PRINCIPLES OF

MARKETING
Chapter
Nine
New Product Development and Product Life-Cycle
Strategies

© Pearson Education MBA Trần Tấn Hoan

Learning
Objectives
After studying this chapter, you should be able to:

1. Explain how companies find and develop new-product ideas

2. List and define the steps in the new-product development process and
the major considerations in managing this process

3. Describe the stages of the product life cycle

4. Describe how marketing strategies change during the product’s life

cycle

5. Discuss two additional product and services issues: socially responsible

product decisions and international product and services marketing

© Pearson Education South Asia Pte Ltd 2013

Chapter Outline
I New-Product Development Strategy
II New-Product Development Process
III Managing New-Product Development

IV Product Life-Cycle Strategies

V Additional Product and Service Considerations

New-Product Development Strategy

A firm can obtain new products through:

• Acquisition refers to the buying of a whole company, a patent, or a license

to produce someone else’s product.

• New product development refers to original products, product

improvements, product modifications, and new brands developed from the
firm’s own research and development.
New-Product Development Strategy
Reasons for new product failure
• Overestimation of market size
• Poor design
• Incorrect positioning
• Wrong timing
• Priced too high
• Ineffective promotion
• Management influence
• High development costs
• Competition
New-Product Development Process
New-Product Development Process
1. Idea Generation

• New idea generation is the systematic search for

new product ideas.

• Sources of new-product ideas

 Internal sources refer to the company’s own
formal research and development, management
and staff, and intrapreneurial programs.
 External sources refer to sources outside the
company such as customers, competitors,
distributors, suppliers, and outside design firms.
New-Product Development Process

2. Idea Screening

• Idea screening refers to

reviewing new-product ideas in
order to drop poor ones as soon
as possible.
New-Product Development Process
3. Concept Development and Testing

• Product idea is an idea for a possible

product that the company can see itself
offering to the market.

• Product concept is a detailed version of

the idea stated in meaningful consumer
terms.

• Product image is the way consumers

perceive an actual or potential product.

• Concept testing refers to new-product

New-Product Development Process

4. Marketing Strategy Development

Marketing strategy development refers to

the initial marketing strategy for introducing the
product to the market.
• Marketing strategy statement

• Business analysis

• Product development

• Test marketing

• Commercialization
New-Product Development Process
4. Marketing Strategy Statement

Part 1:
• Description of the target market

• Product positioning, sales, market share, and profit

goals

Part 2:
• Price distribution and budget

Part 3:
• Long-term sales, profit goals, and marketing mix
strategy
New-Product Development Process
5. Business Analysis

Business analysis involves a review of the sales,

costs, and profit projections to find out whether
they satisfy the company’s objectives.

6. Product Development

Product development involves the creation and

testing of one or more physical versions by the
R&D or engineering departments.
• Requires an increase in investment
New-Product Development Process

7. Test Marketing
• Test marketing is the stage at which
the product and marketing program
are introduced into more realistic
marketing settings.

• Provides the marketer with experience

in testing the product and entire
marketing program before full
introduction.
New-Product Development Process
7. Test Marketing
• When firms test market
 New product with large investment

 Uncertainty about product or marketing program

• When firms may not test market

 Simple line extension

 Copy of competitor product

 Low costs

 Management confidence
New-Product Development Process
7. Test Marketing

Approaches to test marketing

I. Standard test markets
II. Controlled test markets
III. Simulated test markets
New-Product Development Process
7. Test Marketing
I. Standard test markets Challenges of standard test markets
• Small representative markets where the • Cost
firm conducts a full marketing • Time
campaign • Competitors can monitor the test as

• Uses store audits, consumer and well

distributor surveys, and other measures • Competitor interference

to gauge product performance • Competitors gain access to the new

product before introduction
• Results are used to
 Forecast national sales and profits

 Discover product problems

 Fine-tune the marketing program

New-Product Development Process

7. Test Marketing
II. Controlled test markets III. Simulated test markets

• Panels of stores that have agreed to carry • Events where the firm will create a shopping

new products for a fee environment and note how many consumers buy
the new product and competing products
• Less expensive than standard test
• Provides measure of trial and the effectiveness
markets
of promotion
• Faster than standard test markets • Researchers can interview consumers

• Competitors gain access to the new

product
New-Product Development Process

7. Test Marketing

Advantages of simulated test markets

• Less expensive than other test methods

• Faster

• Restricts access by competitors

• Disadvantages of simulated test markets

• Not considered as reliable and accurate due

to the controlled setting
New-Product Development Process

8. Commercialization

Commercialization is the introduction of the new

product
• When to launch
• Where to launch
• Planned market rollout
Managing New-Product Development

Marketing Strategy Development

Successful new-product development should be
• Customer-centered

• Team-centered

• Systematic
Managing New-Product Development

New-Product Development Strategies

Customer-center new-product development focuses on finding new ways
to solve customer problems and create more customer satisfying experiences
• Begins and ends with solving customer problems

Sequential new-product development is a development approach where

company departments work closely together individually to complete each
stage of the process before passing along to the next department or stage.
• Increased control in risky or complex projects

• Slow
Managing New-Product Development

New-Product Development Strategies

• Team-based new-product development is a development approach where
company departments work closely together in cross-functional teams,
overlapping in the product-development process to save time and increase
effectiveness.
Managing New-Product Development

New-Product Development Strategies

Team-based versus sequential new-product development
• Team-based can increase tension and confusion

• Team-based is faster and more flexible

Managing New-Product Development

New-Product Development Strategies

Systematic new-product development is an innovative development
approach that collects, reviews, evaluates, and manages new-product ideas.
• Creates an innovation-oriented culture

• Yields a large number of new-product ideas

Product Life-Cycle Strategies

Product life-cycle (PLC) is the course that a product’s sales and profits take over its
lifetime.
• Product development

• Introduction

• Growth

• Maturity

• Decline
Product Life-Cycle Strategies
Product Life-Cycle Strategies
Product life-cycle (PLC) describes

• Product classes have the longest life cycles, with sales of many product
classes in the mature stage for a long time.

• Product forms have the standard PLC shape: introduction, rapid growth,
maturity, and decline.

• Brands have changing PLCs due to competitive threats.

Product Life-Cycle Strategies
• Style is a basic and distinctive mode of expression.

• Fashion is a currently accepted popular style in a given field.

• Fads are temporary periods of unusually high sales driven by consumer enthusiasm
and immediate product or brand popularity.
Product Life-Cycle Strategies

Introduction stage is when the new product is first launched.

• Takes time

• Slow sales growth

• Little or no profit

• High distribution and promotion expense

Product Life-Cycle Strategies

Growth stage is when the new product satisfies the mark

• Sales increase

• New competitors enter the market

• Price stability or decline to increase volume

• Consumer education

• Profits increase

• Promotion and manufacturing costs gain economies of scale

• Product quality increases

• New features

• New market segments and distribution channels are entered

Product Life-Cycle Strategies

Maturity stage is a long-lasting stage of a product that has gained consumer

acceptance.
• Slowdown in sales

• Many suppliers

• Substitute products

• Overcapacity leads to competition

• Increased promotion and R&D to support sales and profits.

Product Life-Cycle Strategies

Modifying Strategies

• Market modifying

• Product modifying

• Marketing mix modifying

Product Life-Cycle Strategies
Modifying Strategies

Market modifying strategy is when a company tries to increase consumption of the current product.

• New users

• Increase usage of existing users

• New market segments

Marketing mix modifying strategy is when a company changes one or more of the marketing mix
elements.

• Price

• Promotion

• Distribution channels
Product Life-Cycle Strategies

Decline stage is when sales decline or level

off for an extended time, creating a weak
product.
• Maintain the product

• Harvest the product

• Drop the product

Additional Product and Service Considerations

Product Decisions and Social Responsibility

• Public policy and regulations regarding developing and dropping products,

patents, quality and safety.

International Product and Service Marketing

• Challenges

• Determining what products and services to introduce in which countries

• Standardization versus customization

• Packaging and labeling

• Customs, values, laws