Marketing Principles Session 8 New-Product Development and Product Life-Cycle Strategies

Marketing Principles
Session 8
New-Product
Development and
Product Life-Cycle
Strategies
Jeffrey E. Newcomb
Red Widget Strategies
for Hosei University
1
Looking Forward:
Where are we going?
Session 8, New-Product Development and
Life-Cycle Strategies, will help you to:
• Explain how organizations find and
develop new-product ideas.
• List and define the steps in the new-
product development process.
• Describe the stages of the product life
cycle.
• Describe how marketing strategies
change during the product’s life cycle.
2006 Jeffrey E. Newcomb / Red Widget Strategies

2
Apple Computer
(Case Story)
• In 1970s Apple Computer is co-founded by Steve Jobs
and Steve Wozniak, in Silicon Valley, California
• First personal computer commercially successful: the Apple II
• In 1980s Apple opened education, desktop publishing markets; today
Apple has 40% share of these markets
• Apple is a niche player in business markets, with never having
more than 5% market share
• Steve Jobs’s leadership critical to understanding consumers
• Today iPod and iTunes are redefining how we listen to music
• Apple controls portable music hardware, software and
distribution, with 65+% of market share
• 1 billion+ i-Tunes now sold; stock price tripled in 2 years
What does Apple’s advertising message, Think Different, mean?

What is the role of innovation in Apple’s success? How can we
succeed in leading or managing innovation?
3
New-Product Development
Strategy
Strategies for new-product ideas:
• Acquisition of companies, patents,
licenses
-eBay acquires PayPal
-Oracle acquires PeopleSoft
• Original products, improvements,
modifications
-Apple, sometimes in strategic alliance
-Sony and partners develop recordable high-
definition DVDs

4
Why New Product Ideas Fail
• No Champion
• Inadequate Leadership
• Conflicting Priorities
• Poor Market Planning
• Poor Demand Forecasts
• Poor Design
• High Development Costs
• Shorter Product Life Cycles
• Strong Competitive Reaction
• Weak Innovation
• Fragmented MarketsOnly 10% of new products are still
• No Speed on the market and profitable after
3 years. Failure rate for industrial
• Capital Shortage products is as high as 30%.
5
Some Marketing Failures
What were they thinking?
•Ford Motors’ Edsel
•Coca-Cola’s New Coke
•Polaroid’s instant film movie
camera
•Gerber’s baby food for adults
•Miller’s clearMarketing
of
beerfailures are often the result
•And others misunderstanding
needs,
of customer’s
poor product or service development,

or ignorance of competitive forces at 6
Finding One Successful New Product
(Starting with 64 New Ideas)
at 3M
Stage Ideas Pass Ratio Cost per Idea
Total Cost
1. Idea screening 64 1:4 $ 1,000 $ 64,000

2. Concept testing 16 1:2 20,000 320,000
3. Product develop 8 1:2 200,000 1,600,000
4. Test marketing 4 1:2 500,000 2,000,000
5. National launch 2 1:2 5,000,000
10,000,000
$5,721,000 $13,984,000

7
New Product Development
Process
Marketing Business
Strategy Analysis
Development
Concept Product
Development Development
and Testing
Market
Idea Testing
Screening
Idea
Generatio Commercializati
n on
8
Idea Generation
Where do new ideas come
from?
• Company employees
• Customers
Example: LEGO tests new “toy system” designs
• Competitors
• Distributors
• Suppliers
• Outsourcing of development
Beware the Not Invented Here! attitude!

9
Idea Screening
First pass
• Spot good ideas and drop poor ones
• Develop system to estimate:
market size, product price, development
time and costs, manufacturing costs, rate
of return
• Evaluate findings against set of company
criteria for new products
Do not throw out any ideas!
An idea may not be useful now, but could be in the future
Examples: Kao Company, for consumer products in
Japan;
Traders Joe’s, a specialty food retailer, uses Committee
of 15
to travel globe and for screen new product ideas
Hosei University
10
Concept Development
and Testing
• Product Idea: idea for a product that
could be a market offering
• Product Concept: detailed version of the idea
presented from the customer’s perspective
• Product Image: the way customers perceive a
existing product or potential product
Interviews and Focus Groups

Useful in concept development and
testing for products and services
xample: Real-time traffic reporting in the San Francisco Bay Area….
How will it work? What is the value proposition? What are the service’s
eatures and benefits? What are the characteristics of the target market
11
Marketing Strategy
Development
For the Marketing Strategy,
Part One describes
• the target market, planned product positions,
sales, market share, and profit goals
Part Two outlines the first year’s
• the product’s planned price, distribution, and
marketing budget
Part Three describes long-run
• sales and profit goals, marketing mix strategy

12
Business Analysis
Examine the sales, costs, and profit
projections for the new product or
service -- to assess fit with
organization’s objectives
Example: the MBWA Business Calendar

13
Product Development
• Develops concept into a tangible

product
• Requires significant increase in
investment
• Creates prototypes
• Prototypes must have correct physical
features and convey psychological
characteristics
Example: Gillette’s Boston shaving laboratories

14
Test Marketing
• With test marketing, product or
service introduced in realistic
market setting
• Test marketing needed for only
some products
• May be expensive and time
consuming, but helps to avoid
marketing mistakes
Example: Frito-Lay’s Baked “Sun” chips
were tested for 18 months in 2 test
markets
15
Commercialization
Decide when….
• timing of the product or service
introduction
Decide where….
• distribution of the product or service
Develop a market rollout plan
Example: Introduction of hybrid vehicles

like the Toyota Prius in US

16
Organizing New-Product
Development
Sequential Approach: each stage of
New-Product Development
completed before moving to next
phase of the project
Simultaneous Approach: Cross-

functional teams work through
overlapping steps tocompanies
Examples: Pharmaceutical save time and
develop new
increase effectiveness
drug products using the sequential approach;
Apple favors its own successful simultaneous
approach
17
Leading New Products
To Market
The Stage Gate
Detailed Full
Discover Search Developmen launch
Scoping Test
t
Idea Gate 1 Stage Gate 2 Stage Gate 3 Stage Gate 4 Stage Gate 5 Stage Success
1 2 3 4 5
Initial Second Decision on Post-

screen Pre-launch
screen business case Development business
review analysis
Time
18
Innovation
What is innovation?
Innovation is the development
and diffusion of new ideas, processes,
products or services which add
measurable value to an organization,
a community or a way of life
• What are sources of innovation?
• How can we measure the value of innovation?
• What are good examples?

19
From Session 5, Consumer Behavior
Review:
Adoption and Diffusion of
Innovations
13 1/2%
Early
adopters 34% 34%
t ekr a M
Early Late
ht wor g
majorit majority
2 1/2% y 16%
Innovators Laggard
s
Time of adoption innovations

20
Impacts of Innovation
Consider development of film-
based photography and digital
imaging:
Acceptance
Market
Film-based
photography Digital imaging
Time
21
Some Types of Innovation
Discontinuous (or Breakthrough)
Innovation
Examples: light bulb; telephone; the
Internet
Dynamically Continuous Innovation
Example: Mobile phone with Internet
capability
Low-End Disruptive Innovation
Examples: Disposable digital
camera; re-engineered plastic food
container
Continuous (or Incremental) Innovation
Example: Each faster silicon
microprocessor
22
One approach to innovation we can all practice:
Small Wins, or Kaizen

How to practice Small Wins:
•Decide and Communicate the Objective
•Be the Champion -- or Find a Champion
•Build a Small Team
•Work with Small Budget – or No Budget
•Keep to a Short Timeline
•Measure each Small Win to Achieving Objective
•Encourage Multiple Starts and Tries – and
Failure
•Recognize andSan
Celebrate each Small Win!
Francisco’s Golden Gate Bridge
is a product of many Small Wins
23
How successfully can you
fail?
Hank Aaron: Baseball Legend
• 23 Years
• 3,298 Games
• 12,364 At Bats
• 3,771 Hits
• .305 Lifetime Average
• 755 Home Runs –
All Time Baseball Record
But to achieve these
• 8,593 = Times Aaron
successes….
Failed to Hit the Ball!
24
Product Life Cycle
(PLC)
c u ol ev N
ra M
eD
e
+
em P w
aM
D
G
l ce
t nI
t nme Ddtorek
wor
t
er u
dor
p
eni
Time
ht
tcu

oi t
25
a
Introduction Stage of PLC
Characteristics:
• Sales: low
• Costs: high cost per customer
• Profits: negative
• Marketing Objective: create product
awareness and trial
• Product: offer a basic product
• Price: use cost-plus formula
• Distribution: build selective
distribution
• Promotion: heavy to entice product
26
trial
Growth Stage of PLC
Characteristics:
• Sales: rapidly rising
• Costs: average cost per customer
• Profits: rising
• Marketing Objective: maximize market
share
• Product: offer extension, service, warranty
• Price: penetration strategy
• Distribution: build intensive distribution
• Promotion: reduce to take advantage of
demand
• Competition is a minor concern
27
Maturity Stage of PLC
Characteristics:
• Sales: peak
• Costs: low cost per customer
• Profits: high
• Marketing Objective: maximize profits
while defending market share
• Product: diversify brand and models
• Price: match or best competitors
• Distribution: build more intensive
distribution
• Promotion: Increase to encourage brand
switching
28
Managing in Mature Markets
Modify the Market: Increase
consumption
of the current product
• Look for new users and market segments
• Reposition the brand to appeal to larger
or faster-growing segment
• Look for ways to increase usage among
present customers
So what moves can we make to optimize our markets
in the Maturity Stage? Example: WD-40 finds new
uses for its industrial lubricant

29
Managing in Mature Markets
Modifying the Product: Changing characteristics
such as quality, features or style to attract
new users and to inspire more use
• Improve durability, reliability, speed, taste
• Improve styling and attractiveness
• Add new features
• Expand usefulness, safety, convenience
Modifying the other elements of the Marketing

Mix: Improving sales by changing one or more
marketing mix elements
• Cut prices
• Launch a better advertising campaign
• Move into larger market channels
• Offer new or improved services to buyers

30
Decline Stage of PLC
Characteristics:
• Sales: declining
• Costs: low cost per customer
• Profits: declining
• Marketing Objective: reduce expenditures
and “milk” the brand
• Product: phase out weak items
• Price: cut price
• Distribution: selective
• Promotion: reduce to minimal level
• Harvest strategy
Example: Film-based photographic cameras and supplies
31
Sales & Profit Life Cycles
Sale
s
ati f or P
s el a S dns
Profits
NPD Introduction Growth Mature Decline

32
Some Product Life Cycle
Applications
• Style is a basic and distinctive mode of expression
Examples: Impressionist vs. Surrealist painting schools;
French Country vs. Danish Modern furniture
• Fashion is a popular style in a given field

Examples: “business casual” vs. “business formal” clothing;
Apple’s designs and colors for iMacs, iPods
• Fad is a fashion that enters quickly, is adopted

quickly, and declines fast
Examples: pet rocks, stone-washed jeans, special diets,
Tamagochi

33
Practical Problems of PLC
When using the PLC to forecast product
performance or develop marketing
• can be,difficult to identify which stage
strategies
of the PLC the product is in, now
• difficult to pinpoint when the product
moves to the next stage
• difficult to identify factors that affect
product’s movement through stages
• difficult to forecast sales level, length
of each stage, and shape of PLC
• an organization’s Marketing Strategy is
both a cause and result of the PLC
• need good marketing research
34
Creative Destruction
Creative destruction: A challenge for
business leaders to purposely change or
re-invent processes, products or services
that may be working satisfactorily at
present, for greater value in the future
To innovate and to grow

we need to
break some eggs

35
3QQ
3 Question Quiz
1. Which of the following probably best illustrates a
discontinuous (or breakthrough) innovation?
a. A drug company develops a pill anybody can take
once a year to prevent a cold or flu.
b. A bank puts its credit card machines in drive-up
locations -- so they will be more convenient to
customers.
c. A nurse decides that the growing number of older
people will increase the demand for home nursing
services; so she starts a home to care for older people.
d. A cellular phone company introduces a new service
that is less expensive than any other service in its
market area.
e. A recording company’s CD gets unexpected publicity
-- and nearly every young male, 18-43 years of age,
wants one.

36
3QQ
3 Question Quiz
1. Which of the following probably best illustrates a
discontinuous (or breakthrough) innovation?
a. A drug company develops a pill anybody can take
once a year to prevent a cold or flu.
b. A bank puts its credit card machines in drive-up
locations -- so they will be more convenient to
customers.
c. A nurse decides that the growing number of older
people will increase the demand for home nursing
services -- so she starts a home to care for older
people.
d. A cellular phone company introduces a new service
that is less expensive than any other service in its
market area.
e. A recording company’s CD gets unexpected
publicity -- and nearly every young male, 18-43
years of age, wants one.

37
3QQ
3 Question Quiz
2. The “early adapters” in the diffusion
of innovations:
a. Are respected as opinion leaders
in the marketplace
b. Look for low-risk, small-reward
product offers
c. Question any change, liking
products as they are now
d. Are concerned that the price of a
new innovation is affordable by
most people
e. “a” and “d” are correct
38
3QQ
3 Question Quiz
2. The “early adopters” in the diffusion
of innovations:
a. Are respected as opinion leaders in the
marketplace
b. Look for low-risk, small-reward product offers
c. Question any change, liking products as they
are now
d. Are concerned that the price of a new
innovation is affordable by most people
e. “a” and “d” are correct
Early Adopters have the interest and resources to try the

latest product or service in a market – they want to be the
first to do so. Early adopters are respected as opinion
leaders in the marketplace, influencing behaviors of Early
Majority consumers
39
3QQ
3 Question Quiz
3. Which of the following is the most effective
order of steps for new product or service
development?
a. idea generation, idea evaluation,
development, screening, commercialization.
b. development, idea generation, screening,
commercialization, idea evaluation.
c. commercialization, idea generation, idea
evaluation, screening, development.
d. idea generation, screening, idea evaluation,
development, commercialization.
e. screening, idea generation, idea evaluation,
40
3QQ
3 Question Quiz
3. Which of the following is the most effective order
of steps for new product or service development?
a. idea generation, idea evaluation, development,
screening, commercialization.
b. development, idea generation, screening,
commercialization, idea evaluation.
c. commercialization, idea generation, idea
evaluation, screening, development.
d. idea generation, screening, idea evaluation,
e. screening, idea generation, idea evaluation,
41
Your
TOP
TEN
• Creative destruction
• Terms
Diffusion of innovations
• Innovation
• Product development process: Idea generation,
idea screening, concept development and testing,
marketing strategy development, business analysis,
product development, test marketing,
commercialization
• Product life cycle (PLC): stages of product
development, introduction, growth, maturity, decline
• Sequential product development
• Simultaneous or team-based product
development
• Small wins for Hosei University

42
Looking Back:
Where have we been?
• Explain how organizations find and
develop new-product ideas.
• List and define the steps in the new-
product development process.
• Describe the stages of the product life
cycle.
• Describe how marketing strategies
change during the product’s life cycle.

43

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Marketing Principles

2006 Jeffrey E. Newcomb / Red Widget Strategies

What does Apple’s advertising message, Think Different, mean?

2006 Jeffrey E. Newcomb / Red Widget Strategies

poor product or service development,

1. Idea screening 64 1:4 $ 1,000 $ 64,000

2006 Jeffrey E. Newcomb / Red Widget Strategies

Beware the Not Invented Here! attitude!

2006 Jeffrey E. Newcomb / Red Widget Strategies

Interviews and Focus Groups

2006 Jeffrey E. Newcomb / Red Widget Strategies

Example: the MBWA Business Calendar

2006 Jeffrey E. Newcomb / Red Widget Strategies

• Develops concept into a tangible

Example: Gillette’s Boston shaving laboratories

Develop a market rollout plan

Example: Introduction of hybrid vehicles

2006 Jeffrey E. Newcomb / Red Widget Strategies

Simultaneous Approach: Cross-

Initial Second Decision on Post-

2006 Jeffrey E. Newcomb / Red Widget Strategies

Time of adoption innovations

Small Wins, or Kaizen

2006 Jeffrey E. Newcomb / Red Widget Strategies

2006 Jeffrey E. Newcomb / Red Widget Strategies

Modifying the other elements of the Marketing

2006 Jeffrey E. Newcomb / Red Widget Strategies

NPD Introduction Growth Mature Decline

2006 Jeffrey E. Newcomb / Red Widget Strategies

• Fashion is a popular style in a given field

• Fad is a fashion that enters quickly, is adopted

2006 Jeffrey E. Newcomb / Red Widget Strategies

To innovate and to grow

2006 Jeffrey E. Newcomb / Red Widget Strategies

2006 Jeffrey E. Newcomb / Red Widget Strategies

2006 Jeffrey E. Newcomb / Red Widget Strategies

Early Adopters have the interest and resources to try the

• Small wins for Hosei University

2006 Jeffrey E. Newcomb / Red Widget Strategies

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