Chapter Eight
New-Product Development and
Product Life-Cycle Strategies
Roadmap: Previewing the Concepts
1. Explain how companies find and
develop new-product ideas.
2. List and define the steps in the new-
product development process.
3. Describe the stages of the product
life cycle.
4. Describe how marketing strategies
change during the product’s life
cycle.
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Case Study
Apple Computer – Innovation at Work
Firm History Firm Recovery
Steve Jobs’s creativity led Steve Jobs returns in 1997
to innovation in user and revitalizes Apple by
friendliness of computers. first launching the iMac.
LazerWriters and the The Mac OS X next breaks
Macintosh established ground and acts as a
Apple firmly in desktop launching pad for a new
publishing market. generation of computers
Status as market share and software products.
leader and innovator was iPod and iTunes change
lost in the late 1980s after the face of music and are
Jobs left the company. the hit of the decade.
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New-Product Development
Strategy
Strategies for obtaining new-product
ideas:
– Acquisition of companies, patents,
licenses
– New product development, product
improvements and modifications
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New-Product Failures
Only 10% of new consumer products are still
on the market and profitable after 3 years.
Industrial products failure rate as high as 30%.
Why do products fail?
– Overestimation of market size
– Design problems
– Incorrectly positioned, priced, or advertised
– Pushed despite poor marketing research findings
– Development costs
– Competition
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Major Stages in New-Product
Development
Idea generation
Idea screening
Concept development and testing
Marketing strategy development
Business analysis
Product development
Test marketing
Commercialization
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Idea Generation
Internal sources:
– Company employees at all levels
External sources:
– Customers
– Competitors
– Distributors
– Suppliers
– Outsourcing
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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.
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Concept Development and
Testing
Product Idea:
– idea for a possible product that the
company can see itself offering.
Product Concept:
– detailed version of the idea stated in
meaningful consumer terms.
Product Image:
– the way consumers perceive an actual or
potential product.
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Marketing Strategy
Development
Part One:
– Describes the target market, planned
product positions, sales, market share,
and profit goals.
Part Two:
– Outlines the product’s planned price,
distribution, and marketing budget.
Part Three:
– Describes the long-run sales and profit
goals, marketing mix strategy.
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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.
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Product Development
Develop concept into physical product.
Calls for large jump in investment.
Prototypes are made.
Prototype must have correct physical
features and convey psychological
characteristics.
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Test Marketing
Product and program introduced in
more realistic market setting.
Not needed for all products.
Can be expensive and time consuming,
but better than making major marketing
mistake.
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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.
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Organizing New-Product
Development
Sequential Approach:
– Each stage completed before moving to
next phase of the project.
Simultaneous Approach:
– Cross-functional teams work through
overlapping steps to save time and
increase effectiveness.
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The Product Life Cycle
Product development
Introduction
Growth
Maturity
Decline
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Product Life-Cycle
Applications
Product class has the longest life cycle (e.g., gas-
powered cars)
Product form tends to have the standard PLC shape
(e.g., dial telephone)
Brand can change quickly because of changing
competitive attacks and responses (e.g., Tide, Cheer)
Style is a basic and distinctive mode of expression
(e.g., formal clothing, Danish modern furniture)
Fashion is a popular style in a given field (e.g.,
business casual)
Fad is a fashion that enters quickly, is adopted
quickly, and declines fast (e.g., pet rocks)
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Practical Problems of PLC
Hard to identify which stage of the PLC the
product is in.
Hard to pinpoint when the product moves to
the next stage.
Hard to identify factors that affect product’s
movement through stages.
Hard to forecast sales level, length of each
stage, and shape of PLC.
Strategy is both a cause and result of the
PLC.
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Introduction Stage of PLC
Sales: low
Costs: high cost per customer
Profits: negative
Marketing Objective: create product
awareness and trial
Product: offer a basic product
Price: use cost-plus formula
Distribution: build selective distribution
Promotion: heavy to entice product trial
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Growth Stage of PLC
Sales: rapidly rising
Costs: average cost per customer
Profits: rising
Marketing Objective: maximize market share
Product: offer extension, service, warranty
Price: penetration strategy
Distribution: build intensive distribution
Promotion: reduce to take advantage of
demand
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Maturity Stage of PLC
Sales: peak
Costs: low cost per customer
Profits: high
Marketing Objective: maximize profits while
defending market share
Product: diversify brand and models
Price: match or best competitors
Distribution: build more intensive
distribution
Promotion: increase to encourage brand
switching
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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.
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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.
– Expand usefulness, safety, convenience.
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Maturity Stage of the PLC
Modifying the Marketing Mix:
– Improving sales by changing one or more
marketing mix elements.
How?
– Cut prices.
– Launch a better ad campaign.
– Move into larger market channels.
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Decline Stage of PLC
Sales: declining
Costs: low cost per customer
Profits: declining
Marketing Objective: reduce expenditures
and milk the brand
Product: phase out weak items
Price: cut price
Distribution: selective--phase out
unprofitable outlets
Promotion: reduce to minimal level
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Rest Stop: Reviewing the Concepts
1. Explain how companies find and
develop new-product ideas.
2. List and define the steps in the new-
product development process.
3. Describe the stages of the product
life cycle.
4. Describe how marketing strategies
change during the product’s life
cycle.
Copyright 2007, Prentice Hall, Inc. 8-26
