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New Product Development

Objectives. What are new products?Why do products fail?New product development process. What is a new product?. New to the worldNew to the companyLine extensionsBrand extensionsRepositioningModel changes. Consumption Effects Define Newness. LOW DEGREE OF CHANGE BEHAVIOR AND LEARNING NEE

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New Product Development

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    1. New Product Development 03/07/05

    2. Objectives What are new products? Why do products fail? New product development process

    3. What is a new product? New to the world New to the company Line extensions Brand extensions Repositioning Model changes

    4. Consumption Effects Define Newness

    5. Product development risks Failure rates “…no more than 10% of all new products or services are successful -- that is, still on the market and profitable after three years” - Marketing Management (2003) 95% of new consumer products in US fail;90% of new consumer products in Europe fail - Nielsen BASES and Ernst & Young study (2002) Costs Introducing a new national brand can cost $20 million – Marketing Management New Product News – “It probably costs $100 million to introduce a truly new soft drink nationally The cost of developing a new car is $500 million (Business Week 2002)

    6. Why new product development can be a dice roll: some forecasts

    7. Why do new products fail? Too small a target market Insignificant point of difference Poor product quality No economical access to consumers Bad timing Poor execution of the marketing mix Poor use of research Inadequate budget Market changes Bad support from channel “Wearing blinders”

    8. Why do new products succeed? Start with the consumer -- not the factory Intelligent use of research Exploit a competitive advantage Top-management commitment Know when to “pull the plug” Speed to market

    9. Why speed to market? Intensified competition Changing technology Changing tastes Rampant copying Must gain distribution (shelf space) early

    10. NPD process

    11. Idea Generation Gaps Are there unfilled current consumer needs? Growth Are there unfilled future needs? Synergies Is there unfilled potential in the firm’s existing product portfolio?

    12. Sources for ideas Technology Market needs and user solutions Competitors and other firms Channels of distribution and suppliers Management and employees Environmental changes

    13. Screening and evaluation Internal approach Technical feasibility External approach Concept testing

    14. Business analysis & Development Business analysis Last checkpoint before significant investment Economic analysis, marketing strategy, legal examination Development Prototype of product

    15. Market testing Advertising testing Product quality testing Expert evaluation Customer tests

    16. Test marketing Standard Full marketing campaign in a few cities Controlled Limited to a few stores Simulated Testing in a simulated marketing environment Foreign fling Test in a different country

    17. Benefits of test marketing Yields a more reliable forecast of future sales than no testing. Can pre-test alternative marketing plans. May discover a product fault missed in the product development stage. Discover clues to distribution problems. Gain better insights into the behavior of different market segments.

    18. Problems with test marketing Problem of obtaining a set of markets that is reasonably representative of the country as a whole. Problem of translating national media plans into local equivalents. Problem of estimating what is going to happen next year based on this year’s competitive environment. Problem of competitive knowledge of your test.

    19. Actions from test marketing High trial, high repurchase rate - GO High trial, low repurchase rate - Drop or redesign product Low trial, high repurchase rate - Increase advertising and sales promotion Low trial, low repurchase rate - Drop product

    20. Key Points New product development is critical to successful marketing However, most new products fail Careful examination of the external (consumers, competitors, environment) and internal (company portfolio, strengths) is needed to successfully launch new products Testing new products at different stages is important

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