Chapter 9

New Product Development and

Product Life-Cycle Strategies

Course: Mkt 202

Lecturer: Emran Mohammad
New-Product Development and Product Life-
Cycle Strategies

•Topic Outline
•9.1 New-Product Development Strategy
•9.2 New-Product Development Process
•9.3 Managing New-Product Development
•9.4 Product Life-Cycle Strategies
•9.5 Additional Product and Service Considerations

Ch 9 -2 Copyright © 2011 Pearson Education

 Product Life-Cycle Strategies for new
products
1. Product development 5. Decline
• Sales are zero and investment • Sales fall off and profits
costs mount.
drop.
2. Introduction
• Slow sales growth and profits
are nonexistent.
3. Growth
• Rapid market acceptance and
increasing profits.
4. Maturity
• Slowdown in sales growth and
profits level off or decline.
Ch 9 -3 Copyright © 2011 Pearson Education
 Product Life-Cycle Strategies
1. Product Development

At LEGO, new-product development

begins with listening to customers
and including them in the design
process. The LEGO Design by Me site
lets customers download 3D design
software, create a LEGO toy, and then
order the kit to build it.
 Reasons for new product failure
Overestimation of market size
Poor design
Incorrect positioning
Wrong timing
Priced too high
Ineffective promotion
Management influence
High development costs
Competition

Ch 9 -5 Copyright © 2011 Pearson Education

 The New-Product Development Process: 8
steps

Ch 9 -6 Copyright © 2011 Pearson Education

 The New-Product Development Process

i) Idea generation is the systematic search for

new-product ideas.
• Sources of new-product ideas:
a. Internal: Gathering new product ideas by-
- Formal R&D
- Own employees
b. External: Gathering new product ideas from-
- Distributors
- Suppliers
- Customers (most important external source)

Ch 9 -7 Copyright © 2011 Pearson Education

 The New-Product Development Process

c. Crowdsourcing or Open
Innovation:
– Inviting broad communities of
people— customers, employees,
independent scientists and
researchers, and even the public
at large—into the new-product
innovation process.
• Own crowdsourcing: Netfix
• Third party crowdsourcing:
Paypal
Crowdsourcing: When Netflix
ii) Idea Screening wanted ideas for improving the
• Screening new-product ideas to accuracy of its Cinematch online
recommendation system, it decided
spot good ideas and drop poor to “open it up to the world,”
ones as soon as possible promising a $1 million prize for the
best solution.
 The New-Product Development Process

iii) Concept Development and Testing

•Product idea is an idea for a possible
product that the company can see itself
offering to the market.
•Product concept is a detailed version of the
idea stated in meaningful consumer terms.
•Product image is the way consumers
perceive an actual or potential product.

Ch 9 -9 Copyright © 2011 Pearson Education

 The New-Product Development Process
Concept Development
•The marketer’s task is to:
–Develop the new product into
alternative product concepts
–Find out how attractive each
concept is to customers Product testing: HP signs up
consumers to evaluate
– Choose the best one prototype imaging and
printing products in their
Concept testing homes and offices to gain
insights about their products
–refers to testing new product
concepts with groups of target
consumers.
Ch 9 -10 Copyright © 2011 Pearson Education
 The New-Product Development Process
iv) Marketing Strategy Development
•Marketing strategy development refers to the
initial marketing strategy for introducing the
product to the market. It consists of three parts:
– 1st: Describes the target market; planned value
proposition; sales, market share, and profit goals for
the first few years.
– 2nd: Outlines the product’s planned price,
distribution, and marketing budget for the first year.
– 3rd: Describes the planned long-run sales, profit
goals, and marketing-mix strategy.
Ch 9 -11 Copyright © 2011 Pearson Education
 The New-Product Development Process

v) Business analysis involves a review of the

sales, costs, and profit projections to find out
whether they satisfy the company’s objectives.

vi) Product development involves the creation

and testing of one or more physical versions by
the R&D or engineering departments.

Ch 9 -12 Copyright © 2011 Pearson Education

 The New-Product Development Process

vii) Test marketing provides

the marketer with
experience in testing the
product and entire
marketing program before
full introduction.
Standard test markets

Controlled test markets Test marketing: KFC test marketed

its new Kentucky Grilled Chicken
Simulated test markets product for three years before
Ch 9 -13 Copyright © 2011 Pearson Education rolling it out nationally.
 The New-Product Development Process

• New product with large investment

When firms test market • Uncertainty about product or marketing
program

• Simple line extension

When firms may not test • Copy of competitor product
market • Low costs
• Management confidence

Ch 9 -14 Copyright © 2011 Pearson Education

 The New-Product Development Process

viii) Commercialization:
Introducing the new
product into the market.
The company must decide
on:
• Introduction timing Microsoft spent $100 million
• Where to launch the or more on marketing to
introduce its Bing search
product engine

Ch 9 -15 Copyright © 2011 Pearson Education

 Managing New-Product Development
Successful new-product development should be:
• Customer centered new product development: focuses
on finding new ways to solve customer problems and
create more customer satisfying experiences.
• Begins and ends with solving customer problems.

• Sequential new-product development is a development

approach where company departments work closely
together individually to complete each stage of the
process before passing it along to the next department or
stage
• Benefit: Increased control in risky or complex projects
• Problem: Slow process

Ch 9 -16 Copyright © 2011 Pearson Education

 Managing New-Product Development

•Team-based new-product development is a

development approach where company departments
work closely together in cross-functional teams,
overlapping in the product-development process to save
time and increase effectiveness.
–Comparatively fast process: overcome bottlenecks
–Sometimes creates organizational tension or confusion

•Systematic new-product development is an innovative

development approach that collects, reviews, evaluates,
and manages new-product ideas.
•Creates an innovation-oriented culture
•Yields a large number of new-product ideas
Ch 9 -17 Copyright © 2011 Pearson Education
 Product Life-Cycle Strategies

2. Introduction Stage
• Slow sales growth
• Little or no profit
• High distribution and
promotion expense

Managing the PLC: Despite its long list of

familiar old brands, until recently, Kraft
had far too few good new products. It’s
now emphasizing new-product
innovation. “Welcome to the new Kraft.”
Ch 9 -18 Copyright © 2011 Pearson Education
 Product Life-Cycle Strategies

3. Growth Stage
• Sales increase
• New competitors enter the
market
• Price stability or decline to
increase volume
• Consumer education
• Profits increase
• Promotion and manufacturing
costs gain economies of scale
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 Product Life-Cycle Strategies

4. Maturity Stage
• Slowdown in sales
• Many suppliers
• Substitute products
• Overcapacity leads to
competition Product life cycle: Some products
• Increased promotion and die quickly; others stay in the
mature stage for a long, long
R&D to support sales and time. TABASCO® sauce is “over
140 years old and yet still able
profits to totally whup your butt!”
Ch 9 -20 Copyright © 2011 Pearson Education
 Product Life-Cycle Strategies

Modifying Strategies in Maturity Stage:

• Market modifying
• Product modifying
• Marketing mix modifying

Modifying the market: 101-year old

cardmaker American Greetings is
reaching out to younger consumers
through social-networking widgets
and instant-messaging channels.

Ch 9 -21 Copyright © 2011 Pearson Education

 Product Life-Cycle Strategies

5. Decline Stage
• Maintain the product
• Harvest the product
• Drop the product

Ch 9 -22 Copyright © 2011 Pearson Education

 Product Life-Cycle Strategies
•Style: A basic and distinctive mode of
expression.

•Fashion: A currently accepted or

popular style in a given field.

•Fad: A temporary period of unusually

high sales driven by consumer
enthusiasm and immediate product or
brand popularity.
Ch 9 -23 Copyright © 2011 Pearson Education
Product Life-Cycle Strategies