Developing & Managing ProductsStrategic Marketing

Learning Objectives1. Explain the importance of developing new products

and describe the six categories of new products

2. Explain the steps in the new-product development process

3. Explain the diffusion process through which new products are adopted

4. Explain the concept of product life cycles

Explain the importance of developing new products

New Product: A product new to the world, the market, the producer, the seller, or some combination of these.

- Important to sustain growth- Increase revenue & profits- Replace obsolete items

- Innovation is difficult for companies to be good atRoughly 70-80 new products are produced per year

- Apple, 3M, Microsoft, GE, & Sony are considered strong innovators

Six Categories of New ProductsCategory Definition Example

New to the world (discontinuous innovations)

Products create an entirely new market. Smallest category of new products. Designed to increase market share among existing customers.

Penicillin

New product lines New products that enter an established market. Create new products for present markets

P&G Iams Dog Food

Additions to existing product lines

New products that supplement a firms existing product line.Designed to attract new customers to existing products

Diapers

Improvements or revisions of existing products

“New or Improved” product that can be significantly or slightly changed. Can also include package revisions. Most new products fit into this category. Geared towards Market Development

Gillette Razor

Repositioned products

Existing products targeted at new markets or market segments. Diversification is key.

Cadillac

Lower-priced products

Products that offer performance similar to competing brands at a lower price. Introduce new products into new markets.

Walmart

REVIEW LEARNING OUTCOME: Developing New Products

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New-Product Development Process

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New-Product Strategy

Idea Generation

Idea Screening

Business Analysis

Development

Test Marketing

Commercialization

New Product

L.O. #2: New-Product Development Process

New Product Strategy: A plan that links the new-product development process with the objectives of the marketing development, the business unit, and the corporation.

Must be consistent & compatible

Provides general guidelines for generating, screening, & evaluating new product ideas

Example:

Gillette aims for 40% of annual sales to be generated

from products less than 5 years old

Step #1: Idea GenerationSource of New Ideas

Carried Out….

Customers Marketing concept suggests this is main reason for product development.

Employees Marketing personnel employees are good bc they analyze and are involved in marketplace.

Distributors Closer to customer so they know what concerns and needs customers have

Competitors Monitor competition to determine what products should be copied.

Vendors Done to create proprietary products

Research & Development

Carried out in 4 ways: Basic research, applied research, product development & product modification.

Consultants Examine a business & recommend product ideas.

Step #2: Idea Screening Idea Screening The first filter in the product development process, which eliminates ideas that are inconsistent with the organization’s new-product strategy or are inappropriate for some other reason.

You generate an idea then you screen it keep good; eliminate bad.

Majority of products are rejected in the screening stage

Concept Test: A test to evaluate a new product idea, usually before any prototype has been created. Can be good line extensions but not for brand new items.

Step # 3: Business Analysis Survive the screening process; advance to Business Analysis:

The second stage of the screening process where Preliminary figures for demand, cost, sales, and profitability are calculated.

Evaluate costs v. revenue

At end of this stage management has a good understanding of market potential.

Considerations in Business Analysis

Stage

Considerations in Business Analysis

Stage

Demand

Cost

Sales

Profitability

Stage #4: Development

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Creation of prototype

Marketing strategy is outlined

Packaging, branding, labeling are identified

Promotion, price, and distribution strategy

Manufacturing feasibility

Final government approval is given Consumer Product Safety Act requires companies do diligent

product testing

Step #4: Development

Simultaneous Product Development:

A team-oriented approach to new-product development

where all relevant functional areas and outside suppliers participate in the development process.

(R&D, Marketing, Engineering, Production, & Suppliers)

Step #5: Test Marketing Test Marketing: The limited introduction of a product and a marketing program to determine the reactions of potential customers in a market situation.

Understand if your marketing mix strategies work.

Alternatives to test marketing:Single-source research using supermarket scanner data

Simulated (laboratory) market testing

Online test marketing

Step #6: Commercialization Commercialization: The decision to market a product

Commercialization Involves: Ordering production materials & Starting production Building inventory Shipping the product to final destination Training sales force Announcing product to industry Advertising to customers

Overview of Steps in the New Product Process

Learning Objective #3: Why Some Products Succeed & Some Don’t

70% – 90% of products fail within the first year

Why Do Products Fail? Doesn’t differentiate between current products on market Poor match between features and customer needs Overestimate market size Incorrect positioning Price is too high or too low Poor distribution & Promotion Inferior product

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Learning Objective #3: Why Some Products Succeed & Some Don’t

Diffusion: The process by which the adoption of an innovation spreads.• Word of mouth advertising speeds diffusion

Adopters: A consumer who was happy enough with his or her trial experience with a product to use it again.

There are five categories of adopters that participate in the diffusion process

1. Innovators

2. Early adopters

3. Early majority

4. Late majority

5. Laggards

Categories of Adopters

Category Definition

Innovators 2.5% of population. Eager and willing to try new products. Almost obsessive about having products first. This is wealthy, free thinking group who bases opinion on research not on others opinion.

Early Adopters

13.5% of population. Adopt early on but are influenced by societal norms. Categorized by respect from others. Community minded individuals who buy early on.

Early Majority

34% of population. Interested in products but do a lot of research and comparison shopping amongst brands before buying. Categorized as deliberate.

Late Majority

34% of population. Adopt once most of friends do. Buy to fit in. Skeptics who buy on word-of-mouth advertising.

Laggards 16% of population. Low socio-economic group whose spending is very traditional. By the time they buy a product it has probably already being replaced by a different product on market.

Explain & Predict the Rate of Acceptance and Diffusion of a New ProductProduct Characteristics

Definition

Complexity The degree of difficulty in understanding and using a new product. More complex the product, the slower its diffusion

Compatibility How compatible a product is with the market it is being introduced to. Culture of a region will impact how accepting they are of certain products

Relative Disadvantage The degree to which a product is perceived as superior to existing substitutes

Observability How easy it is to recognize the benefits and features of a product so that they can be conveyed to the target market. Easy to see the functions of a car versus personal care products.

Triability Degree to which a product can be tried on a limited basis. Easier to try products like toothpaste & cereal versus a car or computer.

Product Life Cycle Product Life Cycle: Traces the stages of a product’s acceptance, from its introduction (birth) to its decline (death)

Changes in a product, its use, its image, or its positioning can extend that product’s life cycle.

PLC doesn’t tell managers the length of a product’s life cycle or its duration in any stage.

Tool to forecast future events and develop appropriate strategies.

Product Life Cycle

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LO4

Time

Dollars

Profits

Sales

IntroductoryStage

GrowthStage

MaturityStage

DeclineStage

0

Product Life Cycles for Styles, Fashions, and Fads

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LO4

Stage #1: Introductory High failure rates Little competition Frequent product modification Limited distribution High marketing and production costs Negative profits with slow sales increases Promotion focuses on awareness and information Communication challenge is to stimulate primary demand

Stage #2: Growth Increasing rate of sales

Entrance of competitors

Market consolidation

Initial healthy profits

Aggressive advertising of the differences between brands

Wider distribution

Stage #3: Maturity Sales increase at a decreasing rate Saturated markets Annual models appear Lengthened product lines Service and repair assume important roles Heavy promotions to consumers and dealers Marginal competitors drop out Niche marketers emerge

Stage #4: Decline Long-run drop in sales

Large inventories of unsold items

Elimination of all nonessential marketing expenses

“Organized abandonment”

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Innovators

Early adopters

Early majorityLate majority

Laggards

Productlife cyclecurve

Diffusioncurve

Introduction Growth Maturity Decline

Sale

s

REVIEW LEARNING OUTCOME

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Product Life Cycles

Time

INTRODUCTION GROWTH MATURITY DECLINE

ProductStrategy

DistributionStrategy

PromotionStrategy

PricingStrategy

Limited modelsFrequent changes

More modelsFrequent changes.

Large number of models.

Eliminate unprofitable

models

LimitedWholesale/

retail distributors

Expanded dealers. Long-term relations

Extensive.Margins drop.Shelf space

Phase out unprofitable

outlets

Awareness. Stimulate

demand.Sampling

Aggressive ads.Stimulatedemand

Advertise. Promote heavily

Phase outpromotion

High to recoupdevelopment

costs

Fall as result ofcompetition &

efficient produc-tion.

Prices fall (usually).

Prices stabilize at low level.

Sale

s