Principles of Marketing Eitheenth Edition

Chapter 9
Developing New Products and
Managing the Product Life Cycle
Learning Objectives

9-1 Explain how companies find and develop new product ideas.
9-2 List and define the steps in the new product development process and the
major considerations in managing this process.
9-3 Describe the stages of the product life cycle and how marketing strategies
change during a product’s life cycle.
9-4 Discuss two additional product issues: socially responsible product
decisions and international product and services marketing.
New Product Development Strategy I Ways to Obtain
New Products
refers to the buying of a whole company, a
Acquisition patent, or a license to produce someone
else’s product.

New Product refers to original products, product

Development improvements, product modifications, and
new brands developed from the firm’s own
research and development.

New products are important to both customers and the marketers who serve
them:
- They bring new solutions and variety to customers’ lives, and
- they are a key source of growth for companies.
New Product Development Strategy
Yet innovation can be very expensive and very risky. Why do so many new
products fail?

• The market size may have been • Poor product design

overestimated
• Costs of new product
• Product is incorrectly positioned in development are higher than
the market expected
• Product is priced too high • Competitors fight back harder
than expected
• Ineffective promotion
• Wrong timing
• A high-level executive might push a
favorite product despite poor You need a strong new-product
marketing research findings planning process to improve your
chances for success
New Product Development Strategy

Examples of
products that failed
New Product Development Process

Step 1
New Product Development Process I Idea Generation

is the systematic search for new product

Idea Generation ideas.

Sources of new product ideas

• Internal
• External

Internal sources refer to the company’s

own formal research and development,
management and staff, and intrapreneurial
programs.
New Product Development Process I Idea Generation

External sources refer to sources outside the

company such as customers, competitors,
distributors, suppliers, and outside design firms.

Customer suggestions on
the LEGO Ideas website
led to 12 major new
products!

Perhaps the most important sources of new

product ideas are customers themselves.
New Product Development Process I Idea Generation

Crowdsourcing involves inviting broad

communities of people—customers,
employees, independent scientists and
researchers, and even the public at large
—into the new product innovation
process.

Food container giant Tupperware sponsored

the Clever Container Challenge contest
seeking ideas for integrating Internet-of-
Things technologies into food containers for
future smart kitchens.
New Product Development Process

Step 2
New Product Development Process I Idea Screening

Identify good ideas and drop poor ideas

R-W-W screening framework:

• Is it real?
• Can we win?
• Is it worth doing?
New Product Development Process

Step 3
New Product Development Process I Concept
Development & Testing
is an idea for a possible product
Product Idea that the company can see itself
offering to the market.

is a detailed version of the idea

Product Concept stated in meaningful consumer
terms.

is the way consumers

Product Image perceive an actual or potential
product.
New Product Development Process I Concept
Development & Testing
refers to testing new
Concept Testing product concepts with
groups of target
consumers.

The Tesla electric sports car will go

0 to 100 kph in 4 seconds, travel more
than 400 kilometers on a single
charge and costs 1 cent for every 3
kilometers to power
New Product Development Process

Step 4
New Product Development Process I Marketing
Strategy Development
Marketing strategy is designing an initial marketing strategy
for a new product based on the product
development
concept.

Marketing strategy statement consists of:

• Target market description
• Value proposition planned
• Sales, market-share, and marketing mix
New Product Development Process

Step 5
New Product Development Process I Business Analysis

is a review of the sales, costs, and profit

Business analysis projections for a new product to find out whether
these factors satisfy the company’s objectives.
To estimate sales, the company might:
- look at the sales history of similar products and conduct market
surveys.
- It can then estimate minimum and maximum sales (Sales forecast) to
assess the range of risk.
- After preparing the sales forecast, management can estimate the
expected costs and profits for the product, including marketing,
R&D, operations, accounting, and finance costs.
- The company then uses the sales and costs figures to analyze the new
product’s financial attractiveness.
New Product Development Process

Step 6
New Product Development Process I Product
Development
is developing the product concept into a physical
Product Development product to ensure that the product idea can be
turned into a workable market offering.

• Requires a major increase in

investment
• Many companies use their employees &/or
actual customers for product testing
New Product Development Process

Step 7
New Product Development Process I Test Marketing

Test marketing is the stage of new product development in which

the product and its proposed marketing program are
tested in realistic market settings.

Tests the product and the entire marketing

program before full introduction

Kentucky Grilled Chicken was test

marketed for 3 years before rollout
New Product Development Process I Test Marketing
Three Types of Test Markets

Standard test markets: Company conducts a full marketing campaign in a

small number of representative test markets (or cities)
• Company evaluates product performance using store surveys
• Results are used to forecast national sales and profits, discover
product problems, and fine-tune the marketing program
• However, challenges exist with STM
New Product Development Process I Test Marketing

Controlled test markets: Select stores that have agreed to carry new
products for a fee
• Less expensive & faster than standard test market, but competitors still
gain access

Simulated test markets: The firm creates a simulated shopping environment

to estimate how many consumers will buy the new product against competing
products
• Provides a measure of trial and the effectiveness of promotion but is not
realistic
New Product Development Process I Test Marketing
Test Marketing
Marketing Strategy Development

When test marketing is When test marketing is

likely unlikely

• New product with large • Simple line extension

investment • Copy of competitor product
• Uncertainty about product • Low costs
or marketing program • Management confidence
New Product Development Process

Step 8
New Product Development Process I Commercialization

Commercialization involves introducing a new product into the market.

• When to launch?
• Where to launch?
• Planned market rollout?
Managing New Product Development

Successful new product development should be:

• Customer centered
• Team based, not sequential
• Systematic (step by step process)

Intuit Software follows a

“Design for Delight”
philosophy, delighting
customers by going
beyond their expectations
Managing New Product Development

Customer-centered new product

development
focuses on finding new ways to solve customer
problems and creating more customer-
satisfying experiences.
Managing New Product Development

Sequential new-product development: Company departments work

individually to complete each stage of the process before passing it along to
the next department or stage
Benefit is increased control in risky or complex projects but, may be slow

Team-based new product development involves various company

departments working closely together, overlapping the steps in the product
development process to save time and increase effectiveness.

Team-based vs. Sequential:

• Team-based is faster and more flexible
• Team-based can increase tension and confusion
Managing New Product Development

Systematic New Product Development

• Innovation management system
 Creates an innovation-oriented company culture
 Yields a large number of new product ideas

New Product Development in Turbulent Times

• Tempted to reduce spending
• May become less competitive

Thus, rain or shine, good times or bad, a company must continue to

innovate and develop new products if it wants to grow and prosper.
Managing New Product Development

Product Life Cycle is the course that a product’s sales and profits
(PLC) take over its lifetime

Early Microwave Oven

The PLC concept can describe a: 1955
• Product class (laundry detergents)
• Product form (powder detergents)
• Brand (Tide)

A typical PLC has five stages

Product Life-Cycle Strategies

Product Life Cycle

Product Life-Cycle Strategies

Product development
• Zero sales and increasing investment costs
Introduction
•Slow sales and nonexistent profits
Growth
• Rapid market acceptance and increasing profits
Maturity
• Slow sales growth and profits level off or decline
Decline
• Sales fall off and profits drop
Product Life-Cycle Strategies

Introduction Stage
• Slow sales growth
• Little or no profit
• Little competition

• Marketing Mix Implications:

 Basic product is offered (no variations)
 High distribution and promotion expense
 Informative advertising
 Selective distribution
Product Life-Cycle Strategies

Growth Stage
• Sales increase
• New competitors enter the market
• Profits increase, then peak
• Gain economies of scale

• Marketing Mix Implications:

 Offer product variations & extensions
 Lower prices to attract more buyers
 Intensive distribution
Product Life-Cycle Strategies

Maturity Stage

• Slowdown in sales
• Many suppliers
• Substitute products
• Overcapacity leads to competition

• Marketing Mix Implications:

 Increased promotion and R&D to support sales and profits
(Example: Cars)
 Stress brand differences in advertising
 Use market or product modifying strategies
Product Life-Cycle Strategies

Maturity Stage: Modification Strategies

Market modifying
• Look for new users & new market segments
• Increase usage among present customers

Product modifying
• Change quality, features, style or packaging
to be more attractive

Marketing mix modifying (change price,

place or promotion)
Product Life-Cycle Strategies

Decline Stage
• Declining sales, profits & competition
 Maintain, Harvest or Drop the product

• Marketing Mix Implications:

 Phase out weak items
 Selective distribution
 Reduce advertising & sales promotion
Product Life-Cycle Strategies
Not All Products Follow the Typical PLC:
Styles, Fashions, and Fads

Style: A basic and distinctive mode of expression

Fashion: A currently accepted or popular style in a given field
Product Life-Cycle Strategies

Fads are temporary periods of unusually high

sales driven by consumer enthusiasm and
immediate product popularity
Additional Product & Service Considerations

Product Decisions and Social Responsibility

Public policy and regulations regarding
developing and dropping products, patents,
quality, safety, and product warranties should
be considered carefully.

International Product and Service Marketing

• Determining what products and services to
introduce in which countries
• Standardization versus customization
Kit Kat’s “May Cherries Blossom”
• Packaging and labeling Campaign in Japan, For Good Luck
• Customs, values, laws