Developing New Products

& Managing the Product Life-

Cycle

by
K Vinod Kumar
Asst. Prof, EECE
 First Stop
Google: Innovation Excellence
Google’s Success How They Did It
• Highly Innovative: Google • Light Speed Innovation: New
topped Fast Company’s list of product planning looks ahead
the world’s most innovative only four to five months; firm
firms, and regularly ranks strives to take the fastest path to
within top 3 on other lists. new product development.
• Market Share: In a • Idea Generation: Ideas come
competitive market, Google’s from any source or employee.
core business (online search) Engineers spend 20% of time
market share of 63% is twice developing their own new ideas.
the combined share of its two • New Product Testing: New
closest competitors. applications are launched on
• Ad Revenues: Google Google Labs; users test and
captures 70% of all U.S. provide feedback. Product
search-related ad revenues. development is iterative.

Copyright 2011, Pearson Education Inc. Publishing as Prentice-Hall 8-2

 New-Product Development Strategy

• New product development:

 The development of original products, product
improvements, product modifications, and
new brands through the firm’s own product
development efforts.
• New product innovation is very expensive
and very risky.
 $20 - $30 billion is lost on failed food products
annually.

Copyright 2011, Pearson Education Inc. Publishing as Prentice-Hall 8-3

 New-Product Failures
• Why do new products fail?
 Overestimation of market size.
 Product design problems.
 Incorrectly positioned, priced, or
advertised.
 Pushed by high level executives despite
poor marketing research findings.
 Excessive development costs.
 Competitive reaction.

Copyright 2011, Pearson Education Inc. Publishing as Prentice-Hall 8-4

New-Product Development Process
• Idea generation
• Idea screening
• Concept development and testing
• Marketing strategy development
• Business analysis
• Product development
• Test marketing
• Commercialization
Copyright 2011, Pearson Education Inc. Publishing as Prentice-Hall 8-5
New-Product Development Process
• Idea generation:
 Internal sources:
• Company employees at all levels.
 External sources:
• Customers
• Competitors
• Distributors
• Suppliers
• Outsourcing (design firms, product
consultancies, online collaborative
communities)
Copyright 2011, Pearson Education Inc. Publishing as Prentice-Hall 8-6
New-Product Development Process
• Idea screening:
 Process used to spot good ideas and
drop poor ones.
 Executives provide a description of the
product along with estimates of market
size, product price, development time
and costs, manufacturing costs, and
rate of return.
 Evaluated against a set of company
criteria for new products.
Copyright 2011, Pearson Education Inc. Publishing as Prentice-Hall 8-7
New-Product Development Process
• Concept development and testing:
 Product idea:
• Idea for a possible product that the company can
see itself offering to the market.
 Product concept:
• Detailed version of the new-product idea stated in
meaningful consumer terms.
 Concept testing:
• Testing new-product concepts with groups of
target consumers to find out if the concepts have
strong consumer appeal.

Copyright 2011, Pearson Education Inc. Publishing as Prentice-Hall 8-8

New-Product Development Process

• Marketing strategy development:

 Part One:
• Describes the target market, planned value
proposition, sales, market share, and profit goals.
 Part Two:
• Outlines the product’s planned price, distribution,
and marketing budget.
 Part Three:
• Describes the planned long-run sales and profit
goals, marketing mix strategy.

Copyright 2011, Pearson Education Inc. Publishing as Prentice-Hall 8-9

New-Product Development Process
• Business analysis:
 Involves a review of the sales, costs,
and profit projections to assess fit with
company objectives.
 If results are positive, project moves to
the product development phase.

Copyright 2011, Pearson Education Inc. Publishing as Prentice-Hall 8 - 10

New-Product Development Process
• Product development:
 Develops concept into a physical product.
 Calls for a large jump in investment.
 Prototypes are made.
 Prototypes must have correct physical
features and convey psychological
characteristics.
 Prototypes are subjected to physical tests.

Copyright 2011, Pearson Education Inc. Publishing as Prentice-Hall 8 - 11

New-Product Development Process
• Testing marketing:
 Product and marketing program are
introduced in a more realistic market
setting.
 Not needed for all products.
 Can be expensive and time consuming,
but better than making a major
marketing mistake.

Copyright 2011, Pearson Education Inc. Publishing as Prentice-Hall 8 - 12

New-Product Development Process
• Commercialization:
 Must decide on timing (i.e., when to
introduce the product).
 Must decide on where to introduce the
product (e.g., single location, state,
region, nationally, internationally).
 Must develop a market rollout plan.

Copyright 2011, Pearson Education Inc. Publishing as Prentice-Hall 8 - 13

Managing New-Product Development
• Customer centered new-product development:
 Focuses on finding new ways to solve customer
problems and create more customer-satisfying
experiences.
• Team-based new-product development:
 Various company departments work closely together,
overlapping the steps in the product development
process to save time and increase effectiveness.
• Systematic new-product development:
 Innovation management systems collect, review,
evaluate, and manage new-product ideas.

Copyright 2011, Pearson Education Inc. Publishing as Prentice-Hall 8 - 14

 The Product Life Cycle
• Product life cycle: The course of a
product’s sales and profits in its
lifetime. It involves five distinct
stages:
 Product development
 Introduction
 Growth
 Maturity
 Decline
Copyright 2011, Pearson Education Inc. Publishing as Prentice-Hall 8 - 15
 Applying the Product Life Cycle
• Product class has the longest life cycle.
• Product form tends to have the standard PLC
shape.
• Brand can change quickly because of changing
competitive attacks and responses.
• Style is a basic and distinctive mode of
expression.
• Fashion is a popular style in a given field.
• Fads result in a temporary period of unusually
high sales driven by consumer enthusiasm.
Fads decline quickly.

Copyright 2011, Pearson Education Inc. Publishing as Prentice-Hall 8 - 16

 Practical Problems of PLC

• When used carefully, the PLC may help

develop good marketing strategies.
• However, in practice, it is difficult to:
 Forecast sales level, length of each stage,
and shape of PLC.
 Develop marketing strategy because strategy
is both a cause and result of the PLC.
• Marketers should avoid blindly pushing
products to next stage and instead seek
ways to rescue products and growth sales.
Copyright 2011, Pearson Education Inc. Publishing as Prentice-Hall 8 - 17
 Introduction Stage of PLC

• Sales: Low
• Costs: High cost per customer
• Profits: Negative or low
• Customers: Innovators
• Competitors: Few
• Marketing objective: Create product
awareness and trial.
Copyright 2011, Pearson Education Inc. Publishing as Prentice-Hall 8 - 18
 Introduction Stage of PLC

• Marketing strategies:
 Product: Offer a basic product.
 Price: Use cost-plus pricing.
 Distribution: Build selective distribution.
 Advertising: Build product awareness
among early adopters and dealers.
 Promotion: Use heavy promotion to
entice product trial.

Copyright 2011, Pearson Education Inc. Publishing as Prentice-Hall 8 - 19

 Growth Stage of PLC
• Sales: Rapidly rising
• Costs: Average cost per customer
• Profits: Rising profits
• Customers: Early adopters
• Competitors: Growing number
• Marketing objective: Maximize market
share.
Copyright 2011, Pearson Education Inc. Publishing as Prentice-Hall 8 - 20
 Growth Stage of PLC
• Strategies:
 Product: Offer product extensions, service,
warranty.
 Price: Price to penetrate the market.
 Distribution: Build intensive distribution.
 Advertising: Build awareness and interest in
the mass market.
 Promotion: Reduce to take advantage of
heavy consumer demand.

Copyright 2011, Pearson Education Inc. Publishing as Prentice-Hall 8 - 21

 Maturity Stage of PLC
• Sales: Peak sales
• Costs: Low cost per customer
• Profits: High profits
• Customers: Middle majority
• Competitors: Stable number beginning to
decline

• Marketing objective: Maximize profits while

defending market share.
Copyright 2011, Pearson Education Inc. Publishing as Prentice-Hall 8 - 22
 Maturity Stage of PLC
• Strategies:
 Product: Diversify brand and models.
 Price: Match our best competitors.
 Distribution: Build more intensive
distribution.
 Advertising: Stress brand differences
and benefits.
 Promotion: Increase to encourage brand
switching.
Copyright 2011, Pearson Education Inc. Publishing as Prentice-Hall 8 - 23
 Maturity Stage of the PLC

• Strategies used to manage the PLC

during maturity include:
 Modifying the market
 Modifying the product
 Modifying the marketing mix

Copyright 2011, Pearson Education Inc. Publishing as Prentice-Hall 8 - 24

 Maturity Stage of the PLC

• Modifying the market:

 Increase the consumption of the current
product.
• How?
 Look for new users and market segments.
 Reposition the brand to appeal to larger or
faster-growing segment.
 Look for ways to increase usage among
present customers.

Copyright 2011, Pearson Education Inc. Publishing as Prentice-Hall 8 - 25

 Maturity Stage of the PLC

• Modifying the product:

 Changing characteristics such as
quality, features, or style to attract new
users and to inspire more usage.
• How?
 Improve durability, reliability, speed,
taste.
 Improve styling and attractiveness.
 Add new features.

Copyright 2011, Pearson Education Inc. Publishing as Prentice-Hall 8 - 26

 Maturity Stage of the PLC

• Modifying the marketing mix:

 Improving sales by changing one or
more marketing mix elements.
• How?
 Cutprices.
 Launch a better ad campaign.
 Move into new market channels.

Copyright 2011, Pearson Education Inc. Publishing as Prentice-Hall 8 - 27

 Decline Stage of PLC
• Sales: Declining sales
• Costs: Low cost per customer
• Profits: Declining profits
• Customers: Laggards
• Competition: Declining number
• Marketing objective: Reduce expenditures
and milk the brand.

Copyright 2011, Pearson Education Inc. Publishing as Prentice-Hall 8 - 28

 Decline Stage of PLC
• Strategies:
 Product: Phase out weak items.
 Price: Cut price.
 Distribution: Go selective—phase out
unprofitable outlets.
 Advertising: Reduce to level needed to
retain hardcore loyals.
 Promotion: Reduce to minimal level.

Copyright 2011, Pearson Education Inc. Publishing as Prentice-Hall 8 - 29

 Additional Considerations

• Product decisions and social

responsibility:
 Consider public policy issues,
regulations regarding acquiring or
dropping products, patent protection,
product quality and safety, and
warranties.

Copyright 2011, Pearson Education Inc. Publishing as Prentice-Hall 8 - 30

 Additional Considerations
• International product and service
marketing:
 Must determine which products and
services to introduce in which countries,
and how much to standardize or adapt
the offering.
 Packaging presents new challenges for
international marketers.
 Many service businesses are global.

Copyright 2011, Pearson Education Inc. Publishing as Prentice-Hall 8 - 31

• Product life-cycle Definition:
The product life-cycle (PLC) refers to the different
stages a product goes through from introduction to
withdrawal.
• The product life-cycle refers to a likely pathway a
product may take. It has implications for the
marketing strategy of a firm as it seeks to
introduce, grow and maintain market share.

Copyright 2011, Pearson Education Inc. Publishing as Prentice-Hall 8 - 32

• Product Life Cycle Stages
There are five distinct product life cycle stages:

• Product Development: When the company finds and

develops a new product idea, product development
starts. During product development, sales are zero, and
the company’s investment costs increase.
• Introduction: Sales slowly grow as the product is
introduced in the market. Profits are still non-existent,
because the heavy expenses of the product introduction
overweigh sales.

Copyright 2011, Pearson Education Inc. Publishing as Prentice-Hall 8 - 33

• Growth: The growth stage is a period of rapid
market acceptance and increasing profits.
• Maturity: In the maturity stage, sales growth
slows down because the product has achieved
acceptance by most potential buyers. Profits
level off or decline because marketing outlays
need to be increased to defend the product
against competition.
• Decline: Finally, sales fall off and profits drop.

Copyright 2011, Pearson Education Inc. Publishing as Prentice-Hall 8 - 34

• Example of the Product Life Cycle
• Introduction – Self-driving cars. Self-driving cars are still at the
testing stage, but firms hope to be able to sell to early adopters
relatively soon.
• Growth – Electric cars. For example, the Tesla Model S is in its
growth phase. Electric cars still need to convince people that it will
work and be practical. As there are more electric charging points
and more people adopt, it becomes easier to sell to those who are
more sceptical of new technology like electric cars.
• Maturity – Maruthi Suzaki. The Maruthi Suzaki is a well-
established car. It has a good brand reputation and has reached its
peak level of market penetration. It would be difficult to gain a
significantly greater market share. The product life cycle of the
Maruthi Suzaki has been extended by constant upgrades and
redesigns to keep the car on top of the market.
• Decline – Diesel cars. Since governments have expressed concern
at the level of pollution from diesel cars. Some cities have
threatened to ban diesel cars within a few years. Sales have fallen
considerably and the market for diesel cars may be in terminal
decline
Copyright 2011, Pearson Education Inc. Publishing as Prentice-Hall 8 - 35
The usefulness of Product Life Cycle
In the different phases of the product life cycle firms, will need to
concentrate on different aspects of marketing and sales
Introduction phase
• Raising product awareness through advertising / word of mouth.
• Offering the product at discount – penetration pricing to tempt
customers to try the product.
• Target early adopters and influential market leaders. For example,
firms may offer free product reviews to influential bloggers in the
market.
• Firms need to find willing suppliers who are willing to stock.
• This phase will not be profitable because costs are high, but
revenue relatively low.

Copyright 2011, Pearson Education Inc. Publishing as Prentice-Hall 8 - 36

Growth
• Firms need to capitalise on growth to extend product sales from
small retailers to big supermarkets.
• Firms can change marketing from niche areas to a more mass
market.
• The firm can adapt to consumer feedback and offer new
features/better consumer support.
Maturity
• With peak market penetration, the firm may seek to increase prices
to increase profitability. However, if the market is very competitive
the firm may feel the need to keep prices low to defend market
share.
• The firm may concentrate on seeking to improve the product to gain
market differentiation and extend the period of maturity.

Copyright 2011, Pearson Education Inc. Publishing as Prentice-Hall 8 - 37

Decline
• In the decline phase, the firm may feel it is best to let the product go
– e.g. diesel cars cannot solve issues of pollution and damage to its
brand reputation. However, with an iPhone, Apple let old models go,
to be replaced by the next model. Decline and discontinuing the
product can be a way to force customers to buy an upgrade – next
time their contract expires.
• Managed decline by targeting on a niche market. For example, vinyl
records have declined, but now they have become a very profitable
niche for record labels. Total sale revenues from vinyl are close to
sale revenues from digital downloads because record companies
can charge a premium price for the good.

Copyright 2011, Pearson Education Inc. Publishing as Prentice-Hall 8 - 38

Different examples of product life cycles
• Stable products – Some products have defied time to maintain the period
of maturity for a considerable time. For example, products like Marmite,
Kelloggs Corn Flakes and Evian mineral water seem fairly stable and
immune to technological innovation.
• Maturity from the start. Some products are launched to great fanfare and
product awareness. For example, the iPhone X is related to previous
iPhones so there is no need for an introduction phase. Other products like
the Xbox are eagerly awaited. Rather than using penetration pricing, this
products can practise price-skimming – where the firm takes advantage of
inelastic demand.
• Failed products. Many products never really escape the introduction
phase. For example, failed product launches such as the mini-disc,
Betamax.
• Reinvented products. Some products have successfully reinvented
themselves and proved to be more successful after a period of decline. For
example, in the mid 1990s, Apple computers appeared to be in its decline
phase, but in the late 90s and early 2000s, it successfully re-pioneered
itself. You could say that the Apple MacBook is a different product to
previous Apple computers. It depends on how you define a product. Vinyl
records are enjoying a revival.
 Thank You

Copyright 2011, Pearson Education Inc. Publishing as Prentice-Hall 8 - 40