CHAPTER 6

NEW PRODUCT DEVELOPMENT

AND PRODUCT LIFE-CYCLE
STRATEGIES

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LEARNING OBJECTIVES
🞆 Explain how companies find and develop new product
ideas.
🞆 Explain reasons why many products fail.
🞆 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.

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NEW PRODUCT DEVELOPMENT
STRATEGY
🞆 A firm can obtain new product in two ways.
⚫ One is through acquisition – by buying a company, a
patent, or a license to produce some else’s product.
⚫ The other is through new-product development in the
company’s own research and development department.
By new product mean original products, product
improvements, product modifications and new brands that
the firm develops through its own research and
development efforts.

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WHY DO SO MANY PRODUCTS FAIL?
THERE ARE SEVERAL REASONS:

🞆The market size may have been overestimated

🞆The product was not designed as well as it should
have been.
🞆May be it was incorrectly positioned in the market,
price too high, or advertised poorly.
🞆A high level executive might push a favorite idea
despite poor marketing research findings.
🞆Sometimes the costs of product development are
higher than expected, and sometimes competitors
fight back harder than expected. 4
 1 IDEA GENERATION
NEW PRODUCT DEVELOPMENT PROCESS
2 IDEA SCREENING

3 CONCEPT AND DEVELOPMENT

4 MARKETING STRATEGY DEVELOPMENT

5 BUSINESS ANALYSIS

6 PRODUCT DEVELOPMENT

7 TEST MARKETING

8 COMMERCIALIZATION 5
 1 IDEA GENERATION
🞆 New product development starts with idea generation. It is the
systematic search for new product ideas.A company typically has to
generate many ideas in order to find a few good ones.
🞆 New product ideas have to come from somewhere, the sources
include:
⚫ Internal sources within the company, i.e. employees/through
formal research and development. Example Dyson a British
technology company designing and manufacturing household
appliances.
⚫ Competitors – company watch competitors advertisements to get
clues about new product
⚫ Customers – the company can analyze customer questions and
complaints to find new products that better solve consumer
problems.
- Company can conduct surveys/focus groups to learn about
consumer needs and wants. Example LEGO Group invite
customers to share suggestions and ideas.
⚫ Distributors, supplies and others – including trade magazines, 6
shows & seminars, government agencies, new product
consultants, advertising agencies etc..
CONT…
🞆 Companies are now developing crowdsourcing or open-
innovation new product idea programs.
🞆 Crowdsourcing – inviting broad communities of people,
customers, employees, independent, scientists and researchers
and even public at large into the new product innovation
process.
🞆 Tapping into a breadth of sources – both inside and outside the
company can produce unexpected and powerful new ideas.

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 2 IDEA SCREENING

🞆This process involves shifting through the

ideas generated above and selecting ones
which are feasible and workable to develop.
Pursuing non-feasible ideas can clearly be
costly for the company.
🞆As product development costs are high,
marketers will only go ahead with the product
ideas that will turn into profitable products.

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 3 CONCEPT AND DEVELOPMENT
🞆 The organization may have come across what they believe to be a
feasible idea; however, the idea needs to be taken to the target
audience.
🞆 An attractive idea must be developed into a product concept. A
product concept is a detailed version of the idea stated in
meaningful consumer terms.
🞆 The company ‘s task is to develop a new product into alternative
product concept, find how attractive each concept is to customers,
and choose the best one.
🞆 Concept testing calls for testing new product concepts with groups
of target consumers. The concepts may be presented to consumers
symbolically or physically.
⚫ For some concept tests, a word or picture description might be
sufficient. However, a more concrete and physical presentation
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of the concept will increase the reliability of the concept test.
4 MARKETING STRATEGY DEVELOPMENT

🞆 The next step is marketing strategy development,

designing an initial marketing strategy for introducing
this product to the market.
🞆 The marketing strategy statement consists of three parts:
1. The market target, the planning product positioning, and the
sales, market share, and profit goals for the first few years.
2. The product’s planned price, distribution, and marketing
budget for the first year.
3. The planning of long-run sales, profit goals, and marketing
mix strategy.

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5 BUSINESS ANALYSIS

🞆 Business analysis involves a review of the sales, costs,

and profit projection for a new product to find out
whether they satisfy the company ‘s objective. If they
do, the product can move to the product development
stage.
🞆 To estimate sales, the company might look at the sales to
assess the range of the risk.

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6 PRODUCT DEVELOPMENT

🞆 If the product concept passes the business test, it moves

into product development. Here, R&D or engineering
develops the product concept into a physical product to
ensure that the product idea can be turned into a
workable market offering.
🞆 Developing a successful prototype can take days, weeks,
months, or even years.
🞆 Often products undergo rigorous tests to make sure that
they perform safety and effectively, or that consumers
will find value in them.

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7 TEST MARKETING

🞆 If the product passes functional and consumer tests, the

next step is test marketing, the stages at which the
product and marketing programmed are introduced into
more realistic market settings.
🞆 Test marketing means testing the product within a
specific area. The product will be launched within a
particular region so the marketing mix strategy can be
monitored and if needed, be modified before national
launch.

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7 TEST MARKETING

🞆 Test marketing gives the marketer experience with

marketing the product before going to the great expense
of full introduction.
🞆 It lets the company test the product and its entire
marketing program-positioning strategy, advertising,
distribution, pricing, branding and packaging, and
budget level.
🞆 There are three (3) approaches for test marketing:
⚫ Standard test markets: The company finds a small number of
representative test cities, conduct full marketing campaign in
these cities, and uses store audits, consumer and distributor
surveys, and other measures to gauge product performance.

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7 TEST MARKETING
🞆 Controlled test marketing: controlled test marketing system like
ACNIelsen’s Scantrack and Information Resources, Inc.s(IRI
BehaviorScan) track individual consumer behavior for new
products from the television set to the checkout counter.

🞆 Stimulated shopping environment: The company or research firm

shows ads and promotions for a variety of products, including
the new product being tested, to a sample of consumers. It gives
consumers a small amount of money and invites them to a real or
laboratory store where they may keep the money or use it to buy
items. The researchers note how many consumers buy the new
product and competing brand.

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8 COMMERCIALIZATION

🞆 If the company goes ahead with commercialization –

introducing the new product into the, market – it will face
high costs.
🞆 The company launching a new product must first decide on
introduction timing.
🞆 Next, the company must decide where to launch the new
product – in a single location, a region, the national market, or
the international market.

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 PRODUCT LIFE CYCLE
Sales and profits (RM) Maturity
Stage

Growth
stage Decline
Stage

Introduction
stage sales

profits
0
Time

Product
Losses-
developme
investment (RM) nt stage
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PLC
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 SUMMARY OF PRODUCT LIFE-CYCLE CHARACTERISTICS, OBJECTIVES AND
STRATEGIES
Characteristics Introduction Growth Maturity Decline
Sales Low sales Rapidly rising sales Peak sales Declining sales

Costs High cost per Average cost per Low cost per customer Low cost per customer
customers customer
Profits Negative Raising profits High profits Declining profits

Customers Innovators Early Adopters Middle majority Laggards

Competitors Few Growing number Stable number beginning to Declining number

decline
Marketing Create product Maximize market share Maximize profit while Reduce expenditure
Objectives awareness and trial defending market share and milk the brand
Strategies
Product Offer a basic product Offer product Diversify brand and models Phase out weak items
extensions, service,
warranty
Cost Use cost plus Price to penetrate Price to match or beat Cut price
market competitors
Distribution Build selective Build intensive Build more intensive Go selective, phase out
distribution distribution distribution unprofitable outlets

Advertising Build product Build awareness and Stress brand differences Reduce to level needed
awareness among interest in the mass and benefits to retain hard core
early adopters and market loyalist
dealers 19
Sales promotion Use heavy sales Reduce to take Increase to encourage Reduce to minimal level
promotion to entice advantage of heavy brand switching
trial consumer demand
PRODUCT LIFE CYCLE
 1)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.

2)Introduction Stage
🞆 It begins when the new product is first distributed and
made available for consumer purchase in the market. In this
stage, profits are negative or low because of the low sales and high
distribution and promotion stage. The company should realize that
the initial strategy is just the first step in a grander marketing plan
for the product’s entire life cycle.
 

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 PRODUCT LIFE CYCLE
🞆 3)Growth Stage
The early adopters will continue to buy, and later buyers will
start following their lead, especially if they hear favorable word of
mouth. New competitors will enter the market and they will
introduce new product features and the market will expand. Profits
increase during the growth stage, as promotion costs are spread over
a large volume and as unit manufacturing costs fall.

🞆 4)Maturity Stage
This maturity stage normally lasts longer than the previous stages,
and it poses strong challenges to marketing management. As the
product become well-known, sales continue to increase but at a
reduced rate of growth and the product starts entering a stage of
maturing. Company need to do market modification, product
modification and marketing mix modification.
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PRODUCT LIFE CYCLE
5)Decline Stage
🞆 It is a stage where the sales of the product will decline. The
sales decline can be slow or rapid because of technological
advances, consumer shift in tastes, increased domestic and foreign
competition and product loses appeal. Carrying a weak product can
be very costly to a firm and not just in profit terms.

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THANK YOU… 23