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					Marketing Principles
    Session 8

   New-Product
 Development and
 Product Life-Cycle
    Strategies
    Jeffrey E. Newcomb
     Red Widget Strategies
      for Hosei University

                             1
          Looking Forward:
      Where are we going?
 Session 8, New-Product Development and
       Life-Cycle Strategies, will help you to:
• Explain how organizations find and develop
  new-product ideas.
• List and define the steps in the new-product
  development process.
• Describe the stages of the product life cycle.
• Describe how marketing strategies change
 during the product’s life cycle.


                  2006 Jeffrey E. Newcomb / Red Widget Strategies
                                  for Hosei University
                                                                    2
                  Apple Computer
                           (Case Story)
•   In 1970s Apple Computer is co-founded by Steve Jobs
         and Steve Wozniak, in Silicon Valley, California
•   First personal computer commercially successful: the Apple II
•   In 1980s Apple opened education, desktop publishing markets;
    today Apple has 40% share of these markets
•   Apple is a niche player in business markets, with never having
         more than 5% market share
•   Steve Jobs’s leadership critical to understanding consumers
•   Today iPod and iTunes are redefining how we listen to music
•   Apple controls portable music hardware, software and
         distribution, with 65+% of market share
•    1 billion+ i-Tunes now sold; stock price tripled in 2 years
What does Apple’s advertising message, Think Different, mean? What is
the role of innovation in Apple’s success? How can we succeed in leading
or managing innovation?
                       2006 Jeffrey E. Newcomb / Red Widget Strategies
                                       for Hosei University
                                                                         3
      New-Product Development
             Strategy
Strategies for new-product ideas:
  •   Acquisition of companies, patents,
         licenses
          -eBay acquires PayPal
          -Oracle acquires PeopleSoft
  •   Original products, improvements,
          modifications
          -Apple, sometimes in strategic alliance
          -Sony and partners develop recordable
                high-definition DVDs
                2006 Jeffrey E. Newcomb / Red Widget Strategies
                                for Hosei University
                                                                  4
   Why New Product Ideas Fail
• No Champion
• Inadequate Leadership
• Conflicting Priorities
• Poor Market Planning
• Poor Demand Forecasts
• Poor Design
• High Development Costs
• Shorter Product Life Cycles
• Strong Competitive Reaction
• Weak Innovation
• Fragmented Markets Only 10% of new products are still on
• No Speed               the market and profitable after 3 years.

• Capital Shortage       Failure rate for industrial products is as
                         high as 30%.
                     2006 Jeffrey E. Newcomb / Red Widget Strategies
                                     for Hosei University
                                                                       5
   Some Marketing Failures
What were they thinking?
• Ford Motors’ Edsel
• Coca-Cola’s New Coke
• Polaroid’s instant film movie camera
• Gerber’s baby food for adults
• Miller’s clear beer
• And others        Marketing failures are often the result of
                    misunderstanding of customer’s needs,
                    poor product or service development,
                    or ignorance of competitive forces at work
            2006 Jeffrey E. Newcomb / Red Widget Strategies
                            for Hosei University
                                                              6
     Finding One Successful New Product
        (Starting with 64 New Ideas)
                    at 3M
Stage                Ideas       Pass Ratio                   Cost per Idea    Total Cost

1. Idea screening      64           1:4                             $ 1,000     $ 64,000
2. Concept testing     16           1:2                              20,000      320,000
3. Product develop      8           1:2                             200,000    1,600,000
4. Test marketing       4           1:2                             500,000    2,000,000
5. National launch      2           1:2                           5,000,000   10,000,000

                                                                $5,721,000    $13,984,000




                       2006 Jeffrey E. Newcomb / Red Widget Strategies
                                       for Hosei University
                                                                                      7
    New Product Development
            Process
             Marketing                             Business
              Strategy                             Analysis
            Development
  Concept                                                            Product
Development                                                        Development
 and Testing

                                                                      Market
  Idea                                                                Testing
Screening
        Idea
      Generation                                          Commercialization
                 2006 Jeffrey E. Newcomb / Red Widget Strategies
                                 for Hosei University
                                                                                8
               Idea Generation
Where do new ideas come from?
•   Company employees
•   Customers
     Example: LEGO tests new “toy system” designs
•   Competitors
•   Distributors
•   Suppliers
•   Outsourcing of development

            Beware the Not Invented Here! attitude!

                    2006 Jeffrey E. Newcomb / Red Widget Strategies
                                    for Hosei University
                                                                      9
                  Idea Screening
First pass
•    Spot good ideas and drop poor ones
•    Develop system to estimate:
       market size, product price, development time
       and costs, manufacturing costs, rate of return
•    Evaluate findings against set of company criteria
     for new products
Do not throw out any ideas!
An idea may not be useful now, but could be in the future

        Examples: Kao Company, for consumer products in Japan;
        Traders Joe’s, a specialty food retailer, uses Committee of 15
        to travel globe and screen new product ideas
                      2006 Jeffrey E. Newcomb / Red Widget Strategies
                                      for Hosei University
                                                                        10
           Concept Development
               and Testing
•     Product Idea: idea for a product that
       could be a market offering
•     Product Concept: detailed version of the idea
       presented from the customer’s perspective
•     Product Image: the way customers perceive a
       existing product or potential product

Interviews and Focus Groups
      Useful in concept development and
       testing for products and services
Example: Real-time traffic reporting in the San Francisco Bay Area….
How will it work? What is the value proposition? What are the service’s
features and benefits? What are the characteristics of the target market?
                       2006 Jeffrey E. Newcomb / Red Widget Strategies
                                       for Hosei University
                                                                         11
         Marketing Strategy
           Development
For the Marketing Strategy,
Part One describes
  •   the target market, planned product positions,
      sales, market share, and profit goals
Part Two outlines the first year’s
  •   the product’s planned price, distribution, and
      marketing budget
Part Three describes long-run
  •   sales and profit goals, marketing mix strategy


                2006 Jeffrey E. Newcomb / Red Widget Strategies
                                for Hosei University
                                                                  12
        Business Analysis
Examine the sales, costs, and profit
   projections for the new product or
   service -- to assess fit with
   organization’s objectives




                        Example: the MBWA Business Calendar


             2006 Jeffrey E. Newcomb / Red Widget Strategies
                             for Hosei University
                                                               13
       Product Development

•   Develops concept into a tangible product
•   Requires significant increase in investment
•   Creates prototypes
•   Prototypes must have correct physical
    features and convey psychological
    characteristics




              Example: Gillette’s Boston shaving laboratories
                2006 Jeffrey E. Newcomb / Red Widget Strategies
                                for Hosei University
                                                                  14
              Test Marketing
•   With test marketing, product or service
     introduced in realistic market setting
•   Test marketing needed for only some
     products
•   May be expensive and time consuming,
     but helps to avoid marketing mistakes


      Example: Frito-Lay’s Baked “Sun” chips were
             tested for 18 months in 2 test markets
                  2006 Jeffrey E. Newcomb / Red Widget Strategies
                                  for Hosei University
                                                                    15
          Commercialization
Decide when….
•   timing of the product or service introduction
Decide where….
•   distribution of the product or service

Develop a market rollout plan


      Example: Introduction of hybrid vehicles
             like the Toyota Prius in US

                  2006 Jeffrey E. Newcomb / Red Widget Strategies
                                  for Hosei University
                                                                    16
     Organizing New-Product
          Development
Sequential Approach: each stage of New-
   Product Development completed before
   moving to next phase of the project

Simultaneous Approach: Cross-functional
   teams work through overlapping steps to
   save time and increase effectiveness
      Examples: Pharmaceutical companies develop new drug
             products using the sequential approach; Apple
             favors its own successful simultaneous approach

                  2006 Jeffrey E. Newcomb / Red Widget Strategies
                                  for Hosei University
                                                                    17
                 Leading New Products
                       To Market
   The Stage Gate
                                Detailed                                                               Full
Discover                         Search                Development                                   launch
                     Scoping                                                          Test



 Idea      Gate 1 Stage Gate 2 Stage Gate 3 Stage Gate 4 Stage Gate 5 Stage                                   Success
                    1            2            3            4            5

           Initial         Second           Decision on               Post-
           screen                                                                            Pre-launch
                           screen          business case          Development                 business
                                                                     review                   analysis




                                            Time
                                    2006 Jeffrey E. Newcomb / Red Widget Strategies
                                                    for Hosei University
                                                                                                                18
              Innovation
What is innovation?
 Innovation is the development
 and diffusion of new ideas, processes,
 products or services which add
 measurable value to an organization,
 a community or a way of life
  • What are sources of innovation?
  • How can we measure the value of innovation?
  • What are good examples?

                 2006 Jeffrey E. Newcomb / Red Widget Strategies
                                 for Hosei University
                                                                   19
From Session 5, Consumer Behavior
                                          Review:
                  Adoption and Diffusion of
 Market growth


                            Innovations

                 13 1/2%
                 Early
                 adopters         34%                   34%
                                  Early                 Late
                                 majority              majority
  2 1/2%                                                                        16%
Innovators                                                                    Laggards




                     Time of adoption innovations
                            2006 Jeffrey E. Newcomb / Red Widget Strategies
                                            for Hosei University
                                                                                         20
             Impacts of Innovation
Consider development of film-based
 photography and digital imaging:
Acceptance
  Market




              Film-based
              photography                                              Digital imaging




                                   Time
                     2006 Jeffrey E. Newcomb / Red Widget Strategies
                                     for Hosei University
                                                                                         21
 Some Types of Innovation
     Discontinuous (or Breakthrough)
               Innovation
 Examples: light bulb; telephone; the Internet

   Dynamically Continuous Innovation
Example: Mobile phone with Internet capability

     Low-End Disruptive Innovation
     Examples: Disposable digital camera;
        re-engineered plastic food container

Continuous (or Incremental) Innovation
 Example: Each faster silicon microprocessor

              2006 Jeffrey E. Newcomb / Red Widget Strategies
                              for Hosei University
                                                                22
      One approach to innovation we can all practice:

      Small Wins, or Kaizen
How to practice Small Wins:
•Decide and Communicate the Objective
•Be the Champion -- or Find a Champion
•Build a Small Team
•Work with Small Budget – or No Budget
•Keep to a Short Timeline
•Measure each Small Win to Achieving Objective
•Encourage Multiple Starts and Tries – and Failure
•Recognize and Celebrate each Small Win!
                  San Francisco’s Golden Gate Bridge
                         is a product of many Small Wins
                   2006 Jeffrey E. Newcomb / Red Widget Strategies
                                   for Hosei University
                                                                     23
How successfully can you fail?
Hank Aaron: Baseball Legend
  • 23 Years
  • 3,298 Games
  • 12,364 At Bats
  • 3,771 Hits
  • .305 Lifetime Average
  • 755 Home Runs –
        All Time Baseball Record
But to achieve these successes….
      • 8,593 = Times Aaron
       Failed to Hit the Ball!
             2006 Jeffrey E. Newcomb / Red Widget Strategies
                             for Hosei University
                                                               24
                Product Life Cycle (PLC)
Market Demand




                                    Time
                       2006 Jeffrey E. Newcomb / Red Widget Strategies
                                       for Hosei University
                                                                         25
      Introduction Stage of PLC
Characteristics:
•   Sales: low
•   Costs: high cost per customer
•   Profits: negative
•   Marketing Objective: create product
    awareness and trial
•   Product: offer a basic product
•   Price: use cost-plus formula
•   Distribution: build selective distribution
•   Promotion: heavy to entice product trial
               2006 Jeffrey E. Newcomb / Red Widget Strategies
                               for Hosei University
                                                                 26
         Growth Stage of PLC
Characteristics:
•   Sales: rapidly rising
•   Costs: average cost per customer
•   Profits: rising
•   Marketing Objective: maximize market share
•   Product: offer extension, service, warranty
•   Price: penetration strategy
•   Distribution: build intensive distribution
•   Promotion: reduce to take advantage of demand
•   Competition is a minor concern

                2006 Jeffrey E. Newcomb / Red Widget Strategies
                                for Hosei University
                                                                  27
      Maturity Stage of PLC
Characteristics:
•   Sales: peak
•   Costs: low cost per customer
•   Profits: high
•   Marketing Objective: maximize profits while
    defending market share
•   Product: diversify brand and models
•   Price: match or best competitors
•   Distribution: build more intensive distribution
•   Promotion: Increase to encourage brand
    switching
               2006 Jeffrey E. Newcomb / Red Widget Strategies
                               for Hosei University
                                                                 28
        Maturity Stage of PLC
Managing in Mature Markets
Modify the Market: Increase consumption
   of the current product
•   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
           customers
      So what moves can we make to optimize our markets in the
             Maturity Stage? Example: WD-40 finds new uses for
             its industrial lubricant

                   2006 Jeffrey E. Newcomb / Red Widget Strategies
                                   for Hosei University
                                                                     29
       Maturity Stage of PLC
Managing in Mature Markets
Modifying the Product: Changing characteristics
    such as quality, features or style to attract
    new users and to inspire more use
  •   Improve durability, reliability, speed, taste
  •   Improve styling and attractiveness
  •   Add new features
  •   Expand usefulness, safety, convenience

Modifying the other elements of the Marketing Mix:
    Improving sales by changing one or more
    marketing mix elements
  •   Cut prices
  •   Launch a better advertising campaign
  •   Move into larger market channels
  •   Offer new or improved services to buyers

                 2006 Jeffrey E. Newcomb / Red Widget Strategies
                                 for Hosei University
                                                                   30
       Decline Stage of PLC
Characteristics:
•   Sales: declining
•   Costs: low cost per customer
•   Profits: declining
•   Marketing Objective: reduce expenditures
     and “milk” the brand
•   Product: phase out weak items
•   Price: cut price
•   Distribution: selective
•   Promotion: reduce to minimal level
•   Harvest strategy
    Example: Film-based photographic cameras and supplies
                 2006 Jeffrey E. Newcomb / Red Widget Strategies
                                 for Hosei University
                                                                   31
                          Sales & Profit Life Cycles
                                                                                         Sales
Sales and Profits




                                                                                       Profits




                    NPD     Introduction         Growth                      Mature    Decline



                                     2006 Jeffrey E. Newcomb / Red Widget Strategies
                                                     for Hosei University
                                                                                                 32
          Some Product Life Cycle
               Applications
•   Style is a basic and distinctive mode of expression
    Examples: Impressionist vs. Surrealist painting schools;
     French Country vs. Danish Modern furniture

•   Fashion is a popular style in a given field
    Examples: “business casual” vs. “business formal” clothing;
     Apple’s designs and colors for iMacs, iPods


•   Fad is a fashion that enters quickly, is adopted
    quickly, and declines fast
    Examples: pet rocks, stone-washed jeans, special diets,
     Tamagochi


                      2006 Jeffrey E. Newcomb / Red Widget Strategies
                                      for Hosei University
                                                                        33
      Practical Problems of PLC
When using the PLC to forecast product
performance or develop marketing strategies,
 •   can be difficult to identify which stage of the
     PLC the product is in, now
 •   difficult to pinpoint when the product moves
     to the next stage
 •   difficult to identify factors that affect
     product’s movement through stages
 •   difficult to forecast sales level, length of each
     stage, and shape of PLC
 •   an organization’s Marketing Strategy is both
     a cause and result of the PLC
 •   need good marketing research
                 2006 Jeffrey E. Newcomb / Red Widget Strategies
                                 for Hosei University
                                                                   34
         Creative Destruction
Creative destruction: A challenge for business
leaders to purposely change or re-invent
processes, products or services that may be
working satisfactorily at present, for greater
value in the future


To innovate and to grow
 we need to
 break some eggs
                2006 Jeffrey E. Newcomb / Red Widget Strategies
                                for Hosei University
                                                                  35
                                   3QQ
                 3 Question Quiz
1. Which of the following probably best illustrates a
    discontinuous (or breakthrough) innovation?
    a. A drug company develops a pill anybody can take once
       a year to prevent a cold or flu.
    b. A bank puts its credit card machines in drive-up
       locations -- so they will be more convenient to
       customers.
    c. A nurse decides that the growing number of older
       people will increase the demand for home nursing
       services; so she starts a home to care for older people.
    d. A cellular phone company introduces a new service
       that is less expensive than any other service in its
       market area.
    e. A recording company’s CD gets unexpected publicity
       -- and nearly every young male, 18-43 years of age,
       wants one.
                     2006 Jeffrey E. Newcomb / Red Widget Strategies
                                     for Hosei University
                                                                       36
                                  3QQ
               3 Question Quiz
1. Which of the following probably best illustrates a
    discontinuous (or breakthrough) innovation?
    a. A drug company develops a pill anybody can take
       once a year to prevent a cold or flu.
    b. A bank puts its credit card machines in drive-up
       locations -- so they will be more convenient to
       customers.
    c. A nurse decides that the growing number of older
       people will increase the demand for home nursing
       services -- so she starts a home to care for older
       people.
    d. A cellular phone company introduces a new service
       that is less expensive than any other service in its
       market area.
    e. A recording company’s CD gets unexpected publicity
       -- and nearly every young male, 18-43 years of age,
       wants one.
                    2006 Jeffrey E. Newcomb / Red Widget Strategies
                                    for Hosei University
                                                                      37
                            3QQ
           3 Question Quiz
2. The “early adapters” in the diffusion of
    innovations:
    a. Are respected as opinion leaders in the
      marketplace
    b. Look for low-risk, small-reward
      product offers
    c. Question any change, liking products
      as they are now
    d. Are concerned that the price of a new
      innovation is affordable by most people
    e. “a” and “d” are correct
              2006 Jeffrey E. Newcomb / Red Widget Strategies
                              for Hosei University
                                                                38
                                     3QQ
                 3 Question Quiz
2. The “early adopters” in the diffusion
       of innovations:
    a. Are respected as opinion leaders in the
       marketplace
    b. Look for low-risk, small-reward product offers
    c. Question any change, liking products as they
       are now
    d. Are concerned that the price of a new
       innovation is affordable by most people
    e. “a” and “d” are correct
     Early Adopters have the interest and resources to try the latest
     product or service in a market – they want to be the first to do so.
     Early adopters are respected as opinion leaders in the
     marketplace, influencing behaviors of Early Majority consumers
                      2006 Jeffrey E. Newcomb / Red Widget Strategies
                                      for Hosei University
                                                                        39
                               3QQ
              3 Question Quiz
3. Which of the following is the most effective order
   of steps for new product or service development?
   a. idea generation, idea evaluation, development,
   screening, commercialization.
   b. development, idea generation, screening,
   commercialization, idea evaluation.
   c. commercialization, idea generation, idea
   evaluation, screening, development.
   d. idea generation, screening, idea evaluation,
   development, commercialization.
   e. screening, idea generation, idea evaluation,
   development, commercialization.
                 2006 Jeffrey E. Newcomb / Red Widget Strategies
                                 for Hosei University
                                                                   40
                               3QQ
              3 Question Quiz
3. Which of the following is the most effective order
   of steps for new product or service development?
   a. idea generation, idea evaluation, development,
      screening, commercialization.
   b. development, idea generation, screening,
      commercialization, idea evaluation.
   c. commercialization, idea generation, idea
      evaluation, screening, development.
   d. idea generation, screening, idea evaluation,
      development, commercialization.
   e. screening, idea generation, idea evaluation,
      development, commercialization.
                 2006 Jeffrey E. Newcomb / Red Widget Strategies
                                 for Hosei University
                                                                   41
                           Your
               TOP TEN
                    Terms
•   Creative destruction
•   Diffusion of innovations
•   Innovation
•   Product development process: Idea generation, idea
    screening, concept development and testing, marketing
    strategy development, business analysis, product
    development, test marketing, commercialization
• Product life cycle (PLC): stages of product
        development, introduction, growth, maturity, decline
• Sequential product development
• Simultaneous or team-based product development
• Small wins
                    2006 Jeffrey E. Newcomb / Red Widget Strategies
                                    for Hosei University
                                                                      42
           Looking Back:
     Where have we been?
• Explain how organizations find and develop
  new-product ideas.
• List and define the steps in the new-product
  development process.
• Describe the stages of the product life cycle.
• Describe how marketing strategies change
 during the product’s life cycle.



                2006 Jeffrey E. Newcomb / Red Widget Strategies
                                for Hosei University
                                                                  43

				
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