New Product Development
and Product Life-Cycle Strategies
GIFT R. JANASO
Introduction
Exceling at developing and managing new products guarantees a company sustainable
competitive advantage.
Almost every product seems to go through a life cycle
Two major product life cycle challenges:
1. The challenge of new product development - new products must be developed from
time to time to replace declining products.
2. The challenge of product life-cycle strategies – adaptation of marketing strategies to
changing tastes, technologies, and competition as products pass through different
stages.
New Product Development Strategy
Two ways that companies can use to obtain new products: acquisition and
new product development.
Acquisition- by buying a whole company, a patent, or a license to produce
someone else’s product.
New product development efforts.
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 Development Strategy cont’d..
New products are important to both customers and the marketers:
• they bring new solutions and variety to customers’ lives, and
• they are a key source of growth for companies.
New product development can be very expensive and risky – most new products fail.
Why New Products Fail
Overestimation of the market size - although an idea may be good
Poor design of the actual product
Incorrect positioning
wrong timing of the new product launch
Pricing too high
Poor advertisement
Organizational politics – a high-level executive might push a favorite idea despite poor
marketing research findings.
Higher costs of product development than expected, and
Competitors may fight back harder than expected.
The Dilemma
The dilemma: companies must develop new products even if the probability of failure is
very high
New products are the lifeblood of the company, when successful.
To increase the probability of success of new products, marketers must understand its
consumers, markets, and competitors and develop products that deliver superior value to
customers.
The New Product Development Process
New product development should be well planned – follow a systematic, customer-driven
new product development process for finding and growing new products.
A typical new product development process is made up of eight major steps: idea
generation, idea screening, concept development and testing, marketing strategy
development, business analysis, product development, test marketing and finally
commercialization.
Idea Generation
Refers to the systematic search for new product ideas - the starting point of the new product
development process.
The New Product Development Process
The two major sources of new product ideas: internal sources and external
sources (such as customers, competitors, distributors and
suppliers, and others).
Internal Sources of ideas
Company’s formal research and development (R&D).
Company employees – from executives to salespeople to scientists, engineers, and
manufacturing staff. Today, most companies’ internal social networks and intrapreneurial
programs that encourage employees to develop new product ideas.
The New Product Development Process cont’d..
Technology companies, such as Twitter and Facebook, sponsor periodic “hackathons,” in
which employees take a day or a week away from their day-to-day work to develop new
ideas.
External Sources of ideas
Distributors, suppliers, customers, and competitors.
Trade magazines, shows, Web sites, and seminars; government agencies; advertising
agencies; marketing research firms; university and commercial laboratories; and independent
inventors.
Through crowdsourcing or open-innovation, both internal and external sources work together
on new product idea programs.
The New Product Development Process cont’d..
A company invites broad communities of people - customers, employees, independent
scientists and researchers, and even the public at large - into the innovation process.
Idea Screening
The idea generation step generates a large pool of ideas and the succeeding stages seek to
reduce that number.
During idea screening stage companies contrive a criteria to spot good ideas and drop poor
ones as soon as possible.
Only product ideas with prospects of turning into profitable products are considered for the
next stage.
The New Product Development Process cont’d..
Executives are usually requested to prepare write-ups describing the product or the service,
the proposed customer value proposition, the target market, and the competition.
The write-ups also contain rough estimates of market size, product price, development time
and costs, manufacturing costs, and rate of return.
A common new product idea screening framework is the R-W-W (“real, win, worth doing”)
It asks three questions:
1. Is it real? Is there a real need and desire for the product and will customers buy it? Is there a clear
product concept and will such a product satisfy the market?
The New Product Development Process cont’d..
2. Can we win? Does the product offer a sustainable competitive advantage? Does the
company have the resources to make such a product a success?
3. Is it worth doing? Does the product fit the company’s overall growth strategy? Does
it offer sufficient profit potential?
For the product idea to be developed further, the company should be able to answer yes to
all three R-W-W questions.
Concept Development and Testing
An attractive idea must then be developed into a product concept - a detailed version of the
new product idea stated in meaningful consumer terms.
The New Product Development Process cont’d..
Differences between a product idea, a product concept, and a product image.
A product idea is an idea for a possible product that the company can see itself offering to
the market – carbonated soft drink.
A product concept is a detailed version of the idea stated in meaningful consumer terms –
an affordable (for the mass market) - $0.50c; 500ml pet/can+2litre+orange-flavor; low
sugar; suitable for all occasions (consumption situations).
A product image is the way consumers perceive an actual or potential product – value for
money, healthy, thirst-quenching, etc.
The New Product Development Process cont’d..
Concept Testing
Refers to testing new product concepts with a group of target consumers to find out if the
concepts have strong consumer appeal.
The concepts may be presented to consumers symbolically or physically.
For some concept tests, a word or picture description might be sufficient.
A more concrete and physical presentation of the concept will increase the reliability of the
concept test.
The company could project these figures to the full population in this target group to
estimate sales volume - the estimate is uncertain because people do not always carry out their
stated intentions.
The New Product Development Process cont’d..
Marketing strategy development
Marketers must then design an initial marketing strategy for a new product based on the
product concept.
The marketing strategy statement consists of three parts:
1. A description of the target market; the planned value proposition; and the sales, market-
share, and profit goals for the first few years.
2. An outline of the product’s planned price, distribution, and marketing budget for the first
year
3. A description of the planned long-run sales, profit goals, and marketing mix strategy
The New Product Development Process cont’d..
Business Analysis
With the product concept and marketing strategy in place, the company can evaluate the
business attractiveness of the proposal.
It can review the sales, costs, and profit projections for a proposed new product to find out
whether they satisfy the company’s objectives.
If Yes, the product can move to the product development stage.
Product development
Developing the product concept into a physical product to ensure that the product idea can be
turned into a workable market offering.
Until this stage, a product may exist only as a word description, a drawing, or perhaps a crude
mock-up.
The New Product Development Process cont’d..
R&D or engineering develops the product concept into a physical product.
This stage, however, calls for a huge jump in investment.
It will show whether the product idea can be turned into a workable product.
The R&D department will develop and test one or more physical versions of the product
concept.
R&D hopes to design a prototype that will satisfy and excite consumers and that can be
produced quickly and at budgeted costs.
The New Product Development Process cont’d..
Often, products undergo rigorous tests to make sure that they perform safely and
effectively, or that consumers will find value in them.
Companies can do their own product testing or outsource testing to other firms that
specialize in testing.
Marketers often involve actual customers in product development and testing.
A new product must have the required functional features and also convey the intended
psychological characteristics.
The New Product Development Process cont’d..
Test marketing
At this stage the new product and its proposed marketing program are tested in realistic
market settings.
Test marketing gives the marketer experience with marketing a product before going to the
great expense of full introduction.
It lets the company test the product and its entire marketing program - targeting and
positioning strategy, advertising, distribution, pricing, branding and packaging, and budget
levels.
The amount of test marketing needed varies with each new product.
The New Product Development Process cont’d..
When introducing a new product requires a big investment, when the risks are high, or
when management is not sure of the product or its marketing program, a company may do a
lot of test marketing.
Test marketing costs can be high, and can take much time that may allow market
opportunities to slip by or competitors to gain advantages.
A company may do little or no test marketing when the costs of developing and introducing
a new product are low, or when management is already confident about the new product.
For example, companies often do not test market simple line extensions or copies of
competitors’ successful products.
The New Product Development Process cont’d..
Companies may also shorten or skip testing to take advantage of fast changing market
developments.
Controlled or simulated test markets can be used as an alternative to extensive and costly
standard test markets.
In controlled test markets - new products and tactics are tested among controlled panels of
shoppers and stores.
Using simulated test markets - researchers measure consumer responses to new products
and marketing tactics in laboratory stores or simulated online shopping environments.
Both controlled test markets and simulated test markets reduce the costs of test marketing
and speed up the process.
The New Product Development Process cont’d..
Commercialization
Based on test marketing results, management will make a final decision - whether to
launch the new product or not.
Going ahead with commercialization of the new product will result in the company
incurring high costs.
For instance, the company may need to build or rent a manufacturing facility.
For a major new consumer product, it may spend hundreds of millions of dollars for
advertising, sales promotion, and other marketing efforts in the first year.
The New Product Development Process cont’d..
Introduction timing is an important decision that must be made by managers.
If the new product will eat into the sales of other company products, the
introduction may be delayed.
Ifthe product can be improved further, or if the economy is down, the company
may wait until the following year to launch it.
However,if competitors are ready to introduce their own competing products, the
company may push to introduce its new product sooner.
Where to launch the new product is another important decision – whether in a single
location, a region, the national market, or the international market.
Managing New Product Development
Managing New Product Development
New product development involves more than just going through a set of steps.
A holistic approach must be adopted to managing this process.
Successful new product development requires a customer-centered, team-based, and
systematic effort.
Customer-Centered New Product Development
New product development must be customer centered.
Companies often rely too heavily on technical research in their R&D laboratories when
looking for product ideas and developing new products.
Managing New Product Development cont’d..
Successful new product development begins with an in-depth understanding of what
consumers need and value, like everything else in marketing.
Customer-centered new product development focuses on finding new ways to solve
customer problems and create more customer-satisfying experiences.
Customer involvement has a positive effect on the new product development process and
product success.
Today’s innovative companies get out of the research lab and connect with customers in
search of fresh ways to meet customer needs.
Customer-centered new product development begins and ends with understanding customers
and involving them in the process.
Managing New Product Development cont’d..
Team-Based New Product Development
Excellent new product development also requires a total-company, cross-functional effort.
Some companies use the sequential product development approach, one company department
works individually to complete its stage of the new product development process before
passing the new product along to the next department and stage.
This can help bring control to complex and risky projects, but it can also be dangerously
slow.
In fast-changing, highly competitive markets, such slow-but-sure product development can
result in product failures, lost sales and profits, and crumbling market positions.
Managing New Product Development cont’d..
Many companies use a team-based new product development approach to get their new
products to market more quickly .
Under this approach, company departments work closely together in cross-functional teams,
overlapping the steps in the product development process to save time and increase
effectiveness.
Instead of passing the new product from department to department, the company assembles a
team of people from various departments that stays with the new product from start to finish.
Such teams usually include people from the marketing, finance, design, manufacturing, and
legal departments and even supplier and customer companies.
Managing New Product Development cont’d..
Combining a customer-centered approach with team-based new product development can
result in competitive advantage by getting the right new products to market faster.
Systematic New Product Development
Finally, the new product development process should be holistic and systematic rather than
compartmentalized and haphazard.
Otherwise, few new ideas will be generated, and many good ideas will sputter and die.
A company can install an innovation management system to collect, review, evaluate, and
manage new product ideas.
The company can appoint a respected senior person to be its innovation manager.
Managing New Product Development cont’d..
It can set up Web-based idea management software and encourage all company stakeholders
— employees, suppliers, distributors, dealers—to become involved in finding and
developing new products.
It can assign a cross-functional innovation management committee to evaluate proposed new
product ideas and help bring good ideas to market.
It can also create recognition programs to reward those who contribute the best ideas.
New product success requires more than simply thinking up a few good ideas, turning them
into products, and finding customers for them.
It requires a holistic approach for finding new ways to create valued customer experiences,
from generating and screening new product ideas to creating and rolling out want-satisfying
products to customers.
Managing New Product Development cont’d..
New Product Development in Turbulent Times
During tough economic or when facing financial difficulties companies may be tempted to
reduce spending on new product development.
However, it’s shortsightedness, by cutting back on new products, the company may make itself
less competitive during or after the downturn.
Tough times may actually call for even greater new product development, as the company
struggles to better align its market offerings with changing consumer needs and tastes.
In difficult times, innovation more often helps than hurts in making the company more
competitive and positioning it better for the future.
Companies such as Apple, Google, Samsung, and Amazon keep the innovations flowing during
down economic times.
Product Life-Cycle Strategies
After the new product is launched, management would want the product to earn a decent
profit to cover all the effort and risk that went into developing and launching it.
Each product will have a life cycle, although its exact shape and length is not known in
advance.
Product life cycle (PLC) - the course that a product’s sales and profits take over its
lifetime.
It has five distinct stages:
1. Product development begins when the company finds and develops a new product idea.
At this stage, sales are zero, and the company’s investment costs mount.
Product Life-Cycle Strategies cont’d…
2. Introduction - a period of slow sales growth as the product is introduced in the market.
No profits in this stage because of the heavy expenses of product introduction.
3. Growth - a period of rapid market acceptance and increasing profits.
4. Maturity - a period of slowdown in sales growth because the product has achieved
acceptance by most potential buyers.
Profits level off or decline because of increased marketing outlays to defend the product
against competition.
5. Decline - the period when sales fall off and profits drop.
Product Life-Cycle Strategies cont’d…
PLC stages in detail:
Introduction Stage
Starts when a new product is first launched.
Introduction takes time, and sales growth is apt to be slow.
In this stage, profits are negative or low because of the low sales and high distribution and
promotion expenses.
Much money is needed to attract distributors and build their inventories.
Promotion spending is relatively high to inform consumers of the new product and get them
to try it.
Product Life-Cycle Strategies cont’d…
The company and its few competitors produce basic versions of the product – the market is
not yet ready for augmentations of the product.
Selling is targeted at those buyers who are the most ready to buy.
A company, especially the market pioneer, must choose a launch strategy that is consistent
with the intended product positioning.
It should realize that the initial strategy is just the first step in a grander marketing plan for the
product’s entire life cycle.
If the pioneer chooses its launch strategy to make a “killing,” it may be sacrificing long-run
revenue for the sake of short-run gain.
The pioneer has the best chance of building and retaining market leadership if it plays its
cards correctly from the start.
Product Life-Cycle Strategies cont’d…
Growth Stage
If the new product satisfies the market, it will enter a growth stage, in which sales will start increasing
quickly.
Early adopters will continue to buy, and later buyers will start following their lead, especially if they hear
favorable word of mouth.
Attracted by the profit potential, new competitors will enter the market.
They will introduce new product features, and the market will expand.
The increase in competitors leads to an increase in the number of distribution outlets, and sales jump just
to build reseller inventories.
Prices remain where they are or decrease only slightly.
Companies keep their promotion spending at the same or a slightly higher level.
Educating the market remains a goal, but now the company must also meet the competition.
Product Life-Cycle Strategies cont’d…
Profits increase during the growth stage as promotion costs are spread over a large volume
and as unit manufacturing costs decrease.
The firm uses several strategies to sustain rapid market growth as long as possible.
It improves product quality and adds new product features and models.
It enters new market segments and new distribution channels.
It shifts some advertising from building product awareness to building product conviction
and purchase, and it lowers prices at the right time to attract more buyers.
Product Life-Cycle Strategies cont’d…
In the growth stage, the firm faces a trade-off between high market share and high current
profit.
By spending a lot of money on product improvement, promotion, and distribution, the
company can capture a dominant position.
In doing so, however, it gives up maximum current profit, which it hopes to make up in the
next stage.
Product Life-Cycle Strategies cont’d…
Maturity Stage
At some point, a product’s sales growth will slow down, and it will enter the maturity stage.
This stage normally lasts longer than the previous stages, and it poses strong challenges to
marketing management.
The slowdown in sales growth results in many producers with many products to sell (excess
capacity) - this leads to greater competition.
Competitors begin marking down prices, increasing their advertising and sales promotions, and
upping their product development budgets to find better versions of the product - leading to a
drop in profit.
Some of the weaker competitors start dropping out, and the industry eventually contains only
well-established competitors.
Product Life-Cycle Strategies cont’d…
Most successful products (though appearing to be unchanged) actually continuously evolve to
meet changing consumer needs.
Product managers should do more than simply ride along with or defend their mature products
—a good offense is the best defense.
They should consider modifying the market, product offering, and marketing mix.
modifying the market - the company tries to increase consumption by finding new users and
new market segments for its brands.
The company may also look for ways to increase usage among present customers.
Product Life-Cycle Strategies cont’d…
modifying the product - changing characteristics such as quality, features, style, packaging, or
technology platforms to retain current users or attract new ones.
Thus, to freshen up their products for today’s technology-obsessed children, many classic toy
and game makers are creating new digital versions or add-ons for old favorites.
Finally, modifying the marketing mix - improving sales by changing one or more marketing
mix elements.
The company can offer new or improved services to buyers.
It can cut prices to attract new users and competitors’ customers, launch a better advertising
campaign or use aggressive sales promotions - trade deals, cents-off, premiums, and contests.
It can also move into new marketing channels to help serve new users.
Product Life-Cycle Strategies cont’d…
Decline Stage
The sales of most product forms and brands eventually dip.
The decline may be slow, or rapid.
Sales may plunge to zero, or they may drop to a low level where they continue for many years.
This is the decline stage.
Sales decline for many reasons, including technological advances, shifts in consumer tastes,
and increased competition.
As sales and profits decline, some firms withdraw from the market.
Those remaining may prune their product offerings, drop smaller market segments and
marginal trade channels, or cut the promotion budget and reduce their prices further.
Product Life-Cycle Strategies cont’d…
Carrying a weak product can be very costly to a firm, and not just in profit terms.
A weak product may take up too much of management’s time - often requires frequent price
and inventory adjustments, and advertising and sales-force attention that might be better
used to make “healthy” products more profitable.
A product’s failing reputation can cause customer concerns about the company and its other
products.
Keeping weak products delays the search for replacements, creates a lopsided product mix,
hurts current profits, and weakens the company’s foothold on the future.
Product Life-Cycle Strategies cont’d…
Companies must identify products in the decline stage and decide whether to maintain,
harvest, or drop them.
Maintain the brand - repositioning or reinvigorating it in hopes of moving it back into the
growth stage of the product life cycle.
Harvest the product - reducing various costs (plant and equipment, maintenance, R&D,
advertising, sales force), hoping that sales hold up.
If successful, harvesting will increase the company’s profits in the short run.
Finally, management may decide to drop the product from its line.
The company can sell the product to another firm or simply liquidate it at salvage value.
THE PRODUCT LIFECYCLE
Product Life-Cycle Strategies cont’d…
Not all products follow all five stages of the PLC - some products are introduced and die
quickly; others stay in the mature stage for a long, long time.
Some enter the decline stage and are then cycled back into the growth stage through strong
promotion or repositioning.
It seems that a well-managed brand could live forever.
Product Life-Cycle Strategies cont’d…
The PLC concept can describe a product class (financial services), a product form (mobile
financial services), or a brand (Ecocash, OneMoney).
The PLC concept applies differently in each case.
Product classes have the longest life cycles; the sales of many product classes stay in the
mature stage for a long time.
Product forms, in contrast, tend to have the standard PLC shape.
A specific brand’s life cycle can change quickly because of changing competitive attacks and
responses.
For example, although laundry soaps (product class) and powdered detergents (product form)
have enjoyed fairly long life cycles, the life cycles of specific brands have tended to be much
shorter.
Product Life-Cycle Strategies cont’d…
The PLC concept also can be applied to what are known as styles, fashions, and fads.
Style is a basic and distinctive mode of expression.
For example, styles appear in homes (colonial, ranch, transitional), clothing (formal, casual),
and art (realist, surrealist, abstract).
Once a style is invented, it may last for generations, passing in and out of vogue.
A style has a cycle showing several periods of renewed interest.
A fashion is a currently accepted or popular style in a given field.
For example, the more formal “business attire” look of corporate dress of the 1980s and
1990s gave way to the “business casual” look of the 2000s and 2010s.
Fashions tend to grow slowly, remain popular for a while, and then decline slowly.
Product Life-Cycle Strategies cont’d…
Fads - temporary periods of unusually high sales driven by consumer enthusiasm and
immediate product or brand popularity.
A fad may be part of an otherwise normal life cycle, as in the case of recent surges in the
sales of poker chips and accessories.
Or the fad may comprise a brand’s or product’s entire life cycle.
Product Life-Cycle Strategies cont’d…
