L Chapter 9 New Product SPR 2016

Chapter Nine
New-Product Development and Product Life-

Cycle Strategies
9- 1
New-Product Development and
Product Life-Cycle Strategies
Topic Outline
• New-Product Development
Strategy
• New-Product Development
Process
• Managing New-Product
Development
• Product Life-Cycle Strategies
• Additional Product and Service
Considerations
9- 2
New-Product Development Strategy
Two ways to obtain new products
Acquisition refers to the buying of a whole
company, a patent, or a license to produce
someone else’s product
New product development refers to original
products, product improvements, product
modifications, and new brands developed
from the firm’s own research and
development >> Consider the RISK
9- 3
Hard Facts
“Innovation can be very expensive and very risky.
New products face tough odds. According to one
estimate, 80 percent of all new products fail or
dramatically underperform. Each year, companies
lose an estimated $20 billion to $30 billion on
failed food products alone.” (See more on p260)
9- 4
Why do new products fail?
• Overestimated the market size
• Poor design
• Incorrect positioning
• Wrong time
• Wrong level of pricing
• Poorly promoted
• Management biases
• High cost of product development
9- 5
New-Product Development Process
Major Stages in New-Product Development
9- 6
Idea Generation
Idea generation is the systematic search for
new-product ideas
Sources of new-product ideas
• Internal
• External
9- 7
Idea Generation
Internal sources refer to the
company’s own formal research
and development, management
and staff, and intrapreneurial
programs
External sources refer to sources
outside the company such as
customers, competitors,
distributors, suppliers
9- 8
Idea Generation
Crowdsourcing (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.
Example: P&G rewarded Italian chemist
$30,000 for dishwashing idea
9- 9
Idea Screening
• Identify good ideas and drop poor ideas
• R-W-W Screening Framework:
– Is it real? (actual need and desire)
– Can we win? (sustainable competitive
advantage)
– Is it worth doing? (strategic fit)
9- 10
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
9- 11
Concept Development and Testing
Concept testing refers to testing new-product

concepts with groups of target consumers
to find out if the concepts have genuine
appeal
9- 12
Marketing Strategy Development

• Marketing strategy development refers to
the initial marketing strategy for
introducing the product to the market
• Marketing strategy statement includes:
– Description of the target market
– Planned Value proposition
– Sales and profit goals for the first few years
9- 13
Business analysis
Business analysis involves a review of the

sales, costs, and profit projections to find
out whether they satisfy the company’s
objectives
9- 14
Product development
• Involves the creation and testing of one or more
physical versions by the R&D or engineering
departments
• Requires an increase in investment
• Shows whether the product idea can be turned into
a workable product.
9- 15
Test marketing
If the product passes both the concept test
and the product test, the next step is test
marketing.
Test marketing is the stage at which the

product and marketing program are
introduced into more realistic
marketing settings
KFC tested the Grilled Chicken

concept and product
for 3 years before
product roll out
9- 16
New-Product Development
Process
Simulated/Controlled Test Markets
Measure consumer responses to new
products and marketing tactics in
laboratory stores or simulated shopping
environments. Many marketers are now
using new online simulated
• Advantages of simulated test markets
– Less expensive than other test methods
– Faster
– Restricts access by competitors
• Disadvantages
– Not considered as reliable and accurate
due to the controlled setting
9- 17
When firms test When firms may

market not test market
• New product with • Simple line
large investment extension
• Uncertainty • Copy of
about product or competitor
marketing product
program • Low costs
• Management
confidence
9- 18
Commercialization is the introduction

of the new product
Decide:
• When to launch
• Where to launch
• Planned market
rollout
9- 19
Product Life Cycle
The PLC concept can describe a product class (automobiles), a
product form (SUVs), or a brand (Ford Escape).
NOT all products follow all five stages of the PLC.

9- 20
9- 21
Fashion A currently accepted or popular style

in a given field. E.g. “business casual”
Style A basic and distinctive mode of
expression. E.g. in homes (colonial, ranch,
transitional)
Fads are temporary periods of unusually high
sales driven by consumer enthusiasm and
immediate product or brand popularity
E.g. Pet Rock
9- 22
Product development Stage
• Develops a new-product idea.

• Sales are zero
• Company’s investment costs mount.
9- 23
Introduction Stage
• Slow sales growth

• Little or no profit
• High distribution and promotion expense
9- 24
Growth Stage
• Consumer education
• Sales increase
• New competitors enter the market
• Promotion and manufacturing costs
gain economies of scale
• Price stability or decline to increase
volume
• Profits increase
9- 25
Maturity Stage
• Slowdown in sales growth WHY?
• Many suppliers
• Substitute products
• Tough competition
• Increased promotion and R&D to
support sales and profits
• Profits level off or begin to decline
WHY?
9- 26
Maturity Stage Modifying Strategies
• Market modifying
• Product
modifying
• Marketing mix
modifying
9- 27
Decline Stage
• Maintain the product (invest, reposition, etc.)

• Harvest the product (e.g. reduce costs hoping
sales hold up)
• Drop the product
9- 28
“The world will pass you by if you are not
constantly innovating.”
~John Hayes,
CEO of American Express
9- 29

L Chapter 9 New Product SPR 2016

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Chapter Nine

New-Product Development and Product Life-

Major Stages in New-Product Development

Crowdsourcing (open innovation):

Concept Development and Testing

Product idea is an idea for a possible product

Concept Development and Testing

Concept testing refers to testing new-product

Marketing Strategy Development

Business analysis involves a review of the

Test marketing is the stage at which the

KFC tested the Grilled Chicken

When firms test When firms may

Commercialization is the introduction

The PLC concept can describe a product class (automobiles), a

product form (SUVs), or a brand (Ford Escape).

NOT all products follow all five stages of the PLC.

Fashion A currently accepted or popular style

• Develops a new-product idea.

• Slow sales growth

• Maintain the product (invest, reposition, etc.)

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