Published on April 24, 2013
Lecturer: Bahman MoghimiDoctor of Business AdministrationM.Sc. Of “Industrial Marketing & e-Commerce”New-New-Product Development and Product Life-Cycle strategies Life-University of Georgia B.Moghimi @yahoo.co.
New-New-Product Development and Product Life-Cycle Life- Strategies Bahman Moghimi University of Georgia B.Moghimi@ug.edu.ge
ObjectivesUnderstand how companies find and develop new-product ideas. new-Learn the steps in the new-product development process. new-Know the stages of the product life cycle.Understand how marketing strategies change during theproduct’s life cycle. B.Moghimi@yahoo.co.uk
Microsoft c$50 billion in profits over 27 Innovation is critical toyears Microsoft’s future successEarly new product Much of R & D efforts aredevelopment relied heavily on Internet relatedcopying the competition Many new products and$4.2 billion annually invested services are in developmentin R & D B.Moghimi@yahoo.co.uk
New Product DevelopmentDevelopment of original products, product improvements, product modifications, and new Brands through the firm’s own R&D efforts. B.Moghimi@yahoo.co.uk
New Product Development StrategyNew products can be obtained via acquisitionor development.New products sufferfrom high failure rates.Several reasonsaccount for failure. B.Moghimi@yahoo.co.uk
Discussion QuestionWhy do products fail?See if you can identify the fatalflaw in the brands below andat right. Ben- Ben-Gay Asprin Buttermilk Shampoo Fruit of the Loom Laundry Detergent B.Moghimi@yahoo.co.uk
Why Do New Products Fail ?• Overestimated market• Poor design• Incorrect positioning• Error in pricing• Poor marketing communication• Production-orientation• Cost overrun• Competition B.Moghimi@yahoo.co.uk
Why Do New Products Success?• Unique• superior product• Well defined product concept from startup• Specific criteria• Specific strategic role• Systematic new-product process B.Moghimi@yahoo.co.uk
Major Stages inNew-Product Development B.Moghimi@yahoo.co.uk
New Product Development StrategyNew Product Development Process: Stage 1: Idea Generation Internal idea sources: • R&D External idea sources: • Customers, • Competitors, Competitors, • Distributors • Suppliers B.Moghimi@yahoo.co.uk
3M’s corporate culture encourages, supports, and rewards new product ideas and innovationB.Moghimi@yahoo.co.uk
New Product Development StrategyNew Product Development Process: Stage 2: Idea Screening Product development costs increase dramatically in later stages. Ideas are evaluated against criteria; most are eliminated. B.Moghimi@yahoo.co.uk
New-Product Development Process: Idea GenerationSystematic process Idea manager Multidisciplinary committee Toll- Toll-free number Staff encouragement Formal recognitionYields innovation culture more ideas B.Moghimi@yahoo.co.uk
New Product Development StrategyNew Product Development Process: Stage 3: Concept Development and Testing Product concepts provide detailed versions of new product ideas. Consumers evaluate ideas in concept tests. B.Moghimi@yahoo.co.uk
New-Product Development Process: Idea Screening• Purpose • Product concept – Identify good ideas drop – New-product idea in poor ones fast detail stated in• Challenge meaningful consumer – Maintain creativity and stream of ideas terms• Standard format • Concept development• Criteria and rating – Expanding the new- product idea into various alternative forms B.Moghimi@yahoo.co.uk
New-Product Development Process: Concept Development and Testing• Concept testing – Target consumers exposed to new- new- product concepts – Word or picture description – Physical presentation of the concept – Question reactions B.Moghimi@yahoo.co.uk
New Product Development StrategyNew 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 Long- marketing mix strategy. B.Moghimi@yahoo.co.uk
New Product Development StrategyNew Product Development Process: Stage 5: Business Analysis Sales, cost, and profit projections Stage 6: Product Development Prototype development and testing B.Moghimi@yahoo.co.uk
New-Product Development Process: Business Analysis• Review sales, costs and profit projections• Compare projected results to objectives• Estimate maximum and minimum sales – Company history and market opinion• Assess risk• Estimate product costs and profits• Analyze attractiveness using sales and costs B.Moghimi@yahoo.co.uk
Daimler is currently road-testing its prototype NECAR 5 (New Electric Car) B.Moghimi@yahoo.co.uk
Business NowComputer modeling is being used to aid in product design B.Moghimi@yahoo.co.uk
New Product Development StrategyNew Product Development Process: Stage 7: Test Marketing Standard test markets Controlled test markets Simulated test markets B.Moghimi@yahoo.co.uk
New-Product Development Process: Standard Test Markets• Use small number of representative test cities• Conducts full marketing campaign• Store audits, consumer/distributor surveys gauge performance• Costly and time consuming• Competitor reaction• Most popular approach B.Moghimi@yahoo.co.uk
New-Product Development Process: Controlled Test Markets• Controlled panel of stores - fee basis• Client specifies stores and locations• Shelf space/location, displays, promotion and price controlled• Sales tracked• Less time, lower costs• Representativeness and competition B.Moghimi@yahoo.co.uk
Simulated Test Markets (STM) In-DepthAdvantages: Types of STMs: Reduces risk – capital, ASSESSOR marketing dollars, BASES cannibalization Marke- Marke-Test Increases efficiency Merwyn Maintains security – competitors have less time And others to plan counter strategies Saves the company time B.Moghimi@yahoo.co.uk
Simulated Test Markets (STM) In-DepthModel Inputs: Model Inputs: The markets size Price Copy testing results The proportion of stores carrying the test Advertising budget for the product and the test product and number of shelf facings competitors. by month. Media schedule, Expected marketing Consumer promotion, costs and margin Trade promotion by contribution. month. B.Moghimi@yahoo.co.uk
Simulated Test Markets (STM) In-DepthDo‘s & Don’ts of STMs Do‘s & Don’ts of STMs Be a champion for your Calculate different levels new product--but be product--but of competitive response. objective Dont estimate a level of Choose the proper sample. support in a simulated Expose people to your market that you would not product and its advertising maintain nationally. in a way that best simulates Be very careful in the real world. estimating all marketing Use proven research input factors—the more factors— technology to forecast you guess incorrectly, the market behavior and sales. less accurate the forecast. B.Moghimi@yahoo.co.uk
New-Product Development Process: Stage 8 :Commercialization• Major investment in manufacturing facilities• High initial advertising and promotion expense• Introduction timing critical• Launch location?• Local, regional roll-out, national, or global? roll- B.Moghimi@yahoo.co.uk
Sales and ProfitsOver A Product’s Life B.Moghimi@yahoo.co.uk
Product Life-Cycle StrategiesThe Typical Product Life Cycle(PLC) Has Five Stages Product Development, Introduction, Growth, Maturity, Decline Not all products follow this cycle: Fads Styles Fashions B.Moghimi@yahoo.co.uk
Styles, Fashions, and Fads B.Moghimi@yahoo.co.uk
Companies want their products to enjoy a long life cycle. Hershey’s actively promotes the fact that it has been “unchanged since 1899”B.Moghimi@yahoo.co.uk
Product Life-Cycle StrategiesAdditional marketinginvestments canmove a product backinto the growth stage,as in the case ofCracker Jack. B.Moghimi@yahoo.co.uk
Product Life-Cycle StrategiesThe product life cycle concept canbe 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 B.Moghimi@yahoo.co.uk
Product Life-Cycle StrategiesPLC Stages Begins when the company develops a new- new-Productdevelopment product ideaIntroduction Sales are zeroGrowth Investment costs are highMaturity Profits are negativeDecline B.Moghimi@yahoo.co.uk
Product Life-Cycle StrategiesPLC Stages Low sales High cost perProduct customer acquireddevelopment Negative profitsIntroduction Innovators areGrowth targetedMaturity Little competitionDecline B.Moghimi@yahoo.co.uk
Marketing Strategies: Introduction StageProduct – Offer a basic productPrice – Use cost-plus basis to set cost-Place – Build selective distributionAdvertising – Build awareness among early adopters anddealers/resellersSales Promotion – Heavy expenditures to create trial B.Moghimi@yahoo.co.uk
Product Life-Cycle Strategies PLC Stages Rapidly rising sales Average cost per Product customer development Rising profits Introduction Early adopters are targeted Growth Growing competition Maturity Decline B.Moghimi@yahoo.co.uk
Marketing Strategies: Growth StageProduct – Offer product extensions, service, warrantyPrice – Penetration pricingDistribution – Build intensive distributionAdvertising – Build awareness and interest in the massmarketSales Promotion – Reduce expenditures to takeadvantage of consumer demand B.Moghimi@yahoo.co.uk
Product Life-Cycle StrategiesPLC Stages Sales peak Low cost perProduct customerdevelopment High profitsIntroduction Middle majority areGrowth targetedMaturity Competition beginsDecline to decline B.Moghimi@yahoo.co.uk
Marketing Strategies: Maturity StageProduct – Diversify brand and modelsPrice – Set to match or beat competitionDistribution – Build more intensivedistributionAdvertising – Stress brand differencesand benefitsSales Promotion – Increase to encouragebrand switching B.Moghimi@yahoo.co.uk
Product Life-Cycle StrategiesPLC Stages Declining sales Low cost perProduct customerdevelopment Declining profitsIntroduction Laggards areGrowth targetedMaturity DecliningDecline competition B.Moghimi@yahoo.co.uk
Marketing Strategies: Decline StageProduct – Phase out weak itemsPrice – Cut priceDistribution – Use selective distribution: phase outunprofitable outletsAdvertising – Reduce to level needed to retainhard-hard-core loyalistsSales Promotion – Reduce to minimal level B.Moghimi@yahoo.co.uk
Product Life-Cycle StrategiesCharacteristics Introduction Growth Maturity DeclineSales Low Rapidly rising Peak DecliningCosts High per customer Average per Low per customer Low per customer customerProfits Negative Rising High DecliningCustomers Innovators Early adopters Middle majority LaggardsCompetitors Few Growing number Stable number Declining number beginning to declineMarketing Create product Maximize market Maximize profit Reduce awareness and trial share while defending expenditures andObjectives market share milk the brand B.Moghimi@yahoo.co.uk
Product Life-Cycle StrategiesStrategies Introduction Growth Maturity Decline Offer basic product Offer product Diversify brand and Phase out weak itemsProduct extensions, service, models warranty Use cost-plus Price to penetrate Price to match or best Cut pricePrice market competitors Build selective Build intensive Build more intensive Go selective, phase outDistribution unprofitable outlets Build product Build awareness and Stress brand Reduce to level neededAdvertising awareness among early interest in the mass differences and to retain hard-core adopters and dealers market benefits loyals Use heavy sales Reduce to take Increase to encourage Reduce to minimalSales promotion to entice advantage of heavy brand switching levelPromotion trial consumer demand B.Moghimi@yahoo.co.uk
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