Marketing Ch. 9- Product Management and New Product Development

Issues in Product Life Cycle Length

- Product life cycles are getting shorter. (More innovation yields more new products available to replace older ones.) -The early bird usually makes the profits, because being first in the market can give a firm a chance to gain a critical foothold in market share. -The nature of the product—whether it is a fashion or fad product—can also affect the length of the life cycle. Fashion: the currently accepted or popular style. Fad: an idea that is fashionable only to certain groups who are enthusiastic about it. -The product life cycles for fashions and fads tend to be happy, but short, in that they may sell extremely well for a limited period of time.

Two most useful approaches for new product development?

-Brainstorming: The process of getting a group to think of unlimited ways to vary a product or solve a problem -Focus Group: The objective of focus group interviews is to stimulate insightful comments through group interaction.

What ethical dilemmas exist in new product planning?

-Criticisms against companies for holding back new product innovations. - "Planned obsolescence"—releasing products the company will soon replace. - Failure to supply replacement parts throughout the useful life of a product. - Continuous release of minor product variations in markets that are saturated. - Marketers need to be sensitive to the possible consumer backlash caused by these ethical dilemmas.

Introductory Stage

-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

Growth Stage

-Increasing rate of sales -Entrance of competitors -Market consolidation -Initial healthy profits -Aggressive advertising of the differences between brands -Wider distribution

Step 5: Commercialization

-Introduction to the full target market -Commercializing a new product is expensive and success usually requires cooperation from the whole organization: -Manufacturing or service facilities are established. -Goods are produced in order to fill channels of distribution. -Service personnel must be hired and trained. -Introductory promotion is executed. -"roll out" new products gradually in certain geographic areas until the whole market is covered- gives the staff a chance to correct marketing mix mistakes before the whole area is covered

Decline Stage

-Long-run drop in sales -Large inventories of -unsold items -Elimination of all nonessential marketing expenses -"Organized abandonment"- based upon a periodic audit of all goods and services that a firm markets.

Why New Products Fail

-No discernible benefits -Poor match between features and customer desires -Overestimation of market size -Incorrect positioning -Price too high or too low -Inadequate distribution -Poor promotion -Inferior product

Step 2: Screening

-SWOT analysis -for with objectives -marketers should screen out opportunities that fail to meet: -Consumer Product Safety Act: encourages safety in product design and better quality control. - Product liability: the company has the legal obligation to pay damages to persons injured by defective or unsafe products. -Return on investment (ROI) is a crucial screening criteria, helps prioritize product ideas

Maturity Stage

-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

A concept test is...

-a test to evaluate a new-product idea, usually before any prototype has been created. Often successful for line extensions. -getting reactions from customers about how well a new product idea fits their needs.

Who is involved in the new product development?

-company-wide effort - Top-level support is vital - Firms must foster a culture of innovation - Someone must be put in charge - Cross-functional team are important (production, finance, marketing) - Timeliness- a product that lasts with changing customer needs - Listen to customers to find a clear understanding of customers' needs - Conducted efficiently and recognize trade-offs btw costs and stoma benefits

Step 3: Idea Evaluation

-concept testing -reaction from customers -rough estimates of costs, sales, and profits

Considerations in the business analysis stage?

-demand -cost -sales -profitability

Product life cycles move fast when:

-greater the comparative advantage that a product has over others that are already on the market, the more quickly its sales will grow. - sales grow faster if the product is easy to use and easy to communicate -If the consumers can try the product with little risk -if the product is compatible with the value and experiences of the target consumers

Planning for different stages in the product life cycle

-manager must allocate sufficient money to cover the costs of introducing new products -must consider all of the 4 Ps -anticipate speed of the movement (if may not be a good idea to build a company owned distribution system for a fad) - may need help from competitors in order to speed the adoption of a really new product concept -Be flexible in the early stages

How to Have a New-Product be Successful

-managers must assure an effective transition of a new product to regular operations -they must develop a marketing plan -analysis to ensure it delivers a superior customer value -products need to be based on effective design

Stages of the Life Cycle of a New Product

-market introduction -market growth -market maturity -sales decline

Commercialization Tasks

-ordering materials -production -inventory buildup -distribution shipments -sales force training -trade announcements -customer advertising -most important factor for success of a new-product introduction is- a good match between the product and market needs

Step 4: Development

-product idea is translated into a tangible prototype in the case of a physical good -for a service the organization works out the details of the training, equipment, and staff required to deliver the service -test marketing: dry run of a new product using the marketing mix -ROI estimate

BMW Video

-started as manufacturer of planes, how they manage product life cycles, keep lines competitive and new -7 yr product life cycle, active in every step -Meaningful changes in product -Launch product and keep coming back to it, optimization leads to stability -Strong branding -BMW product placement in movies like "the star" - BMWfilms.com -BMW on the web, customizing

Phasing Out Dying Products

-this decision must weight profitability against product line considerations and customer support obligations -If it is determined that the product will not contribute to the achievement of the organization's objectives in the future, a phase out strategy is necessary -If marketers "pull the plug" on a product too quickly, they may incur losses because of distribution and promotion expenditures that have already been made to cover the immediate future. -Sales Decline Can be profitable: If marketing costs are reduced in accordance with the phase-out strategy, loyal customers may still continue to purchase the product, and this residual demand may generate profits.

New Product Development Process

1. Idea generation 2. Screening 3. Idea Evaluation 4. Development 5. Commercialization The process tries to kill new products, economically, by progressively weeding out products that have a low likelihood of success before they are introduced to the entire target market.

Product Life Cycle (PLC)

A concept that provides a way to trace the stages of a product's acceptance, from its introduction (birth) to its decline (death).

What is the FTC Rule?

Federal Trade Commission (FTC): federal government agency that polices antimonopoly law -The FTC says a product is "new" only six months. -In the FTC's view, a new product must be either entirely new, or changed in a "functionally significant or substantial respect."

New-Product Success Factors

Firms that are successful have these characteristics: -A history of listening carefully to customers -An obsession with producing the best product possible -A vision of what the market will be like in the future -Strong leadership -A commitment to new-product development -A project-based team approach to new-product development -Getting every aspect of the product development process right

Step 1: Idea Generation

Ideas come from: -Customers and users -marketing research -international markets -company employees

Some Life Cycle Patterns

The marketing mix usually changes throughout the product life cycle, in response to changes in customer needs or attitudes, repositioning of the product, or changes in the competitive structure of the industry. Total industry sales start out very low in market introduction, increase to their peak in market maturity, and then decline. Profits can also change during the life cycle, but not in tandem with industry sales. Industry profits decline while industry sales are still rising.

What is a new product?

anything that provides the company with another way to meet customer needs

Screening is...

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.