Principles of Marketing

Chapter 9
New Products
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 Chapter Objectives
1. Identify the challenges companies face in creating a new-
product development strategy.

2. List different sources for ideas generation, and discuss how

an idea moves ahead through ideas screening, concept
development and concept testing.

3. Outline how a potential product advances from a concept to

a product through marketing strategy development,
business analysis and product development.

4. Explain the purpose of test marketing, and distinguish

between standard, controlled and simulated test markets.

6. Describe how marketing strategies change during the

product’s life cycle.
 What is a New Product?
• New to everyone, or to the particular market
– a new invention

• New Category Entries

– a new product line for the particular producer
• a cookbook from a publisher of business texts

• Additions to Product Lines

– line extensions to the firm’s current products
• a brewer introducing a low-calorie beer
 Cont’d
Product Improvements
– products that, in some way, have been made better
• Could be a mid-life enhancement

Repositioning
– change of image for a product; re-targeted to a new
segment or to a new type of usage of the product

Variations of the above

– new to the country; new to the channel; packaging
improvements and different methods of manufacture
are NOT usually accepted as ‘new’ products
 New-Product Development
Strategy
1. Rapid changes in consumer tastes; in technology;
and in what competitors do, means that a company
cannot rely solely on its existing products

2. Customers want and expect the new and improved

products that result from market competition

3. A company can obtain new products in two ways:

– through acquisition (of a firm, or a product licence)
– through the organisation’s own R and D process
New products are the life blood of a successful firm
 New-Product Success / Failure

• High rate of new product failure

• Recent study indicated that new consumer
packaged goods fail at an estimated rate of 80%
• 33% of new industrial products fail at launch
• Many reasons why new products fail, including:
– negative perception in market; wrong timing;
inadequate market research; poor marketing
communications
 Cont’d
• Identify successful products and find out what
they have in common
• Develop a superior product
• Have a clearly defined product concept before
commencing development
• Provide sufficient budget and support to achieve
sales objectives
• Ensure commitment from senior management
• Each company needs to fully understand its
consumers; markets; and competitors in order to
correctly cost; position; and price the product
 The first stage in the new product
development process is generally
considered to be:

A. screening
B. prescreening
C. profit estimation
D. idea generation
E. idea screening
 Main steps in N.P.D. Fig. 9.1

Marketing Business
Strategy Analysis

Concept
Development Product
and Testing Development

Idea Test
Screening Marketing

Idea
Generation Commercialisation
 Idea Generation

• New-product development starts with idea

generation - the systematic search for
possible new products
– Internal idea sources:
• Formal research and development
• Consult company scientists; engineers and product
manufacturing staff
• ‘Brainstorm’ new ideas with senior staff
• Consult with the company’s salespeople
 Cont’d

– External idea sources:

• Competitors
• Distributors and suppliers
• Trade magazines; trade shows and seminars;
government agencies; new-product
consultants; advertising agencies; marketing
research firms; commercial laboratories; and
research universities
 The best new product ideas come from:

A. internal sources
B. customers
C. competitors
D. distributors
E. all of the above
 Ideas Screening
– The purpose of this, and the ongoing stages,
is to reduce the number of ideas generated.
The objective is to spot good ideas and drop
inappropriate ones as soon as possible
– Product development costs rise significantly in
later stages, therefore it is financially important
to remove ‘bad’ ideas early. A company wants
to go ahead only with those product ideas that
will turn into profitable products
Most rejections occur at this stage of process
 Concept Development / Testing
• Product Idea
– An idea for a possible product that the company
believes it could offer to the market
• Product Concept
– A detailed version of an idea stated in terms that
would be meaningful to consumers
• Product Image
– The way consumers perceive the potential product
• Concept Testing
– The process of testing the product concept with a
group of potential target customers
 Cont’d

• This is a process to evaluate the potential

success of a new product idea, usually
before a prototype has been created.

• Does the basic concept appeal to

consumers, and are they likely to buy it?
 Marketing Strategy Development

• The process of designing the initial marketing

strategy for the introduction of a new product

• The marketing strategy consists of three parts:

1. Describing the target market; the planned product
positioning; the projected sales; the market-share and
profit goals for the first few years

2. Outlining the product’s projected price; distribution; and

marketing budget for the first year

3. Describing the planned long-term sales; profit goals;

and marketing-mix strategy
 Business Analysis
• This involves a review of the sales; costs; and
profit projections to find out whether or not they
satisfy the company’s objectives.
• If they do, the product can then move to the
product-development stage.
• The firm would need to consider:
– potential demand
– cost and revenue estimates
– level of competition
– likely profitability
 Product Development

• The ‘product concept’ is developed into a

physical product (a prototype). To this point,
the product has existed only as a word
description; a drawing; or perhaps a mock-up.

• The product-development step, however,

requires a significant increase in the level of
investment. It will show whether the product
idea can be turned into a workable product.
 Cont’d
• The R&D department will develop one or
more physical versions of the product
concept for testing purposes
• A new product must have the required
functional features and convey the
intended psychological characteristics
• The current pace of change requires a
faster product-development process.
Some firms use ‘alliance’ partners to assist
 Test Marketing
• If product passes functional and consumer
tests, the next step is test marketing
• Test marketing is the limited introduction of
the product/ marketing program, to test the
reactions of potential customers in a more
realistic market setting
• This will enable an evaluation of the ‘mix’,
and any alternative strategies
• Select a test market that is most likely to
match the buying behaviour of total market
 Test Marketing Approaches

• Standard test markets

– These test the new consumer product in situations
similar to those it would face in a full-scale launch
• Controlled test markets
– Research firms keep ‘controlled’ panels of stores
that have agreed to carry new products for a fee
• Simulated test markets (Laboratory situation)
– Companies can also test new products in a
simulated shopping environment
– The company, or a research firm, shows a sample
of consumers the ads and promotions for a variety
of products, including the new product being tested
 Test Marketing Business Products

• B2B marketers use different methods for test

marketing their new products
• They may conduct product-use tests, where
the industrial marketer selects a small group
of potential customers who agree to use the
new product for a limited time
• New products can also be tested with large
numbers of potential buyers at trade shows
 Commercialisation
• This is the final stage, when a new
product is introduced into the market
• The company launching a new product
must make four decisions about its intro:
When - economy/ competition
Where - how many locations
To whom - early adopters/ opinion leaders
How - appropriate marketing mix
 Cont’d
Commercialisation of a product will include:
• Manufacturing the product and building inventory
• Distributing to locations – warehouses; resellers
• Ongoing training of the sales force
• Trade announcements (PUSH)
• Advertising to potential consumers (PULL)

This is the most expensive stage of the

product development process
 Managing New-Product Development

• New-product development needs to be customer

centred, focusing on finding new ways to solve their
problems and create more satisfying experiences
• Good product development requires a team-based,
total company, cross-functional effort
• Combining a customer-centred focus with a team-
based approach can deliver strong results

Usually, the sooner a new product is ready

for the market the better. This will help keep
a firm ahead of its competitors
 The Product Life Cycle (PLC)

• A concept that provides a means

of tracing the various stages of
a product’s acceptance in the
market; from its introduction, to
its ultimate decline and removal
 Cont’d
• After launching a new product, the firm wants
the product to enjoy a long and successful life
• Although it does not expect the product to sell
forever, the firm wants to earn enough profit
to cover all the effort and risk that went into
the product, and to fund future activities
• Each product will have its own distinctive life
cycle, although the exact shape and length of
that cycle is not known in advance
 Stages of the PLC
• Product development (Stage 1)
– Begins when the company finds and develops a
new product idea

• Introduction (Stage 2)
– A period of slow sales growth as the product is
being introduced to the market

• Growth (Stage 3)
– A period of rapid market acceptance and growth
in sales volumes
 Cont’d

• Maturity (Stage 4)
– A period of slowdown in sales growth as the
product has already been accepted by a
majority of would-be buyers

• Decline (Stage 5)
– A period of major decline in sales and profits
as customers switch to new products
 Introductory Stage

• Low sales, often high failure rates

• Limited level of competition

• Basic product, but may need modification

• Limited distribution of product (selective)

 Cont’d

• High production and marketing costs

• Possible initial monetary loss

• Promotion focused on product

awareness and informing the market

• Intensive personal selling to intermediaries

 Growth Stage

• Increasing rate of sales

• Entry of competitors to the market

• Possible market consolidation

(buy-out of smaller firms)

• Strong profits, initially

 Cont’d

• Strong brand advertising

• Aim for wider distribution – establish a

greater market presence

• Product price usually falls (penetration)

• Recovery of development costs

 Maturity Stage

• Decline in growth of sales

(sales increase, but at decreasing
rate)
• Saturated markets

• Extension of product line (attract more

segments)
• Changes in style rather than in function
 Cont’d

• Heavy promotion to dealers and

consumers (encourage brand switch)

• Marginal competitors drop out

- not profitable
• Prices and profits falling

• Possible Niche marketers

 Decline Stage
• Long-term decline in sales volumes

• May have inventories of unsold goods

• Discontinue non-performing products

• Removal of non-essential marketing

expenses (try to maintain profit levels)
Figure 9.2 - Product Life Cycle
(PLC)
 Variations to the Cycle
STYLE

• A style is a basic and distinctive mode of

expression.
• Styles can relate to houses (colonial, federation);
clothing (formal, casual); art (realistic, abstract).
• Once a style is invented, it can last for generations,
coming in and out of favour at various times.
• A style usually has a cycle that shows several
periods of renewed interest.
 Cont’d
• FASHION

• A fashion is a currently accepted or popular style

in a given field.
• Fashions pass through many stages
– First, a small number of consumers take an interest in
something new to set themselves apart.
– Then, other consumers become interested out of a
desire to copy the fashion leaders.
– Next, the fashion becomes popular and is adopted by
the mass market.
 Cont’d
FAD
• Fads are fashions that enter a market quickly,
are adopted with great enthusiasm, achieve a
peak early, and then decline very fast.
– Theses types of products usually last for only a short
time, and tend to attract a limited number of buyers.
– Fads are often novel or unusual, e.g. Rubik’s Cube;
platform shoes; yo-yos.
– Fads appeal to people looking for excitement, for a
way to set themselves apart, or for something to talk
about to others.
Figure 9.3 -Fashion, Style and Fad
 PLC Concept: Application
• The PLC concept can be applied by marketers as a
useful framework for describing how products and
markets perform over time

However, using the PLC concept for forecasting product

performance, or for developing marketing strategies, can
present some practical problems

• Managers may have difficulty in identifying which stage

of the PLC the product is in; pinpointing when a product
moves from one stage to the next; and determining the
factors that influence a product’s advancement through
the various stages
 Cont’d
In practice, it is difficult to forecast the
sales level at each stage; the length of
each stage; and the shape of the curve.

However, when used carefully, the PLC

concept can help a firm in developing
appropriate marketing strategies for
different stages of the product life cycle.

This would include adjustments to the Mix

 Attempts to influence
• Taking steps to cope with PLC changes through:
• Market Modification
– increase usage by current users
– find new users/ segments
• Product Modification
– change characteristics/ quality/ features of product
• Marketing-mix Modification
– change the other Mix elements
PLC Summary - Table 9.5
The Alpha Corporation is just beginning to experience new
competitors attempting to draw sales from its latest new
product Alpha's product is probably entering its:

• introduction stage
• maturity stage
• commercialisation
stage
• growth stage
• decline stage