Innovation, Product Development, and the
Product Life Cycle
“It’s so new we don’t know what it does, but nobody else has it so we’re selling the hell out of it!”
• 10% of ideas reach the test market stage• 50% of new products fail in test marketing• 50% of those fail on national launch• only 2.5% ever enter the marketplace• 1 entrant for every 64 ideas• the average new product that fails costs about $50 million• some product failures have losses of over $100 million for some
companies
64 ideas
1 ideaTesting time
Idea
s
Marketing decreases costs, improves the quality of ideas, and ensures better fit with the marketplace
Product• Product variety• Quality• Design• Features• Accessories • Brand name• Packaging• Sizes• Services• Warranties• Returns, repairs & support
Place
• Distribution channels• Coverage• Assortments• Locations• Inventory management• Warehousing availability• Order processing• Transportation costs
Price
• List price• Wholesale pricing• Seasonal pricing• Discounts• Price flexibility• Allowances• Payment period• Payment methods• Credit terms• Product bundling
Promotion
• Sales promotion• Personal selling• Advertising• Sales force• Public relations• Direct marketing
Target Market
The Four Ps
$
Fairchild Semiconductor Product Lifecycle
What’s your product lifecycle mix?
Team activity: Construct a product life cycle diagram for one of the companies in your team
Boston Consulting Group (BCG) positions throughout the lifecycle
High growth business strong in competitive market; high point share & ideal business; promote question marks & support R&D
Low growth business with low point share; were stars but have lost their attractiveness; finance question marks and stars
Low point share but may have high growth rate and therefore potential, but require high effort to grow; risky new ventures may become stars or dogs
Low relative share and low expected growth rate; may generate enough points to sustain but not competing; possible niche market; consider divestment
The GE/McKinsey Matrix
Business Strengths
Indu
stry
Att
racti
vene
ss
High Medium Low
High
Med
ium
Low Invest in,
growth strategy
Monitor performance, selective strategy
No growth or investment, consider divestment or liquidation
• Market size & growth• Industry profit margins• Competitive intensity• Seasonality• Cyclicity• Economies of scale• Technology• Social, environmental, legal,
& human impacts
• Relative market share• Profit margins• Ability to compete on price & quality• Knowledge of customer & market• Competitive strengths & weaknesses• Technological capability• Caliber of management
Ansoff’s Product/Market MatrixExisting products New Products
ExistingMarkets
NewMarkets
Market Penetration:• Increase product purchase in existing
markets (withdrawal, do nothing, consolidate, retrenchment)
• Revitalize brand image• Coordinate advertising and sales
training• Adapt to market change• Increase market share• Increase consumer usage (frequency,
quantity, new application)
Product Development:• Introduce new products into
existing markets; can be risky & expensive
• Product launch• Add product features &
refinements• Develop new products for same
market
Market Development:• Explore new markets for existing
products; when distinctive competencies rest with product not market
• Expanding geographic distribution• Targeting new customer segments
Diversification: • Introduce new products into new
markets; horizontal, vertical, conglomerate
• Acquisition/merger• New business venture
Conclusions about marketing matrix models--
• There is a risk of using matrix models is misclassifying businesses
• Use multiple models to ensure better coverage • Know the strengths and limits of each model; when
to use and avoid them • Integrate the information from matrices with other
sources of information and comparison • Don't let the matrix make decisions-- people make
decisions!
Market Team Formation
• Form team, acquainted, communication & schedules
• Team name & member names
• Decide on preference for marketing ethics team presentations (e.g., bottled water, marketing to kids, data mining/RFID & privacy, political campaigns, social media marketing)
• Current practices & facts
• Pro/con arguments
• Ethical issues
• Your position/resolution
Next Week: Market S-e-g-m-e-n-t-a-t-i-o-n
• Be able to describe yourself using segmentation concepts
• Be able to discuss how your company uses (or can use) segmentation
• Explore a market segment for your company and how that might add value to your business