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Chapter Nine New-Product Development and Product Life-Cycle Strategies Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall
Chapter 9- slide 1
New-Product Development and Product Life-Cycle Strategies Topic Outline
• • • • •
New-Product Development Strategy The New-Product Development Process Managing New-Product Development Product Life-Cycle Strategies Additional Product and Service Considerations
Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall
Chapter 9- slide 2
New Product Development • The ability to develop successful new products is critical for any business. • This is because new products are a good way to facilitate company growth and profitability. Moreover, it is also needed if old products start losing popularity amongst customer in the “Decline stage” of their lifecycle. • New products also increase customer choice and variety. Moreover, they might be better able to satisfy customer needs and wants. Thus, customers also appreciate new products. A company which doesn’t offer “new” products might start to lose competitive advantage. Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall
Chapter 9- slide 3
New-Product Development Strategy Two ways to obtain new products
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 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall
Chapter 9- slide 4
New-Product Development Reasons for new product failure Overestimation of market size However, developing new products are risky.
Poor design Incorrect positioning Wrong timing
This is because most new products fail in the market.
Priced too high
Ineffective promotion Management influence High development costs Competition
Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall
Chapter 9- slide 5
New product Development Process • As stated previously, new product’s often fail in the market. • In order to reduce the chances of failure, a company should try to develop new products through a systematic process as represented below:
Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall
Chapter 9- slide 6
The New-Product Development Process Idea Generation
Idea generation is the systematic search for new-product ideas Sources of new-product ideas • Internal • External • Crowdsourcing Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall
Chapter 9- slide 7
New-Product Development Process Idea Generation Internal sources refer to the company’s own formal research and development, management and staff, and intrapreneurial programs. For example, Samsung has its “value innovation program”. A company can offer incentives to employees who put forward viable new ideas for products. For example, bonus, holiday package, promotion etc.
Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall
Chapter 9- slide 8
New-Product Development Process Idea Generation • •
• •
•
External sources refer to sources outside the company such as customers, competitors, distributors, suppliers, and outside design firms. Distributors and suppliers frequently interact with customers and therefore know their needs and wants. They can convey this to the company and company can get new product ideas from this knowledge. Companies should monitor competitors, buy and analyze competitor products (reverse engineering) to get ideas of new products. Companies should interact with customers, hold focus group discussions etc. to get new ideas. However, if a company produces technologically advanced products then customers might not be appropriate idea provides. Crowdsourcing is one for of external sourcing of ideas. Crowdsourcing can be defined as involving broad communites of people- customers, employees, independent scientists and researchers and the broad public into the new product innovation program.
Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall
Chapter 9- slide 9
New-Product Development Process Idea Screening • This is the process of screening all the ideas to identify the good ideas and drop poor ideas at an early stage. • Many companies require an idea to be written down in detail in a standard format, describing the proposed product features, customer value proposition, target market etc. The product review committee than screens the ideas on the basis of this document. Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall
Chapter 9- slide 10
New-Product Development Process Concept Development and Testing • In this stage, the product idea must be converted into a detailed version and should be stated in meaningful consumer terms. • It is important to distinguish between three terms. – 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
Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall
Chapter 9- slide 11
New-Product Development Process Concept Development and Testing • An example of product concepts is given below for a car manufacturer who wishes to develop a sports car that will also be energy efficient and environmentally friendly. It has develop four alternative product concepts for this idea.
Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall
Chapter 9- slide 12
New-Product Development Process Concept Development and Testing • Once the concept is developed, it needs to be tested.
• Concept testing refers to testing new-product concepts with groups of target consumers • The firm might describe the product concept to the customers or illustrate it to them. They will then ask customers questions to understand whether the customers like the concepts and which one they like the most. Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall
Chapter 9- slide 13
New-Product Development Process Marketing Strategy Development • Marketing strategy development refers to the initial marketing strategy for introducing the product to the market. • Marketing strategy statement includes three parts:
Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall
Chapter 9- slide 14
New-Product Development Process Marketing Strategy Development • The first part contains information regarding the target market, planned value proposition and the sales, profit, market share goals for the first few years.
Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall
Chapter 9- slide 15
New-Product Development Process Marketing Strategy Development • The second part contains information regarding products planned price, distribution and marketing budget.
Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall
Chapter 9- slide 16
New-Product Development Process Marketing Strategy Development • The third part contains information regarding products planned long run sales, profit goals and marketing strategy.
Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall
Chapter 9- slide 17
New-Product Development Process Business Analysis
• Business analysis involves a review of the sales, costs, and profit projections to find out whether they satisfy the company’s objectives
Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall
Chapter 9- slide 18
New-Product Development Process Product Development
• 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
Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall
Chapter 9- slide 19
New-Product Development Process Test Marketing Test marketing is the stage at which the product and marketing program are introduced into more realistic marketing settings • Provides the marketer with experience in testing the product and entire marketing program (price, place, promotion etc.) on a small scale before full introduction Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall
Chapter 9- slide 20
New-Product Development Process Types of Test Markets
Standard test markets Controlled test markets Simulated test markets
Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall
Chapter 9- slide 21
New-Product Development Process Marketing Strategy Development When firms must test market
• New product with large investment • Uncertainty about product or marketing program
Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall
When firms may not test market
• Simple line extension • Copy of competitor product • Low costs • Management confidence Chapter 9- slide 22
New-Product Development Process Marketing Strategy Development
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 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall
Chapter 9- slide 23
New-Product Development Process Commercialization
• Commercialization is the introduction of the new product. Key decisions that managers must take at this stage of the process is: • When to launch • Where to launch • Planned market rollout Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall
Chapter 9- slide 24
Managing New-Product Development
Successful new-product development should be: • Customer centered • Team centered • Systematic
Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall
Chapter 9- slide 25
Managing New-Product Development 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 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall
Chapter 9- slide 26
Managing New-Product Development 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
An alternative to this is the team based product development. Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall
Chapter 9- slide 27
Managing New-Product Development New-Product Development Strategies Team-based new-product development is a development approach where company departments work closely together in crossfunctional teams, overlapping in the productdevelopment process to save time and increase effectiveness
Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall
Chapter 9- slide 28
Managing New-Product Development 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 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall
Chapter 9- slide 29
Product Life-Cycle Strategies Fads are temporary periods of unusually high sales driven by consumer enthusiasm and immediate product or brand popularity
Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall
Chapter 9- slide 30
Product Life-Cycle Strategies Introduction Stage
• Slow sales growth • Little or no profit • High distribution and promotion expense
Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall
Chapter 9- slide 31
Product Life-Cycle Strategies Growth Stage
• Sales increase • New competitors enter the market • Price stability or decline to increase volume • Consumer education • Profits increase • Promotion and manufacturing costs gain economies of scale Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall
Chapter 9- slide 32
Product Life-Cycle Strategies Maturity Stage
• • • • •
Slowdown in sales Many suppliers Substitute products Overcapacity leads to competition Increased promotion and R&D to support sales and profits
Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall
Chapter 9- slide 33
Product Life-Cycle Strategies Maturity Stage Modifying Strategies
• Market modifying • Product modifying • Marketing mix modifying
Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall
Chapter 9- slide 34
Product Life-Cycle Strategies Decline Stage
• Maintain the product • Harvest the product • Drop the product
Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall
Chapter 9- slide 35
Additional Product and Service Considerations Product Decisions and Social Responsibility
• Public policy and regulations regarding developing and dropping products, patents, quality, and safety
Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall
Chapter 9- slide 36
Additional Product and Service Considerations International Product and Services Marketing—Challenges
• Determining what products and services to introduce in which countries • Standardization versus customization • Packaging and labeling • Customs, values, laws
Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall
Chapter 9- slide 37
Chapter 9- slide 1
New-Product Development and Product Life-Cycle Strategies Topic Outline
• • • • •
New-Product Development Strategy The New-Product Development Process Managing New-Product Development Product Life-Cycle Strategies Additional Product and Service Considerations
Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall
Chapter 9- slide 2
New Product Development • The ability to develop successful new products is critical for any business. • This is because new products are a good way to facilitate company growth and profitability. Moreover, it is also needed if old products start losing popularity amongst customer in the “Decline stage” of their lifecycle. • New products also increase customer choice and variety. Moreover, they might be better able to satisfy customer needs and wants. Thus, customers also appreciate new products. A company which doesn’t offer “new” products might start to lose competitive advantage. Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall
Chapter 9- slide 3
New-Product Development Strategy Two ways to obtain new products
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 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall
Chapter 9- slide 4
New-Product Development Reasons for new product failure Overestimation of market size However, developing new products are risky.
Poor design Incorrect positioning Wrong timing
This is because most new products fail in the market.
Priced too high
Ineffective promotion Management influence High development costs Competition
Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall
Chapter 9- slide 5
New product Development Process • As stated previously, new product’s often fail in the market. • In order to reduce the chances of failure, a company should try to develop new products through a systematic process as represented below:
Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall
Chapter 9- slide 6
The New-Product Development Process Idea Generation
Idea generation is the systematic search for new-product ideas Sources of new-product ideas • Internal • External • Crowdsourcing Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall
Chapter 9- slide 7
New-Product Development Process Idea Generation Internal sources refer to the company’s own formal research and development, management and staff, and intrapreneurial programs. For example, Samsung has its “value innovation program”. A company can offer incentives to employees who put forward viable new ideas for products. For example, bonus, holiday package, promotion etc.
Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall
Chapter 9- slide 8
New-Product Development Process Idea Generation • •
• •
•
External sources refer to sources outside the company such as customers, competitors, distributors, suppliers, and outside design firms. Distributors and suppliers frequently interact with customers and therefore know their needs and wants. They can convey this to the company and company can get new product ideas from this knowledge. Companies should monitor competitors, buy and analyze competitor products (reverse engineering) to get ideas of new products. Companies should interact with customers, hold focus group discussions etc. to get new ideas. However, if a company produces technologically advanced products then customers might not be appropriate idea provides. Crowdsourcing is one for of external sourcing of ideas. Crowdsourcing can be defined as involving broad communites of people- customers, employees, independent scientists and researchers and the broad public into the new product innovation program.
Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall
Chapter 9- slide 9
New-Product Development Process Idea Screening • This is the process of screening all the ideas to identify the good ideas and drop poor ideas at an early stage. • Many companies require an idea to be written down in detail in a standard format, describing the proposed product features, customer value proposition, target market etc. The product review committee than screens the ideas on the basis of this document. Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall
Chapter 9- slide 10
New-Product Development Process Concept Development and Testing • In this stage, the product idea must be converted into a detailed version and should be stated in meaningful consumer terms. • It is important to distinguish between three terms. – 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
Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall
Chapter 9- slide 11
New-Product Development Process Concept Development and Testing • An example of product concepts is given below for a car manufacturer who wishes to develop a sports car that will also be energy efficient and environmentally friendly. It has develop four alternative product concepts for this idea.
Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall
Chapter 9- slide 12
New-Product Development Process Concept Development and Testing • Once the concept is developed, it needs to be tested.
• Concept testing refers to testing new-product concepts with groups of target consumers • The firm might describe the product concept to the customers or illustrate it to them. They will then ask customers questions to understand whether the customers like the concepts and which one they like the most. Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall
Chapter 9- slide 13
New-Product Development Process Marketing Strategy Development • Marketing strategy development refers to the initial marketing strategy for introducing the product to the market. • Marketing strategy statement includes three parts:
Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall
Chapter 9- slide 14
New-Product Development Process Marketing Strategy Development • The first part contains information regarding the target market, planned value proposition and the sales, profit, market share goals for the first few years.
Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall
Chapter 9- slide 15
New-Product Development Process Marketing Strategy Development • The second part contains information regarding products planned price, distribution and marketing budget.
Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall
Chapter 9- slide 16
New-Product Development Process Marketing Strategy Development • The third part contains information regarding products planned long run sales, profit goals and marketing strategy.
Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall
Chapter 9- slide 17
New-Product Development Process Business Analysis
• Business analysis involves a review of the sales, costs, and profit projections to find out whether they satisfy the company’s objectives
Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall
Chapter 9- slide 18
New-Product Development Process Product Development
• 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
Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall
Chapter 9- slide 19
New-Product Development Process Test Marketing Test marketing is the stage at which the product and marketing program are introduced into more realistic marketing settings • Provides the marketer with experience in testing the product and entire marketing program (price, place, promotion etc.) on a small scale before full introduction Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall
Chapter 9- slide 20
New-Product Development Process Types of Test Markets
Standard test markets Controlled test markets Simulated test markets
Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall
Chapter 9- slide 21
New-Product Development Process Marketing Strategy Development When firms must test market
• New product with large investment • Uncertainty about product or marketing program
Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall
When firms may not test market
• Simple line extension • Copy of competitor product • Low costs • Management confidence Chapter 9- slide 22
New-Product Development Process Marketing Strategy Development
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 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall
Chapter 9- slide 23
New-Product Development Process Commercialization
• Commercialization is the introduction of the new product. Key decisions that managers must take at this stage of the process is: • When to launch • Where to launch • Planned market rollout Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall
Chapter 9- slide 24
Managing New-Product Development
Successful new-product development should be: • Customer centered • Team centered • Systematic
Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall
Chapter 9- slide 25
Managing New-Product Development 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 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall
Chapter 9- slide 26
Managing New-Product Development 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
An alternative to this is the team based product development. Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall
Chapter 9- slide 27
Managing New-Product Development New-Product Development Strategies Team-based new-product development is a development approach where company departments work closely together in crossfunctional teams, overlapping in the productdevelopment process to save time and increase effectiveness
Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall
Chapter 9- slide 28
Managing New-Product Development 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 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall
Chapter 9- slide 29
Product Life-Cycle Strategies Fads are temporary periods of unusually high sales driven by consumer enthusiasm and immediate product or brand popularity
Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall
Chapter 9- slide 30
Product Life-Cycle Strategies Introduction Stage
• Slow sales growth • Little or no profit • High distribution and promotion expense
Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall
Chapter 9- slide 31
Product Life-Cycle Strategies Growth Stage
• Sales increase • New competitors enter the market • Price stability or decline to increase volume • Consumer education • Profits increase • Promotion and manufacturing costs gain economies of scale Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall
Chapter 9- slide 32
Product Life-Cycle Strategies Maturity Stage
• • • • •
Slowdown in sales Many suppliers Substitute products Overcapacity leads to competition Increased promotion and R&D to support sales and profits
Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall
Chapter 9- slide 33
Product Life-Cycle Strategies Maturity Stage Modifying Strategies
• Market modifying • Product modifying • Marketing mix modifying
Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall
Chapter 9- slide 34
Product Life-Cycle Strategies Decline Stage
• Maintain the product • Harvest the product • Drop the product
Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall
Chapter 9- slide 35
Additional Product and Service Considerations Product Decisions and Social Responsibility
• Public policy and regulations regarding developing and dropping products, patents, quality, and safety
Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall
Chapter 9- slide 36
Additional Product and Service Considerations International Product and Services Marketing—Challenges
• Determining what products and services to introduce in which countries • Standardization versus customization • Packaging and labeling • Customs, values, laws
Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall
Chapter 9- slide 37
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