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New Product Development

and
Product Life-Cycle Strategies
New-Product Development
Strategies
Strategies for Obtaining New Product Ideas

Acquired
Companies

Acquired
Patents

Acquired
Licenses
Six categories of New
Products
 New-to-the-world product
 New product lines
 Additions to the existing product
lines
 Improvements of existing products
 Repositioning
 Cost reductions
New Product
Development
 companies must be constantly modifying
existing products/services and developing
new ones; the marketplace demands it
 how new is new? most new products are
modifications of or extensions to existing
ones
 the introduction of a new product is a
strategic decision which should be guided
by the company’s goals and a new product
introduction strategy
Criteria for New Products
 there must be adequate market demand:
necessary but not sufficient for success
 must satisfy key financial criteria
 must be compatible with environmental
standards
 must fit with the company’s marketing
structure
 should also be compatible with production
capabilities, satisfy legal requirements,
and fit with corporate goals and objectives
Causes of New Product
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.
Factors which Hinder New
Product Development
 Shortage of important ideas in
certain areas
 Fragmented markets
 Social and governmental constraints
 Cost of development
 Capital shortage
 Faster required development time
 Shorter product life cycle
New Product
Development
Process
Marketing Business
Strategy Analysis

Concept Product
Development Developmen
and Testing

Idea Test
Screening Marketing

Idea Commercialization
Generation
New Product Development Process
Step 1. Idea Generation
Idea Generation is the Systematic Search for New
Product Ideas Obtained Internally and From:

D
C
C I S
O
U S U
M
S T P
P
T R P
E
O I L
T
M B I
I
E U E
T
R T R
O
S O S
R
R
S
S
Idea Generation- Creativity
Techniques
 AttributeListings
 Forced relationship
 Morphological analysis
 Reverse assumption analysis
 New contexts
 Mind mapping
 Lateral marketing
New Product Development Process
Step 2. Idea 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 Product Development Process
Step 3. Concept Development & Testing

1. Develop Product Ideas into


Alternative
Product Concepts

2. Concept Testing - Test the


Product Concepts with Groups
of Target Customers

3. Choose the Best One


Concept Development
 Who will use this product?
 What primary benefit should this
product provide?
 When will people use this product?
Concept Testing
 Communicability & believability
 Need level
 Gap level
 Perceived value
 Purchase intention
 User targets, purchase occasions,
purchasing frequency

 Conjoint Analysis
New Product Development Process
Step 4. Marketing Strategy Development

Marketing Strategy Statement Formulation


Part One Describes Overall:
Target Market
Planned Product Positioning
Sales & Profit Goals
Market Share

Part Two Describes Short-Term:


Product’s Planned Price
Distribution
Marketing Budget

Part Three Describes Long-Term:


Sales & Profit Goals
Marketing Mix Strategy
New Product Development Process
Step 5. Business Analysis
Step 6. Product Development

Business Analysis

Review of Product Sales, Costs,


and Profits Projections to See if
They Meet Company Objectives

If No, Eliminate
Product Concept
If Yes, Move to
Product Development
New Product Development Process
Step 7. Test Marketing

Standard Controlled
Test Market Test Market
Full marketing campaign A few stores that have
in a small number of agreed to carry new
representative cities. products for a fee.

Simulated
Test Market
Test in a simulated
shopping environment
to a sample of
consumers.
New Product Development Process
Step 8. Commercialization

Commercialization is the
Introduction of the New Product
into the Marketplace.

To
When? Where? How?
Whom?
Product Life
SalesCycle
and Profits Over the Product’s Life From
Introduction to Decline
Sales and
Profits ($)

Sales

Profits

Time
Product Introduction Growth Maturity Decline
Develop­
ment

Losses/
Investments ($)
Introduction Stage of the PLC
Summary of Characteristics, Objectives, & Strategies

Sales Low sales

Costs High cost per customer

Profits Negative
Marketing Objectives Create product awareness
and trial
Product Offer a basic product
Price Use cost-plus
Distribution Build selective distribution
Build product awareness among
Advertising early adopters and dealers
Growth Stage of the PLC
Summary of Characteristics, Objectives, & Strategies

Sales Rapidly rising sales

Costs Average cost per customer

Profits Rising profits


Marketing Objectives Maximize market share
Offer product extensions,
Product service, warranty
Price Price to penetrate market

Distribution Build intensive distribution


Build awareness and interest in
Maturity Stage of the PLC
Summary of Characteristics, Objectives, & Strategies

Sales Peak sales

Costs Low cost per customer

Profits High profits


Marketing Objectives Maximize profit while defending
market share
Product Diversify brand and models
Price to match or best
Price competitors
Distribution Build more intensive distribution
Stress brand differences and
Decline Stage of the PLC
Summary of Characteristics, Objectives, & Strategies

Sales Declining sales

Costs Low cost per customer

Profits Declining profits


Marketing Objectives Reduce expenditure and milk the
brand
Product Phase out weak items
Price Cut price
Go selective: phase out
Distribution unprofitable outlets
Product Life Cycle Variations
Managing the Life Cycle
 successful life-cycle management requires
predicting the shape of the curve and then
successfully adapting strategies at each
stage
 when to consider entering the market
 how to manage to capitalize on growth
 it is possible to develop strategies that will
extend the maturity stage; modify the
product, devise new uses, or design new
appeals
 greatest challenge comes at the decline
Consumer Adoption Process
 Adopters of new products move through
five stages:
 awareness: customer is exposed to the
product
 interest: interest and information seeking
 evaluation: assessment of the
advantages and disadvantages of the new
product
 trial: customer tries the product in low-
risk situation; may be a sample or test
drive
 adoption: customer decides to buy the
product

Consumer Adoption Process
 People adopt new products at
different rates
– Innovators
– Early adopters
– Early majority
– Late majority
– Laggards
Consumer Adoption Process
 Fiveproduct characteristics influence
the rate of adoption:
– Degree of relative advantage
– Degree of compatibility
– Degree of complexity
– Degree of divisibility (trialability)
– Degree of communicability