Npd & plc

New Product Development

Causes of New Product Failures

Causes of New Product Failures

• Overestimation of Market Size• Product Design Problems• Product Incorrectly Positioned,

Priced or Advertised• Costs of Product Development• Competitive Actions

What stops NPD ?

• Lack of ideas

• Social and govt. constraints

• Technological constraints

• High developmental costs

• Capital shortage

• Faster time required from idea to product

• Shorter PLC

Criteria for NPD

• Specific time frame

• Optimum potential market and growth rate

• Min. return on sales and ROIs

• Should lead to mkt leadership position

To create successful new products, the company must

• understand it’s customers, markets and competitors

• develop products that deliver superior value to customers.

New Product Development Process

• Idea Generation and Screening

• Concept Development and Testing

• Marketing Strategy

• Business Analysis

• Product Development

• Test Marketing

• Commercialization

New Product Development ProcessStep 1. Idea Generation

New Product Development ProcessStep 1. Idea Generation

Systematic Search for New Product Ideas

Information Exchange interaction – Int./Ext. sources – Customers, Competitors, Distributors, Suppliers

Creativity techniques – attribute listing, mind mapping

• Process to spot good ideas and drop poor ones

• Criteria– Market Size– Product Price– Development Time & Costs– Manufacturing Costs– Rate of Return

New Product Development ProcessStep 2. Idea Screening

New Product Development ProcessStep 2. Idea Screening

Idea Screening

Overall Probability of success =

Prob. Of technical completion * probability of commercialization given tech. completion * probability of economic success given commercialization

New Product Development ProcessStep 3. Concept Development & Testing

New Product Development ProcessStep 3. Concept Development & Testing

1. Develop Product Ideas into Alternative

Product Concepts

1. Develop Product Ideas into Alternative

Product Concepts

2. Concept Testing - Test theProduct Concepts with Groups

of Target Customers

2. Concept Testing - Test theProduct Concepts with Groups

of Target Customers

3. Choose the Best One3. Choose the Best One

New Product Development ProcessStep 4. Marketing Strategy Development

New Product Development ProcessStep 4. Marketing Strategy Development

Part Two - Short-Term:Product’s Planned Price

DistributionMarketing Budget

Part Two - Short-Term:Product’s Planned Price

DistributionMarketing Budget

Part Three - Long-Term:Sales & Profit Goals

Marketing Mix Strategy

Part Three - Long-Term:Sales & Profit Goals

Marketing Mix Strategy

Marketing Strategy Statement Formulation

Part One - Overall:Target Market

Planned Product PositioningSales & Profit Goals

Market Share

Part One - Overall:Target Market

Planned Product PositioningSales & Profit Goals

Market Share

New Product Development ProcessStep 5. Business AnalysisStep 6. Product Development

New Product Development ProcessStep 5. Business AnalysisStep 6. Product Development

Business Analysis

Review of Product Sales, Costs, and Profits Projections to See if They Meet Company Objectives

Business Analysis

Review of Product Sales, Costs, and Profits Projections to See if They Meet Company Objectives

If Yes, Move to Product Development

If Yes, Move to Product Development

If No, Eliminate Product Concept

If No, Eliminate Product Concept

New Product Development ProcessStep 7. Test Marketing

New Product Development ProcessStep 7. Test Marketing

StandardTest Market

Full marketing campaignin a small number of representative cities.

StandardTest Market

Full marketing campaignin a small number of representative cities.

SimulatedTest Market

Test in a simulated shopping environment

to a sample of consumers.

SimulatedTest Market

Test in a simulated shopping environment

to a sample of consumers.

Controlled Test Market

A few stores that have agreed to carry newproducts for a fee.

Controlled Test Market

A few stores that have agreed to carry newproducts for a fee.

Commercialization

• Timing – First entry– Parallel entry– Late Entry

• Geographic strategy – where to ?

• Who are target market - To whom ?

• Introductory mktg strategy – how to ?

Product Life CycleProduct Life Cycle

Time

ProductDevelop-

ment

Introduction

Profits

Sales

Growth Maturity Decline

Losses/Investments ($)

Sales andProfits ($)

Introduction Stage of the PLC

Introduction Stage of the PLC

SalesSales

CostsCosts

ProfitsProfits

Marketing ObjectivesMarketing Objectives

ProductProduct

PricePrice

Low sales Low sales

High cost per customerHigh cost per customer

NegativeNegative

Create product awareness and trial

Create product awareness and trial

Offer a basic productOffer a basic product

Use cost-plus Use cost-plus

DistributionDistribution Build selective distributionBuild selective distribution

AdvertisingAdvertising Build product awareness among early adopters and dealers

Build product awareness among early adopters and dealers

Growth Stage of the PLCGrowth Stage of the PLC

SalesSales

CostsCosts

ProfitsProfits


ProductProduct

PricePrice

Rapidly rising sales Rapidly rising sales

Average cost per customerAverage cost per customer

Rising profitsRising profits

Maximize market shareMaximize market share

Offer product extensions, service, warranty

Offer product extensions, service, warranty

Price to penetrate marketPrice to penetrate market

DistributionDistribution Build intensive distributionBuild intensive distribution

AdvertisingAdvertising Build awareness and interest in the mass market

Build awareness and interest in the mass market

Maturity Stage of the PLCMaturity Stage of the PLC

SalesSales

CostsCosts

ProfitsProfits


ProductProduct

PricePrice

Peak salesPeak sales

Low cost per customerLow cost per customer

High profitsHigh profits

Maximize profit while defending market share

Maximize profit while defending market share

Diversify brand and modelsDiversify brand and models

Price to match or best competitors

Price to match or best competitors

DistributionDistribution Build more intensive distributionBuild more intensive distribution

AdvertisingAdvertising Stress brand differences and benefits

Stress brand differences and benefits

Decline Stage of the PLCDecline Stage of the PLC

SalesSales

CostsCosts

ProfitsProfits


ProductProduct

PricePrice

Declining salesDeclining sales

Low cost per customerLow cost per customer

Declining profitsDeclining profits

Reduce expenditure and milk the brand

Reduce expenditure and milk the brand

Phase out weak itemsPhase out weak items

Cut priceCut price

DistributionDistribution Go selective: phase out unprofitable outlets

Go selective: phase out unprofitable outlets

AdvertisingAdvertising Reduce to level needed to retain hard-core loyal customers

Reduce to level needed to retain hard-core loyal customers

Stages in the Product Life Cycle

Introduction Growth Maturity Decline

The time at each stage varies greatly

DVD

Mini-discElectric cars

VR*

*= virtual reality

Digital cameras



Introduction

The seller tries to stimulate demand

Promotion campaigns to get increase public awareness

Explain how the product is used,

• Features Advantages Benefits

You will lose money, but you expect to make profits in the future



Introduction

•Sales are low, and profits are below the line because your costs are greater than the amount of money you make

•you have “negative” profit

•Need to spend a lot of money on promotion



Growth

A lot is sold - The seller tries to sell as much as possible

Other competitor companies watch, and decide about joining in with a competitor product

“success breeds imitation” (Text)

Growth will continue until too many competitors in the market - and the market is saturated



Growth

•At the end of the growth stage, profits start to decline when competition means you have to spend more money on promotion to keep sales going.

•Spending money on promotion cuts into your profit



Maturity

Many competitors have joined - the market is saturated

The only way to sell is to begin to lower the price - and profits decrease

It is difficult to tell the different between products since most have the same F.A.B. - Features, Advantages & Benefits

Competition can get “Nasty” and commercials are intense



Maturity

“Persuasive Promotion” becomes more important during this stage

That is to say, you have commercials almost begging the customer to still buy your product because you still make it just as good.



Decline

Newer products are now more attractive - even a low low price does not make consumers want to buy.

Profit margin declines - and so the only way to make money is to sell a high volume



Decline

To increase volume you try to

1. Increase the number of customers - get new customers

2. Increase the amount each customer uses

Extending the

Product Life

Cycle

1. Increase frequency of use by present customers

2. Add new users

3. Find new uses

4. Change product quality or packaging

Extending the Product Life Cycle

Market Modification

Product Modification

Purpose: to sell more product and cover original investment

Extending the product Cycle

• to prevent the product going into to prevent the product going into decline you modify the marketdecline you modify the market

MARKET MODIFICATIONMARKET MODIFICATION • you look for new consumers by

changing the product so it has new users - and then new customers( So So Soft , vaseline)Soft , vaseline)


• MARKET MODIFICATIONMARKET MODIFICATION

examples

Mortein

Ease –Bang for cleaning ceramics

Lemons for hair colouring

Different usage – dettol drops in water

gym bag, sports’ bag etc.

• to prevent the product going into to prevent the product going into decline you modify the productdecline you modify the product PRODUCT MODIFICATIONPRODUCT MODIFICATION

• adding new features, variations, model varieties will change the consumer reaction - create more demand

• therefore you attract more users


• PRODUCT MODIFICATIONPRODUCT MODIFICATION

• examples

• soaps - colours, features

• CD players

• chip flavours - many kinds

• flavoured tongue depressors

• couples seats at movie theatre


• PRODUCT MODIFICATIONPRODUCT MODIFICATION

• examples continued

• digital sound at theatres


Overlap of Life Cycle for Products A and B

WINDOWS 95

1991 1995 1996 1997

WINDOWS 3.1

Length of Cycle Stages

• Products move through the cycle at different speeds

• sometimes introduction is very long, or very short, depending on how easy it is for the public to understand the F.A.B.

• Not all products follow the same pattern

Life Cycle Length

• Some products move very fast because they are new and have no competition so the intro stage is short, and they go direct to growth stage.

Life Cycle Length

Because of• technology and• globalization• the introduction stage is getting very

short• some cycles more quickly to maturity,

then have many product modifications so the decline stage drags on and on

Speed of the PLC• Since the Intro Stage is getting shorter,

and sometimes the Growth Stage doesn’t last too long (because competitors move in) companies must continually come up with new products

• You can tell when they are in the growth stage because this is when they introduce new model variations, and some improvements to the product

Alternative Product Life Cycles

TamagachiPocket pagers

Failures that do not go through the 4 steps

• Fashions - currently popular products that tend to follow recurring life cycleseg. Wide lapels, 3 button suits, high heels vs. wedge heel

• “the currently acceptable style”

• Fads - Fashions with abbreviated life cycles - only popular with certain groups

• - music

• - fast food

• - children’s toys

• - “adult toys”

Eg. Watches w red straps

Product Life Cycle Considerations in Marketing Strategy

• Understand that profits have a predictable pattern

• in the early stages, focus is on product information

• in the later stages, focus is on brand promotion

• use market segmentation in maturity stage to maintain strong core customer basis



The time at each stage varies greatly

Mini-discElectric cars

*= virtual reality

Digital cameras

Monopoly Monopolistic Oligopoly Pure Competition

Npd & plc

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