PRP 111 PRINCIPLES OF MARKETING

CHAPTER 9 NOTES
New products are the lifeblood of an organization. However, new product
development is risky, and many new products fail. So, the first part of this
chapter lays out a process for finding and growing successful new products.
Once introduced, marketers then want their products to enjoy long and happy
lives. In the second part of this chapter, you’ll see that every product passes
through several life-cycle stages, and each stage poses new challenges
requiring different marketing strategies and tactics.
New Product Development Strategy
A firm can obtain new products in two ways. One is through acquisition—by
buying a whole company, a patent, or a license to produce someone else’s
product. The other is through the firm’s own new product development efforts.
New products are important to both customers and the marketers who serve
them: They bring new solutions and variety to customers’ lives, and they are a
key source of growth for companies. In today’s fast-changing environment,
many companies rely on new products for the majority of their growth. For
example, new products have almost completely transformed Apple in recent
years. The iPhone and iPad—both introduced only within the past decade or so
—are now the company’s two biggest-selling products.
By one estimate, 60 percent of all new consumer packaged products
introduced by established companies fail. Why do so many new products fail?
There are several reasons. Although an idea may be good, the company may
overestimate market size. The actual product may be poorly designed. Or it
might be incorrectly positioned, launched at the wrong time, priced too high,
or poorly advertised.
The New Product Development Process
Idea Generation
New product development starts with idea generation—the systematic search
for new product ideas. A company typically generates hundreds—even
thousands—of ideas to find a few good ones. Major sources of new product
ideas include internal sources and external sources such as customers,
competitors, distributors and suppliers, and others.
Crowdsourcing
More broadly, many companies are now developing crowdsourcing or open-
innovation new product idea programs. Through crowdsourcing, a company
invites broad communities of people—customers, employees, independent
scientists and researchers, and even the public at large—into the innovation
process. Companies large and small, across all industries, are crowdsourcing
product innovation ideas rather than relying only on their own R&D labs.
Idea Screening
The purpose of idea generation is to create a large number of ideas. The
purpose of the succeeding stages is to reduce that number. The first idea-
reducing stage is idea screening, which helps spot good ideas and drop poor
ones as soon as possible. Product development costs rise greatly in later stages,
so the company wants to go ahead only with those product ideas that will turn
into profitable products.
One marketing expert describes an R-W-W (“real, win, worth doing”) new
product screening framework that asks three questions. First, Is it real? Is there
a real need and desire for the product, and will customers buy it? Is there a
clear product concept, and will such a product satisfy the market? Second, Can
we win? Does the product offer a sustainable competitive advantage? Does the
company have the resources to make such a product a success? Finally, Is it
worth doing? Does the product fit the company’s overall growth strategy? Does
it offer sufficient profit potential?
Concept Development and Testing
An attractive idea must then be developed into a product concept. It is
important to distinguish between a product idea, a product concept, and a
product image. A product idea is an idea for a possible product that the
company can see itself offering to the market. A product concept is a detailed
version of the idea stated in meaningful consumer terms. A product image is
the way consumers perceive an actual or potential product.
Concept Development
Looking ahead, the marketer’s task is to develop this new product into
alternative product concepts, find out how attractive each concept is to
customers, and choose the best one.
Concept testing calls for testing new product concepts with groups of target
consumers. The concepts may be presented to consumers symbolically or
physically.
Marketing Strategy Development
Designing an initial marketing strategy for a new product based on the product
concept.
The marketing strategy statement consists of three parts. The first part
describes the target market; the planned value proposition; and the sales,
market-share, and profit goals for the first few years.
The second part of the marketing strategy statement outlines the product’s
planned price, distribution, and marketing budget for the first year.
The third part of the marketing strategy statement describes the planned long-
run sales, profit goals, and marketing mix strategy.
Business Analysis
Once management has decided on its product concept and marketing strategy,
it can evaluate the business attractiveness of the proposal. Business analysis
involves a review of the sales, costs, and profit projections for a new product to
find out whether they satisfy the company’s objectives. If they do, the product
can move to the product development stage.
Product Development
If the product concept passes the business test, it moves into product
development. Here, R&D or engineering develops the product concept into a
physical product. Often, products undergo rigorous tests to make sure that
they perform safely and effectively or that consumers will find value in them.
Companies can do their own product testing or outsource testing to other firms
that specialize in testing.
Test Marketing
If the product passes both the concept test and the product test, the next step
is test marketing, the stage at which the product and its proposed marketing
program are tested in realistic market settings. Test marketing gives the
marketer experience with marketing a product before going to the great
expense of full introduction. It lets the company test the product and its entire
marketing program—targeting and positioning strategy, advertising,
distribution, pricing, branding and packaging, and budget levels.
However, test marketing costs can be high, and testing takes time that may
allow market opportunities to slip by or competitors to gain advantages. A
company may do little or no test marketing when the costs of developing and
introducing a new product are low or when management is already confident
about the new product.
Commercialization
Test marketing gives management the information needed to make a final
decision about whether to launch the new product. If the company goes ahead
with commercialization—introducing the new product into the market—it will
face high costs. For instance, in a single month surrounding the introduction of
the Apple Watch, Apple spent $38 million on TV advertising campaign alone for
the new product.
A company launching a new product must first decide on introduction timing. If
the new product will eat into the sales of other company products, the
introduction may be delayed. If the product can be improved further or if the
economy is down, the company may wait until the following year to launch it.
However, if competitors are ready to introduce their own competing products,
the company may push to introduce its new product sooner. Next, the
company must decide where to launch the new product—in a single location, a
region, the national market, or the international market.
Managing New Product Development
New product development involves more than just going through a set of
steps. Companies must take a holistic approach to managing this process.
Successful new product development requires a customer-centered, team-
based, and systematic effort.
Customer-Centered New Product Development
Like everything else in marketing, successful new product development begins
with a thorough understanding of what consumers need and value. Customer-
centered new product development focuses on finding new ways to solve
customer problems and create more customer-satisfying experiences.
Team-Based New Product Development
To get their new products to market more quickly, many companies use a
team-based new product development approach. Under this approach,
company departments work closely together in cross-functional teams,
overlapping the steps in the product development process to save time and
increase effectiveness. Instead of passing the new product from department to
department, the company assembles a team of people from various
departments that stays with the new product from start to finish. Such teams
usually include people from the marketing, finance, design, manufacturing, and
legal departments and even supplier and customer companies.
Systematic New Product Development
Finally, the new product development process should be holistic and
systematic rather than compartmentalized and haphazard. Otherwise, few new
ideas will surface, and many good ideas will sputter and die. To avoid these
problems, a company can install an innovation management system to collect,
review, evaluate, and manage new product ideas.
Product Life-Cycle Strategies
Management is aware that each product will have a life cycle, although its
exact shape and length is not known in advance. Figure 9.2 shows a typical
product life cycle (PLC), the course that a product’s sales and profits take over
its lifetime. The PLC has five distinct stages:
1. Product development begins when the company finds and develops a new
product idea. During product development, sales are zero, and the company’s
investment costs mount.
2. Introduction is a period of slow sales growth as the product is introduced in
the market. Profits are non existent in this stage because of the heavy expenses
of product introduction.
3. Growth is a period of rapid market acceptance and increasing profits.
4. Maturity is a period of slowdown in sales growth because the product has
achieved acceptance by most potential buyers. Profits level off or decline
because of increased marketing outlays to defend the product against
competition.
5. Decline is the period when sales fall off and profits drop.
Not all products follow all five stages of the PLC. Some products are introduced
and die quickly; others stay in the mature stage for a long, long time. Some
enter the decline stage and are then cycled back into the growth stage through
strong promotion or repositioning.
Introduction Stage
The introduction stage starts when a new product is first launched.
Introduction takes time, and sales growth is apt to be slow. In this stage, as
compared to other stages, profits are negative or low because of the low sales
and high distribution and promotion expenses. Much money is needed to
attract distributors and build their inventories.
Growth Stage
If the new product satisfies the market, it will enter a growth stage in which
sales will start climbing quickly. The early adopters will continue to buy, and
later buyers will start following their lead, especially if they hear favorable
word of mouth. Attracted by the opportunities for profit, new competitors will
enter the market. They will introduce new product features, and the market
will expand. Profits increase during the growth stage as promotion costs are
spread over a large volume and as unit manufacturing costs decrease.
Maturity Stage
At some point, a product’s sales growth will slow down, and it will enter the
maturity stage. This maturity stage normally lasts longer than the previous
stages, and it poses strong challenges to marketing management.
The slowdown in sales growth results in many producers with many products
to sell. In turn, this overcapacity leads to greater competition. Competitors
begin marking down prices, increasing their advertising and sales promotions,
and upping their product development budgets to find better versions of the
product.
In modifying the market, the company tries to increase consumption by finding
new users and new market segments for its brands. For example, brands such
as Harley- Davidson and Axe fragrances, which have typically targeted male
buyers, have created products and marketing programs aimed at women.
The company might also try modifying the product—changing characteristics
such as quality, features, style, packaging, or technology platforms to retain
current users or attract new ones. Thus, to freshen up their products for
today’s technology-obsessed children, many classic toy and game makers are
creating new digital versions or add-ons for old favorites.
Finally, the company can try modifying the marketing mix—improving sales by
changing one or more marketing mix elements. The company can offer new or
improved services to buyers. It can cut prices to attract new users and
competitors’ customers. It can launch a better advertising campaign or use
aggressive sales promotions—trade deals, cents-off, premiums, and contests.
In addition to pricing and promotion, the company can also move into new
marketing channels to help serve new users.
Decline Stage
The sales of most product forms and brands eventually dip. Sales may plunge
to zero, or they may drop to a low level where they continue for many years.
This is the decline stage. Sales decline for many reasons, including technological
advances, shifts in consumer tastes, and increased competition. As sales and
profits decline, some firms withdraw from the market. Those remaining may
prune their product offerings. In addition, they may drop smaller market
segments and marginal trade channels, or they may cut the promotion budget
and reduce their prices further.
For these reasons, companies must identify products in the decline stage and
decide whether to maintain, harvest, or drop them. Management may decide
to maintain its brand, repositioning or reinvigorating it in hopes of moving it
back into the growth stage of the product life cycle. Management may decide
to harvest the product, which means reducing various costs (plant and
equipment, maintenance, R&D, advertising, sales force), hoping that sales hold
up. If successful, harvesting will increase the company’s profits in the short run.
Finally, management may decide to drop the product from its line. The
company can sell the product to another firm or simply liquidate it at salvage
value.
Product Decisions and Social Responsibility
Marketers should carefully consider public policy issues and regulations
regarding acquiring or dropping products, patent protection, product quality
and safety, and product warranties. If consumers have been injured by a
product with a defective design, they can sue manufacturers or dealers. A
recent survey of manufacturing companies found that product liability was the
second-largest litigation concern, behind only labor and employment matters.
International Product and Services Marketing
International product and services marketers face special challenges. First, they
must figure out what products and services to introduce and in which
countries. Then they must decide how much to standardize or adapt their
products and services for world markets. On the one hand, companies would
like to standardize their offerings. Standardization helps a company develop a
consistent worldwide image. It also lowers the product design, manufacturing,
and marketing costs of offering a large variety of products. On the other hand,
markets and consumers around the world differ widely. Companies must
usually respond to these differences by adapting their product offerings.
For example, McDonald’s operates in more than 100 countries, with sometimes
widely varying local food preferences. So although you’ll find its signature
burgers and fries in most locations around the world, the chain has added
menu items that meet the unique taste buds of customers in local markets.