New Product Development

Causes of New Product
Failures
• Overestimation of Market Size
• Product Design Problems
• Product Incorrectly Positioned,
Priced or Advertised
• Costs of Product Development
• Competitive Actions

What stops NPD ?
• Lack of ideas
• Social and govt. constraints
• Technological constraints
• High developmental costs
• Capital shortage
• Faster time required from idea to product
• Shorter PLC

Criteria for NPD
• Specific time frame
• Optimum potential market and growth rate
• Min. return on sales and ROIs
• Should lead to mkt leadership position

To create successful new products,
the company must
• understand it’s customers,
markets and competitors
• develop products that deliver
superior value to customers.

New Product Development
Process
• Idea Generation and Screening
• Concept Development and Testing
• Marketing Strategy
• Business Analysis
• Product Development
• Test Marketing
• Commercialization

New Product Development Process
Step 1. Idea Generation
New Product Development Process
Step 1. Idea Generation
Systematic Search for New Product Ideas
Information Exchange interaction – Int./Ext.
sources – Customers, Competitors,
Distributors, Suppliers
Creativity techniques – attribute listing, mind
mapping

• Process to spot good ideas and drop
poor ones
• Criteria
– Market Size
– Product Price
– Development Time & Costs
– Manufacturing Costs
– Rate of Return
New Product Development Process
Step 2. Idea Screening
New Product Development Process
Step 2. Idea Screening

Idea Screening
Overall Probability of success =
Prob. Of technical completion * probability of
commercialization given tech. completion *
probability of economic success given
commercialization

New Product Development Process
Step 3. Concept Development & Testing
New Product Development Process
Step 3. Concept Development & Testing
1. Develop Product Ideas into
Alternative
Product Concepts
1. Develop Product Ideas into
Alternative
Product Concepts
2. Concept Testing - Test the
Product Concepts with Groups
of Target Customers
2. Concept Testing - Test the
Product Concepts with Groups
of Target Customers
3. Choose the Best One3. Choose the Best One

New Product Development Process
Step 4. Marketing Strategy Development
New Product Development Process
Step 4. Marketing Strategy Development
Part Two - Short-Term:
Product’s Planned Price
Distribution
Marketing Budget
Part Two - Short-Term:
Product’s Planned Price
Distribution
Marketing Budget
Part Three - Long-Term:
Sales & Profit Goals
Marketing Mix Strategy
Part Three - Long-Term:
Sales & Profit Goals
Marketing Mix Strategy
Marketing Strategy Statement Formulation
Part One - Overall:
Target Market
Planned Product Positioning
Sales & Profit Goals
Market Share
Part One - Overall:
Target Market
Planned Product Positioning
Sales & Profit Goals
Market Share

New Product Development Process
Step 5. Business Analysis
Step 6. Product Development
New Product Development Process
Step 5. Business Analysis
Step 6. Product Development
Business Analysis
Review of Product Sales, Costs,
and Profits Projections to See if
They Meet Company Objectives
Business Analysis
Review of Product Sales, Costs,
and Profits Projections to See if
They Meet Company Objectives
If Yes, Move to
Product Development
If Yes, Move to
Product Development
If No, Eliminate
Product Concept
If No, Eliminate
Product Concept

New Product Development Process
Step 7. Test Marketing
New Product Development Process
Step 7. Test Marketing
Standard
Test Market
Full marketing campaign
in a small number of
representative cities.
Standard
Test Market
Full marketing campaign
in a small number of
representative cities.
Simulated
Test Market
Test in a simulated
shopping environment
to a sample of
consumers.
Simulated
Test Market
Test in a simulated
shopping environment
to a sample of
consumers.
Controlled
Test Market
A few stores that have
agreed to carry new
products for a fee.
Controlled
Test Market
A few stores that have
agreed to carry new
products for a fee.

Commercialization
• Timing
– First entry
– Parallel entry
– Late Entry
• Geographic strategy – where to ?
• Who are target market - To whom ?
• Introductory mktg strategy – how to ?

Product Life Cycle
Time
Product
Develop-
ment
Introduction
Profits
Sales
Growth Maturity Decline
Losses/
Investments ($)
Sales and
Profits ($)

Introduction Stage of the
PLC
SalesSales
CostsCosts
ProfitsProfits
Marketing ObjectivesMarketing Objectives
ProductProduct
PricePrice
Low salesLow sales
High cost per customerHigh cost per customer
NegativeNegative
Create product awareness
and trial
Create product awareness
and trial
Offer a basic productOffer a basic product
Use cost-plusUse cost-plus
DistributionDistribution Build selective distributionBuild selective distribution
AdvertisingAdvertising Build product awareness among
early adopters and dealers
Build product awareness among
early adopters and dealers

Growth Stage of the PLC
SalesSales
CostsCosts
ProfitsProfits
Marketing ObjectivesMarketing Objectives
ProductProduct
PricePrice
Rapidly rising salesRapidly rising sales
Average cost per customerAverage cost per customer
Rising profitsRising profits
Maximize market shareMaximize market share
Offer product extensions,
service, warranty
Offer product extensions,
service, warranty
Price to penetrate marketPrice to penetrate market
DistributionDistribution Build intensive distributionBuild intensive distribution
AdvertisingAdvertising Build awareness and interest in
the mass market
Build awareness and interest in
the mass market

Maturity Stage of the PLC
SalesSales
CostsCosts
ProfitsProfits
Marketing ObjectivesMarketing Objectives
ProductProduct
PricePrice
Peak salesPeak sales
Low cost per customerLow cost per customer
High profitsHigh profits
Maximize profit while defending
market share
Maximize profit while defending
market share
Diversify brand and modelsDiversify brand and models
Price to match or best
competitors
Price to match or best
competitors
DistributionDistribution Build more intensive distributionBuild more intensive distribution
AdvertisingAdvertising Stress brand differences and
benefits
Stress brand differences and
benefits

Decline Stage of the PLC
SalesSales
CostsCosts
ProfitsProfits
Marketing ObjectivesMarketing Objectives
ProductProduct
PricePrice
Declining salesDeclining sales
Low cost per customerLow cost per customer
Declining profitsDeclining profits
Reduce expenditure and milk the
brand
Reduce expenditure and milk the
brand
Phase out weak itemsPhase out weak items
Cut priceCut price
DistributionDistribution Go selective: phase out
unprofitable outlets
Go selective: phase out
unprofitable outlets
AdvertisingAdvertising Reduce to level needed to retain
hard-core loyal customers
Reduce to level needed to retain
hard-core loyal customers

Stages in the Product Life Cycle
Introduction Growth Maturity Decline
The time at each stage varies
greatly
DVD
Mini-disc
Electric cars
VR*
*= virtual reality
Digital
cameras

Stages in the Product Life Cycle
Introduction Growth Maturity Decline
Introduction
The seller tries to stimulate demand
Promotion campaigns to get increase public awareness
Explain how the product is used,
• Features Advantages Benefits
You will lose money, but you expect to make profits in the
future

Stages in the Product Life Cycle
Introduction Growth Maturity Decline
Introduction
•Sales are low, and profits are below the line because your
costs are greater than the amount of money you make
•you have “negative” profit
•Need to spend a lot of money on promotion

Stages in the Product Life Cycle
Introduction Growth Maturity Decline
Growth
A lot is sold - The seller tries to sell as much as possible
Other competitor companies watch, and decide about
joining in with a competitor product
“success breeds imitation” (Text)
Growth will continue until too many competitors in the
market - and the market is saturated

Stages in the Product Life Cycle
Introduction Growth Maturity Decline
Growth
•At the end of the growth stage, profits start to decline
when competition means you have to spend more money
on promotion to keep sales going.
•Spending money on promotion cuts into your profit

Stages in the Product Life Cycle
Introduction Growth Maturity Decline
Maturity
Many competitors have joined - the market is saturated
The only way to sell is to begin to lower the price - and
profits decrease
It is difficult to tell the different between products since
most have the same F.A.B. - Features, Advantages &
Benefits
Competition can get “Nasty” and commercials are intense

Stages in the Product Life Cycle
Introduction Growth Maturity Decline
Maturity
“Persuasive Promotion” becomes more important during
this stage
That is to say, you have commercials almost begging the
customer to still buy your product because you still make it
just as good.

Stages in the Product Life Cycle
Introduction Growth Maturity Decline
Decline
Newer products are now more attractive - even a low low
price does not make consumers want to buy.
Profit margin declines - and so the only way to make
money is to sell a high volume

Stages in the Product Life Cycle
Introduction Growth Maturity Decline
Decline
To increase volume you try to
1. Increase the number of customers - get new customers
2. Increase the amount each customer uses
Extending the
Product Life
Cycle

1. Increase frequency of use
by present customers
2. Add new users
3. Find new uses
4. Change product quality or
packaging
Extending the Product Life Cycle
Market
Modification
Product
Modification
Purpose: to sell more product and cover original investment

Extending the product Cycle
• to prevent the product going intoto prevent the product going into
decline you modify the marketdecline you modify the market
MARKET MODIFICATIONMARKET MODIFICATION
• you look for new consumers by
changing the product so it has new
users - and then new customers( SoSo
Soft , vaseline)Soft , vaseline)

Extending the product Cycle
• MARKET MODIFICATIONMARKET MODIFICATION
examples
Mortein
Ease –Bang for cleaning ceramics
Lemons for hair colouring
Different usage – dettol drops in water
gym bag, sports’ bag etc.

• to prevent the product going intoto prevent the product going into
decline you modify the productdecline you modify the product
PRODUCT MODIFICATIONPRODUCT MODIFICATION
• adding new features, variations, model
varieties will change the consumer
reaction - create more demand
• therefore you attract more users
Extending the product Cycle

• PRODUCT MODIFICATIONPRODUCT MODIFICATION
• examples
• soaps - colours, features
• CD players
• chip flavours - many kinds
• flavoured tongue depressors
• couples seats at movie theatre
Extending the product Cycle

• PRODUCT MODIFICATIONPRODUCT MODIFICATION
• examples continued
• digital sound at theatres
Extending the product Cycle

Overlap of Life Cycle for Products A and B
WINDOWS 95
1991 1995 1996 1997
WINDOWS 3.1

Length of Cycle Stages
• Products move through the cycle at different
speeds
• sometimes introduction is very long, or very
short, depending on how easy it is for the
public to understand the F.A.B.
• Not all products follow the same pattern

Life Cycle Length
• Some products move very fast because
they are new and have no competition
so the intro stage is short, and they go
direct to growth stage.

Life Cycle Length
Because of
• technology and
• globalization
• the introduction stage is getting very
short
• some cycles more quickly to maturity,
then have many product modifications
so the decline stage drags on and on

Speed of the PLC
• Since the Intro Stage is getting shorter,
and sometimes the Growth Stage
doesn’t last too long (because
competitors move in) companies must
continually come up with new products
• You can tell when they are in the growth
stage because this is when they
introduce new model variations, and
some improvements to the product

Alternative Product Life Cycles
Tamagachi
Pocket pagers
Failures that do not go
through the 4 steps

• Fashions - currently popular
products that tend to follow
recurring life cycles
eg. Wide lapels, 3 button suits, high
heels vs. wedge heel
• “the currently acceptable style”

• Fads - Fashions with abbreviated life
cycles - only popular with certain
groups
• - music
• - fast food
• - children’s toys
• - “adult toys”

Eg. Watches w red
straps

Product Life Cycle Considerations in
Marketing Strategy
• Understand that profits have a predictable
pattern
• in the early stages, focus is on product
information
• in the later stages, focus is on brand
promotion
• use market segmentation in maturity stage to
maintain strong core customer basis

Stages in the Product Life Cycle
Introduction Growth Maturity Decline
The time at each stage varies
greatly
Mini-disc
Electric cars
*= virtual reality
Digital
cameras
Monopoly Monopolistic Oligopoly Pure Competition