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?