C HAPTER 8

1. CHAPTER 8 New-Product Development and Product Life-Cycle Strategies

2. Firm History Steve Jobs’s creativity led to innovation in user friendliness of computers. LazerWriters and the Macintosh established Apple firmly in desktop publishing market. Status as market share leader and innovator was lost in the late 1980s after Jobs left the firm. Firm Recovery Steve Jobs returns in 1997 and revitalizes Apple by first launching the iMac. The Mac OS X next breaks ground and acts as a launching pad for a new generation of computers and software products. iPod and iTunes change the face of music and are the hit of the decade. APPLE COMPUTER – Innovation at Work Copyright 2007, Prentice-Hall Inc.

3. New-Product Development Strategy • Strategies for obtaining new-product ideas: • Acquisition of companies, patents, licenses. • New product development, product improvements and modifications. Copyright 2007, Prentice-Hall Inc.

4. New-Product Failures • Only 10% of new consumer products are still on the market and profitable after 3 years. • Industrial products failure rate as high as 30%. • Why do products fail? • Overestimation of market size • Design problems • Incorrectly positioned, priced, or advertised • Pushed despite poor marketing research findings • Development costs • Competition Copyright 2007, Prentice-Hall Inc.

5. Figure 8-1Major Stages in New-Product Development Process Copyright 2007, Prentice-Hall Inc.

6. Idea Generation • Internal sources: • Company employees at all levels • External sources: • Customers • Competitors • Distributors • Suppliers • Outsourcing Copyright 2007, Prentice-Hall Inc.

7. Marketing in Action Generating New Product Ideas The Industrial Scientific Corporation uses its Web site to solicit new product ideas from customers or other visitors. Visit the Web site to see what information is solicited. http://www.indsci.com/sup_NewProd.asp Copyright 2007, Prentice-Hall Inc.

8. Idea Screening • Process used to spot good ideas and drop poor ones. • Executives provide a description of the product along with estimates of market size, product price, development time and costs, manufacturing costs, and rate of return. • Evaluated against a set of company criteria for new products. Copyright 2007, Prentice-Hall Inc.

9. Concept Development and Testing • Product Idea: • idea for a possible product that the company can see itself offering. • Product Concept: • detailed version of the idea stated in meaningful consumer terms. • Product Image: • the way consumers perceive an actual or potential product. Copyright 2007, Prentice-Hall Inc.

10. Marketing in Action Concept Testing The Concept Board is a consulting firm that assists clients such as Mott’s, Citibank, HBO, IBM, Post, and others in verbalizing / visualizing product concepts for consumer testing. http://theconceptboard.com/index.html Copyright 2007, Prentice-Hall Inc.

11. Pair up with another student and assume that you are in charge of the concept testing for the product shown at right. What questions would you ask of consumers who are evaluating this product concept? Let’s Talk! Copyright 2007, Prentice-Hall Inc.

12. Marketing Strategy Development • Part One (Marketing Strategy Statement): • Describes the target market, planned product positions, sales, market share, and profit goals. • Part Two: • Outlines the product’s planned price, distribution, and marketing budget. • Part Three: • Describes the long-run sales and profit goals, marketing mix strategy. Copyright 2007, Prentice-Hall Inc.

13. Marketing in Action Marketing Strategy Statementfor Daimler Fuel-Cell=Powered Car The target market is younger, well-educated, moderate-to-high-income individuals, couples, or small families seeking practical, environmentally responsible transportation. The car will be positioned as more economical to operate, more fun to drive, and less polluting than today’s internal combustion engine or hybrid cars. It is also less restricting than batter-powered electric cars, which must be recharged regularly. The company will aim to sell 100,000 cars in the first year, at a loss of not more than $15 million. In the second year, the company will aim for sales of 120,000 cars and a profit of $25 million. Copyright 2007, Prentice-Hall Inc.

14. Business Analysis • Involves a review of the sales, costs, and profit projections to assess fit with company objectives. • If results are positive, project moves to the product development phase. Copyright 2007, Prentice-Hall Inc.

15. Business Analysis - Example End of Year: 1 2 3 4 5 Assets: Cash 300 236 512 669 489 Accounts Receivable 0 181 478 1,103 2,154 Inventory 100 264 559 1,185 2,519 Gr. Fixed Assets 1,523 1,523 1,803 2,423 3,220 Depreciation 0 99 331 680 1,179 Net Fix Asset 1,153 1,424 1,973 1,743 1,941 Total Assets 1,923 1,633 1,999 3,272 7,773 Total Lia + NW 1,923 1,633 1,999 3,272 7,773 Copyright 2007, Prentice-Hall Inc.

16. Business Analysis - Example End of Year: 1 2 3 4 5 Cash Target 300 109 239 507 9051 Accts. Receivable 0 181 478 1,103 2,154 Inventory 100 264 559 1,183 2,519 Net Fixed Assets 1,523 1,424 1,473 1,743 1,941 Total Assets 1,923 1,978 2,750 4,448 7,5202 Orig. Investment 2,078 2,078 2,078 2,078 2,078 Addl.Ann.Inv. Req 0 345 406 425 1,428 Prev.Ann.Inv.Req. 0 0 345 751 1,175 Total Investments 2,078 2,423 2,829 3,253 3,253 Retained Earnings 155 445 791,194 5,695 Tot.Inv3+NW 1,923 1,978 2,750 4,448 8,948 Copyright 2007, Prentice-Hall Inc.

17. Product Development • Develop concept into physical product. • Calls for large jump in investment. • Prototypes are made. • Prototype must have correct physical features & convey psychological characteristics. Video Snippet eGo bikes developed prototypes which were subjected to extensive product testing by consumers. Copyright 2007, Prentice-Hall Inc.

18. Test Marketing • Product / marketing program introduced in more realistic market setting. • Not for all products. • Can be expensive and time consuming, but better than making a major marketing mistake. After test marketing the “Go Active” meal (an adult happy meal) in 150 markets in Indiana, McDonald’s decided to sell it across the U.S. Copyright 2007, Prentice-Hall Inc.

19. Commercialization • Must decide on timing (i.e., when to introduce the product). • Must decide on where to introduce the product (e.g., single location, state, region, nationally, internationally). • Must develop a market rollout plan. Copyright 2007, Prentice-Hall Inc.

20. Organizing New-Product Development • Sequential Approach: • Each stage completed before moving to next phase of the project. • Simultaneous Approach: • Cross-functional teams work through overlapping steps to save time and increase effectiveness. Copyright 2007, Prentice-Hall Inc.

21. Figure 8-2Sales and Profit over the Product’s Life from Inception to Decline Copyright 2007, Prentice-Hall Inc.

22. Product Life-Cycle Applications • Product classhas the longest life cycle (e.g., gas-powered cars) • Product formtends to have the standard PLC shape (e.g., dial telephone) • Brandcan change quickly because of changing competitive attacks and responses (e.g., Tide, Cheer) • Styleis a basic and distinctive mode of expression (e.g., formal clothing, Danish modern furniture) • Fashionis a popular style in a given field (e.g., business casual) • Fadis a fashion that enters quickly, is adopted quickly, and declines fast (e.g., pet rocks) Copyright 2007, Prentice-Hall Inc.

23. Figure 8-3Styles, Fashions, Fads Copyright 2007, Prentice-Hall Inc.

24. Practical Problems of PLC • Hard to identify which stage of the PLC the product is in. • Hard to pinpoint when the product moves to the next stage. • Hard to identify factors that affect product’s movement through stages. • Hard to forecast sales level, length of each stage, and shape of PLC. • Strategy is both a cause and result of the PLC. Copyright 2007, Prentice-Hall Inc.

25. Introduction Stage of PLC • 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 trial Copyright 2007, Prentice-Hall Inc.

26. Growth Stage of PLC • 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 Copyright 2007, Prentice-Hall Inc.

27. Maturity Stage of PLC • 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 beat competitors • Distribution: build more intensive distribution • Promotion: increase to encourage brand switching Copyright 2007, Prentice-Hall Inc.

28. Maturity Stage of PLC • Modifying the Market: • Increase the consumption of the current product. • How? • 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. Copyright 2007, Prentice-Hall Inc.

29. Marketing in Action Modifying the Market WD-40 invites visitors to its Web site to join the fan club. Fan club members can access a list of 2,000 uses for WD-40, and are invited to share their own stories. http://fanclub.wd40.com/login_home.cfm Copyright 2007, Prentice-Hall Inc.

30. Maturity Stage of PLC • Modifying the Product: • Changing characteristics such as quality, features, or style to attract new users and to inspire more usage. • How? • Improve durability, reliability, speed, taste. • Improve styling and attractiveness. • Add new features. • Expand usefulness, safety, convenience. Copyright 2007, Prentice-Hall Inc.

31. Marketing in Action Modifying the Product Gillette’s Fusion razor combines a precision trimmer blade (on back) with a five blade shaving surface (on front). The flexible comfort guard and Enhanced Indicator Lubrastrip (containing vitamin E and aloe) enhance shaving comfort. http://www.gillette.com/homepage.asp Copyright 2007, Prentice-Hall Inc.

32. Maturity Stage of PLC • Modifying the Marketing Mix: • Improving sales by changing one or more marketing mix elements. • How? • One method is to launch aggressive sales promotion programs, such as rebates. Copyright 2007, Prentice-Hall Inc.

33. Maturity Stage of PLC • Modifying the Marketing Mix, cont.: • Improving sales by changing one or more marketing mix elements. • How Else Can This Be Accomplished? • Cutting prices. • Launching a better ad campaign. • Moving into larger market channels, including mass merchandisers. • Offering new or improved services to buyers. Copyright 2007, Prentice-Hall Inc.

34. Decline Stage of PLC • 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--phase out unprofitable outlets • Promotion: reduce to minimal level Copyright 2007, Prentice-Hall Inc.