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