New Product Development and Managing Innovation

June 2024 Examination

1. Explain the different product lifecycle stages. Describe the characteristics of each phase in
terms of product familiarity, sales etc. and provide a product example for each stage. (10
Marks)

Ans 1. Introduction:

The product lifecycle serves as a foundational framework for understanding the trajectory
of a product from its inception to its eventual decline. Comprehending the nuances of each
stage in this lifecycle is essential for businesses to effectively manage their products and
remain competitive in dynamic markets. Each phase presents unique challenges and
opportunities, influencing decisions regarding marketing, production, and innovation.
Through a comprehensive understanding of the product lifecycle stages, companies can
optimize their strategies to maximize profitability and mitigate risks associated with product
development.

Concept & Application

The product lifecycle stages represent the journey of a product from its introduction to its
eventual decline in the market. There are typically four main stages in the product lifecycle:
introduction, growth, maturity, and decline. Each stage is characterized by different levels
of product familiarity, sales, and other key factors . Here's a breakdown of each stage along
with examples:

1. Introduction Stage: When a fairly new product is launched in the market, not much is
known about it to the general public. As a result, it takes immense hard work and Tons of
successful marketing strategies to gain product traction in the marketplace.
Before introducing a new product to the market, there is a lot of risk, money,
brainstorming, and hard work involved. In addition, unknown external risks will pop up from
time to time and could threaten the product's demand and popularity.

• Characteristics: In this stage, the product is introduced to the market for the first time.
Sales are typically low as consumers are not yet familiar with the product, and marketing
efforts focus on creating awareness and generating initial interest.

• Product Familiarity: Low, as the product is new and unfamiliar to most consumers.

• Sales: Initially low, with slow growth as the product gains traction in the market.

• Example: Electric cars, such as the Tesla Model S when it was first introduced, went
through an introduction stage where sales were initially limited as consumers became
familiar with the concept and technology.

2. Growth Stage: If the first stage is successful, you will see a sharp rise in the second
stage. This is the growth stage. You can witness a huge spike in the growth curve as you
have successfully passed the first stage with flying colors. As a result, you will see a rise
(hopefully a huge one) in the popularity and demand for the product. The demand for that
particular product starts to witness a slow and gradual rise in the market. Also termed the
'takeoff stage,' the market area of the products also starts to increase by manifolds. The
moment we start to witness growth, no matter the scale of it, we can safely say that we
have entered the second stage, the Growth Stage.

• Characteristics: In this stage, the product experiences rapid growth in sales as

consumer awareness increases, and demand rises. Competitors may enter the market,
leading to increased competition.

• Product Familiarity: Moderate to high, as consumers become more familiar with the
product through marketing efforts and word-of-mouth.
• Sales: Rapidly increasing, as the product gains popularity and captures a larger share of
the market.

• Example: Smartphones, such as the iPhone, experienced a growth stage as sales soared
and adoption rates increased rapidly due to technological advancements and consumer
demand.

3. Maturity Stage: In terms of the product life cycle, you always witness it when the
market has been saturated. The early signs of market saturation are said to be this third
stage of every product life cycle, the maturity stage. Here, the product has already enjoyed
enough popularity and demand and is now at its peak. After it hits its maximum demand and
popularity, it slowly starts to level off.

Here, it generally means that most consumers are already the product owner or possess it.
Then, as we know it, the demand starts to be at a standstill, if not decline. This stage is the
decider of the product's future in the market.

• Characteristics: In this stage, the product reaches its peak level of sales and market
saturation. Competition intensifies, and companies may focus on product differentiation
and cost reduction strategies to maintain market share.

• Product Familiarity: High, as the product has been in the market for some time, and
most consumers are familiar with it.

• Sales: Plateau or stabilize, with sales leveling off as the market becomes saturated and
competition increases.

• Example: Breakfast cereal brands like Kellogg's Corn Flakes are in the maturity stage,
with stable sales and intense competition from other cereal brands in the market.
4. Decline Stage: After reaching its maximum potential, the product slowly loses its
charm. Now, you'll notice a downward trend in popularity, especially the product demand.
Usually, when the product is at its decline stage, you, a conscious marketer who noticed the
decline of the product, should ask yourself two questions- "What are the alternatives of this
product?" and "How can we revive this particular product?"

• Characteristics: In this stage, sales start to decline as consumer preferences shift, new
technologies emerge, or substitutes enter the market. Companies may choose to
discontinue the product or implement strategies to extend its lifecycle.

• Product Familiarity: High, but declining as consumer interest wanes and newer
products gain popularity.

• Sales: Declining, as the product loses relevance and market share to newer
alternatives.

• Example: Fax machines are in the decline stage as digital communication technologies
such as email and messaging apps have largely replaced their functionality, leading to
dwindling sales and market demand.

Conclusion

The product life cycle is used by senior most marketing professionals to forecast and get a
view of advertising schedules of a product, redesign the product's packaging, plan the
expansion of the product to new potential product markets, and determine its pricing
points, among many other things. These are calculative methods to support a product and
are called product life cycle's management. The marketer should be aware of the standing
of their product, that is, what stage your product is in so that you can do much better
marketing of it and make excellent business decisions.One of the most crucial tasks this
product life cycle performs is determining whether and when the new products are ready to
replace the older products in the market. If they are not yet ready to replace the old
products, the product life cycle can help us figure out when it will be.
2. Creating a ‘new product strategy’ prior to initiating the concept development phase is a
fundamental component of launching new products. Picture yourself in the Product
division of a leading multinational automotive manufacturer. The company intends to
introduce a moderately priced mid-range version specifically designed for the Indian
market. In this example’s context, assess the strategy utilizing two strategic planning
models: the Ansoff Matrix and the BCG Matrix. (10 Marks)

Ans 2. Introduction:

In the automotive industry, developing a comprehensive new product strategy is essential

for successfully launching a new vehicle model. This is particularly crucial when targeting
specific markets, such as the Indian market, which has unique preferences and demands.
As a member of the Product division in a multinational automotive manufacturer, the task
at hand involves introducing a moderately priced mid-range version tailored specifically for
the Indian market. To assess this strategy effectively, two strategic planning models will be
utilized: the Ansoff Matrix and the BCG Matrix.

The Boston Matrix was developed by consultants at the Boston Consulting Group in the
1970s, and is also known as the Product Portfolio Matrix. It is designed to help companies
work out which of their products are worth attention, which should be stopped, and what
strategies to use to improve sales.

The Ansoff Matrix, also known as the Product/Market Expansion Grid, was developed by
Igor Ansoff and first published in the 1950s. It focuses on the possible strategies for
growth, and the risks associated with each one. While both these tools are relatively old,
they still have their uses in strategic decision-making.
Concept & Application

The new product strategy for the leading multinational automotive manufacturer in the
Indian market using the Ansoff Matrix and the BCG Matrix:

Ansoff Matrix : The Ansoff matrix, due to its grid format, the Ansoff Model helps
marketers identify opportunities to grow revenue for a business through developing new
products and services or "tapping into" new markets. So it's sometimes known as the
‘Product-Market Matrix’ instead of the ‘Ansoff Matrix’.

The Ansoff Model's focus on growth means that it's one of the most widely used marketing
models. It is used to evaluate opportunities for companies to increase their sales through
showing alternative combinations for new markets (i.e. customer segments and
geographical locations) against products and services offering four strategies. In this case,
the automotive manufacturer is introducing a new moderately priced mid-range version
specifically designed for the Indian market.

1. Market Penetration: The company could focus on increasing its market share in the
existing Indian automotive market by promoting its current product offerings more
aggressively, offering discounts, or enhancing customer service. However, since the
company is introducing a new product, this strategy may not directly apply in this context.

2. Product Development: This is the strategy that aligns with the company's goal of
introducing a new product tailored for the Indian market. By developing a moderately
priced mid-range version, the company aims to attract a new segment of customers and
expand its product portfolio.

3. Market Development: The company could explore opportunities to enter new

geographical regions within India or target new customer segments within the Indian
market. However, since the focus is on introducing a specific product variant for the Indian
market, this strategy may not be directly applicable.

4. Diversification: This strategy involves entering new markets with new products. Since
the company is focusing on launching a new product variant within an existing market
(India), diversification is not the primary strategy in this case.

BCG Matrix: The Boston Consulting group’s product portfolio matrix (BCG matrix) is
designed to help with long-term strategic planning, to help a business consider growth
opportunities by reviewing its portfolio of products to decide where to invest, to
discontinue, or develop products. It's also known as the Growth/Share Matrix. The BCG
Matrix is a strategic planning tool that categorizes a company's products into four
categories based on their market share and market growth rate: Stars, Cash Cows,
Question Marks (Problem Child), and Dogs.

1. Stars: These are products with a high market share in a high-growth market. In the
context of the new mid-range version for the Indian market, the product may initially fall
into the "Question Marks" category as it enters the market and aims to gain market share.

2. Cash Cows: These are products with a high market share in a low-growth market. As
the new mid-range version gains traction and establishes itself in the Indian market, it has
the potential to become a cash cow if it maintains a dominant position in a mature market.

3. Question Marks (Problem Child): These are products with a low market share in a high-
growth market. Initially, the new mid-range version may be considered a question mark as
it enters a competitive Indian automotive market with the potential for growth.

4. Dogs: These are products with a low market share in a low-growth market. If the new
mid-range version fails to gain traction in the Indian market and faces declining sales, it
may become a dog.
In conclusion, the new product strategy of introducing a moderately priced mid-range
version for the Indian market aligns with the product development strategy in the Ansoff
Matrix. It aims to capture a new segment of customers and expand the company's product
portfolio. In terms of the BCG Matrix, the product may initially be classified as a question
mark as it enters the Indian market, with the potential to become a star or a cash cow if
successful in gaining market share and sustaining growth.

3a. What are the advantages for companies in conducting competitor analysis?
Elaborate on Porter’s Five Forces model with an industry-specific example to illustrate its
application. (5 Marks)

Ans 3a. Introduction

Competitor analysis is a crucial practice for companies seeking to gain a competitive edge
in their respective industries. By understanding their competitors’ strategies, strengths,
weaknesses, and market positioning, companies can make informed decisions to improve
their own performance.

Concept & Application

Conducting competitor analysis provides several advantages for companies:

1. Understanding Market Dynamics: Competitor analysis helps companies gain insights

into market dynamics, including competitor strategies, customer preferences, and
emerging trends. This understanding enables companies to adapt their own strategies to
better meet market demands and stay ahead of competitors.

2. Identifying Strengths and Weaknesses: By analyzing competitors, companies can

identify their strengths and weaknesses relative to competitors. This information allows
companies to capitalize on their competitive advantages and address areas of weakness to
improve their market position.
3. Benchmarking Performance: Competitor analysis allows companies to benchmark their
performance against competitors in terms of market share, sales, profitability, and other
key metrics. This benchmarking provides valuable insights into how well the company is
performing relative to its peers and where it can improve.

4. Anticipating Competitive Threats: By monitoring competitor activities and strategies,

companies can anticipate competitive threats such as new product launches, pricing
changes, or market expansions. This proactive approach enables companies to develop
counter-strategies to mitigate potential threats and protect their market share.

5. Identifying Opportunities for Differentiation: Competitor analysis helps companies

identify gaps in the market or unmet customer needs that competitors are not addressing.
This allows companies to capitalize on opportunities for differentiation and innovation,
positioning themselves more effectively in the market.

Now, let's delve into Porter's Five Forces model with an industry-specific example to
illustrate its application:

Porter's Five Forces model analyzes the competitive forces within an industry to assess
its attractiveness and profitability. The five forces include:

1. Threat of New Entrants: The likelihood of new competitors entering the market and
disrupting the existing competitive landscape.

2. Bargaining Power of Buyers: The bargaining power of customers or buyers in

influencing pricing, quality, and other terms of sale.

3. Bargaining Power of Suppliers: The bargaining power of suppliers in influencing input

prices, availability, and quality of inputs.
4. Threat of Substitute Products or Services: The availability of alternative products or
services that could potentially replace or limit demand for the industry's offerings.

5. Intensity of Competitive Rivalry: The level of competition among existing firms in the
industry, including factors such as pricing, advertising, and product differentiation.

Let's apply Porter's Five Forces model to the airline industry:

1. Threat of New Entrants: The airline industry has significant barriers to entry, including
high capital requirements, regulatory approvals, and economies of scale. However, low-
cost carriers and regional airlines may pose a threat to established airlines, particularly in
niche markets or routes.

2. Bargaining Power of Buyers: In the airline industry, buyers have moderate bargaining
power, as they can compare prices, schedules, and amenities offered by different airlines.
However, brand loyalty, frequent flyer programs, and switching costs may reduce buyer
power to some extent.

3. Bargaining Power of Suppliers: Aircraft manufacturers like Boeing and Airbus have
significant bargaining power over airlines due to the limited number of suppliers and high
switching costs. Additionally, fuel suppliers and airport authorities may exert some
influence over airlines, particularly in negotiating fuel prices and airport fees.

4. Threat of Substitute Products or Services: The airline industry faces threats from
alternative modes of transportation such as trains, buses, and automobiles, particularly for
short-haul routes. However, for long-haul international travel, air travel remains the
preferred mode of transportation due to speed and convenience.

5. Intensity of Competitive Rivalry: The airline industry is highly competitive, with

numerous airlines competing for market share. Factors such as price competition, route
networks, service quality, and frequent flyer programs contribute to intense rivalry among
airlines.
Conclusion

By applying Porter's Five Forces model to the airline industry, companies can gain insights
into the competitive dynamics and profitability of the industry, helping them make
informed strategic decisions to enhance their competitive position.

3b. List and elaborate the 4 different types of innovation? Explain by providing an
example from products/industries of your choice for each type. (5 Marks)

Ans 3b. Introduction:

Innovation is a cornerstone of progress in any industry, driving growth, competitiveness,

and customer satisfaction. Within the realm of new product development, four distinct
types of innovation emerge, each contributing uniquely to organizational success. These
include incremental innovation, disruptive innovation, architectural innovation, and radical
innovation. Understanding these types is pivotal for businesses seeking to navigate the
dynamic landscape of innovation effectively.

Concept and application

The four different types of innovation are:

1. Product Innovation: Product innovation involves developing new products or improving

existing ones to meet customer needs or create new market opportunities. This type of
innovation typically focuses on enhancing features, functionality, performance, or design
of products.

Example: Apple's iPhone is a prime example of product innovation. With each new
generation of the iPhone, Apple introduces innovative features and improvements such as
enhanced cameras, faster processors, and innovative design elements. These
advancements not only meet the evolving needs of consumers but also set new standards
for the smartphone industry.

2. Process Innovation: Process innovation involves improving or redesigning internal

processes and operations to enhance efficiency, reduce costs, or improve quality. This type
of innovation focuses on optimizing the way tasks are performed, workflows are managed,
and resources are utilized within an organization.

Example: Toyota's implementation of the Toyota Production System (TPS) is a classic

example of process innovation. TPS revolutionized the automotive manufacturing industry
by introducing principles such as just-in-time production, lean manufacturing, and
continuous improvement. These process innovations enabled Toyota to significantly
reduce waste, improve productivity, and enhance product quality, setting new benchmarks
for efficiency in manufacturing.

3. Business Model Innovation: Business model innovation involves rethinking and

redesigning the way a company creates, delivers, and captures value. This type of
innovation focuses on finding new ways to generate revenue, enter new markets, or
disrupt existing business models.

Example: Airbnb's business model innovation transformed the hospitality industry by

connecting travelers with unique lodging options offered by individual hosts. Instead of
owning hotels or properties, Airbnb acts as a platform that facilitates transactions
between hosts and guests, earning revenue through service fees. This innovative business
model not only created a new market for short-term rentals but also challenged the
traditional hotel industry by offering a more personalized and cost-effective alternative.
4. Marketing Innovation: Marketing innovation involves developing new marketing
strategies, techniques, or channels to promote products or engage with customers in
innovative ways. This type of innovation focuses on capturing customer attention, building
brand awareness, and driving sales through creative marketing approaches.

Example: Red Bull's marketing innovation is widely recognized for its unconventional and
adventurous approach to branding and promotion. Red Bull's "Red Bull Stratos" campaign,
which sponsored a skydiving jump from the stratosphere in 2012, exemplifies this. The
event generated widespread media coverage and social media buzz, effectively showcasing
Red Bull's brand values of excitement, adrenaline, and extreme sports. This marketing
innovation not only reinforced Red Bull's brand identity but also engaged consumers in a
memorable and impactful way, driving brand loyalty and sales.