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New Product Development and Product Life-Cycle Strategies
New product development In business and engineering, new product development (NPD) is the term used to describe the complete process of bringing a new product or service to market. There are two parallel paths involved in the NPD process: one involves the idea generation, product design, and detail engineering; the other involves market research and marketing analysis. Companies typically see new product development as the first stage in generating and commercializing new products within the overall strategic process of product life cycle management used to maintain or grow their market share.
Product life cycle
The product life cycle goes through many phases, involves many professional disciplines, and requires many skills, tools and processes.
Product life cycle (PLC) has to do with the life of a product in the market with respect to business/commercial costs and sales measures; whereas product life cycle management (PLM) has more to do with managing descriptions and properties of a product through its development and useful life, mainly from a business/engineering point of view.
To say that a product has a life cycle is to assert four things: 1) That products have a limited life. 2) product sales pass through distinct stages, each posing different challenges, opportunities, and problems to the seller 3) profits rise and fall at different stages of product life cycle 4) products require different marketing, financial, manufacturing, purchasing, and human resource strategies in each life cycle stage.
strategies Marketing strategy is a process that can allow an organization to concentrate its limited resources on the greatest opportunities to increase sales and achieve a sustainable competitive advantage. A marketing strategy should be centered around the key concept that customer satisfaction is the main goal.
New-Product New-Product Development Development Strategies Strategies Strategies for Obtaining New Product Ideas Acquired Acquired Companies Companies
Original Original Products Products
Acquired Acquired Patents Patents
Product Product Improvements Improvements
Acquired Acquired Licenses Licenses
Product Product Modifications Modifications New New Brands Brands
Causes Causes of of New New Product Product Failures Failures • Overestimation of Market Size • Product Design Problems • Product Incorrectly Positioned, Priced or Advertised • Costs of Product Development • Competitive Actions • To create successful new products, the company must: – understand it’s customers, markets and competitors – develop products that deliver superior value to customers.
New New Product Product Development Development Process Process Marketing Strategy Concept Development and Testing Idea Screening Idea Generation
Business Analysis Product Development
Test Marketing Commercialization
New New Product Product Development Development Process Process Step Step 1. 1. Idea Idea Generation Generation
Idea Generation is the Systematic Search for New Product Ideas Obtained Internally and From: C C U U SS TT O O M M EE R R SS
C C O O M M PP EE TT II TT O O R R SS
D D II SS TT R R II B B U U TT O O R R SS
SS U U PP PP LL II EE R R SS
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 as soon as possible. • Many companies have systems for rating and screening ideas which estimate: – – – – –
Market Size Product Price Development Time & Costs Manufacturing Costs Rate of Return
• Then, the idea is evaluated against a set of general company criteria.
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 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 Describes Describes 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 Describes Describes Short-Term: Short-Term: Product’s Product’s Planned Planned Price Price Distribution Distribution Marketing Marketing Budget Budget
Part Part Three Three Describes Describes Long-Term: Long-Term: Sales Sales & & Profit Profit Goals Goals Marketing Marketing Mix Mix Strategy Strategy
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 Business Analysis Analysis Review Review of of Product Product Sales, Sales, Costs, Costs, and and Profits Profits Projections Projections to to See See ifif They They Meet Meet Company Company Objectives Objectives
IfIf No, No, Eliminate Eliminate Product Product Concept Concept IfIf Yes, Yes, Move Move to to Product Product Development Development
New New Product Product Development Development Process Process Step Step 7. 7. Test Test Marketing Marketing Standard Standard Test Test Market Market Full Fullmarketing marketingcampaign campaign in a small number in a small numberof of representative representativecities. cities.
Controlled Controlled Test Test Market Market AAfew fewstores storesthat thathave have agreed agreedto tocarry carrynew new products productsfor foraafee. fee.
Simulated Simulated Test Test Market Market Test Testin inaasimulated simulated shopping shoppingenvironment environment to toaasample sampleof of consumers. consumers.
New New Product Product Development Development Process Process Step Step 8. 8. Commercialization Commercialization
Commercialization is the Introduction of the New Product into the Marketplace.
When? When?
Where? Where?
To To Whom? Whom?
How? How?
Speeding Speeding Up Up Development Development
Step Step 22
Step Step 33
Step Step 44
Step 2
Step Step 11
Simultaneous
Step 1
Sequential
Step 3
Step 4
Product Product Life Life Cycle Cycle Sales and Profits Over the Product’s Life From Introduction to Decline Sales and Profits ($) Sales
Profits Time Product Development Losses/ Investments ($)
Introduction
Growth
Maturity
Decline
Introduction Introduction Stage Stage of of the the PLC PLC Summary of Characteristics, Objectives, & Strategies Sales Sales
Low Low sales sales
Costs Costs
High High cost cost per per customer customer
Profits Profits Product Product
Negative Negative Create Create product product awareness awareness and and trial trial Offer Offer aa basic basic product product
Price Price
Use Use cost-plus cost-plus
Distribution Distribution
Build Build selective selective distribution distribution
Advertising Advertising
Build Build product product awareness awareness among among early early adopters adopters and and dealers dealers
Marketing Marketing Objectives Objectives
Growth Growth Stage Stage of of the the PLC PLC Summary of Characteristics, Objectives, & Strategies 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
Product Product Price Price
Offer Offer product product extensions, extensions, service, service, warranty warranty Price Price to to penetrate penetrate market market
Distribution Distribution
Build Build intensive intensive distribution distribution
Advertising Advertising
Build Build awareness awareness and and interest interest in in the the mass mass market market
Maturity Maturity Stage Stage of of the the PLC PLC Summary of Characteristics, Objectives, & Strategies Sales Sales
Peak Peak sales sales
Costs Costs
Low Low cost cost per per customer customer
Profits Profits
High High profits profits
Marketing Marketing Objectives Objectives
Maximize Maximize profit profit while while defending defending market market share share Diversify Diversify brand brand and and models models
Product Product Price Price Distribution Distribution Advertising Advertising
Price Price to to match match or or best best competitors competitors Build Build more more intensive intensive distribution distribution Stress Stress brand brand differences differences and and benefits benefits
Decline Decline Stage Stage of of the the PLC PLC Summary of Characteristics, Objectives, & Strategies 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
Product Product
Reduce Reduce expenditure expenditure and and milk milk the the brand brand Phase Phase out out weak weak items items
Price Price
Cut Cut price price
Distribution Distribution
Go Go selective: selective: phase phase out out unprofitable unprofitable outlets outlets Reduce Reduce to to level level needed needed to to retain retain hard-core hard-core loyal loyal customers customers
Advertising Advertising
New product development In business and engineering, new product development (NPD) is the term used to describe the complete process of bringing a new product or service to market. There are two parallel paths involved in the NPD process: one involves the idea generation, product design, and detail engineering; the other involves market research and marketing analysis. Companies typically see new product development as the first stage in generating and commercializing new products within the overall strategic process of product life cycle management used to maintain or grow their market share.
Product life cycle
The product life cycle goes through many phases, involves many professional disciplines, and requires many skills, tools and processes.
Product life cycle (PLC) has to do with the life of a product in the market with respect to business/commercial costs and sales measures; whereas product life cycle management (PLM) has more to do with managing descriptions and properties of a product through its development and useful life, mainly from a business/engineering point of view.
To say that a product has a life cycle is to assert four things: 1) That products have a limited life. 2) product sales pass through distinct stages, each posing different challenges, opportunities, and problems to the seller 3) profits rise and fall at different stages of product life cycle 4) products require different marketing, financial, manufacturing, purchasing, and human resource strategies in each life cycle stage.
strategies Marketing strategy is a process that can allow an organization to concentrate its limited resources on the greatest opportunities to increase sales and achieve a sustainable competitive advantage. A marketing strategy should be centered around the key concept that customer satisfaction is the main goal.
New-Product New-Product Development Development Strategies Strategies Strategies for Obtaining New Product Ideas Acquired Acquired Companies Companies
Original Original Products Products
Acquired Acquired Patents Patents
Product Product Improvements Improvements
Acquired Acquired Licenses Licenses
Product Product Modifications Modifications New New Brands Brands
Causes Causes of of New New Product Product Failures Failures • Overestimation of Market Size • Product Design Problems • Product Incorrectly Positioned, Priced or Advertised • Costs of Product Development • Competitive Actions • To create successful new products, the company must: – understand it’s customers, markets and competitors – develop products that deliver superior value to customers.
New New Product Product Development Development Process Process Marketing Strategy Concept Development and Testing Idea Screening Idea Generation
Business Analysis Product Development
Test Marketing Commercialization
New New Product Product Development Development Process Process Step Step 1. 1. Idea Idea Generation Generation
Idea Generation is the Systematic Search for New Product Ideas Obtained Internally and From: C C U U SS TT O O M M EE R R SS
C C O O M M PP EE TT II TT O O R R SS
D D II SS TT R R II B B U U TT O O R R SS
SS U U PP PP LL II EE R R SS
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 as soon as possible. • Many companies have systems for rating and screening ideas which estimate: – – – – –
Market Size Product Price Development Time & Costs Manufacturing Costs Rate of Return
• Then, the idea is evaluated against a set of general company criteria.
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 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 Describes Describes 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 Describes Describes Short-Term: Short-Term: Product’s Product’s Planned Planned Price Price Distribution Distribution Marketing Marketing Budget Budget
Part Part Three Three Describes Describes Long-Term: Long-Term: Sales Sales & & Profit Profit Goals Goals Marketing Marketing Mix Mix Strategy Strategy
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 Business Analysis Analysis Review Review of of Product Product Sales, Sales, Costs, Costs, and and Profits Profits Projections Projections to to See See ifif They They Meet Meet Company Company Objectives Objectives
IfIf No, No, Eliminate Eliminate Product Product Concept Concept IfIf Yes, Yes, Move Move to to Product Product Development Development
New New Product Product Development Development Process Process Step Step 7. 7. Test Test Marketing Marketing Standard Standard Test Test Market Market Full Fullmarketing marketingcampaign campaign in a small number in a small numberof of representative representativecities. cities.
Controlled Controlled Test Test Market Market AAfew fewstores storesthat thathave have agreed agreedto tocarry carrynew new products productsfor foraafee. fee.
Simulated Simulated Test Test Market Market Test Testin inaasimulated simulated shopping shoppingenvironment environment to toaasample sampleof of consumers. consumers.
New New Product Product Development Development Process Process Step Step 8. 8. Commercialization Commercialization
Commercialization is the Introduction of the New Product into the Marketplace.
When? When?
Where? Where?
To To Whom? Whom?
How? How?
Speeding Speeding Up Up Development Development
Step Step 22
Step Step 33
Step Step 44
Step 2
Step Step 11
Simultaneous
Step 1
Sequential
Step 3
Step 4
Product Product Life Life Cycle Cycle Sales and Profits Over the Product’s Life From Introduction to Decline Sales and Profits ($) Sales
Profits Time Product Development Losses/ Investments ($)
Introduction
Growth
Maturity
Decline
Introduction Introduction Stage Stage of of the the PLC PLC Summary of Characteristics, Objectives, & Strategies Sales Sales
Low Low sales sales
Costs Costs
High High cost cost per per customer customer
Profits Profits Product Product
Negative Negative Create Create product product awareness awareness and and trial trial Offer Offer aa basic basic product product
Price Price
Use Use cost-plus cost-plus
Distribution Distribution
Build Build selective selective distribution distribution
Advertising Advertising
Build Build product product awareness awareness among among early early adopters adopters and and dealers dealers
Marketing Marketing Objectives Objectives
Growth Growth Stage Stage of of the the PLC PLC Summary of Characteristics, Objectives, & Strategies 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
Product Product Price Price
Offer Offer product product extensions, extensions, service, service, warranty warranty Price Price to to penetrate penetrate market market
Distribution Distribution
Build Build intensive intensive distribution distribution
Advertising Advertising
Build Build awareness awareness and and interest interest in in the the mass mass market market
Maturity Maturity Stage Stage of of the the PLC PLC Summary of Characteristics, Objectives, & Strategies Sales Sales
Peak Peak sales sales
Costs Costs
Low Low cost cost per per customer customer
Profits Profits
High High profits profits
Marketing Marketing Objectives Objectives
Maximize Maximize profit profit while while defending defending market market share share Diversify Diversify brand brand and and models models
Product Product Price Price Distribution Distribution Advertising Advertising
Price Price to to match match or or best best competitors competitors Build Build more more intensive intensive distribution distribution Stress Stress brand brand differences differences and and benefits benefits
Decline Decline Stage Stage of of the the PLC PLC Summary of Characteristics, Objectives, & Strategies 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
Product Product
Reduce Reduce expenditure expenditure and and milk milk the the brand brand Phase Phase out out weak weak items items
Price Price
Cut Cut price price
Distribution Distribution
Go Go selective: selective: phase phase out out unprofitable unprofitable outlets outlets Reduce Reduce to to level level needed needed to to retain retain hard-core hard-core loyal loyal customers customers
Advertising Advertising
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