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Product Management and New-Product

Development

Product Management and New-Product

Development

CHAPTER TENCHAPTER TEN

For use only withPerreault/Cannon/McCarthy or Perreault/McCarthy texts.© 2008 McGraw-Hill Companies, Inc.McGraw-Hill/Irwin

1. Understand how product life cycles affect strategy planning.

2. Know what is involved in designing new products and what “new products” really are.

3. Understand the new-product development process.

4. See why product liability must be considered in screening new products.

5. Understand the need for product or brand managers.

When we finish this lecture you should

Product Decisions for Marketing Strategy Planning (Exhibit 10-1)

ready to start developing its marketing mix. Here, we continue the discussion on Product mix

Role of Product Management and New-Product Development in Marketing Strategy (Exhibit 10-1)

CH 10: ProductManagement & New-ProductDevelopment

CH 9: Elements ofProduct Planning forGoods & Services

The product life cycle

• Life cycle stages• Strategy planning

for stages

New-product development

• 5 Step process• Success factors

Managing Products over Their Life Cycles (Exhibit 10-2)

Total industry profit (initially loss)

Total industry sales

D

Managing Products over Their Life CyclesManaging Products over Their Life Cycles

Total industry profit (initially loss)

Little or no competition

more competitionMost competition

A glimpse to the future

“Minority Report” touch screens

Microsoft Surface

Mini PC and TV

A new way to shopA new way to shop

Market Introduction – Investing in the Future

In the market introduction stage, sales are low as the idea is first introduced to the market.

Key Issue

•Informative promotion is needed to tell potential customers about the advantages and uses of the new product.

Monopolistic Competition Develops

Monopolistic Competition Develops

Monopolistic Competition Develops

Monopolistic Competition Develops

Innovation Attracts Competition

Innovation Attracts Competition

Innovation Attracts Competition

Innovation Attracts Competition

Market Growth – Profits Go Up and Down

Profits Peak and Then Decline

Profits Peak and Then Decline

Don’t Ignore Long-Term Competitive Trends!Don’t Ignore Long-Term Competitive Trends!

Discussion Question: Why do consumers become more price sensitive in the market growth stage? D

Persuasive, More Costly Promotion

Persuasive, More Costly Promotion

Brands Are More SimilarBrands Are More Similar

Greater Price Competition/Price Sensitivity

Greater Price Competition/Price Sensitivity

Persuasive, More Costly Promotion

Persuasive, More Costly Promotion

Brands Are More SimilarBrands Are More Similar

Greater Price Competition/Price Sensitivity

Greater Price Competition/Price Sensitivity

Market Maturity – Sales Level Off, Profits Continue Down

Maturity May Last a Long Time

Maturity May Last a Long Time

Promotion costs increase and price competition in some segments cuts into profits. D

Sales Decline – A Time of Replacement

Kodak announced that it would no longer produce 35 millimeter film cameras, but would manufacture digital cameras exclusively. Sales of digital cameras have grown steadily and have far outpaced the sale of 35 mm cameras in recent years, even among professional photographers. Kodak’s decision indicates that 35 mm cameras are probably in the ________ stage of the product life cycle.

A. Market introductionB. Market growthC. Sales declineD. Market maturity

Checking your knowledge

Kodak announced that it would no longer produce 35 millimeter film cameras, but would manufacture digital cameras exclusively. Sales of digital cameras have grown steadily and have far outpaced the sale of 35 mm cameras in recent years, even among professional photographers. Kodak’s decision indicates that 35 mm cameras are probably in the ________ stage of the product life cycle.

A. Market introductionB. Market growthC. Sales declineD. Market maturity

Checking your knowledge

AND

IndividualBrands

IndividualBrands

•May not follow the classic pattern

•May be introduced in market growth or maturity

•Not all brands are equally strong

MarketDefinitions

MarketDefinitions

•Should be carefully developed

•Different markets, different stages

•Contribute to the length of the cycle

Product Life Cycles Should Be Related to Specific Markets

product life cycle concept applies mainly to product categories or product classes

Can Be TriedCan Be Tried

Easy to Communicate

Easy to Communicate

Competitive Advantage

Competitive Advantage

Can Be TriedCan Be Tried

Easy to Communicate

Easy to Communicate

Competitive Advantage

Competitive Advantage Easy to UseEasy to UseEasy to UseEasy to Use

CompatibleCompatible

Product Life Cycles Vary in Length

Some ProductsMove Fast

Some ProductsMove Fast

The Early Bird Usually ProfitsThe Early Bird Usually Profits

Product Life Cycles Are Getting Shorter

Product Life Cycles Are Getting Shorter

The Early Bird Usually ProfitsThe Early Bird Usually Profits

Product Life Cycles Are Getting Shorter

Product Life Cycles Are Getting Shorter

Fashions and FadsFashions and Fads

Other Issues in Product Life Cycle Length

Competitors May Help Adoption

Competitors May Help Adoption

Anticipate Speed of

Movement

Anticipate Speed of

Movement

Consider the Four Ps

Consider the Four Ps

Consider the Four Ps

Consider the Four Ps

Allocate Sufficient

Money

Allocate Sufficient

Money

Be FlexibleBe Flexible

Planning for Different Stages of the Product Life Cycle

MarketIntroduction

& Growth

MarketIntroduction

& Growth

Managing Mature Products

Improve the Product or Develop a New One (Exhibit 10-4)

e.g. new ipods

Are Product Modifications Really New Products?

More examples:New “Hungry Girl” Products

Diet PizzaDiet Burritos & TacosDiet Apple/Pecan Pies

Diet Ice-CreamDiet Chocolates

Don’t Pull the Plug So Quickly

Don’t Pull the Plug So Quickly

Don’t Pull the Plug So Quickly

Don’t Pull the Plug So Quickly

Phase-out May Be Necessary

Phase-out May Be Necessary

Phase-out May Be Necessary

Phase-out May Be Necessary

Phasing Out Dying Products

ProfitabilityProduct LineCustomer

SupportSales Decline Can

Be ProfitableSales Decline Can

Be Profitable

What Research Studies has found……

Studies showed that companies that led their industries in sales growth and profitability generated ½ of all revenues from products introduced within the previous 5 years.

But Product Development is a costly activity filled with uncertainty. About 35% of new products that reach the marketplace fail, a majority never even reach the market.

Managing Products over Their Life CyclesManaging Products over Their Life Cycles

5 years

½ of all revenues

Top 25 biggest product flops of all time

About 35% of new products that reach the marketplace failed!

What Is a New Product?What Is a New Product?What Is a New Product?What Is a New Product?

FTC Rule: 6 MonthsFTC Rule: 6 MonthsFTC Rule: 6 MonthsFTC Rule: 6 Months

Ethical Dilemmas ExistEthical Dilemmas Exist

New Product Planning

An Organized New-Product Development Process is Critical (Exhibit 10-5)

D

Step 1: Idea Generation

Step 2: Screening

Step 3: Idea Evaluation

D

Step 4: Development

Step 5: Commercialization

Commercialization

Involves the planning and execution of the launch strategy.

Consider 3 components in this stage:

Timing New-Product Introductions (e.g. festive seasons, beer during summer, razors for Christmas, Palm Pre phones launch a few months ago in summer.)

Selecting a Brand Strategy (to leverage brand equity, Lexus ad)

Coordinating Introductory Marketing Programs

Top management of a large company recently approached the dean of a major business school about starting a specialized MBA program for the company’s employees. After further discussions, the dean decided that the program did not fit well with the objectives and resources of the school, so the program was put on the “back burner” until conditions changed. The proposed MBA program was at what stage of the new-product development process when it was shelved?

A. Idea generationB. ScreeningC. Idea evaluationD. DevelopmentE. Commercialization

Checking your knowledge

Top management of a large company recently approached the dean of a major business school about starting a specialized MBA program for the company’s employees. After further discussions, the dean decided that the program did not fit well with the objectives and resources of the school, so the program was put on the “back burner” until conditions changed. The proposed MBA program was at what stage of the new-product development process when it was shelved?

A. Idea generationB. ScreeningC. Idea evaluationD. DevelopmentE. Commercialization

Checking your knowledge

New Product Development: A Total Company Effort (Exhibit 10-7)

And the process should have top management support.

Common in Large Companies

Common in Large Companies

Common in Large Companies

Common in Large Companies

Product/Brand Managers

Product/Brand Managers

Product/Brand Managers

Product/Brand Managers

Some Are “Product Champions”

Some Are “Product Champions”

Need for Product Managers

Which of the following statements about new-product development are true?

A. The process should be informal to encourage innovation.

B. The greatest number of product ideas is in the idea evaluation stage.

C. The best criteria for evaluating new product ideas in the early stages is return on investment (ROI).

D. The process should have top management support.

E. All of the above statement are true.

Checking your knowledge

Which of the following statements about new-product development are true?

A. The process should be informal to encourage innovation.

B. The greatest number of product ideas is in the idea evaluation stage.

C. The best criteria for evaluating new product ideas in the early stages is return on investment (ROI).

D. The process should have top management support.

E. All of the above statement are true.

Checking your knowledge

1. Understand how product life cycles affect strategy planning.

2. Know what is involved in designing new products and what “new products” really are.

3. Understand the new-product development process.

4. See why product liability must be considered in screening new products.

5. Understand the need for product or brand managers.

You now

• Product life cycle

• Market introduction

• Market growth

• Market maturity

• Sales decline

• Fashion

• Fad

• New product

• Federal Trade Commission (FTC)

Key Terms

• Consumer Product Safety Act

• Product liability

• Concept testing

• Product managers

• Brand managers