New Product
Development & Product
Life-Cycle Strategies
“Business has only two functions - marketing and innovation.”
New Product Development
◼ New products can be obtained via
◼ acquisition:
acquired companies
acquired patents
acquired licences
or;
◼ development: original products, product
improvements, product modifications, and new
brands through the firm’s own R&D efforts
What is New Product?
• New-to-the world products new products that
create an entirely new market
• New product lines that allow a company to enter an
established market for the first time
• Additions to existing product lines new products
that supplement a company’s
established product lines
• Improvements and revisions new products that
provide improved performance or
greater perceived value
• Repositioning existing products that are targeted to
new markets
• Cost reductions new products that provide similar
performance at lower cost
New Product Failures
◼ New products suffer from high failure rates
Overestimation of market size
Product design problems (poor design)
Product incorrectly positioned, priced or advertised
(poor marketing execution)
Product may have been pushed despite poor
marketing research findings
High costs of product development
Strong competitive reaction
Challenges in NPD
▪ Idea shortage
▪ Fragmented markets
▪ Social and governmental constraints
▪ Cost
▪ Capital shortage
▪ Need for speed
▪ Shorter product life cycles
Successful New Products
◼ Unique, superior product
◼ Well-defined product concept prior to development
◼ Technological and marketing synergy
◼ Quality of execution in all stages.
◼ Understanding of customer needs
◼ The earlier the product is introduced ahead of competition,
new product success is greater
◼ Top management support
◼ Cross-functional team-work
“You have to kiss a lot of frogs to find a prince”--- 3M
Major Stages in New Product
Development (NPD) Process
Marketing Business
Strategy Analysis
Concept
Product
Development
Development
and Testing
Idea Test
Screening Marketing
Idea Commercialization
Generation
NPD Process – Stages
◼ Stage 1: Idea Generation
Systematic search for new product ideas
Internal idea sources:
◼ R&D
◼ Company employees at all levels
External idea sources:
◼ Customers,
◼ Competitors,
◼ Distributors,
◼ Suppliers
◼ Outsourcing
NPD Process – Stages
◼ Stage 2: Idea Screening
Process used to spot good ideas and drop poor
ones as soon as possible.
◼ Many companies have systems for rating and
screening ideas with estimates of:
Market Size
Product Price
Development Time & Costs
Manufacturing Costs
Rate of Return
◼ Ideas are evaluated against a set of general
company criteria for new products.
NPD Process – Stages
◼ Stage 3: Concept Development and
Testing
Concept development creates a detailed
version of the idea stated in meaningful
consumer terms.
Concept testing asks target consumers to
evaluate product concepts.
Concept Development and Testing
1. Develop New Product Ideas Product Image is
into Alternative Detailed the Way Consumers
Product Concepts Perceive an Actual
or Potential Product
2. Concept Testing - Test the
New Product Concepts with
Groups of Target Customers
3. Choose the One That Has the
Strongest Appeal to Target
Customers
Concept Development (Example)
◼ A large food processing company gets the idea
of producing a powder to add to milk to increase
its nutritional value and taste The product idea
◼ The product idea should be transformed to
product concept by answering some questions:
Who will use the product?
What primary benefits should this product provide?
When will people consume this drink?
Concept Development (Example)
◼ Concept 1: An instant breakfast drink for
adults who want a quick nutritious breakfast
without preparing breakfast
◼ Concept 2: A tasty snack for children to drink
as a midday refreshment
◼ Concept 3: A healthy supplement for older
adults to drink in the evening before they go
to bed
Concept Testing
◼ Presenting the product concept to appropriate
target consumers and getting their reactions
◼ Computer-aided designs
◼ Virtual reality programs that stimulate the reality
◼ Presenting consumers an elaborated version of
the concept (see example)
◼ Description of the new concept should include:
Basic benefits and functions of the product
Package size
Price level or price range
◼ Some product dimensions are evaluated based on the
answers of consumers
Concept Testing (Example)
◼ Elaboration of Concept 1:
“Our product is a powdered mixture that is added to
milk to make an instant breakfast that gives the
person all the needed breakfast nutrition along with
good taste and high convenience.
The product would be offered in 3 flavors: chocolate,
vanilla, and strawberry; and would come in individual
packets, 6 to a box, at $2.49 a box.”
NPD Process – Stages
◼ Stage 4: Marketing Strategy Development
Part one – for the first few years: describes the target
market, product positioning, and sales, share, and
profit goals
two – outlines the product price, distribution, and
Part
marketing budget for the first year.
three – describes the long-run sales and profit
Part
goals and the marketing mix strategy for the long-term.
Marketing Strategy – Part One (Example)
“The target market for the instant breakfast drink is
families with children who are receptive to a new,
convenient, nutritious and inexpensive form of
breakfast.
The brand will be positioned at the higher-price/
higher-quality end of the category.
The company will aim to sell 500.000 units or 10 %
of the market”
NPD Process – Stages
◼ Stage 5: Business Analysis
Involves a review of sales, costs, and profits
projections to see if they meet company
objectives
If results are positive, project moves to the
product development phase.
NPD Process – Stages
◼ Stage 6: Product Development
Prototype development and testing
Develop concept into physical product.
Calls for large jump in investment.
Prototype must have correct physical features
and convey psychological characteristics.
NPD Process – Stages
◼ Stage 7: Test Marketing
Product and program introduced in more realistic
market setting.
Not needed for all products.
Can be expensive and time consuming, but better
than making major marketing mistake.
Different types (see next slide)
Test Marketing - Approaches
Simulated Controlled
Test Market Test Market
Test in a simulated A few stores that have
shopping environment agreed to carry new
to a sample of products for a fee.
consumers. Standard
Test Market
Full marketing campaign
in a small number of
representative cities.
NPD Process – Stages
◼ Stage 8: Commercialization
Main issues in commercialization:
Introduction timing (i.e., when to introduce the
product).
Where to introduce the new product
◼ Few companies can launch new products into
full national or international markets
◼ Planned market rollout over time
Towhom to introduce new product
Must develop a market rollout plan.
Consumer Adoption Process
◼ Innovation good, service or idea that is
perceived by someone as “new”
◼ Innovation diffusion process the spread of
a new idea from its source of
invention/creation to its ultimate users or
adopters
◼ Adopters move through awareness –
interest – evaluation – trial – adoption
Adopter Categorization of the Basis of
Relative Time of Adoption of Innovations
34% 34%
Early Late
majority majority
2 1/2% 13 1/2% 16%
Innovators Early Laggards
adopters
Time of adoption innovations
Characteristics of the Innovation
on the Rate of Adoption
◼ Relative advantage
◼ Compatibility
◼ Complexity
◼ Divisibility
◼ Communicability
Product Life-Cycle (PLC) Strategies
◼ The Product Life Cycle (PLC) has Five
Stages
Product Development, Introduction, Growth,
Maturity, Decline
Not all products follow this cycle:
◼ Fads
◼ Styles
◼ Fashions
Product Life Cycle (PLC)
Sales and Profits Over the Product’s Life from Inception to Demise
PLC Applications
◼ The product life cycle concept can be applied to a:
Product class has the longest life cycle (e.g., soft
drinks)
Product form tends to have the standard PLC shape
(e.g., diet colas)
Brand can change quickly because of changing
competitive attacks and responses (Diet Coke)
Other Shapes of PLC
◼ 3 special categories of PLC:
Style is a basic and distinctive mode of expression
(e.g., formal clothing); can last for generations, going
in and out of vogue
Fashion is currently accepted popular style in a given
field (e.g., business casual)
Fad is a fashion that comes quickly into public view, is
adopted quickly, peaks early, and declines very fast;
does not satisfy a strong need (e.g., pet rocks, and
virtual pets)
Problems Using the PLC
Trouble in identifying
which stage of the
Some problems PLC the product is in
arising relating to
PLC concept
Difficult to forecast the
sales level, the length
of each stage, and
shape of the PLC
Strategy could be
both a cause and a
result of the PLC
PLC Strategies
PLC Stages
◼ Begins when the
◼ Product development company develops a
new-product idea
◼ Introduction
◼ Sales are zero
◼ Growth
◼ Investment costs are
◼ Maturity high
◼ Decline ◼ Profits are negative
PLC Strategies
PLC Stages
◼ Low sales
◼ Product development ◼ High cost per customer
◼ Introduction acquired
◼ Growth ◼ Negative profits
◼ Maturity ◼ Marketing Objective:
◼ Decline create product
awareness and trial
◼ Innovators are targeted
◼ Little competition
Marketing Strategies:
Introduction Stage
◼ Product – Offer a basic product
◼ Price – Usually is high; use cost-plus formula
◼ Distribution – Build selective distribution
◼ Promotion – Heavy to entice product trial
Advertising– Build awareness among early adopters
and dealers/resellers
Sales Promotion – Heavy expenditures to create trial
PLC Strategies
PLC Stages
◼ Rapidly rising sales
◼ Product development
◼ Average cost per
◼ Introduction customer
◼ Growth ◼ Rising profits
◼ Maturity ◼ Marketing Objective:
◼ Decline maximize market share
◼ Early adopters are
targeted
◼ Growing competition
Marketing Strategies:
Growth Stage
◼ Product – Offer product extensions, service,
warranty
◼ Price – Price to penetrate market
◼ Distribution – Increase number of distribution
outlets (intensive distribution)
◼ Promotion & Advertising – Build awareness and
interest in the mass market
SalesPromotion – Reduce expenditures to take
advantage of consumer demand
PLC Strategies
PLC Stages ◼ Sales peak
◼ Low cost per customer
◼ Product development ◼ High profits
◼ Introduction ◼ Marketing Objective:
◼ Growth maximize profits while
◼ Maturity defending market share
◼ Decline ◼ Middle majority are
targeted
◼ Competition begins to
decline
Marketing Strategies:
Maturity Stage
◼ Product – Diversify brand and models
◼ Price – Set to match or beat competition
◼ Distribution – Build more intensive distribution
◼ Promotion – Increase to encourage brand
switching
– Stress brand differences and benefits
Advertising
Sales Promotion – Increase to encourage brand
switching
Maturity Stage of the PLC
Company tries to increase consumption of
the current product.
Changing characteristics such as quality,
features, or styles to attract new users.
Company tries to improve sales by changing
one or more marketing mix elements.
Maturity Stage - Market modification
Sales volume = number of brand users x usage rate per user
◼ To expand the number of brand users:
Converting nonusers
Entering new market segments
Winning competitors’ customers
◼ To convince current brand users to increase their
usage of the brand:
Use the product more frequently
Use more of the product on each occasion
Discover new product uses
Maturity Stage - Product Modification
◼ To modify the product characteristics through:
Qualityimprovement to increase product functional
performance (durability, reliability, speed, taste, etc)
Feature improvement to add new features (size,
weight, materials, accessories)
◼ New features serve to build the company’s image as an innovator
and win the loyalty of market segments that value these features
Styleimprovement to increase the product’s
aesthetic appeal and attractiveness
Modifying the Product -Example
Gillette’s Fusion razor
combines a precision trimmer
blade (on back) with a five
blade shaving surface (on
front). The flexible comfort
guard and Enhanced
Indicator Lubrastrip
(containing vitamin E and
aloe) enhance shaving
comfort.
http://www.gillette.com/
homepage.asp
Maturity Stage - Marketing Mix Modification
◼ Prices: - Would a price cut attract new buyers?
- Would it be better to raise the price to signal
high quality?
◼ Distribution: - Can more outlets be penetrated?
- Can the company introduce the product
into new distribution channels?
◼ Promotion: - Should advertising expenditures be
increased?
- Should the media mix be changed?
- Should the number or quality of
salespeople incraesed?
PLC Strategies
PLC Stages
◼ Declining sales
◼ Product development ◼ Low cost per customer
◼ Introduction ◼ Declining profits
◼ Growth ◼ Marketing Objective:
reduce expenditures
◼ Maturity
and milk the brand
◼ Decline ◼ Laggards are targeted
◼ Declining competition
Marketing Strategies:
Decline Stage
◼ Product – Phase out weak items
◼ Price – Cut price
◼ Distribution – Use selective distribution-- phase
out unprofitable outlets
◼ Promotion – Reduce to minimal level
Advertising – Reduce to level needed to retain hard-
core loyalists
Discussion
◼ How can marketers
help products
bounce back from
the decline stage?
