New Products

1. Identify the challenges companies face in creating a new-product development strategy.

2. List different sources for ideas generation, and discuss how an idea moves ahead through ideas screening, concept development and concept testing.

3. Outline how a potential product advances from a concept to a product through marketing strategy development, business analysis and product development.

4. Explain the purpose of test marketing, and distinguish between standard, controlled and simulated test markets.

5. Describe how marketing strategies change during the product’s life cycle.

Chapter Objectives

• New to everyone, or to the particular market– a new invention

• New Category Entries – a new product line for the particular producer

• a cookbook from a publisher of business texts

• Additions to Product Lines– line extensions to the firm’s current products

• a brewer introducing a low-calorie beer

What is a New Product?

Cont’dProduct Improvements

– products that, in some way, have been made better• Could be a mid-life enhancement

Repositioning – change of image for a product; re-targeted to a new

segment or to a new type of usage of the product

Variations of the above – new to the country; new to the channel; packaging

improvements and different methods of manufacture are NOT usually accepted as ‘new’ products

New-Product Development Strategy

1. Rapid changes in consumer tastes; in technology; and in what competitors do, means that a company cannot rely solely on its existing products

2. Customers want and expect the new and improved products that result from market competition

3. A company can obtain new products in two ways: – through acquisition (of a firm, or a product licence)– through the organisation’s own R and D process

New products are the life blood of a successful firm

New-Product Success / Failure

• High rate of new product failure• Recent study indicated that new consumer

packaged goods fail at an estimated rate of 80%• 33% of new industrial products fail at launch• Many reasons why new products fail, including:

– negative perception in market; wrong timing; inadequate market research; poor marketing communications

Cont’d

• Identify successful products and find out what they have in common

• Develop a superior product• Have a clearly defined product concept before

commencing development• Provide sufficient budget and support to achieve

sales objectives• Ensure commitment from senior management• Each company needs to fully understand its

consumers; markets; and competitors in order to correctly cost; position; and price the product

The first stage in the new product development process is generally

considered to be:

A. screening B. prescreening C. profit estimation D. idea generation E. idea screening

Main steps in N.P.D. Fig. 9.1

IdeaGeneration

IdeaScreening

ConceptDevelopmentand Testing

MarketingStrategy

BusinessAnalysis

ProductDevelopment

TestMarketing

Commercialisation

Idea Generation

• New-product development starts with idea generation - the systematic search for possible new products – Internal idea sources:

• Formal research and development• Consult company scientists; engineers and product

manufacturing staff• ‘Brainstorm’ new ideas with senior staff• Consult with the company’s salespeople

Cont’d

– External idea sources:• Competitors• Distributors and suppliers• Trade magazines; trade shows and seminars;

government agencies; new-product consultants; advertising agencies; marketing research firms; commercial laboratories; and research universities

A. internal sourcesB. customersC. competitorsD. distributorsE. all of the above

The best new product ideas come from:

Ideas Screening– The purpose of this, and the ongoing stages,

is to reduce the number of ideas generated. The objective is to spot good ideas and drop inappropriate ones as soon as possible

– Product development costs rise significantly in later stages, therefore it is financially important to remove ‘bad’ ideas early. A company wants to go ahead only with those product ideas that will turn into profitable products

Most rejections occur at this stage of process

Concept Development / Testing

• Product Idea– An idea for a possible product that the company

believes it could offer to the market• Product Concept

– A detailed version of an idea stated in terms that would be meaningful to consumers

• Product Image– The way consumers perceive the potential product

• Concept Testing – The process of testing the product concept with a

group of potential target customers

Cont’d

• This is a process to evaluate the potential success of a new product idea, usually before a prototype has been created.

• Does the basic concept appeal to consumers, and are they likely to buy it?

Marketing Strategy Development

• The process of designing the initial marketing strategy for the introduction of a new product

• The marketing strategy consists of three parts:

1. Describing the target market; the planned product positioning; the projected sales; the market-share and profit goals for the first few years

2. Outlining the product’s projected price; distribution; and marketing budget for the first year

3. Describing the planned long-term sales; profit goals; and marketing-mix strategy

Business Analysis

• This involves a review of the sales; costs; and profit projections to find out whether or not they satisfy the company’s objectives.

• If they do, the product can then move to the product-development stage.

• The firm would need to consider:– potential demand– cost and revenue estimates– level of competition– likely profitability

Product Development

• The ‘product concept’ is developed into a physical product (a prototype). To this point, the product has existed only as a word description; a drawing; or perhaps a mock-up.

• The product-development step, however, requires a significant increase in the level of investment. It will show whether the product idea can be turned into a workable product.

• The R&D department will develop one or more physical versions of the product concept for testing purposes

• A new product must have the required functional features and convey the intended psychological characteristics

• The current pace of change requires a faster product-development process. Some firms use ‘alliance’ partners to assist

Cont’d

Test Marketing

• If product passes functional and consumer tests, the next step is test marketing

• Test marketing is the limited introduction of the product/ marketing program, to test the reactions of potential customers in a more realistic market setting

• This will enable an evaluation of the ‘mix’, and any alternative strategies

• Select a test market that is most likely to match the buying behaviour of total market

Test Marketing Approaches

• Standard test markets– These test the new consumer product in situations

similar to those it would face in a full-scale launch• Controlled test markets

– Research firms keep ‘controlled’ panels of stores that have agreed to carry new products for a fee

• Simulated test markets (Laboratory situation)– Companies can also test new products in a

simulated shopping environment– The company, or a research firm, shows a sample

of consumers the ads and promotions for a variety of products, including the new product being tested

Test Marketing Business Products

• B2B marketers use different methods for test marketing their new products

• They may conduct product-use tests, where the industrial marketer selects a small group of potential customers who agree to use the new product for a limited time

• New products can also be tested with large numbers of potential buyers at trade shows

Commercialisation

• This is the final stage, when a new product is introduced into the market

• The company launching a new product must make four decisions about its intro:

1. When - economy/ competition2. Where - how many locations3. To whom - early adopters/ opinion leaders4. How - appropriate marketing mix

Cont’d

Commercialisation of a product will include:

• Manufacturing the product and building inventory• Distributing to locations – warehouses; resellers• Ongoing training of the sales force• Trade announcements (PUSH)• Advertising to potential consumers (PULL)

This is the most expensive stage of the product development process

Managing New-Product Development

• New-product development needs to be customer centred, focusing on finding new ways to solve their problems and create more satisfying experiences

• Good product development requires a team-based, total company, cross-functional effort

• Combining a customer-centred focus with a team-based approach can deliver strong results

Usually, the sooner a new product is ready for the market the better. This will help keep a firm ahead of its competitors

The Product Life Cycle (PLC)

• A concept that provides a means of tracing the various stages of a product’s acceptance in the market; from its introduction, to its ultimate decline and removal

Cont’d

• After launching a new product, the firm wants the product to enjoy a long and successful life

• Although it does not expect the product to sell forever, the firm wants to earn enough profit to cover all the effort and risk that went into the product, and to fund future activities

• Each product will have its own distinctive life cycle, although the exact shape and length of that cycle is not known in advance

• Product development (Stage 1)– Begins when the company finds and develops a

new product idea

• Introduction (Stage 2)– A period of slow sales growth as the product is

being introduced to the market

• Growth (Stage 3)– A period of rapid market acceptance and growth

in sales volumes

Stages of the PLC

Cont’d

• Maturity (Stage 4)– A period of slowdown in sales growth as the

product has already been accepted by a majority of would-be buyers

• Decline (Stage 5)– A period of major decline in sales and profits

as customers switch to new products

Introductory Stage

• Low sales, often high failure rates

• Limited level of competition

• Basic product, but may need modification

• Limited distribution of product (selective)

Cont’d

• High production and marketing costs

• Possible initial monetary loss

• Promotion focused on product awareness and informing the market

• Intensive personal selling to intermediaries

Growth Stage

• Increasing rate of sales

• Entry of competitors to the market

• Possible market consolidation(buy-out of smaller firms)

• Strong profits, initially

Cont’d

• Strong brand advertising

• Aim for wider distribution – establish a greater market presence

• Product price usually falls (penetration)

• Recovery of development costs

Maturity Stage

• Decline in growth of sales(sales increase, but at decreasing

rate)

• Saturated markets

• Extension of product line (attract moresegments)

• Changes in style rather than in function

Cont’d

• Heavy promotion to dealers and consumers (encourage brand switch)

• Marginal competitors drop out - not

profitable

• Prices and profits falling

• Possible Niche marketers

Decline Stage

• Long-term decline in sales volumes

• May have inventories of unsold goods

• Discontinue non-performing products

• Removal of non-essential marketing expenses (try to maintain profit levels)

Figure 9.2 - Product Life Cycle (PLC)

Variations to the CycleSTYLE

• A style is a basic and distinctive mode of expression.

• Styles can relate to houses (colonial, federation); clothing (formal, casual); art (realistic, abstract).

• Once a style is invented, it can last for generations, coming in and out of favour at various times.

• A style usually has a cycle that shows several periods of renewed interest.

Cont’d• FASHION

• A fashion is a currently accepted or popular style in a given field.

• Fashions pass through many stages

– First, a small number of consumers take an interest in something new to set themselves apart.

– Then, other consumers become interested out of a desire to copy the fashion leaders.

– Next, the fashion becomes popular and is adopted by the mass market.

Cont’dFAD

• Fads are fashions that enter a market quickly, are adopted with great enthusiasm, achieve a peak early, and then decline very fast.

– Theses types of products usually last for only a short time, and tend to attract a limited number of buyers.

– Fads are often novel or unusual, e.g. Rubik’s Cube; platform shoes; yo-yos.

– Fads appeal to people looking for excitement, for a way to set themselves apart, or for something to talk about to others.

Figure 9.3 -Fashion, Style and Fad

PLC Concept: Application

• The PLC concept can be applied by marketers as a useful framework for describing how products and markets perform over time

However, using the PLC concept for forecasting product performance, or for developing marketing strategies, can present some practical problems

• Managers may have difficulty in identifying which stage of the PLC the product is in; pinpointing when a product moves from one stage to the next; and determining the factors that influence a product’s advancement through the various stages

Cont’d

In practice, it is difficult to forecast the sales level at each stage; the length of each stage; and the shape of the curve.

However, when used carefully, the PLC concept can help a firm in developing appropriate marketing strategies for different stages of the product life cycle.

This would include adjustments to the Mix

Attempts to influence

• Taking steps to cope with PLC changes through:

• Market Modification– increase usage by current users– find new users/ segments

• Product Modification– change characteristics/ quality/ features of product

• Marketing-mix Modification– change the other Mix elements

PLC Summary - Table 9.5

A. introduction stage B. maturity stage C. commercialisation

stage D. growth stage E. decline stage

The Alpha Corporation is just beginning to experience new competitors attempting to draw sales from its latest new

product Alpha's product is probably entering its: