Chapter 9. New-Product Development and Product Life-Cycle Strategies. Dr. Mohamed Zamil AL- Akhtaby. Strategies for Obtaining New Product Ideas. New-Product Development Strategies. Original Products. Acquired Companies. Product Improvements. Acquired Patents. Product
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Chapter 9 New-Product Development and Product Life-Cycle Strategies Dr. Mohamed Zamil AL-Akhtaby
Strategies for Obtaining New Product Ideas New-Product DevelopmentStrategies Original Products Acquired Companies Product Improvements Acquired Patents Product Modifications Acquired Licenses New Brands
Causes of New Product Failures • One study estimated that as many as 80% of new consumer packaged products failed. • Only about 40% of new consumer products are around 5 years after introduction. • Why? • Overestimation of market size, • Product design problems, • Product incorrectly positioned, priced or advertised, • Product may have been pushed despite poor marketing research findings, • Costs of product development, or • Competitive actions
Improving New-Product Success • New product success depends on having a: • Unique superior product (one with higher quality, features, and value in use), & • Well-defined product concept (a defined target market, product requirements, and benefits). • To create successful new products, the company must: • understand its customers, markets and competitors, & • develop products that deliver superior value to customers.
Marketing Strategy Business Analysis Concept Development and Testing Product Development Idea Screening Test Marketing Idea Generation Commercialization Major Stages in New-Product Development (Fig. 9.1)
New Product Development ProcessNew Product Development Process Step 1. Idea Generation Idea Generationis the Systematic Search for New Product Ideas Obtained Internally From Employees and Also From: Distributors Suppliers Competitors Customers
New Product Development Process Step 2. Idea Screening • Process to spot good ideas and drop poor ones as soon as possible. • Many companies have systems for rating and screening ideas which estimate: • Market Size • Product Price • Development Time & Costs • Manufacturing Costs • Rate of Return • Then, the idea is evaluated against a set of general company criteria.
Product Image is the Way Consumers Perceive an Actual or Potential Product 1. Develop New Product Ideas into Alternative Detailed Product Concepts New Product Development Process Step 3. Concept Development 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
New Product Development Process Step 4. Marketing Strategy Part One Describes Overall: Target Market Planned Product Positioning Sales & Profit Goals Market Share Part Two Describes First-Year: Product’s Planned Price Distribution Marketing Budget Part Three Describes Long-Term: Sales & Profit Goals Marketing Mix Strategy
Business Analysis Review of Product Sales, Costs, and Profits Projections to See if They Meet Company Objectives If Yes, Move to Product Development Step 5. Business AnalysisStep 6. Product Development If No, Eliminate Product Concept
New Product Development ProcessStep 7. Test Marketing Test Marketingis the Stage Where the Product and Marketing Program are Introduced into More Realistic Market Settings. Budget Levels Product Packaging Positioning Branding Advertising Elements that May be Test Marketed by a Company Distribution Pricing
New Product Development ProcessStep 8. Commercialization Commercialization is the Introduction of the New Product into the Marketplace. When is the Right Time to Introduce Product? Where to Launch a New Product?
Sales and Profits ($) Sales Profits Time Product Development Introduction Growth Maturity Decline Losses/ Investments ($) Product Life Cycle (Fig. 9.2) Sales and Profits Over the Product’s Life From Inception to Demise
Sales Low sales Costs High cost per customer Profits Negative or low Marketing Objectives Create product awareness and trial Product Offer a basic product Price Usually is high; use cost-plus formula Distribution High distribution expenses Advertising Build product awareness among early adopters and dealers Introduction 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 Growth Stage of the PLC Summary of Characteristics, Objectives, & Strategies
Maturity Stage of the PLC Summary of Characteristics, Objectives, & Strategies Sales Peak sales Costs Low cost per customer Profits High profits, then lower profits Maximize profits while defending market share Marketing Objectives Product Diversify brand and models Price Price to match or best competitors Distribution Build more intensive distribution Advertising Stress brand differences and benefits
Maturity Stage of the PLC Modifiying the Market Company tries to increase consumption of the current product. Modifying the Product Changing characteristics such as quality, features, or styles to attract new users. Modifying the Marketing Mix Company tries to improve sales by changing one or more marketing mix elements.
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 Decline Stage of the PLC Summary of Characteristics, Objectives, & Strategies