MKT Chpt 11

the product life cycle

helps marketers manage their products' marketing mix during and after its introduction. It defines the stages that new products move through as they enter, get established in, and ultimately leave the marketplace and thereby offers marketers a starting point for their strategy planning

not every product follows the same life cycle curve

"white goods" categories such as clothes, washers, dryers and refrigerators have been in the maturity stage for a long time and will remain there until a superior product comes along to replace them

new-to-the-world products

(aka pioneers or breakthroughs) add tremendous value to firms. they establish a completely new market or radically change both the rules of competition and consumer preferences in a market. Ex: ipod

3) Product Development

(aka product design) entails a process of balancing various engineering, manufacturing, marketing, and economic considerations to develop a product's form and features or a service's features

diffusion of innovation

(the new to the world products are not adopted by everyone at the same time. Rather they diffuse or spread through a population in a process known as diffusion of innovation) it is the process by which the use of an innovation spreads thoughout a market group, over time and over various categories of adopters

Why firms should introduce new products and services

1) as they add new products to their offerings, firms can create and deliver value more effictively by satisfying the changing needs of their current and new customers or simply by keeping customers from getting bored with the current product or service offering 2) the longer a product exists in the marketplace, the more likely it is that the market will become saturated, without new products or services the value of the firm will ultimately decline 3) the portfolio of products that innovation can create helps the firm diversify its risk and therefore enhances firm value better than a single product can 4) in some industries, such as the arts, books, most sales come from new products

firms may pursue several strategies during the maturity stage to increase their customer base and/or defend their market share

1) entry into new markets or market segments 2)development of new products

firms measure the success of a new product by 3 interrelated factors:

1) its satisfaction of technical requirements, such as performance 2)customer acceptance 3) its satisfaction of the firm's financial requirements, such as sales and profits

the speed with which products diffuse depends on several product characteristics

1) relative advantage: if a product is perceived to be better than substitutes, then the diffusion will be relatively quick 2)compatibility: since people are accustomed to drinking coffee, it has been relatively easy for Starbucks to acquire customer in the US, the diffusion would have been slower in Japan where tea is the tradition drink 3)observability: when products are easily observed, their benefits or uses are easily communicated to others, thus enhancing the diffusion process (starbucks logo can be seen on cups) 4)complexity and trialability: products that are relatively less complex are also relatively easy to try-these products will generally diffuse more quickly than those that are not so easy to try (a lattee is a lot easier than purchasing a new car with a GPS system)

steps of product development

1st) engineering team develops a product prototype that is based on research findings from the concept testing, as well as their own knowledge --> 2nd) product prototypes are tested through alpha and beta testing

4) Late Majority

34% of the market--the last group of buyers to enter a new product market; when they do the product has achieved its full market potential--by the time the late majority enters the market, sales tend to level off or may be in decline

what percent of all new consumer goods fail

95%

blockbusters

a few extremely successful new products

1e) Competitors' Products

a new product entry by a competitor may trigger a market opportunity for a firm, which can use reverse engineering to understand the competitors' product and then bring an improved version to the market

6) Evaluation of Results

after the product has been launched marketers must undertake a critical postlaunch review to determine whether the product and its launch were a success or failures and what additional resources or changes to the marketing mix are needed, if any

Steps of a product launch

based on the research gathered, the firm confirms its target market(s) and decides how the product will be positioned. Then the firm finalizes the remaining marketing mix variables for the new product, including the marketing budget for the first year.

4a) Premarket Tests

firms conduct premarket tests before they actually bring a product or service to market to determine how many customers will try and then continue to use the product or service according to a small group of potential consumers. One popular proprietary premarket test version: BASES II, conducted by the research firm ACNielsen. sometimes firms simulate a product or service introduction where potential customers view the advertising of various currently available products along with advertising for the new product or service--buy the product or service from a simulated environment like a mock web page or store and respond to a survey after they make their purchases

Development of New Products

firms continually introduce new products with improved features or find new uses for existing products because they need constant innovation and product proliferation to defend market share during intense competition

Entry into new markets or market segments

firms may attemp to enter into new markets that are less saturated--international markets maybe. but even in mature markets firms may be able to find new market segments--emerging new trends or changes in consumer tastes may fragment mature markets, which would open new market opportunities. New market opportunities may also emerge through simple product design changes.

1d) Brainstorming

firms often engage in brainstorming sessions during which a group works together to generate ideas. No idea can be immediately accepted or rejected. At the end of the session members vote. Sometimes when firms have trouble moving through these steps alone they hire an outside firm like Inventables

industry shakeout

firms that have no yet established a stronghold in the market, even in narrow segments, may decide to exit

Decline Stage

firms with products in the decline stage either position themselves for a niche segment of diehard consumers or those with special needs or they completely exit the market

1c) Licensing

for many new scientific and technological products firms buy the rights to use the technology or ideas from other research-intensive firms through a licensing agreement--the firm is banking on a solution that aready exists bu has not been marketed

Questions asked during concept testing

how much they're willing to pay for it, how frequently they would buy it, whether it would satisfy a need that other products currently aren't meeting, how much they would buy, would they buy it for a gift, etc

How firms develop new products--the stages of the new product development process

idea generation --> concept testing --> product development --> market testing --> product launch --> evaluation of results

2) Concept Testing

ideas with potential are developed further into concepts, which refer to brief written descriptions of the product; its technology, working principles, and forms; and what customer needs it would satisfy

manufacturers also use promotion to generate demand for new products with consumers

if manufacturers can create demand for the products with consumers, they will go to retailers asking for it, thus further inducing retailers to carry the products

5) Product Launch

if the market testing returns with positive results, the firm is ready to introduce the product to the entire market. The most critical step in the new product introduction requires tremendous financial resources and extensive coordination of all aspects of the marketing mix

decline

if the product doesn't achieve new life, it goes into decline and eventually exits the market

Shape of the Life Cycle Curve

in theory it is assumed to be a bell shaped curve with regards to sales and profits--in reality each product or service has its own individual shape; some move more rapidly through their product life cycles than others, depending on how different the product or service is from products currently in the market and how valuable it is to the consumer. new products and services that consumers accept very quickly ahve higher consumer adoption rates very early in their product life cycles and move faster across the various stages.

maturity stage

industry sales reach their peak, so firms try to rejuvenate their products by adding new features or repositioning them. if these efforts succeed, the product achieves new life. if not, it goes into decline

4 stages of the product life cycle

introduction --> growth --> maturity --> decline

typical consumers in each stage of the product life cycle

introduction: innovators --> growth: early adopters and early majority --> maturity: late majority --> decline: laggards

Competitors in each stage of the product life cycle

introduction: one or few competitors --> growth: few but increasing --> maturity: high number of competitiors and competitive products --> decline: low number of competitors and products

profits in each of the product life cycle stages

introduction: profits are negative or low --> growth: rapidly rising --> maturity: peak to declining --> decline: declining

Sales in each of the product life cycle stages

introduction: sales are low --> growth: rising --> maturity: peak --> decline: declining

reverse engineering

involves taking apart a product, analyzing it, and creating an improved product that does not infringe on the competitors' patents, if any exist

5c) Product Launch- Price

like the promotion of new products, setting prices is a supply chain-wide decision. manufacturers must decide at what price they woudl like products to sell to consumers. often encourage retailers to sell at a specified price known as the manufacturer's suggested retail price (MSRP). retailers often dont abide by it, manufacturers can withold benefits or refuse to deliver merchandise.. sometimes easier to start with higher MSRP and then over time lower it

introductory price promotions

limited-duration lower-than-normal prices designed to provide retailers with an incentive to try the products

1f) Customer input

listening to the customer is essential for successful idea generation--85% of all new B2B product ideas come from customers. The joint effort between the selling firm and the customer significantly increases the prob that the customer eventually will buy the new product. Such collaboration can also help a company innovate in areas such as packaging

5) Laggards

make up 16% of the market--they like to avoid change and rely on traditional products until they are no longer available--they may never adopt a certain product or service (Ex: when a movie is released to the tv networks they are likely to watch it)

"wrap rage"

many customers experience this and it is a great frustration with packaging that makes it seemingly impossible to get at the actual products

1a) Internal research and development

many firms have their own R&D departments in which scientists work to solve complex problems and develop new ideas. the product development costs for these firms are high and the resulting new product or service has a good chance of being a technological or market breakthrough. R&D investments are continuous investments

Growth Stage

marked by a growing number of product adopters, rapid growth in industry sales, and increases in both the numerb of competitiors and the number of available product versions. the market becomes more segmented and consumer preferences more varied, which increases the potential for new markets or new uses of the product or service innovators start rebuying the product, and early majority consumers enter. firms attempt to reach new customers by changing colors, etc. profits in the growth stage also rise because of the economies of scale associated with manufacturing and marketing costs, especialyl promotion and advertising

1b) R&D Consortia

more and more firms have been joining CONSORTIA: groups of other firms and institutions, including gov't and educational institutions, to explore new ideas or obtain solutions for developing new products. R&D investments come from the group as a whole and the participating firms share the results

"new products"

on a contium from truly "new to the world" like Wifi was a few years go, to "slightly repositioned" such as Capri Sun's bigger stand up pouch

not all pioneers succeed

pioneers pavethe way for followers, who can spend less marketing effort creating demand for the product category and instead focus dierectly on creating demand for their specific brand. because its the first in the market--has less sophisticated design and may be priced relatively higher

5a) Product Launch- Promotion

promotion for new products is required at each link in the supply chain. promotions to retailers to get them to purchase the new products are often a combination of introductory price promotions, special events (fashion shows), and personal selling (in B2B may be the most efficient way).

retailers not only need to make a profit on each sale, but they may also

receive a slotting allowance from the manufacturer which is a fee paid simply to get new products into stores or to gain more or better shelf space for their products

concept testing

refers to the process in which a concept statement is presented to potential buyers or users to obtain their reactions--these reactions enable the developer to estimate the sales value of the product or service concept, possibly make changes to enhance its sales value, and determine whether the idea is worth further development. Because concept testing occurs really early it helps the firm avoid the costs of unneccesary product development

3) Early Majority

represents approx 34% of the population, is crucial because few new products and services can be profitable until this large group buys them--members don't like to take as much risk and therefore tend to wait until the "bugs" are worked out. when early majority customers enter the market, the number of competitors in the marketplace usually also has reached its peak, so these buyers have many different price and quality choices

concept testing steps

starts with exploratory research (in-depth interviews or focus groups) to test the concept, after which it can undertake conclusive research through Internet or mall-intercept surveys. Video clips on the internet might show a virtual prototype and the way it works. Mall intercept survey: and interviewer would provide a description of the concept to the respondent then ask several questions

4b) Test Marketing

test marketing introduces the offering to a limited geographical area (usually a few cities) prior to a national launch. A test marketing effort uses all the elements of the marketing mix: includes promotions like advertising and coupons, the product appears in targeted retail outlets with appropriate pricing. Test marketing costs more and takes longer than premarket tests. Test marketing is a strong predictor of product success b/c the firm can study actual purchase behavior, which is more reliable than a simulated test. first year sales can be estimated after just 16 to 24 weeks in the test market.

Maturity Stage

the adoption of the product by the late majorityadn intense competition for market share among firms. Marketing costs increase and the firms get competitive.increase competition on price and average price falls--> price falls and cost increase so profits falls.almost all potential customer have the product

alpha testing

the firm attempts to determine whether the product will perform according to its design and whether it satisfies the need for which it was intended--alpha tests occur in the firms R&D department

with the knowledge of which types of customers will buy the new product and when

the firm can develop effective promotion, pricing, and other marketing strategies to push acceptance among each customer group

4) Market Testing

the firm has developed its new product or service and tested the prototypes. Now it must test the market for the new product with a trial batch of products. These tests can take 2 forms: 1) premarket testing 2) test marketing

prototype

the first physical form or service description of a new product, still in rough or tentative form, that has the same properties as a new product but is produced through different manufacturing process--sometimes even crafted individually

Introduction Stage

the introduction stage for new, innovative product or service usally starts with a single firm, and innovators are the ones to try the new offering. Sensing the viability and commercialization possibilities of this market-creating new product, other firms soon enter the market with similar or improved products at lower prices. Initial losses to the firm due to high start up costs and low levels of sales revenue as the product begins to take off

5b) Product Launch- Place

the manufacturer coordinates the delivery and storage of the new products with its retailers to assure that it is available for sale when the customer wants it, at the stores the customer is expecting to find it, and in sufficient quantities to meet demand

Innovation

the process by which idas are transformed into new products and services that will help firms grow. Without innovation and its resulting new products and services, firms would have only two choices: continue to market current products to current customers or take the same product to another market with similar customers.

growth stage

the product gains acceptance, demand and sales increase, and competitors emerge in the product category

Strategies based on the product life cycle

the product life cycle concept provides a starting point for managers to think about the strategy they want to implement during each stage of the life cycle of a product--but it is hard because they don't know exactly what shape each product's life cycle will take, so there is no way of knowing precisely what stage a product is in. Ex-manager might think the product is in decline stage and stop promoting it, really it might not be in the decline stage

uses of diffusion of innovation

the theory helps marketers understand the rate at which consumers are likely to adopt a new product or service and it gives them a means to identify potential markets for their new products or services and predict their potential sales, even before they introduce the innovations-- purchasers can be divided into 5 groups according to how soon they buy the product after it has been introduced

5d) Product Launch- Timing

the timing of the launch may be important

2) Early Adopters

they generally dont like to take as much risk as innovators do but instead wait and purchase the product after careful review--tend to enjoy novely and often are regarded as the opinion leaders for particular product categories who spread the word--early adopters: 13.5% of the total market

Advantages of pioneers

they have the advantage of being first movers--as the first to create the market or product cateorgy, they become readily recognizable to consumers and thus establish a commanding and early market share lead

1) Innovators

those buyers who want to be the first on the block to have the new product or service--they enjoy taking risks and are regarded as highly knoledgeable. firms that invest in the latest technology to use in their products or services or tpo make the firm more efficient are consider innovators also--innovators: 2.5% of the total market. they help the product gain market acceptance

lead users

those innovative product users who modify existing products according to their own ideas to suit their specific needs

one successful customer input approach

to analyze lead --studying lead users helps the firm understand general market trends that might be just on the horizon

1) Idea Generation

to generate ideas for new products, firms can use: internal research and development, research and development consortia, licensing technology from research-intensive firms, brainstorming, competitors' products, and customer input

another way to garner input from customers

to sponsor contests--Ex: staples has InventionQuest to encourage the public to create office supply inventions

beta testing

uses potential consumers, who examine the product prototype in a "real use" setting to determine its functionality, performance, potential problems, and other issues specific to its use. the firm might develop several prototype products that it gives to users, then surveys those users to determine whether the product worked as intended and identify any issues that need resolution

BehaviorScan

utilizes consumer panel data collected passively at the point of sale in stores and through home scanning to measure individual household first-time trial and repeat purchases

introduction stage

when innovators start buying the product