Developing & Managing Products

1. Developing & Managing Products Strategic Marketing

2. Learning Objectives • Explain the importance of developing new products and describe the six categories of new products • Explain the steps in the new-product development process • Explain the diffusion process through which new products are adopted • Explain the concept of product life cycles

3. Explain the importance of developing new products • New Product: A product new to the world, the market, the producer, the seller, or some combination of these. • Important to sustain growth • Increase revenue & profits • Replace obsolete items • Innovation is difficult for companies to be good at Roughly 70-80 new products are produced per year • Apple, 3M, Microsoft, GE, & Sony are considered strong innovators

4. Six Categories of New Products

5. REVIEW LEARNING OUTCOME: Developing New Products

6. New-Product Strategy Idea Generation Idea Screening Business Analysis Development Test Marketing Commercialization New Product New-Product Development Process

7. L.O. #2: New-Product Development Process • New Product Strategy: A plan that links the new-product development process with the objectives of the marketing development, the business unit, and the corporation. • Must be consistent & compatible • Provides general guidelines for generating, screening, & evaluating new product ideas • Example: • Gillette aims for 40% of annual sales to be generated • from products less than 5 years old

8. Step #1: Idea Generation

9. Step #2: Idea Screening • Idea Screening • The first filter in the product development process, which eliminates ideas that are inconsistent with the organization’s new-product strategy or are inappropriate for some other reason. • You generate an idea  then you screen it  keep good; eliminate bad. • Majority of products are rejected in the screening stage • Concept Test: A test to evaluate a new product idea, usually before any prototype has been created. Can be good line extensions but not for brand new items.

10. Demand Considerations in Business Analysis Stage Cost Sales Profitability Step # 3: Business Analysis • Survive the screening process; advance to Business Analysis: • The second stage of the screening process where Preliminary figures for demand, cost, sales, and profitability are calculated. • Evaluate costs v. revenue • At end of this stage management has a good understanding of market potential.

11. Stage #4: Development • Creation of prototype • Marketing strategy is outlined • Packaging, branding, labeling are identified • Promotion, price, and distribution strategy • Manufacturing feasibility • Final government approval is given • Consumer Product Safety Act requires companies do diligent product testing

12. Step #4: Development Simultaneous Product Development: Ateam-oriented approach to new-product development where all relevant functional areas and outside suppliers participate in the development process. • (R&D, Marketing, Engineering, Production, & Suppliers)

13. Step #5: Test Marketing • Test Marketing: The limited introduction of a product and a marketing program to determine the reactions of potential customers in a market situation. • Understand if your marketing mix strategies work. • Alternatives to test marketing: • Single-source research using supermarket scanner data • Simulated (laboratory) market testing • Online test marketing

14. Step #6: Commercialization • Commercialization: The decision to market a product • Commercialization Involves: • Ordering production materials & Starting production • Building inventory • Shipping the product to final destination • Training sales force • Announcing product to industry • Advertising to customers

15. Overview of Steps in the New Product Process

16. Learning Objective #3: Why Some Products Succeed & Some Don’t • 70% – 90% of products fail within the first year • Why Do Products Fail? • Doesn’t differentiate between current products on market • Poor match between features and customer needs • Overestimate market size • Incorrect positioning • Price is too high or too low • Poor distribution & Promotion • Inferior product

17. Learning Objective #3: Why Some Products Succeed & Some Don’t • Diffusion: The process by which the adoption of an innovation spreads. • Word of mouth advertising speeds diffusion • Adopters: A consumer who was happy enough with his or her trial experience with a product to use it again. • There are five categories of adopters that participate in the diffusion process • Innovators • Early adopters • Early majority • Late majority • Laggards

18. Categories of Adopters

19. Explain & Predict the Rate of Acceptance and Diffusion of a New Product

20. Product Life Cycle • Product Life Cycle: Traces the stages of a product’s acceptance, from its introduction (birth) to its decline (death) • Changes in a product, its use, its image, or its positioning can extend that product’s life cycle. • PLC doesn’t tell managers the length of a product’s life cycle or its duration in any stage. • Tool to forecast future events and develop appropriate strategies.

21. Introductory Stage Growth Stage Maturity Stage Decline Stage Sales Dollars Profits 0 Time LO4 Product Life Cycle

22. LO4 Product Life Cycles for Styles, Fashions, and Fads

23. Stage #1: Introductory • High failure rates • Little competition • Frequent product modification • Limited distribution • High marketing and production costs • Negative profits with slow sales increases • Promotion focuses on awareness and information • Communication challenge is to stimulate primary demand

24. Stage #2: Growth • Increasing rate of sales • Entrance of competitors • Market consolidation • Initial healthy profits • Aggressive advertising of the differences between brands • Wider distribution

25. Stage #3: Maturity • Sales increase at a decreasing rate • Saturated markets • Annual models appear • Lengthened product lines • Service and repair assume important roles • Heavy promotions to consumers and dealers • Marginal competitors drop out • Niche marketers emerge

26. Stage #4: Decline • Long-run drop in sales • Large inventories of unsold items • Elimination of all nonessential marketing expenses • “Organized abandonment”

27. Introduction Growth Decline Maturity Product life cycle curve Sales Early majority Late majority Early adopters Innovators Laggards Diffusion curve

28. GROWTH MATURITY DECLINE INTRODUCTION Product Strategy Limited models Frequent changes More models Frequent changes. Large number of models. Eliminate unprofitable models LimitedWholesale/retail distributors Expanded dealers. Long- term relations Phase out unprofitable outlets Extensive. Margins drop. Shelf space Distribution Strategy Sales Phase outpromotion Promotion Strategy Advertise. Promote heavily Awareness. Stimulate demand.Sampling Aggressive ads. Stimulatedemand Pricing Strategy Fall as result of competition &efficient produc- tion. Prices fall (usually). Prices stabilize at low level. High to recoupdevelopment costs REVIEW LEARNING OUTCOME Product Life Cycles Time