Slide 1New Product DevelopmentNew-Product Development StrategyNew-Product FailuresFigure 8.1 Major Stages in New-Product Development ProcessNew-Product Development ProcessNew-Product Development ProcessNew-Product Development ProcessNew-Product Development ProcessNew-Product Development ProcessNew-Product Development ProcessNew-Product Development ProcessNew-Product Development ProcessManaging New-Product DevelopmentThe “Classic” Product Life Cycle (PLC)Practical Problems of PLCSlide 17How Can “Decline” Be Avoided?How Can “Decline” Be Avoided?How Can “Decline” Be Avoided?Chapter 8: New Product Development and Life Cycle StrategiesBA 332New Product DevelopmentThe development of original products, product improvements, product modifications, and new brands through the firm’s own product development efforts.In other words – we won’t be talking about introducing new products by buying other companiesNew-Product Development StrategyNew products can be obtained via acquisition or new-product development.New product development is very expensive and very risky.70% to 90% of new consumer products fail within 12 months.Products fail for many reasons.New-Product FailuresWhy do new products fail?Overestimation of market sizedesign problemsIncorrectly positioned, priced, or advertised excessive development costs Excessive development costscompetitive reactionFigure 8.1Major Stages in New-Product Development ProcessStage Gate Process ; have to get through each stage before you go on to the nextNew-Product Development ProcessIdea generation:Internal sources:Company employees at all levelsExternal sources:CustomersCompetitorsDistributorsSuppliersOutsourcingIdea screening:Process used to spot good ideas and drop poor ones.Executives provide a description of the product along with estimates of market size, product price, development time and costs, manufacturing costs, and rate of return.Evaluated against a set of company criteria for new products.New-Product Development ProcessConcept development and testing:Product idea: Idea for a possible product that the company can see itself offering to the market.Product concept: Detailed version of the new-product idea stated in meaningful consumer terms.Concept testing: Testing new-product concepts with groups of target consumers to find out if the concepts have strong consumer appeal.New-Product Development ProcessMarketing Strategy Development:Part One:Describes the target market, planned value proposition, sales, market share, and profit goals.Part Two:Outlines the product’s planned price, distribution, and marketing budget.Part Three:Describes the planned long-run sales and profit goals, marketing mix strategy.New-Product Development ProcessBusiness analysis:Involves a review of the sales, costs, and profit projections to assess fit with company objectives.If results are positive, project moves to the product development phase.New-Product Development ProcessProduct development:Develops concept into a physical productCalls for a large jump in investmentPrototypes are madePrototypes must have correct physical features and convey psychological characteristicsPrototypes are subjected to physical testsNew-Product Development ProcessTest marketing:Product and program are introduced in a more realistic market setting.Not needed for all products.Can be expensive and time consuming, but better than making a major marketing mistake.Many CPG companies are using technology to make test marketing faster and less expensive.New-Product Development ProcessCommercialization:Must decide on timing (i.e., when to introduce the product).Must decide on where to introduce the product (e.g., single location, state, region, nationally, internationally).Must develop a market rollout plan.New-Product Development ProcessManaging New-Product DevelopmentTeam-based new-product development:Various company departments work closely together, overlapping the steps in the product development process to save time and increase effectiveness.Some steps are performed simultaneously rather than the entire process being sequentialThe “Classic” Product Life Cycle (PLC)Practical Problems of PLCIn practice, it is difficult to:Identify the current stage of a product’s PLC. Pinpoint when the product moves to the next stage.Identify factors that affect product’s movement through stages.Forecast sales level, length of each stage, and shape of PLC.Develop marketing strategy, as strategy is both a cause and result of the PLC.“Decline” is NOT Pre-Ordained! Managers can do things to keep products from declining!Strategies used to manage the PLC during maturity include:Modifying the marketModifying the productModifying the marketing mixHow Can “Decline” Be Avoided?Modifying the market: Increase the consumption of the current product.How? Look for new users and market segments Reposition the brand to appeal to larger or faster-growing segment Look for ways to increase usage among present segmentsModifying the product: Changing characteristics such as quality, features, or style to attract new users and to inspire more usageHow?Improve durability, reliability, speed, taste Improve styling and attractiveness Add new features Expand usefulness How Can “Decline” Be Avoided?Modifying the marketing mix: Improving sales by changing one or more marketing mix elementsHow? Cut prices Implement coupon, rebate, or other promotions launch a better ad campaign Move into larger market channelsHow Can “Decline” Be