Chapter 11: Developing and Managing Products

Prepared & Designed by Laura Rush, B-Books Ltd.

Copyright Cengage Learning 2013 All Rights Reserved

Learning Outcomes
LO1 Explain the importance of developing new products and describe the six categories of new products

LO2

Explain the steps in the new-product development process

Explain why some products succeed and others fail Discuss global issues in new-product development Explain the diffusion process through which new products are adopted Explain the concept of product life cycles
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LO3
LO4 LO5

LO6

The Importance of New Products

Explain the importance of developing new products and describe the six categories of new products.

LO1

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New Product Advantages

Being first on the market has numerous advantages:
Increased sales through longer sales life Increased margins Increased product loyalty More resale opportunities Greater market responsiveness A sustained leadership position

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Categories of New Products

New-to-the-World New Product Lines Product Line Additions Improvements or Revisions Repositioned Products Lower-Priced Products
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Review Learning Outcome

Developing New Products

LO1

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The New Product Development Process

Explain the steps

in the new-product
development process.

LO2

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The New-Product Development Process

New Product Success Factors

Long-term commitment

Company-specific approach

Capitalize on experience

Establish an environment
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New-Product Development Process

New-Product Strategy Idea Generation Idea Screening Business Analysis Development Test Marketing Commercialization New Product
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Idea Generation
Customers

Employees
Distributors Vendors

Sources of New-Product Ideas

Competitors R&D Consultants

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Brainstorming

The process of getting a group to think of unlimited ways to vary a product or solve a problem.

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Idea Screening
The first filter in the product development process, which eliminates ideas that are inconsistent with the organizations new product strategy or are inappropriate for some other reason.

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Concept Test
A test to evaluate a new-product idea, usually before any prototype has been created.

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Business Analysis
Demand

Considerations in Business Analysis Stage

Cost

Sales

Profitability
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Development
Creation of prototype

Marketing strategy
Packaging, branding, labeling Promotion, price, and distribution strategy Manufacturing feasibility Final government approvals if needed

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Simultaneous Product Development

A team-oriented approach to new-product development.

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Test Marketing

The limited introduction of a product and a marketing program to determine the reactions of potential customers in a market situation.

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Alternatives to Test Marketing

Single-source research using supermarket scanner data

Simulated (laboratory) market testing

Online test marketing

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Commercialization
Production

Inventory Buildup
Distribution Shipments

Sales Training
Trade Announcements Customer Advertising
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Review Learning Outcome

New-Product Development Process

LO2

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Why Some Products Succeed and Others Fail

Explain why some products succeed and others fail.

LO3

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Why New Products Fail

No discernible benefits Poor match between features and customer desires Overestimation of market size Incorrect positioning Price too high or too low Inadequate distribution

Poor promotion
Inferior product
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Success Factors
Factors in Successful New Products
Match between product and market needs

Different from substitute products

Benefit to large number of people

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Success Factors
Listening to customers Producing the best product Vision of future market Strong leadership Commitment to newproduct development Project-based team approach

Getting every aspect right

Willingness to fail occasionally

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Review Learning Outcome

Why Products Succeed or Fail

LO3

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Global Issues in New-Product Development

Discuss global issues in

new-product development.

LO4

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Global Issues

Develop product for potential worldwide distribution

Build in unique market requirements Design products to meet regulations and key market requirements

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Review Learning Outcome

Global Issues in New-Product Development

Single product worldwide

Modification of products

Multiple products in multiple countries

LO4

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The Spread of New Products

Explain the diffusion process through which new products are adopted.

LO5

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Diffusion

The process by which the adoption of an innovation spreads.

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Categories of Adopters
Innovators Early Adopters

Early Majority
Late Majority Laggards
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Product Characteristics and the Rate of Adoption

Complexity Compatibility Relative Advantage

Observability
Trialability
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Sales of New Audio Products

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Marketing Implications of the Adoption Process

Word of Mouth

Communication Aids the Diffusion Process

Direct from Marketer

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Review Learning Outcome

Diffusion Process for New Products

LO5

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Product Life Cycles

Explain the concept of

product life cycle.

LO6

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Product Life Cycle

A biological metaphor that traces the stages of a products acceptance, from its introduction (birth) to its decline (death).

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Product Life Cycle

Introductory Stage Growth Stage Maturity Stage Decline Stage

Sales

Dollars

Profits 0

Time

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Product Life Cycles for Styles, Fashions, and Fads

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U.S. Sales of Widgets

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Introductory Stage
High failure rates Little competition Frequent product modification Limited distribution

High marketing and production costs

Negative profits with slow sales increases Promotion focuses on awareness and information

Communication challenge is to stimulate primary demand

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Growth Stage
Increasing rate of sales Entrance of competitors Market consolidation Initial healthy profits

Aggressive advertising of the differences between brands

Wider distribution

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Maturity Stage
Sales increase at a decreasing rate Saturated markets Annual models appear Lengthened product lines

Service and repair assume important roles

Heavy promotions to consumers and dealers Marginal competitors drop out Niche marketers emerge
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Decline Stage
Long-run drop in sales Large inventories of unsold items Elimination of all nonessential marketing expenses Organized abandonment

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Diffusion Process and PLC Curve

Introduction Growth Maturity Decline

Sales

Product life cycle curve

Early majority Late majority Early adopters

Innovators

Laggards

Diffusion curve
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Review Learning Outcome

Product Life Cycles
INTRODUCTION GROWTH MATURITY DECLINE

Product Strategy

Limited models; Frequent changes Limited Wholesale/ retail distributors

More models; Frequent changes Expanded dealers; Longterm relations

Large number of models

Eliminate unprofitable models Phase out unprofitable outlets Phase out promotion

Sales

Distribution Strategy

Extensive; Margins drop; Shelf space Advertise; Promote heavily Prices fall (usually)

Promotion Strategy Pricing Strategy

Awareness; Stimulate demand; Sampling High to recoup development costs

Aggressive ads. Stimulate demand Fall as result of competition & efficient production

Prices stabilize at low level 46

Time

Chapter 11 Company Clip

Kodak invented the digital camera, and it has implemented a sophisticated design process to keep new innovations on store shelves. http://www.cengage.com/marketing/book_co ntent/9781111821647_lamb/videos/ch11.ht ml
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