developing & managing products
DESCRIPTION
Developing & Managing Products. Strategic Marketing. Learning Objectives. Explain the importance of developing new products and describe the six categories of new products Explain the steps in the new-product development process - PowerPoint PPT PresentationTRANSCRIPT
Developing & Managing ProductsStrategic Marketing
Learning Objectives1. Explain the importance of developing new products
and describe the six categories of new products2. Explain the steps in the new-product development
process
3. Explain the diffusion process through which new products are adopted
4. Explain the concept of product life cycles
Explain the importance of developing new products New Product: A product new to the world, the market, the producer, the seller, or some combination of these.- Important to sustain growth- Increase revenue & profits- Replace obsolete items
- Innovation is difficult for companies to be good atRoughly 70-80 new products are produced per year
- Apple, 3M, Microsoft, GE, & Sony are considered strong innovators
Six Categories of New ProductsCategory Definition ExampleNew to the world (discontinuous innovations)
Products create an entirely new market. Smallest category of new products. Designed to increase market share among existing customers.
Penicillin
New product lines New products that enter an established market. Create new products for present markets
P&G Iams Dog Food
Additions to existing product lines
New products that supplement a firms existing product line.Designed to attract new customers to existing products
Diapers
Improvements or revisions of existing products
“New or Improved” product that can be significantly or slightly changed. Can also include package revisions. Most new products fit into this category. Geared towards Market Development
Gillette Razor
Repositioned products
Existing products targeted at new markets or market segments. Diversification is key.
Cadillac
Lower-priced products
Products that offer performance similar to competing brands at a lower price. Introduce new products into new markets.
Walmart
REVIEW LEARNING OUTCOME: Developing New Products
5
New-Product Development Process
6
New-Product Strategy
Idea Generation
Idea ScreeningBusiness Analysis
DevelopmentTest MarketingCommercialization
New Product
L.O. #2: New-Product Development Process
New Product Strategy: A plan that links the new-product development process with the objectives of the marketing development, the business unit, and the corporation.
Must be consistent & compatible Provides general guidelines for generating, screening, & evaluating new product ideas
Example: Gillette aims for 40% of annual sales to be generated
from products less than 5 years old
Step #1: Idea GenerationSource of New Ideas
Carried Out….
Customers Marketing concept suggests this is main reason for product development.
Employees Marketing personnel employees are good bc they analyze and are involved in marketplace.
Distributors Closer to customer so they know what concerns and needs customers have
Competitors Monitor competition to determine what products should be copied.
Vendors Done to create proprietary productsResearch & Development
Carried out in 4 ways: Basic research, applied research, product development & product modification.
Consultants Examine a business & recommend product ideas.
Step #2: Idea Screening Idea Screening The first filter in the product development process, which eliminates ideas that are inconsistent with the organization’s new-product strategy or are inappropriate for some other reason.
You generate an idea then you screen it keep good; eliminate bad. Majority of products are rejected in the screening stage
Concept Test: A test to evaluate a new product idea, usually before any prototype has been created. Can be good line extensions but not for brand new items.
Step # 3: Business Analysis Survive the screening process; advance to Business Analysis:
The second stage of the screening process where Preliminary figures for demand, cost, sales, and profitability are calculated.
Evaluate costs v. revenue
At end of this stage management has a good understanding of market potential.
Considerations in Business Analysis
Stage
Demand
Cost
Sales
Profitability
Stage #4: Development
11
Creation of prototypeMarketing strategy is outlinedPackaging, branding, labeling are identified Promotion, price, and distribution strategy Manufacturing feasibilityFinal government approval is given
Consumer Product Safety Act requires companies do diligent product testing
Step #4: DevelopmentSimultaneous Product
Development: A team-oriented approach to new-product
development where all relevant functional areas and outside
suppliers participate in the development process. (R&D, Marketing, Engineering, Production, & Suppliers)
Step #5: Test Marketing Test Marketing: The limited introduction of a product and a marketing program to determine the reactions of potential customers in a market situation.
Understand if your marketing mix strategies work.
Alternatives to test marketing:Single-source research using supermarket scanner data
Simulated (laboratory) market testing
Online test marketing
Step #6: Commercialization Commercialization: The decision to market a product
Commercialization Involves: Ordering production materials & Starting production Building inventory Shipping the product to final destination Training sales force Announcing product to industry Advertising to customers
Overview of Steps in the New Product Process
Learning Objective #3: Why Some Products Succeed & Some Don’t 70% – 90% of products fail within the first year
Why Do Products Fail? Doesn’t differentiate between current products on market Poor match between features and customer needs Overestimate market size Incorrect positioning Price is too high or too low Poor distribution & Promotion Inferior product
16
Learning Objective #3: Why Some Products Succeed & Some Don’t
Diffusion: The process by which the adoption of an innovation spreads.• Word of mouth advertising speeds diffusion
Adopters: A consumer who was happy enough with his or her trial experience with a product to use it again.
There are five categories of adopters that participate in the diffusion process1. Innovators2. Early adopters3. Early majority4. Late majority5. Laggards
Categories of AdoptersCategory Definition
Innovators 2.5% of population. Eager and willing to try new products. Almost obsessive about having products first. This is wealthy, free thinking group who bases opinion on research not on others opinion.
Early Adopters
13.5% of population. Adopt early on but are influenced by societal norms. Categorized by respect from others. Community minded individuals who buy early on.
Early Majority
34% of population. Interested in products but do a lot of research and comparison shopping amongst brands before buying. Categorized as deliberate.
Late Majority
34% of population. Adopt once most of friends do. Buy to fit in. Skeptics who buy on word-of-mouth advertising.
Laggards 16% of population. Low socio-economic group whose spending is very traditional. By the time they buy a product it has probably already being replaced by a different product on market.
Explain & Predict the Rate of Acceptance and Diffusion of a New ProductProduct Characteristics
Definition
Complexity The degree of difficulty in understanding and using a new product. More complex the product, the slower its diffusion
Compatibility How compatible a product is with the market it is being introduced to. Culture of a region will impact how accepting they are of certain products
Relative Disadvantage The degree to which a product is perceived as superior to existing substitutes
Observability How easy it is to recognize the benefits and features of a product so that they can be conveyed to the target market. Easy to see the functions of a car versus personal care products.
Triability Degree to which a product can be tried on a limited basis. Easier to try products like toothpaste & cereal versus a car or computer.
Product Life Cycle Product Life Cycle: Traces the stages of a product’s acceptance, from its introduction (birth) to its decline (death)
Changes in a product, its use, its image, or its positioning can extend that product’s life cycle.
PLC doesn’t tell managers the length of a product’s life cycle or its duration in any stage.
Tool to forecast future events and develop appropriate strategies.
Product Life Cycle
21
LO4
Time
Dol
lars
Profits
Sales
IntroductoryStage
GrowthStage
MaturityStage
DeclineStage
0
Product Life Cycles for Styles, Fashions, and Fads
22
LO4
Stage #1: Introductory High failure rates Little competition Frequent product modification Limited distribution High marketing and production costs Negative profits with slow sales increases Promotion focuses on awareness and information Communication challenge is to stimulate primary demand
Stage #2: Growth Increasing rate of sales
Entrance of competitors
Market consolidation
Initial healthy profits
Aggressive advertising of the differences between brands
Wider distribution
Stage #3: Maturity Sales increase at a decreasing rate Saturated markets Annual models appear Lengthened product lines Service and repair assume important roles Heavy promotions to consumers and dealers Marginal competitors drop out Niche marketers emerge
Stage #4: Decline Long-run drop in sales Large inventories of unsold items Elimination of all nonessential marketing expenses “Organized abandonment”
27
Innovators
Early adopters
Early majorityLate majority
Laggards
Productlife cyclecurve
Diffusioncurve
Introduction Growth Maturity Decline
Sale
s
REVIEW LEARNING OUTCOME
28
Product Life Cycles
Time
INTRODUCTION GROWTH MATURITY DECLINE
ProductStrategy
DistributionStrategy
PromotionStrategy
PricingStrategy
Limited modelsFrequent changes
More modelsFrequent changes.
Large number of models.
Eliminate unprofitable
modelsLimited
Wholesale/retail distributors
Expanded dealers. Long-term relations
Extensive.Margins drop.Shelf space
Phase out unprofitable
outlets
Awareness. Stimulate
demand.Sampling
Aggressive ads.Stimulatedemand
Advertise. Promote heavily
Phase outpromotion
High to recoupdevelopment
costs
Fall as result ofcompetition &
efficient produc-tion.
Prices fall (usually).
Prices stabilize at low level.
Sale
s