test Market

Test in a simulated A few stores that have

shopping environment agreed to carry new
to a sample of products for a fee.
consumers. Standard
Test Market

Full marketing campaign

in a small number of
representative cities.
 NPD Process – Stages
◼ Stage 8: Commercialization
Main issues in commercialization:
 Introduction timing (i.e., when to introduce the
product).
 Where to introduce the new product
◼ Few companies can launch new products into
full national or international markets
◼ Planned market rollout over time
 Towhom to introduce new product
Must develop a market rollout plan.
 Consumer Adoption Process

◼ Innovation good, service or idea that is

perceived by someone as “new”
◼ Innovation diffusion process the spread of
a new idea from its source of
invention/creation to its ultimate users or
adopters
◼ Adopters move through awareness –
interest – evaluation – trial – adoption
 Adopter Categorization of the Basis of
Relative Time of Adoption of Innovations

34% 34%
Early Late
majority majority
2 1/2% 13 1/2% 16%
Innovators Early Laggards
adopters

Time of adoption innovations

Characteristics of the Innovation
on the Rate of Adoption

◼ Relative advantage
◼ Compatibility
◼ Complexity
◼ Divisibility
◼ Communicability
Product Life-Cycle (PLC) Strategies

◼ The Product Life Cycle (PLC) has Five

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

Sales and Profits Over the Product’s Life from Inception to Demise
 PLC Applications

◼ The product life cycle concept can be applied to a:

 Product class has the longest life cycle (e.g., soft
drinks)
 Product form tends to have the standard PLC shape
(e.g., diet colas)
 Brand can change quickly because of changing
competitive attacks and responses (Diet Coke)
 Other Shapes of PLC

◼ 3 special categories of PLC:

 Style is a basic and distinctive mode of expression
(e.g., formal clothing); can last for generations, going
in and out of vogue
 Fashion is currently accepted popular style in a given
field (e.g., business casual)
 Fad is a fashion that comes quickly into public view, is
adopted quickly, peaks early, and declines very fast;
does not satisfy a strong need (e.g., pet rocks, and
virtual pets)
 Problems Using the PLC

Trouble in identifying
which stage of the
Some problems PLC the product is in
arising relating to
PLC concept
Difficult to forecast the
sales level, the length
of each stage, and
shape of the PLC
Strategy could be
both a cause and a
result of the PLC
 PLC Strategies

PLC Stages
◼ Begins when the
◼ Product development company develops a
new-product idea
◼ Introduction
◼ Sales are zero
◼ Growth
◼ Investment costs are
◼ Maturity high
◼ Decline ◼ Profits are negative
 PLC Strategies

PLC Stages
◼ Low sales
◼ Product development ◼ High cost per customer
◼ Introduction acquired
◼ Growth ◼ Negative profits
◼ Maturity ◼ Marketing Objective:
◼ Decline create product
awareness and trial
◼ Innovators are targeted
◼ Little competition
 Marketing Strategies:
Introduction Stage
◼ Product – Offer a basic product
◼ Price – Usually is high; use cost-plus formula
◼ Distribution – Build selective distribution
◼ Promotion – Heavy to entice product trial
 Advertising– Build awareness among early adopters
and dealers/resellers
 Sales Promotion – Heavy expenditures to create trial
 PLC Strategies

PLC Stages
◼ Rapidly rising sales
◼ Product development
◼ Average cost per
◼ Introduction customer
◼ Growth ◼ Rising profits
◼ Maturity ◼ Marketing Objective:
◼ Decline maximize market share
◼ Early adopters are
targeted
◼ Growing competition
 Marketing Strategies:
Growth Stage

◼ Product – Offer product extensions, service,

warranty
◼ Price – Price to penetrate market
◼ Distribution – Increase number of distribution
outlets (intensive distribution)
◼ Promotion & Advertising – Build awareness and
interest in the mass market
 SalesPromotion – Reduce expenditures to take
advantage of consumer demand
 PLC Strategies

PLC Stages ◼ Sales peak

◼ Low cost per customer
◼ Product development ◼ High profits
◼ Introduction ◼ Marketing Objective:
◼ Growth maximize profits while
◼ Maturity defending market share
◼ Decline ◼ Middle majority are
targeted
◼ Competition begins to
decline
 Marketing Strategies:
Maturity Stage

◼ Product – Diversify brand and models

◼ Price – Set to match or beat competition
◼ Distribution – Build more intensive distribution
◼ Promotion – Increase to encourage brand
switching
– Stress brand differences and benefits
 Advertising
 Sales Promotion – Increase to encourage brand
switching
 Maturity Stage of the PLC

Company tries to increase consumption of

the current product.

Changing characteristics such as quality,

features, or styles to attract new users.

Company tries to improve sales by changing

one or more marketing mix elements.
 Maturity Stage - Market modification
Sales volume = number of brand users x usage rate per user

◼ To expand the number of brand users:

 Converting nonusers
 Entering new market segments
 Winning competitors’ customers

◼ To convince current brand users to increase their

usage of the brand:
 Use the product more frequently
 Use more of the product on each occasion
 Discover new product uses
 Maturity Stage - Product Modification

◼ To modify the product characteristics through:

 Qualityimprovement to increase product functional
performance (durability, reliability, speed, taste, etc)

 Feature improvement to add new features (size,

weight, materials, accessories)
◼ New features serve to build the company’s image as an innovator
and win the loyalty of market segments that value these features

 Styleimprovement to increase the product’s

aesthetic appeal and attractiveness
 Modifying the Product -Example

Gillette’s 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
Maturity Stage - Marketing Mix Modification
◼ Prices: - Would a price cut attract new buyers?
- Would it be better to raise the price to signal
high quality?

◼ Distribution: - Can more outlets be penetrated?

- Can the company introduce the product
into new distribution channels?

◼ Promotion: - Should advertising expenditures be

increased?
- Should the media mix be changed?
- Should the number or quality of
salespeople incraesed?
 PLC Strategies

PLC Stages
◼ Declining sales
◼ Product development ◼ Low cost per customer
◼ Introduction ◼ Declining profits
◼ Growth ◼ Marketing Objective:
reduce expenditures
◼ Maturity
and milk the brand
◼ Decline ◼ Laggards are targeted
◼ Declining competition
 Marketing Strategies:
Decline Stage

◼ Product – Phase out weak items

◼ Price – Cut price
◼ Distribution – Use selective distribution-- phase
out unprofitable outlets
◼ Promotion – Reduce to minimal level
 Advertising – Reduce to level needed to retain hard-
core loyalists
Discussion
◼ How can marketers
help products
bounce back from
the decline stage?