Chapter Four:

Developing New Products and

Managing the Product Life Cycle
 Chapter outline
After end this chapter you should able to:-
• Explain how companies find and develop new product
ideas.
• List and define the steps in the new product development
process and the major considerations in managing this
process.
• Describe the stages of the product life cycle and how
marketing strategies change during a product’s life cycle.
 Introduction
• A firm can obtain new products in two ways.
• One is through acquisition by buying a whole company, a patent,
or a license to produce someone else’s product.
• The other is through the firm’s own new product development
efforts.
• By new products we mean original products, product
improvements, product modifications, and new brands that the
firm develops through its own product development.
 Cont..
• In this chapter, we concentrate on new product
development.
• New products are important to both customers and the
marketers who serve them:
• They bring new solutions and variety to customers’ lives, and
they are a key source of growth for companies.
• In today’s fast-changing environment, many companies rely
on new products for the majority of their growth. For
example, The iPhone and iPad.
 New product development
• The development of original products, product
improvements, product modifications, and new brands
through the firm’s own product development efforts.
 The New Product Development Process
A company must carry out strong new product planning and set up a systematic,
customer-driven new product development process for finding and growing
new products.
1. Idea Generation
2. Idea screening
3. Concept development and testing
4. Marketing strategy development
5. Business analysis
6. Product development
7. Marketing Test
 1. Idea Generation
• New product development starts with idea generation is the
systematic search for new product ideas.
• A company typically generates hundreds, even thousands of
ideas to find a few good ones.
• Major sources of new product ideas include internal sources
and external sources such as customers, competitors,
distributors and suppliers, and others.
Internal Idea Sources
• Using internal sources, the company can find new ideas through formal
R&D.
External Idea Sources
• Companies can also obtain good new product ideas from any of a
number of external sources.
• For example, distributors and suppliers can contribute ideas.
Distributors are close to the market and can pass along information
about consumer problems and new product possibilities.
• Suppliers can tell the company about new concepts, techniques, and
materials that can be used to develop new products.
• Competitors are another important source. Companies watch
competitors’ ads to get clues about their new products.
Crowdsourcing
• Inviting broad communities of people,
customers, employees, independent scientists and
researchers, and even the public at large into the
new product innovation process.
 2. Idea Screening

• Identifying good ideas and drop ideas.

• R.W.W (real, win, worth doing) screening framework:
1. Is it real?
2. Is it win?
3. Is it worth doing?
 Cont.….
• The purpose of idea generation is to create a large number of
ideas.
• The purpose of the succeeding stages is to reduce that number.
• Product development costs rise significantly in later stages, so
the company wants to go ahead only with those product ideas
that will turn into profitable products.
• Many companies the write-up describes the product or the
service, the proposed customer value proposition, the target
market, and the competition.
 Cont..
• Cannibalization: is other issue that should be examine
during the screening process.
• If a product ideas results in product similar to the firm’s
existing products, markets must assess the degree to
which the new product could eat into the sales of current
products.
• Additionally, the company should analyze its overall
abilities to produce and market the product.
 3. Concept Development and Testing
Concept Development
- Concept testing calls for testing new product concepts with
groups of target consumers.
- For some concept tests, a word or picture description might be
sufficient.
- However, a more concrete and physical presentation of the
concept will increase the reliability of the concept test.
 4. Marketing Strategy Development
• Designing an initial marketing strategy for a new product based on the
product concept.
• The marketing strategy statement consists of three parts.
• The first part describes the target market; the planned value proposition;
and the sales, market-share, and profit goals for the first few years.
1. The target market is younger, well-educated, moderate- to high-income
individuals, and couples.
2. The company will aim to sell 50,000 cars in the first year
3. In the second year, the company will aim for sales of 90,000 cars and a
profit of $25 million.
• The second part of the marketing strategy statement outlines the
product’s planned price, distribution, and marketing budget for
the first year:
1. The battery-powered all-electric car will be offered in three colors,
red, white, and blue.
2. It will sell at a base retail price of $28,800, with 15 percent off the
list price to dealers.
3. Dealers who sell more than 10 cars per month will get an
additional discount of 5 percent on each car sold that month.
4. A marketing budget of $50 million:-online and social media
marketing, and local event marketing
• The third part of the marketing strategy statement
describes the planned long-run sales, profit goals, and
marketing mix strategy:
1. We intend to capture a 3 percent long-run share of the total
auto market and realize an after-tax return on investment of
15 percent.
2. To achieve this, product quality will start high and be
improved over time.
3. Price will be raised in the second.
 5. Business analysis
• A Business analysis involves review of the sales, costs, and profit
projections for a new product to find out whether these factors
satisfy the company’s objectives.
• To estimate sales, the company might look at the sales history of
similar products and conduct market surveys.
• It can then estimate minimum and maximum sales to assess the
range of risk.
• After preparing the sales forecast, management can estimate the
expected costs and profits for the product, including marketing,
R&D, operations, accounting, and finance costs.
 6. Product Development
• Developing the product concept into a physical product to ensure that
the product idea can be turned into a workable market offering.
• If the product concept passes the business test, it moves into product
development.
• Here, R&D or engineering develops the product concept into a
physical product.
• The product development step, however, now calls for a huge jump
in investment.
 7. Test Marketing
• If the product passes both the concept test and the product test, the
next step is test marketing, the stage at which the product and its
proposed marketing program are tested in realistic market settings.
• Test marketing gives the marketer experience with marketing a
product before going to the great expense of full introduction.
• It lets the company test the product and its entire marketing
program targeting and positioning strategy, advertising,
distribution, pricing, branding and packaging, and budget levels.
 8. Commercialization
• Test marketing gives management the information needed to make
a final decision about whether to launch the new product.
• If the company goes ahead with commercialization introducing
the new product into the market it will face high costs.
• The company may need to build or rent a manufacturing facility.
• And, in the case of a major new consumer product, it may spend
hundreds of millions of dollars for advertising, sales promotion,
and other marketing efforts in the first year.
Product Life-Cycle
• Product development begins when the company finds and develops a
new product idea. During product development, sales are zero, and the
company’s investment costs mount.
• Introduction is a period of slow sales growth as the product is
introduced in the market. Profits are nonexistent in this stage because
of the heavy expenses of product introduction.
• Growth is a period of rapid market acceptance and increasing profits
• Maturity is a period of slowdown in sales growth because the product
has achieved acceptance by most potential buyers.
• Decline is the period when sales fall off and profits drop.
Summary Product Life Cycle
The end of the Chapter Four