New Product Development Product Life Cycles

							New Product Development &
    Product Life Cycles
   New Product Development Strategy

• How do companies develop and market new
  products?
  – Come up with own ideas.
     • Brand new products
     • Product improvements & modifications
  – Acquire companies, patents, licenses.
            New-Product Failures

• Only 10% of new consumer products succeed in the
  long run.

• Why do most products fail?
  –   Don’t fulfill a real need or want
  –   Overestimation of market size
  –   Design problems that compromise functionality
  –   Incorrectly positioned, priced or promoted (4 Ps)
  –   Pushed despite poor marketing research findings
  –   Development costs go over budget
  –   Competitive response (usually unanticipated)
Major Stages in New-Product Development Process
                Idea Generation
            Where do ideas come from?
• Internal sources:
  – Company employees at all levels: “Intrapraneuring”
• External sources:
  –   Customers
  –   Competitors
  –   Distributors
  –   Suppliers
  –   Outsourcing partners
               Idea Screening
• Keep the good ideas and drop the poor ones.
  – Often highly subjective and non-scientific.
  – Strategic fit with core competencies and product
    expertise.
  – “Back-of-the-envelope” market size estimates
 Concept Development and Testing
• Develop a working description and visualization
  of the product idea and concept.
• Test ideas with real consumers.




                           The Concept Board helps
                           companies verbalize and visualize
                           product concepts for consumer
                           testing.
             Business Analysis
• Assess economic viability of the concept.
• Potential Metrics:
  – Sales
  – Contribution (Profit)
  – NPV, IRR, ROI
  – ROMI
• Project must clear financial hurdles to move to
  the product development phase.
         Product Development
• Develop concept into physical product
  prototype.
• Large jump in investment – “point of no
  return”.
• Test and refine prototype until product passes
  consumer and legal scrutiny.
                   Test Marketing
                                     • Product / marketing
                                       program introduced in
                                       limited # of real market
                                       settings.
                                     • Avoids “broad launch”
                                       mistakes.
                                     • Competitive Retaliation
After test marketing the “Go Active”   problems
meal (an adult happy meal) in 150
markets in Indiana, McDonald’s decided
to sell it across the U.S.
           Commercialization
• Broad launch of product if market test results
  are positive. “Greenlighting”
• Timing of launch is important.
• Potential Rollout plans
  – Local
  – Regional
  – National
  – International
  – “Wider Test Market” – more scattered sample
The Product Life Cycle
        Product Life-Cycle Lengths

• Product need - longest life cycle (e.g., “phone”)
• Product form - standard PLC shape (e.g., landline telephone)
• Brand – shorter PLC cycles due to competitive attacks and
  wearout (e.g., T-Mobile, Nokia, Sprint)
• Styles and Fashions – very short life cycles (different phone
  designs)
• Fad - fashion with quick adoption, quick decline (e.g., pet rocks)
  and backlash

• The trend towards shorter Product Life Cycles
         Introduction Stage of PLC
•   Sales: low
•   Costs: high cost per customer
•   Profits: negative
•   Marketing Objective: create product awareness and
    trial
•   Product: offer a basic “core” product
•   Price: based primarily on cost
•   Distribution: build selective distribution
•   Promotion: heavy to entice product trial
           Growth Stage of PLC
• Sales: rapidly rising
• Costs: average cost per customer
• Profits: rising
• Marketing Objective: maximize market share
• Product: offer peripheral benefits, i.e.
  service, warranty, packages
• Price: penetration strategy
• Distribution: start building intensive distribution
• Promotion: reduce since demand is naturally growing
            Maturity Stage of PLC
•   Sales: reach their peak
•   Costs: lowest cost per customer
•   Profits: highest ever
•   Marketing Objective: “defend” high profits and
    market share
•   Product: diversify brand and models
•   Price: match or beat competitors
•   Distribution: continue building intensive distribution
•   Promotion: increase to encourage brand switching
            Maturity Stage of PLC
• Keeping Consumption High
• How?
  – Find new users or new market segments. (McDonald’s goes global)
  – Reposition the brand to appeal to a different segment. (“Not your
    father’s Oldsmobile”)
  – Look for ways to increase or revive usage among present customers.
    (Arm & Hammer)
  – Improve/Modify the product (Gilette)
  – New Ad Campaign (Coke, Pepsi, McDonald’s)
  – Discounting Price
        Maturity Stage of PLC
Arm & Hammer gives consumers another use
  for Baking Soda and avoids decline.
           Modifying the Product
Gillette: Has mastered the
art of improving product.

Fusion razor:
precision trimmer blade
five blade shaving surface
flexible comfort guard
Enhanced Indicator Lubrastrip
(contains vitamin E and aloe)
             Decline Stage of PLC
•   Sales: declining
•   Costs: lower (but not lowest) cost per customer
•   Profits: declining
•   Marketing Objective: reduce expenditures and “milk”
    the brand for residual sales
•   Product: phase out weak items
•   Price: cut price or raise price
•   Distribution: selective - phase out unprofitable
    outlets
•   Promotion: reduce to “survival” level
Question du Jour

 Is the PLC for real?