New-Product Development and Product Life-Cycle Strategies :New-Product Development and Product Life-Cycle Strategies Chapter 10


Objectives :10 - 1 Objectives Understand how companies find and develop new-product ideas. Learn the steps in the new-product development process. Know the stages of the product life cycle. Understand how marketing strategies change during the product’s life cycle.


Case Study :10 - 2 $50 billion in profits over 27 years Early new-product development relied heavily on copying the competition $4.2 billion annually invested in R & D Innovation is critical to Microsoft’s future success Much of R & D efforts are Internet related Many new products and services are in development Microsoft Case Study


Definition :10 - 3 Definition New Product Development Development of original products, product improvements, product modifications, and new brands through the firm’s own R & D efforts.


New Product Development Strategy :10 - 4 New products can be obtained via acquisition or development. New products suffer from high failure rates. Several reasons account for failure. New Product Development Strategy


New Product Development Strategy :10 - 5 New Product Development Process: Stage 1: Idea Generation Internal idea sources: R & D External idea sources: Customers, competitors, distributors, suppliers New Product Development Strategy


New Product Development Strategy :10 - 6 New Product Development Process: Stage 2: Idea Screening Product development costs increase substantially in later stages. Ideas are evaluated against criteria; most are eliminated. New Product Development Strategy


New Product Development Strategy :10 - 7 New Product Development Process: Stage 3: Concept Development and Testing Product concepts provide detailed versions of new product ideas. Concept tests ask target consumers to evaluate product concepts. New Product Development Strategy


New Product Development Strategy :10 - 8 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. New Product Development Strategy


New Product Development Strategy :10 - 9 New Product Development Process: Stage 5: Business Analysis Sales, cost, and profit projections Stage 6: Product Development Prototype development and testing New Product Development Strategy


New Product Development Strategy :10 - 10 New Product Development Process: Stage 7: Test Marketing Standard test markets Controlled test markets Simulated test markets Stage 8: Commercialization New Product Development Strategy


Product Life-Cycle Strategies :10 - 11 The Typical Product Life Cycle (PLC) Has Five Stages Product Development, Introduction, Growth, Maturity, Decline Not all products follow this cycle: Fads Styles Fashions Product Life-Cycle Strategies


Product Life-Cycle Strategies :10 - 12 The product life cycle concept can be applied to a: Product class (soft drinks) Product form (diet colas) Brand (Diet Dr. Pepper) Using the PLC to forecast brand performance or to develop marketing strategies is problematic Product Life-Cycle Strategies


Product Life-Cycle Strategies :10 - 13 Product Life-Cycle Strategies Product development Introduction Growth Maturity Decline Begins when the company develops a new-product idea Sales are zero Investment costs are high Profits are negative PLC Stages


Product Life-Cycle Strategies :10 - 14 Product Life-Cycle Strategies Product development Introduction Growth Maturity Decline Low sales High cost per customer acquired Negative profits Innovators are targeted Little competition PLC Stages


Marketing Strategies: Introduction Stage :10 - 15 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 Marketing Strategies: Introduction Stage


Product Life-Cycle Strategies :10 - 16 Product Life-Cycle Strategies Product development Introduction Growth Maturity Decline Rapidly rising sales Average cost per customer Rising profits Early adopters are targeted Growing competition PLC Stages


Marketing Strategies: Growth Stage :10 - 17 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 Marketing Strategies: Growth Stage


Product Life-Cycle Strategies :10 - 18 Product Life-Cycle Strategies Product development Introduction Growth Maturity Decline Sales peak Low cost per customer High profits Middle majority are targeted Competition begins to decline PLC Stages


Marketing Strategies: Maturity Stage :10 - 19 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 Marketing Strategies: Maturity Stage


Product Life-Cycle Strategies :10 - 20 Product Life-Cycle Strategies Product development Introduction Growth Maturity Decline Declining sales Low cost per customer Declining profits Laggards are targeted Declining competition PLC Stages


Marketing Strategies: Decline Stage :10 - 21 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 Marketing Strategies: Decline Stage