Priciples of Marketing

by Philip Kotler and Gary Armstrong

Chapter 9
New-Product Development and
Product Life-Cycle Strategies

PEARSON
Objective Outline

New-Product Development Strategy

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

The New-Product Development Process

Managing New-Product Development
List and define the steps in the new-product
2
development process and the major considerations in
managing this process.
Objective Outline

Product Life-Cycle Strategies

Describe the stages of the product life cycle and how
3
marketing strategies change during a product’s life
cycle.

Additional Product and Service

Considerations
4 Discuss two additional product issues: socially
responsible product decisions and international
product and services marketing.
New-Product Development Strategy

 A firm can obtain new products in two ways.

• One is through acquisition ─ by buying a whole
company, a patent, or a license to produce someone
else’s product.
• The other is through the firm’s own new-product
development which is the development of original
products, product improvements, product modifications,
and new brands through the firm’s own product
development efforts.
The New-Product Development Process
Idea Generation

 New-product development starts with idea

generation ─ the systematic search for new-
product ideas.
 Major sources of new-product ideas include
internal sources and external sources such as
customers, competitors, distributors and suppliers,
and others.
Internal Idea Sources

 Using internal sources, the company can find

new ideas through formal R&D.
 Thus, beyond its internal R&D process, a
company can pick the brains of its own people ─
from executives to salespeople to scientists,
engineers, and manufacturing staff.
External Idea Sources

• Companies can also obtain good

new-product ideas
• Perhaps thefrom
mostany of a sources of new-
important
number product
of external sources.
ideas are customers themselves.
• Distributors are close to
• The company canthe marketcustomer
analyze
and can questions
pass alongandinformation
complaints to find new
about consumer
productsproblems
that betterand new-
solve consumer
product problems.
possibilities.
• Suppliers can tell the company about
• Or it can invite
newcustomers
concepts,totechniques,
share and materials
suggestions and
thatideas.
can be used to develop new
products.
• Competitors are another important
source.
Crowdsourcing

 Crowdsourcing throws the innovation doors

wide open, inviting broad communities of people
─ customers, employees, independent scientists
• Truly innovative companies don’t rely only on one
and researchers, and
source or another foreven ideas. at large ─
the public
new-product
into• the new-product
Instead, they developinnovation process.
extensive innovation networks
that capture ideas and inspiration from every
possible source, from employees and customers to
outside innovators and multiple points beyond.
Idea Screening
 The first idea-reducing stage is idea screening, which
New-product
helps spot good ideas and drop poor ones as soon as
Screening
possible. framework
 Product development costs rise greatly in later stages, so
the company wantsAsks Three
to go Questions
ahead only with those product
1. Is it real?
ideas that will turn into profitable products.
2. Can we win?
 Many
3. Iscompanies require their executives to write up
it worth doing?
new-product ideas in a standard format that can be
reviewed by a new-product committee.
Concept Development and Testing
 A product concept is a detailed version of the new-
product idea stated in meaningful consumer terms.
 A product idea is an idea for a possible product that the
company can see itself offering to the market.
 A product concept is a detailed version of the idea stated
in meaningful consumer terms.
 A product image is the way consumers perceive an actual
or potential product.
• Concept 1: An affordably priced midsize car designed as a second
Concept Development
family car to be used around town for running errands and visiting
friends.
• Concept 2: A mid-priced sporty compact appealing to young singles
and
Looking
couples. ahead, the marketer’s task is to develop
• Concept
this new 3: Aproduct
“green” car appealing
into to environmentally
alternative product conscious
people who want practical, no-polluting transportation.
concepts,
• Concept 4: A find outmidsize
high-end how attractive each
utility vehicle concept
appealing is who
to those
to customers,
love the space SUVsand choose
provide the best
but lament the one.
poor gas mileage.
Concept Testing

 Concept testing calls for testing new-product

concepts with groups of target consumers.
 For some concept tests, a word or picture
description might be sufficient.
 However, a more concrete and physical
presentation of the concept will increase the
reliability of the concept test.
Marketing Strategy Development

 TheStep
marketing
1 strategy development designs
an initial marketing strategy for a new product
Describes the target market; the planned value proposition;
based
and on the product
the sales, concept.
market share, and profit goals for the first few
years.
 The marketing strategy statement consists of
threeStep
parts.
2
Outlines the product’s planned price, distribution, and
marketing budget for the first year.

Step 3
Describes the planned long-run sales, profit goals, and
marketing mix strategy.
Business Analysis

 Business analysis involves a review of the sales,

costs, and profit projections for a new product to
find out whether they satisfy the company’s
objectives.
Product Development
 Product development develops the product concept into
a physical product to ensure that the product idea can be
turned into a workable market offering.
 R&D hopes to design a prototype that will satisfy and
excite consumers and that can be produced quickly and at
budgeted costs.
 Often, products undergo rigorous tests to make sure that
they perform safely and effectively, or that consumers
will find value in them.
 Test Marketing

Controlled Test Markets• Test marketing gives the marketer

• If the product passes both theexperience with marketing a Both
• In fact, test marketing by consumer-
concept test and the product test, the
product before going to the great
controlled test
New products goods firmsare
and tactics hastested
been declining in
next step is test marketing, the of full introduction. markets and
expense
among controlledrecent years.
panels of shoppers and
stage at which the product• Itand
letsitsthe company test the simulated test
stores. • Companies often do not test-market
proposed marketing program are and its entire marketing
product markets
simple line extensions or copies of
program ─ targeting and
introduced into realistic market reduce the
competitors’ successful products.
settings. Test Markets positioning strategy, advertising,
Simulated costs of test
distribution, pricing, brandingmarketing
and and
Researchers measure consumer packaging,
responses and budget levels.speed up the
to new products and marketing tactics in process.
laboratory stores or simulated online
shopping environments.
Commercialization
 If the company goes ahead with commercialization ─
introducing the new product into the market ─ it will face
high costs.
 A company launching a new product must first decide on
introduction timing.
 Next, the company must decide where to launch the new
product ─ in a single location, a region, the national
market, or the international market.
Managing New-Product Development
 New-product development involves more than just going
through a set of steps.
 Companies must take a holistic approach to managing
this process.

Customer-Centered New-Product Development

Team-Based New-Product Development

Systematic New-Product Development

Customer-Centered New-Product
Development
 Customer-centered new-product development focuses
on finding new ways to solve customer problems and
create more customer-satisfying experiences.
 The most successful new products are ones that are
differentiated, solve major customer problems, and offer a
compelling customer value proposition.
Team-Based New-Product Development
 Team-based new-product development is the various
company departments work closely together, overlapping
the steps in the product development process to save time
and increase effectiveness.
 This approach does have some limitations. For example,
it sometimes creates more organizational tension and
confusion than the more orderly sequential approach.
Systematic New-Product Development
 The new-product development process should be holistic
and systematic rather than compartmentalized and
• It helps create an innovation-oriented company
haphazard.
culture.
 First
To avoid•these problems,
It shows a company
that top can install
management an
supports,
innovation management system
encourages, and to collect,
rewards review,
innovation.
evaluate, and manage new-product ideas.
 The innovation management
• It will system
yield a larger approach
number yields twoideas,
of new-product
favorable outcomes.
among which will be found some especially good
Seco
nd ones.
New-Product Development in Turbulent
Times
 In fact, tough times might 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.
 Product Life-Cycle Strategies
 The product life cycle (PLC)
 It is hasoffive
a period distinctinstages:
slowdown sales
growth because the product has
 It is a period of slow sales growth as the
 It begins when the company findsacceptance
achieved and developsby most potential
product is introduced in the market.  It is the period when
a new-product idea. buyers.
Product  Profits are nonexistent
Introduction in thisofstage
Growth sales fall off and
Maturity Decline
 During product  It
development, is a period
sales are zero,rapid market
 Profits level off or decline because of
development because of the heavy expenses of profits drop.
and the company’s investment costs
acceptance mount.
and increasing
increased marketing out lays to defend
product introduction.
theprofits.
product against competition.

Product
Develop- Introduction Growth Maturity Decline
ment
Product Life-Cycle Strategies
• It is acan
 The PLC concept basicdescribe
and distinctive modeclass
a product of
expression
Style
(gasoline-powered automobiles), a product form
(SUVs), or a brand (the Ford Escape).
 The PLC concept also can be applied to what are
• It is a currently accepted or popular style
known as styles, fashions,
in a given field.and fads.
Fashion

• It is a temporary period of unusually high

sales driven by consumer enthusiasm and
Fad immediate product or brand popularity.
Introduction Stage
 The introduction stage starts when a new product is first
launched.
 In this stage, as compared to other stages, profits are
negative or low because of the low sales and high
distribution and promotion expenses.
 A company, especially the market pioneer, must choose a
launch strategy that is consistent with the intended
product positioning.
Growth Stage
• If the new product satisfies the market, it will enter a growth stage, in
which sales will start climbing quickly.

• Attracted by the opportunities for profit, 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.

• 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.
Maturity Stage
At some point, a product’s sales Competitors begin marking down
growth will slow down, and it will prices, increasing their advertising
enter the maturity stage. and sales promotions, and upping
their product development budgets
to find better versions of the product.
The slowdown in sales growth
results in many producers with many
products to sell.
This step lead to a drop in Profit.

In turn, this overcapacity leads to

greater competition.
The company might also try
modifying the product ─ changing
characteristics such as quality,
features, style, packaging, or
technology platforms to retain
current users or attract new ones.
Decline Stage
 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.
 A product’s failing reputation can cause customer
concerns about the company and its other products.
Additional Product and Service
Considerations
 There are two additional considerations:
• Social responsibility in product decisions
• Issues of international product and services
Product Decisions and Social
Responsibility
• Marketers should carefully consider public policy issues
and regulations regarding acquiring or dropping
products, patent protection, product quality and safety,
and product warranties.

• Regarding new products, the government may prevent

companies from adding products through acquisitions if the
effect threatens to lessen competition.
• Companies dropping products must be aware that they have
legal obligations, written or implied, to their suppliers, dealers,
and customers who have a stake in the dropped product.
International Product and Services
Marketing
 First Marketers must figure out what products and
services to introduce and in which countries.
 They must decide how much to standardize or adapt their
products and services for world markets.
 On the one hand, companies would like to standardize
their offerings.
 On the other hand, markets and consumers around the
world differ widely.
 Companies must usually respond to these differences by
adapting their product offerings.
The End