Chapter 9
New-Product Development and Product Life-Cycle Strategies
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.
For companies new products are important sources of
growth!
For customers new products bring new solutions and variety
to their lives.
New-Product Development Strategy
By one estimate, 67 percent of all new products
introduced by established companies fail.
For new companies, the failure rate soars to 90 percent.
New-Product Development Strategy
Major Stages in New-Product Development
New-Product Development Strategy
1. Idea Generation
Idea generation is the systematic search for new-
product ideas.
Internal Sources: New idea can be generated within the
company. E.g. R&D activities
External Sources: New idea can be generated externally.
E.g. customers, distributors, suppliers, etc.
New-Product Development Strategy
1. Idea Generation
Crowdsourcing:
Inviting broad communities of people—customers,
employees, independent scientists and researchers, and
even the public at large—into the new-product
innovation process.
Crowdsourcing is the process of getting work or funding,
usually online, from a crowd of people.
Crowd + Outsourcing
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New-Product Development Strategy
2. Idea Screening
Identify good ideas which can turn into profitable products
and drop poor ideas
Present a proposal to the new product committee. Proposal
should include:
Description of the product or the service
Customer value proposition
Target market
Competition
Rough estimates of market size, product price,
development time and costs, manufacturing costs, and
rate of return.
New-Product Development Strategy
2. Idea Screening
R-W-W Screening Framework:
Is it real? (Is there a real need or desire for the product
and will customers buy it?)
Can we win? (Is the product offers a sustainable
competitive advantage?)
Is it worth doing? (Does the product fit into company’s
overall growth strategy? Does it offer sufficient profit
potential?)
New-Product Development Strategy
3. 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.
New-Product Development Strategy
3. Concept Development and Testing
Product idea is an idea for a possible product that the company
can see itself offering to the market.
An electric car.
Product concept is a detailed version of the idea stated in
meaningful consumer terms
Alternative product concepts for an electric car:
Concept1: A medium-cost sporty compact appealing to
young people.
Concept 2: A high-end SUV appealing to those who love
the space SUVs provide but lament the poor gas mileage.
New-Product Development Strategy
3. Concept Development and Testing
Concept testing refers to testing new-product concepts
with groups of target consumers.
New-Product Development Strategy
3. Concept Development and Testing
Product Description
An insecticide company is considering the development and
introduction of a new tick and flea control product for pets. This
product would consist of insecticide and a liquid dispensing brush for
applying the insecticide to dogs and cats. The insecticide is in a
cartridge that is installed in the handle of the brush. The insecticide is
dispensed through the tips of the bristles when they touch the pet’s skin
(which is where most ticks and fleas are found). The actual dispensing
works very much like a felt-tip pen. Only a small amount of insecticide
actually is dispensed on the pet because of this unique dispensing
feature. Thus the amount of insecticide that is placed on your pet is
minimal compared to conventional methods of applying a tick and
flea control product. One application of insecticide will keep your pet
free from ticks and fleas for 14 days
New-Product Development Strategy
3. Concept Development and Testing
Please answer the following questions.
1- In general how do you feel using that type of product?
2- What are the major advantages of this product compared with
the existing product that you currently use?
3- What characteristics of this product do you like?
4- What suggestions do you have for improving the product?
5- If this is available at an appropriate price, how likely are you to
buy this product?
Very likely…......Likely….....Not likely
6- Assume a single purchase would provide 30 applications for an
average size dog or 48 applications for an average size cat,
approximately how much would you pay for this product?
New-Product Development Strategy
4. 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
Value proposition
Sales (long-run), profit goals, and 4Ps
New-Product Development Strategy
4. Marketing Strategy Development
Business analysis involves a review of the sales, costs,
and profit projections to find out whether they satisfy
the company’s objectives.
New-Product Development Strategy
4. Marketing Strategy Development
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.
New-Product Development Strategy
4. Marketing Strategy Development
Test marketing is the stage at which the product and
marketing program are introduced into more realistic
marketing settings.
Provides the marketer with experience in testing the
product and entire marketing program before full
introduction.
Entire marketing program involves: targeting and
positioning strategy, advertising, distribution, pricing,
branding and packaging, and budget levels.
New-Product Development Strategy
4. Marketing Strategy Development
When firms test When firms may not
market test market
• New product with large • Simple line extension
investment
• Copy of competitor
• Uncertainty about product
product or marketing
program • Low costs
• Management
confidence
New-Product Development Strategy
Types of Test Markets
Standard test markets are small representative markets where the firm
conducts a full marketing campaign.
Uses store audits, consumer and distributor surveys, and other measures
to gauge product performance.
Results are used to forecast national sales and profits, discover product
problems, and fine-tune the marketing program.
Controlled test markets are panels of stores that have agreed to carry new
products for a fee. Factors such as shelf-placement, price, in-store
promotions are controlled.
Simulated test markets are events where the firm will create a shopping
environment and note how many consumers buy the new product and
competing products.
Provides measure of trial and the effectiveness of promotion.
Researchers can interview consumers.
New-Product Development Strategy
Marketing Strategy Development
Commercialization is the introduction of the new
product
When to launch
Where to launch
Planned market rollout
Managing New-Product Development
Successful new-product development should be:
Customer centered
Team-based
Systematic
Managing New-Product Development
New-Product Development Strategies
Customer-centered new product development: New
ways to solve customer problems and create more
customer satisfying experiences
Managing New-Product Development
New-Product Development Strategies
Team-based new-product development: Company
departments work closely together in cross-functional
teams, overlapping in the product-development
process to save time and increase effectiveness
Managing New-Product Development
New-Product Development Strategies
Systematic new-product development: 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
Product Life-Cycle Strategies
Product Life Cycle
Product Life-Cycle Strategies
Introduction Stage
Slow sales growth
Little or no profit
High distribution and promotion expense
Product Life-Cycle Strategies
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
Product Life-Cycle Strategies
Maturity Stage
Slowdown in sales
Substitute products
Overcapacity leads to competition
Strong competitors survive in the market
Increased promotion and R&D to support sales and
profits
Product Life-Cycle Strategies
Maturity Stage Modifying Stages
Market modifying – (market development)
Enter into new geographies, segments or capture
competitors customer base.
Product modifying – (quality, features, style,
packaging)
Marketing mix modifying – (changes in pricing,
promotions, new marketing channels to distribute
the product)
Product Life-Cycle Strategies
Decline Stage
Maintain the product (reposition it to turn it to the
growth stage)
Harvest the product (reducing costs and wish for the
sales to continue)
Drop the product