NEW PRODUCT PLANNING PROCESS

New-Product Development Strategy

A firm can obtain new products through:

• Acquisition
• New-product development

9-4
 New-Product Development Strategy

Acquisition refers to the buying of a whole company, a patent,

or a license to produce someone else’s product

New product development refers to original products, product

improvements, product modifications, and new brands
developed from the firm’s own research and development

9-5
 NEW PRODUCT PLANNING PROCESS

Situation
Analysis

MIS
Identification
of opportunity
Monitor &
control
Co. Mktg. New
Obj. Obj product
obje

New product
NPP Design stgy.& Imp.
NEW OPPORTUNITY IDENTIFICATION

 Changes in the mkt.size.

 New users of a product.
 New uses of a product.
 Product differentiation.
 Product – line gaps that might be filled.
 Usage gaps.
 Competitive gaps.
HOW DO YOU FIND SOLUTION TO THE PROBLEM?

 What problems do you have with task X?

 How do you currently solve these problem?
 What problems do you have with currently available
task X products/ brands?
 Why have you chosen Brand A to solve this problem ?
 HOW DO YOU FIND SOLUTION TO THE PROBLEM?

 What problems do you have with task X?

(ex) Cleansing vessels
 How do you currently solve these problem of task X?
(ex) Using Vim Cake
 Why do you choose Brand A/ Product to solve this
problem ?
(ex) Vim cake - better cleansing ability
 What problems do you have with currently available
task X products/ brands?
(ex) Vim unable to remove total burnt effects.
Methods for Generating Product Concepts

Two Broad Categories of Methods:

• Gathering Ready-Made Product Concepts
• Using a Managed Process Run by the New
Products Team
 NEW
NEW PRODUCT
PRODUCT OBJECTIVES
OBJECTIVES

 The market has repetitive functional need.

 The idea has a unique & distinctive benefit.
 The idea offers rapid start up to high velocity
sales & payback.
 There are environmental problems.
 Development costs are not excessive.
 The product can be derived, a part from existing
production facilities.
 The product can be standardized.
 The product can be sold by existing sales force/
channel partners.
Problem-Based Concept Generation
 Major Stages in
New-Product Development

10- 11
 New Product Development Strategy

• New Product Development Process:

– Stage 1: Idea Generation
• Internal idea sources:
–R&D
• External idea sources:
– Customers,
competitors,
distributors, suppliers

10- 12
New idea generation is the
systematic search for new
product ideas
3M’s corporate
culture
encourages,
supports, and
rewards new
product ideas
and innovation

10- 14
New
New Product
Product Development
Development Process
Process
Step
Step 1.
1. Idea
Idea Generation
Generation

Systematic Search for New Product

Ideas
Internal sources
Customers
Competitors
Distributors
Suppliers
 Using the Web to Solicit Product Ideas
Procter and Gamble
To see how P&G solicits ideas from customers, visit
the Procter and Gamble home page, click on the
Resources and Offers button, then select the Share
Your Thoughts listing.
Procter & Gamble

10- 16
 New Product Development Strategy

• New Product Development Process:

– Stage 2: Idea Screening
• Product development
costs increase dramatically
in later stages.
• Ideas are evaluated
against criteria;
most are eliminated.
10- 17
New
New Product
Product Development
Development Process
Process
Step
Step 2.
2. Idea
Idea Screening
Screening

• Process to spot good ideas and drop poor ones.

• Criteria:

– Market Size
– Product Price
– Development Time & Costs
– Manufacturing Costs
– Rate of Return- ROI/ Pay Back Period
 New Product Development Strategy

• New Product Development Process:

– Stage 3: Concept Development and Testing
• Product concepts provide
detailed versions of new
product ideas.
• Consumers evaluate
ideas in concept tests.

10- 19
 New-Product Development Process
Concept Development and Testing

Product idea is an idea for a possible product that the company

can see itself offering to the market

Product concept is a detailed version of the idea stated in

meaningful consumer terms

Product image is the way consumers perceive an actual or

potential product

9-11
 CONCEPT SCREENING

Two major questions:-

 Is there a market for the proposed product?

 How large is the potential market?
A few more questions :-

 What are the important concept Feature,attributes & benefits?

 Is the market segmented?
 How is the market segmented?
 What are the characteristics of the target mkt.segments?
 CONCEPT TEST

 Use full description, drawings, 3-D renderings, mock up

spec.sheet etc.

What will you Test?

 What does the customer like?

 Why?
 What does the customer dislike?
 Why?
 To what degree the customer likes a feature,
attribute, benefit or the product as a whole?
 To what degree does the customer dislike a feature,
attribute, benefit or the product as a whole?
 In the customer’s view, how does the new product
stack up against competing products?
 What would the customer be willing to pay for
the product?
New
New Product
Product Development
Development Process
Process
Step
Step 3.
3. Concept
Concept Development
Development &
& Testing
Testing

1.
1. Develop
DevelopProduct
ProductIdeas
Ideasinto
into
Alternative
Alternative
Product
ProductConcepts
Concepts

2.
2. Concept
ConceptTesting
Testing--Test
Testthe
the
Product
ProductConcepts
Conceptswith
withGroups
Groups
of
ofTarget
TargetCustomers
Customers

3.
3. Choose
Choosethe
theBest
BestOne
One
 New Product Development Strategy

• New Product Development Process:

– Stage 4: Marketing Strategy Development
• Strategy statements describe:
– The target market, product positioning, and sales,
share, and profit goals for the first few years.
– Product price, distribution, and marketing budget for
the first year.
– Long-run sales and profit goals and the marketing mix
strategy.

10- 24
 Marketing Strategy Development

Marketing strategy development refers to the

initial marketing strategy for introducing the
product to the market

9-13
 NEW PRODUCT STRATEGIES

Stage: 1

1. Who is being served? (mkt.)

2. What is being served? ( product)
3. How is the product served? (technology)

Stage: 2

1. Undifferentiated.
2. Focused/ Concentrated.
3. Differentiated.

Stage: 3
4 P’s
New
New Product
Product Development
Development Process
Process
Step
Step 4.
4. Marketing
Marketing Strategy
Strategy Development
Development
Marketing Strategy Statement Formulation

Part
Part One
One -- Overall:
Overall:
Target
Target Market
Market
Planned
Planned Product
Product Positioning
Positioning
Sales
Sales &
& Profit
Profit Goals
Goals
Market
Market Share
Share

Part
Part Two
Two -- Short-Term:
Short-Term:
Product’s
Product’s Planned
Planned Price
Price
Distribution
Distribution
Marketing
Marketing Budget
Budget

Part
Part Three
Three -- Long-Term:
Long-Term:
Sales
Sales &
& Profit
Profit Goals
Goals
Marketing
Marketing Mix
Mix Strategy
Strategy
 New Product Development Strategy

• New Product Development Process:

– Stage 5: Business Analysis
• Sales, cost, and profit
projections
– Stage 6: Product
Development
• Prototype development
and testing

10- 28
New
New Product
Product Development
Development Process
Process
Step
Step 5.
5. Business
Business Analysis
Analysis
Step
Step 6.
6. Product
Product Development
Development

Business
BusinessAnalysis
Analysis

Review
ReviewofofProduct
ProductSales,
Sales,Costs,
Costs,
and
andProfits
ProfitsProjections
Projectionsto
toSee
Seeifif
They
TheyMeet
MeetCompany
CompanyObjectives
Objectives

IfIfNo,
No,Eliminate
Eliminate
Product
ProductConcept
Concept

IfIfYes,
Yes,Move
Moveto
to
Product
ProductDevelopment
Development
 THE NEW-PRODUCT PROCESS-
Business Analysis
• if positive, build a prototype

Demand

Considerations
Considerations Cost
in
in
Business
Business
Analysis
Analysis Stage
Stage Sales

Profitability
Product development involves the
creation and testing of one or more
physical versions by the R&D or
engineering departments.

• Requires an increase in investment

 PRODUCT DESIGN & DEVELOPMENT

 Which design features are important & should be included in

the product?
 Which features are not important?
 Which features are undesirable & should be deliberately
excluded?
 How should the product be packaged & presented?
 How should the product be used?
 What kind of durability & reliability expectations do customers
have for the product?
 How much would consumers be willing to pay?
 How likely are consumers to buy the product?
 EVALUATING REALLY NEW PRODUCTS

1. Is there a relative advantage?

2. Is it compatible?
- Consumers can use it in a way consistent
with past behaviour.
3. Perceived Risk…?
4. Complexity….?

5. Observability / Communicability…
- Ability to explain & see the benefits in simple,
clear terms.
6. Triability / Divisibility….
- Ability to sample the product without
commitment
 New Product Development Strategy

• New Product Development Process:

– Stage 7: Test Marketing
• Standard test markets
• Controlled test markets
• Simulated test markets
– Stage 8:
Commercialization

10- 34
Test marketing is the stage at which the product and
marketing program are introduced into more
realistic marketing settings

Test marketing provides the marketer with experience

in testing the product and entire marketing
program before full introduction.

9-17
When firms test market:

• New product with large investment

• Uncertainty about product or
marketing program
When firms may not test market:

• Simple line extension

• Copy of competitor product
• Low costs
• Management confidence
New
New Product
Product Development
Development Process
Process
Step
Step 7.
7. Test
Test Marketing
Marketing

Standard
Standard Controlled
Test Controlled
Test Market
Market Test
Test Market
Market
Full
Fullmarketing
marketingcampaign AAfew
in
campaign fewstores
storesthat
thathave
have
in a small numberof
a small number of agreed
agreedto
tocarry
carrynew
new
representative cities. products
representative cities. productsfor
foraafee.
fee.

Simulated
Simulated
Test
Test Market
Market
Test
Testin
inaasimulated
simulated
shopping
shoppingenvironment
environment
to
toaasample
sampleofof
consumers.
consumers.
Standard test markets are small
representative markets where the firm
conducts a full marketing campaign and
uses store audits, consumer and
distributor surveys, and other measures
to gauge product performance. Results
are used to forecast national sales and
profits, discover product problems, and
fine-tune the marketing program.
Challenges of standard test markets:
• Cost
• Time
• Competitors can monitor the test
• Competitor interference
• Competitors gain access to the new product before
introduction

9-21
When firms test market:

• New product with large investment

• Uncertainty about product or marketing
program
When firms may not test market:

• Simple line extension

• Copy of competitor product
• Low costs
• Management confidence
Controlled test markets are panels of stores
that have agreed to carry new products
for a fee.
• Less expensive than standard test
markets
• Faster than standard test markets
• Competitors gain access to the new
product
Simulated test markets are events where the
firm will create a shopping environment
and note how many consumers buy the
new product and competing products.
Provides measure of trial and the
effectiveness of promotion. Researchers
can interview consumers.
Advantages of simulated test markets

• Less expensive than other test

methods
• Faster
• Restricts access by competitors

Disadvantages:

• Not considered as reliable and

accurate due to the controlled setting
 PRODUCT EVALUATION

 Does the final design meet target customer expectations?

 Are they willing to pay to generate an adequate return?
 How many can be sold?
 How long will it take to the many?
 What will trial & repeat – purchase rates be?
 Is the product packaging right?
Commercialization is the introduction of
the new product.

• When to launch
• Where to launch
• Planned market rollout
SYNERGY
SYNERGY TO
TO EXPLOIT
EXPLOIT NEW
NEW PRODUCT
PRODUCT DEVELOPMENT
DEVELOPMENT

 Available Resources.

 Experience?

 Technological Synergy?

 Marketing Synergy?
 New-Product Development Strategies

Customer-centered new-product development

focuses on finding new ways to solve customer
problems and create more customer-satisfying
experiences
• Begins and ends with solving customer problems

9-27
 New-Product Development Strategies

Sequential new-product development is a development

approach where company departments work closely
together individually to complete each stage of the
process before passing along to the next department or
stage
• Increased control in risky or complex projects
• Slow

9-28
 New-Product Development Strategies

Team-based new-product development is a

development approach where company
departments work closely together in cross-
functional teams, overlapping in the product-
development process to save time and increase
effectiveness

9-29
 New-Product Development Strategies

Systematic new-product development is an

innovative development approach that collects,
reviews, evaluates, and manages new-product
ideas
• Creates an innovation-oriented culture
• Yields a large number of new-product ideas

9-31
 CONTROL PROCESS FOR NEW PRODUCTS

New product launch

Identify key mktg.

variables

Establish Establish new

performance stds. performance stds.

Determine areas for Mktg. progm.if

modification necessary
THE NEW-PRODUCT PROCESS- Test
Marketing

The limited introduction of a product

and a marketing program to determine
the reactions of potential customers
in a market situation.
When Test Markets Don’t Work

Limited time to market

Service nature of the item
Time to see product benefit is long
 Number of units produced is small
 BusinessNow
Sensable Video Clip

Computer modeling
is being used to aid
in product design

10- 54
 Benefits of test marketing
• Yields a more reliable forecast of future sales
than no testing.
• Can pre-test alternative marketing plans.
• May discover a product fault missed in the
product development stage.
• Discover clues to distribution problems.
• Gain better insights into the behavior of
different market segments.
 Actions from test marketing

• High trial, high repurchase rate - GO

• High trial, low repurchase rate - Drop
or redesign product
• Low trial, high repurchase rate - Increase
advertising and sales promotion
• Low trial, low repurchase rate - Drop
product
 New Product Development Strategy

IRI BehaviorScan
provides an in-
market laboratory
for testing new
products and
marketing programs

IRI BehaviorScan

10- 57
 Sales and Profits
Over A Product’s Life

10- 58
 Product Life-Cycle Strategies

• The Typical Product Life Cycle (PLC) Has

Five Stages
– Product Development, Introduction,
Growth, Maturity, Decline
– Not all products follow this cycle:
• Fads
• Styles
• Fashions
10- 59
 Figure 10-3:
Styles, Fashions, and Fads

10- 60
Companies
want their
products to
enjoy a long
life cycle.
Hershey’s
actively
promotes
the fact that
it has been
“unchanged
since 1899”
10- 61
 Product Life-Cycle Strategies

• Additional marketing
investments can move a
product back into the
growth stage, as in the
case of Cracker Jack.

10- 62
 Product Life-Cycle Strategies

• Begins when the

PLC Stages
company develops a
• Product new-product idea
development • Sales are zero
• Introduction • Investment costs are
high
• Growth • Profits are negative
• Maturity
• Decline
10- 63
 Product Life-Cycle Strategies

PLC Stages • Low sales

• High cost per
• Product customer acquired
development • Negative profits
• Introduction • Innovators are
• Growth targeted
• Maturity • Little competition
• Decline
10- 64
 Marketing Strategies: Introduction
Stage

• Product – Offer a basic product

• Price – Use cost-plus basis to set
• Distribution – Build selective distribution
• Advertising – Build awareness among early
adopters and dealers/resellers
• Sales Promotion – Heavy expenditures to create
trial
10- 65
 Introduction Stage of the PLC

Sales
Sales Low
Low sales
sales

Costs
Costs High
High cost
cost per
per customer
customer

Profits
Profits Negative
Negative
Create
Create product
product awareness
awareness
Marketing
Marketing Objectives
Objectives and
and trial
trial
Product
Product Offer
Offer aa basic
basic product
product

Price
Price Use
Use cost-plus
cost-plus

Distribution
Distribution Build
Build selective
selective distribution
distribution

Advertising Build
Build product
product awareness
awareness among
among early
early
Advertising adopters
adopters and
and dealers
dealers
 Product Life-Cycle Strategies

• Rapidly rising sales

PLC Stages
• Average cost per
• Product customer
development • Rising profits
• Introduction • Early adopters are
targeted
• Growth
• Growing competition
• Maturity
• Decline
10- 67
 Marketing Strategies:
Growth Stage

• Product – Offer product extensions, service,

warranty
• Price – Penetration pricing
• Distribution – Build intensive distribution
• Advertising – Build awareness and interest in
the mass market
• Sales Promotion – Reduce expenditures to take
advantage of consumer demand
10- 68
 Growth
Growth Stage
Stage of
of the
the PLC
PLC

Sales
Sales Rapidly
Rapidly rising
rising sales
sales

Costs
Costs Average
Average cost
cost per
per customer
customer

Profits
Profits Rising
Rising profits
profits

Marketing
Marketing Objectives
Objectives Maximize
Maximize market
market share
share
Offer
Offer product
product extensions,
extensions, service,
Product
Product warranty
service,
warranty
Price
Price Price
Price to
to penetrate
penetrate market
market

Distribution
Distribution Build
Build intensive
intensive distribution
distribution

Advertising Build
Build awareness
awareness and
and interest
interest in
in the
the
Advertising mass
mass market
market
 Product Life-Cycle Strategies

PLC Stages • Sales peak

• Low cost per
• Product customer
development • High profits
• Introduction • Middle majority are
• Growth targeted
• Maturity • Competition begins
• Decline to decline
10- 70
 Marketing Strategies:
Maturity Stage

• Product – Diversify brand and models

• Price – Set to match or beat competition
• Distribution – Build more intensive distribution
• Advertising – Stress brand differences and
benefits
• Sales Promotion – Increase to encourage brand
switching

10- 71
 Maturity
Maturity Stage
Stage of
of the
the PLC
PLC

Sales
Sales Peak
Peak sales
sales

Costs
Costs Low
Low cost
cost per
per customer
customer

Profits
Profits High
High profits
profits

Marketing Maximize
Maximize profit
profit while
while defending
defending
Marketing Objectives
Objectives market
market share
share
Product
Product Diversify
Diversify brand
brand and
and models
models

Price
Price Price
Price to
to match
match or
or best
best competitors
competitors

Distribution
Distribution Build
Build more
more intensive
intensive distribution
distribution

Advertising
Advertising Stress
Stress brand
brand differences
differences and
and benefits
benefits
 Product Life-Cycle Strategies

PLC Stages • Declining sales

• Low cost per
• Product customer
development • Declining profits
• Introduction • Laggards are
• Growth targeted
• Maturity • Declining
• Decline competition
10- 73
 Marketing Strategies: Decline Stage

• Product – Phase out weak items

• Price – Cut price
• Distribution – Use selective distribution: phase
out unprofitable outlets
• Advertising – Reduce to level needed to retain
hard-core loyalists
• Sales Promotion – Reduce to minimal level

10- 74
 Decline
Decline Stage
Stage of
of the
the PLC
PLC

Sales
Sales Declining
Declining sales
sales

Costs
Costs Low
Low cost
cost per
per customer
customer

Profits
Profits Declining
Declining profits
profits

Marketing
Marketing Objectives
Objectives Reduce
Reduce expenditure
expenditure and
and milk
milk the
the brand
brand

Product
Product Phase
Phase out
out weak
weak items
items

Price
Price Cut
Cut price
price
Go
Go selective:
selective: phase
phase out
out unprofitable
unprofitable
Distribution
Distribution outlets
outlets
Advertising
Advertising Reduce
Reduce to
to level
level needed
needed toto retain
retain
hard-core
hard-core loyal
loyal customers
customers