Chapter 8 - New Product Development

New-product development and product life-cycle strategies Chapter 8... Innovation and new product development strategy• Product innovation covers a range of product development activitie

New-product development and product

life-cycle strategies

Chapter 8

Introduction: New products

• New products are the lifeblood of the

organisation but they are extremely vulnerable and the majority never reach

commercialisation

• In competitive markets, the best and strongest firms sustain growth through the introduction

of new products and services to meet the

changing needs of the consumers

Introduction: New products

• All products have a finite life span and this is

influenced by the type of product, its innovativeness, the management of the product through its life cycle,

as well as the markets in which it is sold.

• All products will eventually decline and need to be replaced by new ones and companies need to be

adept at adapting marketing strategies to respond to the dynamics of the environment, so as to manage the product through its life cycle effectively.

Innovation and new product development

• In business, standing still is not an option

• Unless companies develop new products, their business will inevitably wane and fade

• Innovation is a costly and risky activity

• Some innovations are nothing more than a modification to an existing product range,

while others are completely new products

– which is the best depends upon the needs of the market

Innovation and new product development strategy

• Product innovation covers a range of product development activities, including product

improvement, development of new products

and extensions to product lines

• Classifications:

• New to company, new to market

• New to company, significant innovation to market

• New to company, minor innovation to market.

Risks and returns in new-product development

• About 90% of new products developed fail

• Only 40% of new consumer products that are brought to market will be around 5 years later

• Risk management essential

• Research indicates that success depends

primarily upon the amount of time and effort a company is prepared to invest in making sure the new product fits its market

Why do new products fail?

• New product development is too expensive

• Unexpected delays and time to market too long

• Idea good but market overestimated

• Insufficient demand for the product or service

• Not as well designed as it should have been

• Incorrectly positioned

• Incorrectly priced

• Competitors fight back more aggressively than expected.

What influences new product success?

• Development of a unique superior product

– Better quality, new features and greater value

• Clearly defined market and product concept

• Meeting market needs

• Senior management commitment

• Relentless pursuit of innovation

• New product planning

• Systematic new product development process

9 Steps of new product development

Figure 8.1 Steps in new product development

1 Idea generation

• Systematic search for new-product ideas

• In pharmaceutical companies it can take 6000-8000 ideas to produce one commercial success

• Generally only 1 out of 100 new-product ideas will reach their objectives.

3 Concept development and testing

• Product idea converted into a product concept

• Converted into meaningful consumer terms of a product image

• How the consumers will perceive the product.

• Concept testing is essential to judge the

robustness of the new-product concept and

ascertain if it will have commercial appeal

• Consumers may like the idea but would they be prepared to pay for it?

4 Marketing strategy development

• Develop the appropriate marketing strategy

• based on the marketing logic by which the business unit hopes to achieve its marketing objectives

• outlining the intended target market, product positioning and sales, market and profit share for the first 3-5 years.

6 Product development

• Entails developing the product concept into a physical product in order to ensure that the product idea can be turned into a workable product

7 Test Marketing

• New product tested in realistic market settings:

– Standard test markets

• Small number of representative test cities / markets, Pilot study

• Competitors are able to monitor the project

– Controlled test markets

• Conducted in conjunction with research firm, Controlled parameters

• Competitors are able to monitor the project

– Simulated test markets

• Simulated environment

• Provides measure of trial and commercial effectiveness against competitors

– Test marketing new industrial products

• Product-use tests, Trade shows

• Standard or controlled test market

• Distributor and dealer display rooms

8 Commercialisation

• If having met the rigours of the prior analysis, the product is then brought to

commercialisation, the company needs to

decide the following:

– When?

– Where?

– To Whom?

– How?

9 Organising for new-product development

• Sequential product development slow and

many companies encourage the concept of

simultaneous product development:

– departments work together, overlapping the

steps in the product development process so

as to save time and increase effectiveness.

• Successful new-product development is based upon an entrenched ethos of innovation within the company that is supported from senior

management downwards

Product life-cycle strategies

• Following the launch of the new product, the challenge to management is ensuring that the product achieves its potential over its

projected life span

– This involves understanding the product

life-cycle and developing appropriate marketing strategies and interventions.

The product life-cycle

• The product life-cycle (PLC) is the course of a product’s sales and profits over its lifetime It involves five stages:

Figure 8.2 Sales and profits over the product’s life from inception to demise

The product life cycle

Introduction stage

– The phase where the new product is

distributed and made available for purchase – The market pioneer has much responsibility when devising the appropriate strategy as it sets the stage for the product’s introduction to the consumer.

– Characterised by high promotional costs.

Introduction stage strategies

– Strategies are based upon the product and the dynamics of the market

• Skim the market slowly using high price and relatively low promotional activity.

• Skim rapidly by using a high price and high promotion strategy if the market is price insensitive.

Growth stage

– The product sales begin to increase rapidly – Profit is generated as a result of effective promotional activity and the spread of costs over larger volume of sales.

• New market development

– New usage and application

• Product development and modification

• Marketing innovation

Decline stage

– Sales decline.

– Marketers need to determine the value of retaining the product versus the cost of divesting from the product

– This is weighed up against the market

dynamics.

Table 8.2 Summary of product life-cycle characteristics, objectives and strategies

Source: Philip Kotler, Marketing Management: Analysis, planning, implementation, and control, 11th edn,

© 2003, p 340 Reprinted by permission of Pearson Education, Inc., Upper Saddle River, NJ.