New Product Development & Product Life-Cycle Strategies

1. NewProduct Development & Product Life-Cycle Strategies

2. Focus on Innovation Names its culture of continuous innovation “renewal” Organizes into autonomous units, which helps foster innovation Large R&D budget of $3 billion with 40% of employees involved in R&D Corporate Results Annual sales of $36 billion across 130 countries Global market share of 38%, greater than that of its nearest three rivals combined Nokia

3. Strategies for Obtaining New Product Ideas NewProduct Development(NPD) Strategies New Product Developments Acquisition of Companies Product Improvements Acquisition of Patents Product Modifications Acquisition of Licenses

4. Nike acquired Converse in 2003 for $305 million NewProduct Development

5. What is NewProduct? • New-to-the world productsğ new products that create an entirely new market • New product linesğ that allow a company to enter an established market for the first time • Additions to existing product linesğ new products that supplement a company’s established product lines • Improvements and revisionsğ new products that provide improved performance or greater perceived value • Repositioningğ existing products that are targeted to new markets • Cost reductionsğ new products that provide similar performance at lower cost

6. Why New Products Fail? • Overestimation of market size • Product design problems(poor design) • Product incorrectly positioned, priced or advertised(poor marketing execution) • Product may have been pushed despite poor marketing research findings • High costs of product development • Strong competitive reaction

7. Challenges in NPD • Idea shortage • Fragmented markets • Social and governmental constraints • Cost • Capital shortage • Need for speed • Shorter product life cycles

8. Successful New Products • Unique, superior product • Well-defined product concept prior to development • Technological and marketing synergy • Quality of execution in all stages. • Understanding of customer needs • The earlier the product is introduced ahead of competition, new product success is greater • Top management support • Cross-functional team-work. “You have to kiss a lot of frogs to find a prince”--- 3M

9. Marketing Strategy Development Business Analysis Concept Development and Testing Product Development Idea Screening Market Testing Commercialization New Product Development Process Idea Generation

10. NPDProcessStep 1.Idea Generation Systematic search for new product ideas obtained internally from employeesat all levels and also from: Distributors Suppliers Competitors Customers

11. NPDProcess Step 2. Idea Screening • Process to spot good ideas and drop poor ones as soon as possible. • Executives provide a description of the product, along with estimates of: • Market Size • Product Price • Development Time & Costs • Manufacturing Costs • Rate of Return • Then, the idea is evaluated against a set of general company criteria.

12. 1. Develop New Product Ideas into Alternative Detailed Product Concepts NPDProcessStep 3. Concept Development 2. Concept Testing- Test the New Product Concepts with Groups of Target Customers 3. Choose the One That Has the Strongest Appeal to Target Customers

13. Concept Development • 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.

14. Concept Development(Example) • A large food processing company gets the idea of producing a powder to add to milk to increase its nutritional value and taste ğ The product idea • The product idea should be transformed to product concept by answering some questions: • Who will use the product? • What primary benefits should this product provide? • When will people consume this drink?

15. Concept Development(Example) • Concept 1: An instant breakfast drink for adults who want a quick nutritious breakfast without preparing breakfast • Concept 2: A tasty snack for children to drink as a midday refreshment • Concept 3: A healthy supplement for older adults to drink in the evening before they go to bed

16. Concept Testing • Presenting the product concept to appropriate target consumers and getting their reactions • Computer-aided design • Virtual reality programs that stimulate the reality • Presenting consumers an elaborated version of the concept(see example) • Description of the new concept should include: • Basic benefits and functions of the product • Package size • Price level or price range • Some product dimensions are evaluated based on the answers of consumers

17. Concept Testing(Example) • Elaboration of Concept 1: • “Our product is a powdered mixture that is added to milk to make an instant breakfast that gives the person all the needed breakfast nutrition along with good taste and high convenience. • The product would be offered in 3 flavors: chocolate, vanilla, and strawberry; and would come in individual packets, 6 to a box, at $2.49 a box.”

18. Concept Testing • Do you understand the concept? • What do you see as the benefits of the new product compared with a conventional product? • Do you believe the claims about that product? • What improvements can you suggest? • Would you prefer to use this type of product? • What do you think the price of the product? • Would you buy the product.? • Who would use this product and when and how often will the product be used?

19. Expensive High price Brand C Cold cereal Bacon and eggs Quick High in calories Slow Low in calories Pancakes Instant breakfast Brand B Hot cereal Brand A Inexpensive Low price Product & Brand Positioning (a) Product-positioning map (breakfast market) b) Brand-positioning map (instant breakfast market)

20. NPDProcess Step 4. Marketing Strategy Part One Describes Overall: Target Market size, structure & behavior Planned Product Positioning Sales Market Share & Profit Goals Part Two Describes First-Year: Product’s Planned Price Distribution Strategy & Marketing Budget Part Three Describes Long-Term: Sales & Profit Goals Marketing Mix Strategy over Time

21. Business Analysis • Estimating total sales : • Total estimated sales are the sum of estimated first-time • sales,replacement sales and repeat sales. • 2. Estimating Costs and Profits : • Costs are estimated by the R&D , manufacturing, marketing and finance departments • 3. Projected five-year cash flow statement • Break-even analysis or risk analysis are other financial measures.

22. Business Analysis Review of Product Sales, Costs, and Profits Projections to See if They Meet Company Objectives If Yesğ Move to Product Development NPDProcess Step 5. Business Analysis If Noğ Eliminate Product Concept

23. NPDProcess Step 6. Product Development • Developing concept into physical product. • Translating target customer requirements into a working prototype by using QFD • Taking the list of desired customer attributes and turning them into engineering attributes • Improves communication betw. marketers, engineering & manufacturing • Prototypes must have correct physical features and convey psychological characteristics. • Functional & use (consumer) tests • Laboratory tests • In-home placement tests

24. Product development(Samsonite example) 1- A qualitative research- “luggage exploratory” “---to focus on the issues that people have when they travel 2. Initial Concept testing ( a series of black and white drawings) 3. Development of a prototype of the new product (hard-side case with wheels) 4. Production model of the Piggyback was tested 5. A quantitative research---reaction towards the marketing mix and perceived benefits of the product compared to its competitors.

25. NPDProcess Step 7. Test Marketing Budget Levels Product Stage where the product and marketing program are introduced into more realistic market settings Packaging Positioning Branding Advertising Elements that May be Test Marketed by a Company Distribution Pricing

26. Test Marketing - Approaches Controlled Test Market A few stores that have agreed to carry new products for a fee. Simulated Test Market Test in a simulated shopping environment to a sample of consumers. Sales- Wave Research Test offering trial to a sample of consumers in successive periods. Standard Test Market Full marketing campaign in a small number of representative cities.

27. NPDProcess Step 8. Commercialization • Main issues in 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 (to whom to introduce new product, etc.)

28. Consumer Adoption Process • Innovationğ good, service or idea that is perceived by someone as “new” • Innovation diffusion processğ the spread of a new idea from its source of invention/creation to its ultimate users or adopters • Adopters move through ğawareness – interest – evaluation – trial – adoption

29. Adoption of Innovations Adoption Interrelated concepts Diffusion ADOPTION Within the mind of consumer DIFFUSION Among members of a social system

30. Adoption of Innovations • Adoption • Adoptionğa decision to make full use of innovation as a best course of action (Rogers, 1976) or • Adoptionğ to use and continued use of a new item; involves commitment rather than purchase or trial Purchase or Trial ?

31. Adoption of Innovations • Innovativeness ADOPTION • Innovativenessğthe degree to which an individual is relatively earlier in adopting an innovation than other members of the system • Innovativenessğthe degree to which an individual is receptive to new ideas and makes decisions independently of the communicated experience of others

32. 34% Late majority 34% Early majority 13 1/2% Early adopters 16% Laggards 2 1/2% Innovators Adopter Categorization(on the Basis of Relative Time of Adoption of Innovations) Time of adoption innovations

33. Consumer Adoption Process • New-product marketers aim at consumers who are early adopters. • Early-adopter theory: - Persons within a target market differ in the amount of elapsed time between their exposure to a new product and their trying it. - Early adopters share some traits - Early adopters tend to be opinion leaders

34. Stages in the Adoption Process 1. Awareness 2. Interest 3. Evaluation 4. Trial 5. Adoption • The marketer should facilitate consumer movement through these stages

35. Influence of ProductCharacteristics on the Rate of Adoption Relative Advantage Is the innovation superior to existing products? Communicability Can results be easily observed or described to others? Divisibility Can the innovation be used on a trial basis? Compatibility Does the innovation fit the values and experience of the target market? Complexity Is the innovation difficult to understand or use?

36. Sales&profits($) Introduction Growth Maturity Decline Time Sales & Profit Life Cycles

37. Product Life-Cycle • Product has a life cycle and as the product passes through each • stage of the life cycle, the changes are normally made. • Product have a limited life. • 2. Product sales pass through distint stages----different challenges, • opportunities and problems to the seller • 3. Profits rise and fall • 4. Products require different marketing, financial, manufacturing • and human resource strategies at different stages.

38. Product Life Cycle (PLC) Sales and Profits Over the Product’s Life from Inception to Demise

39. Applications of the PLC • The PLC concept can describe a: • Product class which has the longest life cycles(e.g., gas-powered cars), • Product form which tends to have the standard PLC shape(e.g., dial telephone), • Brand which can change quickly because of changing competitive attacks and responses

40. Other Shapes of PLC Not all products exhibit a bell-shaped PLC. • Growth-slump-maturity pattern • Sales grow rapidly, then fall to a “petrified” level.At this level late adopters buy, early adopters replace the product. • Cycle-recyle pattern • Sales of new drugs. The product aggressively promoted. This produce the first cycle. Sales start declining. Then new promotion push is given and second cycle begins. • Scalloped PLC • As the new uses are discoverd, the product’s sales pass through a succession of life cycles

41. Figure 11.4: Cost Product Life-Cycle Patterns Other Shapes of PLC

42. Other Shapes of PLC • 3 special categories of PLC: • Styleis a basic and distinctive mode of expression; can last for generations, going in and out of vogue (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, peak early and declines fast; they do not satisfy a strong need (e.g., pet rocks, and virtual pets)

43. Style, Fashion, and Fad Life Cycles Other Shapes of PLC

44. 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. • “Clearly, the PLC is a dependent variable determined by market actions; it is not an independent variable to which companies should adapt their marketing programs”

45. Sales Low sales Costs High cost per customer Profits Negative or low Marketing Objectives Create product awareness and trial Product Offer a basic product Price Usually is high; use cost-plus formula Distribution High distribution expenses Promotion Build awareness among early adopters and dealers Introduction Stage of the PLC Summary of Characteristics, Objectives, & Strategies

46. Promotion High Low High Price Low Four IntroductoryMarketing Strategies Rapid- skimming strategy Slow- skimming strategy Rapid- penetration strategy Slow- penetration strategy

47. Sales Rapidly rising sales Costs Average cost per customer Profits Rising profits Marketing Objectives Maximize market share Product Offer new product features, extensions, service, and warranty Price Price to penetrate market Distribution Increase number of distribution outlets-build intensive distribution Promotion Build awareness and interest in the mass market Growth Stage of the PLC Summary of Characteristics, Objectives, & Strategies

48. Maturity Stage of the PLC Summary of Characteristics, Objectives, & Strategies Sales Peak sales Costs Low cost per customer Profits High profits, then lower profits Maximize profits while defending market share Marketing Objectives Product Diversify brand and models Price Price to match or beat competitors Distribution Build more intensive distribution Promotion Stress brand differences and benefits—encourage brand switching

49. Maturity Stage of the PLC(cont.) Modifiying the Market Company tries to increase consumption of the current product. Modifying the Product Changing characteristics such as quality, features, or styles to attract new users. Modifying the Marketing Mix Company tries to improve sales by changing one or more marketing mix elements.

50. Maturity Stage of the PLC(cont.)Market modification • Increase the consumption of the current product: • Sales volume = number of brand users x usage rate per user • To expand the number of brand users : • Convert nonusers • Enter new market segments • Win competitors’ customers • To convince current brand users to increase their usage of the brand: • Use the product more frequently • Use more of the product on each occasion • Discover new product uses