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New Product Development. In general, 80-94% of new products fail. Even in a large cereal company that invests a great deal in R&D, 40% of their products fail. A Booz, Allen & Hamilton study of 700 companies reported that 31% of profits come from new products.
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New Product Development • In general, 80-94% of new products fail. Even in a large cereal company that invests a great deal in R&D, 40% of their products fail. • A Booz, Allen & Hamilton study of 700 companies reported that 31% of profits come from new products • Only one of every 60 products makes it from the idea stage to the test market stage • RJR Nabisco spent $325 million on its smokeless cigarette and $125 million on an updated version called the Eclipse– they failed! • There are 150 kinds of wine coolers, 75 body washes, over 600 package/flavor/size combinations of one producer of coffee • In 1997 over 30,000 new products were introduced (doubled since 1986) • The average supermarket contains about 30,000 products • In the UK only 2% of products are substantially new
Influence of Product Characteristics on Rate of Adoption Communicability Can results be easily observed or described to others? Relative Advantage Is the innovation superior to existing products? Product Characteristics Compatibility Does the innovation fit the values and experience of the target market? Divisibility Can the innovation be used on a trial basis? Complexity Is the innovation difficult to understand or use?
Causes of New Product Failures • Supply changes: • Cost of raw material, labor or capital increase. • Suppliers’ breakdown • Lack of repeat purchase: • Product only “good on paper” • Product is too good • Not meeting financial goals: • ROI, breakeven time, etc. • Lack of channel support: • Availability. • Shelf space • Demo’s • Service • Forecasting error: • Too optimistic • Too pessimistic • Bad Timing: • Too early • Too late • Technological and Marketing windows of opportunity • Sales are too low: • Need is not shared by enough customers. • Lack of awareness • Wrong market definition • Lack of fit with company: • Low motivation • Failure to build necessary capabilities • Not new or different: • No product improvement • No perceived improvement • Positioning issues: • Unclear Positioning • Inferior Positioning • Product design problems • Cost of product development • Competitive reaction: • Unanticipated • Imitation and Improvement
New-Product Development Strategies Strategies for Obtaining New Product Ideas Original Products Acquired Companies Product Improvements Acquired Patents Product Modifications Acquired Licenses New Brands
Growth Stage of the PLC Summary of Characteristics, Objectives, & Strategies Sales Rapidly rising sales Costs Average cost per customer Profits Rising profits Marketing Objectives Maximize market share Product Offer new product features, extensions, service, and warranty Price Price to penetrate market Distribution Increase number of distribution outlets Advertising Build awareness and interest in the mass market
Maturity Stage of the PLC Summary of Characteristics, Objectives, & Strategies Sales Peak sales Costs Low cost per customer Profits High profits, then lower profits Marketing Objectives Maximize profits while defending market share Product Diversify brand and models Price Price to match or best competitors Distribution Build more intensive distribution Advertising Stress brand differences and benefits
Decline Stage of the PLC Summary of Characteristics, Objectives, & Strategies Sales Declining sales Costs Low cost per customer Profits Declining profits Marketing Objectives Reduce expenditure and maintain, reposition, harvest or drop the product Product Phase out weak items Price Cut price Distribution Go selective: phase out unprofitable outlets Advertising Reduce to level needed to retain hard-core loyal customers
