Chapter 10 Product Management and New–Product Development

1. Chapter 10 Product Management and New–Product Development

2. At the end of this presentation, you should be able to: • Understand how product life cycles affect strategy planning. • Know what is involved in designing new products and what “new products” really are. • Understand the new-product development process. • See why product liability must be considered in screening new products. • Understand the need for product or brand managers. • Understand how total quality management can improve goods and services. • Understand important new terms.

3. Typical Life Cycle of a New Product Concept Total industry sales Total industry profit (initially loss)

4. Typical Changes in Marketing Variables over the Product Life Cycle

5. Managing Mature Products—emphasizes building of selective demand for the brand

6. Market Introduction – Investing in the Future

7. Market Growth Stage – Profits Go Up and Down (Portable DVD Players; email) Innovation realizes big profit and Attracts Competition (try to copy or improve innovation) Monopolistic Competition Develops Profits Peak and Then Decline

8. Market Maturity Stage – Sales Level Off, Profits Continue Down (Personal Computers; Faxes, Credit Cards) Persuasive promotion becomes more important, More Costly Brands Are More Similar Greater Price Competition/Price Sensitivity Maturity May Last a Long Time

9. Sales Decline – A Time of Replacement

10. Which Stage of PLC? © 2011 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin

11. Kodak announced that it would no longer produce 35 millimeter film cameras, but would manufacture digital cameras exclusively. Sales of digital cameras have grown steadily and have far outpaced the sale of 35 mm cameras in recent years, even among professional photographers. Kodak’s decision indicates that 35 mm cameras are probably in the ________ stage of the product life cycle. Market introduction Market growth Sales decline Market maturity Checking Your Knowledge

12. Individual Brands Market Definitions • May not follow the classic pattern • May be introduced in market growth or maturity (me too product) • Not all brands are equally strong (weak vs. preferred brand) • Should be carefully developed • Different markets, different stages (foreign countries) • Contribute to the length of the cycle Product Life Cycles Should Be Related to Specific Markets (product categories or product classes) AND

13. Product Life Cycles Vary in Length Comparative Advantage Easy to Use Some ProductsMove Fast Compatible Easy to Communicate Can Be Tried

14. Other Issues in Product Life Cycle Length Product Life Cycles Are Getting Shorter (more innovation yields new products to replace older ones) The Early Bird Usually Profits (gain a critical foothold in market share) Fashions (currently accepted popular style) and Fads (idea fashionable to certain groups)

15. Planning for Different Stages of the Product Life Cycle Allocate Sufficient Money to cover costs (design, development, packaging) Consider all Four Ps (promotion and distribution) MarketIntroduction& Growth Be Flexible to respond quickly to market dynamics Anticipate Speed of Movement Competitors May Help speed Adoption

16. Managing Mature Products

17. Are Product Modifications Really New Products? Courtesy of The Procter & Gamble Company.

18. Phasing Out Dying Products (Typewriters, Handwritten Letters) Phase-out May Be Necessary (firm’s objectives) Don’t Pull the Plug So Quickly (distribution and promotional expenditures) Product LineCustomer Support Profitability Sales Decline Can Be Profitable (loyal customers)

19. New Product Planning What Is a New Product? (new in any way: inventions; simple color changes in existing products) FTC Rule: 6 Months (new or changed in a functionally significant or substantial respect) Ethical Dilemmas Exist(holding back new product innovations; planned obsolescence; failure to supply replacement parts throughout PLC, continuous release of minor product variations)

20. 2. Screening (SWOT, Rough ROI) 3. Idea evaluation (Concept testing, costs, profit, sales) 4.Development (Prototype, ROI) 5. Commercial-ization An Organized New-Product Development Process is Critical (tries to kill new products economically by weeding out products that have a low likelihood of success before they are introduce to the entire market) 1. Idea generation

21. 1. Idea generation • Ideas from customers and users • Marketing research • Competitors • Other markets • Company people, intermediaries, etc. Step 1: Idea Generation 1. Idea generation 2. Screening 3. Idea evaluation 4.Development 5. Commercial-ization

22. 2. Screening • Strengths and weaknesses • Fit with objectives • Market trends • Rough ROI estimate Step 2: Screening 1. Idea generation 2. Screening 3. Idea evaluation 4.Development 5. Commercial-ization

23. Screening and Types of New Product Opportunities(Desirable—Cash Proof Car Top; Salutary—safety helmets; Pleasing—motorcycles; Deficient—Counterfeit products) 1. Idea generation 2. Screening 3. Idea evaluation Desirable products Salutary products 4.Development Pleasing products Deficient products 5. Commercial-ization

24. 3. Idea Evaluation • Concept testing • Reactions from customers • Rough estimates of costs, sales, and profits Step 3: Idea evaluation 1. Idea generation 2. Screening 3. Idea evaluation 4.Development 5. Commercial-ization

25. 4. Development • R&D • Develop model or service • Test marketing mix • Revise plans as needed • ROI estimate Step 4: Development 1. Idea generation 2. Screening 3. Idea evaluation 4.Development 5. Commercial-ization

26. 5. Commercialization • Finalize product and marketing plan • Start production and marketing • “Roll out” in select markets • Final ROI estimate Step 5: Commercialization 1. Idea generation 2. Screening 3. Idea evaluation 4.Development 5. Commercial-ization

27. New Product Development © 2011 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin

28. Top management of a large company recently approached the dean of a major business school about starting a specialized MBA program for the company’s employees. After further discussions, the dean decided that the program did not fit well with the objectives and resources of the school, so the program was put on the “back burner” until conditions changed. The proposed MBA program was at what stage of the new-product development process when it was shelved? Idea generation Screening Idea evaluation Development Commercialization Checking Your Knowledge

29. Top management support Cross-functional team Clear understanding of customer needs Culture of innovation Cost management (tradeoffs between costs and customer benefits) Product champion with authority Timely development cycle New Product Development: A Total Company Effort Organized new-product development process

30. Checking Your Knowledge Which of the following statements about new-product development are true? The process should be informal to encourage innovation. The greatest number of product ideas is in the idea evaluation stage. The best criteria for evaluating new product ideas in the early stages is return on investment (ROI). The process should have top management support. All of the above statements are true.

31. Need for Product Managers Product/Brand Managers (manage specific brands; promotional responsibility) Common in Large Companies (many kinds of products; marketing efforts) Some Are “Product Champions” (product managers who are mainly concerned with implementing promotional efforts)

32. Total Quality Management (what gone right and what gone wrong) is Easier Said Than Done (Restaurant Manager has categorized the complaints reported on customer comment cards)

33. Building Quality into Services through TQM Server Is Linked To the Service (inseparable from the service) Training Is Crucial (show how employees jobs relate to the total company effort) Empowerment Works (give employees the authority to correct a problem without checking with management)

34. Other Issues in Quality Implementation Efforts Managers Lead the Effort (through their actions and involvement; need top-level support) Specify Jobs and Benchmark (internal or external basis of comparison for evaluating how well a job is being done) Get a Return on Quality (deal with the most critical customer satisfaction issues in order to control costs)

35. Study Question 1 Acme Corporation is currently experiencing rising sales for a new product idea it pioneered several months ago. Profits are also increasing, so other competitors are now entering the market with similar products. The competitive situation is changing from monopoly to monopolistic competition. In which stage of the product life cycle is Acme Corporation operating? A. Market establishment.B. Market introduction.C. Market growth.D. Market maturity.E. Sales decline.

36. Study Question 2 Over the past several years, like other auto manufacturers, General Motors (GM) has introduced many new models of sport utility vehicles (SUVs) in all of its major divisions. This proliferation of SUVs and an increase in gasoline prices have caused sales to level off. In response, General Motors offered rebates of up to $5,000, or no-interest financing, on selected models of SUVs. The largest rebates went to current owners of GM vehicles, so that they would replace their current vehicles with a GM model instead of switching to another brand. The rebates have been heavily advertised on national television. Profit margins per vehicle have shrunk as a result of these costly promotions. In what stage of the product life cycle is GM currently operating?  A. Market establishment.B. Market introduction.C. Market growth.D. Market maturity.E. Sales decline.

37. Study Question 3 Product life cycles refer to the life of:  A. a firm's individual product.B. a product idea.C. a firm's brand.D. a fashion.E. all of the above.

38. Study Question 4 When looking for new product ideas, which of the following would be good sources?  A. your salespeople.B. your intermediaries.C. your competitors.D. your production people.E. all of the above.

39. Study Question 5 Midway, Inc. has seen most of its competitors drop out of its product-market due to declining industry sales and profits. But Midway still has much demand for its product from a small group of loyal customers. This product-market is in which product life cycle stage?  A. Market introductionB. Market maturityC. Market developmentD. Market growthE. Sales decline