Marketing Textbook Reading Notes Chapter 8 Developing New Products New Product Development Strategy New Product Development Process o The product life cycle presents two major challenges because all products eventually decline a firm must be good at developing new products to replace aging ones a firm must be good at adapting its marketing strategies in the face of change and competition o A firm can obtain a new product in two ways New Product Development the development of original products product improvements product modifications and new brands through the firm s own product development efforts Acquisition by buying a whole company patent or license to produce someone else s product o New products are important to customers and marketers bring new solutions and variety to customers and source of growth for companies New products face tough odds 67 fail why Company may overestimate market size actual product may be poorly designed incorrectly positioned launched at the wrong time priced too high or poorly advertised o Company must set up a systematic customer driven new product development process for dinging and growing new products 8 steps Figure 8 1 pg 231 o Idea Generation the systematic search for new product ideas Internal Idea Sources company can find new ideas through formal R D 41 came from employees 36 from customers Intrapreneurial programs that encourage employees to envision and develop new product ideas External Idea Sources obtain ideas from any of a number of external sources Distributors suppliers competitors customers Crowdsourcing throws innovation doors open by inviting broad communities of people customers employees independent scientists and researchers public into new product innovation process Companies are using third party crowdsourcing networks rather than creating their own crowdsourcing platforms Can produce a floor of innovative ideas truly innovative companies don t rely only on one source or another for ideas they develop extensive innovation networks o Idea Screening screening new product ideas to spot good ideas and drop poor ones Product development costs rise greatly in later stages so the company wants to go ahead with those ideas that will actually be profitable products Write up new product ideas describing it the proposed customer value proposition the target market and the competition makes estimates of market size product price development time costs manufacturing costs and rate of return R W W real win worth doing new product screening asks is it real Can we win and Is it worth doing o Concept Development and Testing An attractive idea must then be developed into a product concept a detailed version of the new product idea stated in meaningful customer terms Important to distinguish between Product idea an idea for a possible product that the company can see itself offering Product concept detailed version of the idea started in meaningful consumer terms Product image the way consumers perceive an actual or potential product Concept Development marketer s task is to develop this new product into alternative product concepts and find out how attractive each concept is to consumers and choose the best one Concept Testing calls for testing new product concepts with groups of target consumers o Marketing Strategy Development Marketing Strategy Development designing an initial marketing strategy for a new product based on the product concept Marketing strategy statement consists of 3 parts Description of the target market the planned value proposition and the sales market share and profit goals for the first few years Outline of the product s planned price distribution and marketing budget for the first year Description of the planned long run sales profit goals and marketing mix strategy o Business Analysis o Product Development o Test Marketing After deciding on a product concept and marketing strategy management evaluates the business attractiveness of the proposal Business analysis involves a review of the sales costs and profit projections for a new product to find out whether they satisfy the company s objectives To estimate sales the company might look at the sales history of similar products and range of risk After preparing this forecast management can estimate the expected finance costs then they use these figures to analyze the new product s financial attractiveness Product development developing the product concept into a physical product to ensure that the product idea can be turned into a workable market offering R D develops and tests one or more physical versions of the product concept and hope to design a prototype that will satisfy consumers and can be produced quickly and at budgeted costs Test Marketing the stage of new product development in which the product and its proposed marketing program are tested in realistic market settings Gives the marketer experience with marketing a product before going to the great expense of full introduction tests its entire marketing program As an alternative to extensive and costly standard test markets companies can use controlled test markets or simulated test markets o Controlled new products and tactics are tests among controlled panels of shoppers stores o Simulated researchers measure consumer responses to new products and marketing tactics in laboratory stores or simulated online shopping environments o Commercialization market Commercialization introducing a new product into the Can face high costs A company launching a new product must first decide on introduction timing Next the company must decide where to launch Managing New Product Development o Customer Centered New Product Development Focuses on finding new ways to solve customer problems and create more customer satisfying experience One study found that the most successful new products are ones that are differentiated solve major customer problems and offer a compelling customer value proposition Another study showed companies that engage directly w customers in the new product innovation process had twice the return on assets trip the growth in operating income of firms that did not Customer involvement positive effect on new product development process product success o Team Based New Product Development Good n p development requires a total company cross functional effort Sequential product development approach one company dept works individually to complete its stage of the process before passing the new