9-1

9-1

New Product Development

and
Product Life-Cycle Strategies
Causes
Causes of
of New
New Product
Product Failures
Failures
9-2
9-2

• Overestimation of Market Size

• Product Design Problems
• Product Incorrectly Positioned, Priced or
Advertised
• Costs of Product Development
• Competitive Actions

• To create successful new products, the

company must:
– understand it’s customers, markets and
competitors
– develop products that deliver superior value to
customers.
 9-3
9-3

New
New Product
Product Development
Development
Process
Process

• Idea Generation and Screening

• Concept Development and Testing
• Marketing Strategy
• Business Analysis
• Product Development
• Test Marketing
• Commercialization
New
New Product
Product Development
Development Process
Process
9-4
9-4

Step
Step 1.
1. Idea
Idea Generation
Generation

Systematic Search for New Product

Ideas
Internal sources
Customers
Competitors
Distributors
Suppliers
New
New Product
Product Development
Development Process
Process
9-5
9-5

Step
Step 2.
2. Idea
Idea Screening
Screening

• Process to spot good ideas and drop

poor ones
• Criteria
– Market Size
– Product Price
– Development Time & Costs
– Manufacturing Costs
– Rate of Return
New
New Product
Product Development
Development Process
Process
9-6
9-6

Step
Step 3.
3. Concept
Concept Development
Development &
& Testing
Testing

1.
1. Develop
DevelopProduct
ProductIdeas
Ideasinto
into
Alternative
Alternative
Product
ProductConcepts
Concepts

2.
2. Concept
ConceptTesting
Testing--Test
Testthe
the
Product
ProductConcepts
Conceptswith
withGroups
Groups
of
ofTarget
TargetCustomers
Customers

3.
3. Choose
Choosethe
theBest
BestOne
One
New
New Product
Product Development
Development Process
Process
9-7
9-7

Step
Step 4.
4. Marketing
Marketing Strategy
Strategy Development
Development
Marketing Strategy Statement Formulation

Part
Part One
One -- Overall:
Overall:
Target
Target Market
Market
Planned
Planned Product
Product Positioning
Positioning
Sales
Sales &
& Profit
Profit Goals
Goals
Market
Market Share
Share

Part
Part Two
Two -- Short-Term:
Short-Term:
Product’s
Product’s Planned
Planned Price
Price
Distribution
Distribution
Marketing
Marketing Budget
Budget

Part
Part Three
Three -- Long-Term:
Long-Term:
Sales
Sales &
& Profit
Profit Goals
Goals
Marketing
Marketing Mix
Mix Strategy
Strategy
New
New Product
Product Development
Development Process
Process
9-8
9-8

Step
Step 5.
5. Business
Business Analysis
Analysis
Step
Step 6.
6. Product
Product Development
Development
Business
Business Analysis
Analysis

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

IfIf No,
No, Eliminate
Eliminate
Product
Product Concept
Concept

IfIf Yes,
Yes, Move
Move to
to
Product
Product Development
Development
New
New Product
Product Development
Development Process
Process
9-9
9-9

Step
Step 7.
7. Test
Test Marketing
Marketing

Standard
Standard Controlled
Controlled
Test
Test Market
Market Test
Test Market
Market
Full
Fullmarketing
marketingcampaign
campaign AAfew
fewstores
storesthat
thathave
have
in
inaasmall
smallnumber
numberof of agreed
agreedto
tocarry
carrynew
new
representative
representativecities.
cities. products
productsfor
foraafee.
fee.

Simulated
Simulated
Test
Test Market
Market
Test
Testininaasimulated
simulated
shopping
shoppingenvironment
environment
to
toaasample
sampleofof
consumers.
consumers.
 9-10
9-10
Product
Product Life
Life Cycle
Cycle

Sales and
Profits ($)

Sales

Profits

Time
Product Introduction Growth Maturity Decline
Develop-
ment

Losses/
Investments ($)
Introduction
Introduction Stage
Stage of
of the
the
9-11
9-11

PLC
PLC

Sales
Sales Low
Low sales
sales
Costs
Costs High
High cost
cost per
per customer
customer
Profits
Profits Negative
Negative
Create
Create product
product awareness
awareness
Marketing
Marketing Objectives
Objectives and
and trial
trial
Product
Product Offer
Offer aa basic
basic product
product
Price
Price Use
Use cost-plus
cost-plus
Distribution
Distribution Build
Build selective
selective distribution
distribution
Advertising Build
Build product
product awareness
awareness among
among
Advertising early
early adopters
adopters and
and dealers
dealers
Growth
Growth Stage
Stage of
of the
the PLC
PLC
9-12
9-12

Sales
Sales Rapidly
Rapidly rising
rising sales
sales
Costs
Costs Average
Average cost
cost per
per customer
customer
Profits
Profits Rising
Rising profits
profits
Marketing
Marketing Objectives
Objectives Maximize
Maximize market
market share
share
Offer
Offer product
product extensions,
extensions,
Product
Product service,
service, warranty
warranty
Price
Price Price
Price to
to penetrate
penetrate market
market
Distribution
Distribution Build
Build intensive
intensive distribution
distribution
Advertising Build
Build awareness
awareness and
and interest
interest in
in
Advertising the
the mass
mass market
market
Maturity
Maturity Stage
Stage of
of the
the PLC
PLC
9-13
9-13

Sales
Sales Peak
Peak sales
sales
Costs
Costs Low
Low cost
cost per
per customer
customer
Profits
Profits High
High profits
profits
Marketing Maximize
Maximize profit
profit while
while defending
defending
Marketing Objectives
Objectives
market
market share
share
Product
Product Diversify
Diversify brand
brand and
and models
models
Price
Price to
to match
match oror best
best
Price
Price competitors
competitors
Distribution
Distribution Build
Build more
more intensive
intensive distribution
distribution
Advertising Stress
Stress brand
brand differences
differences and
and
Advertising benefits
benefits
Decline
Decline Stage
Stage of
of the
the PLC
PLC
9-14
9-14

Sales
Sales Declining
Declining sales
sales
Costs
Costs Low
Low cost
cost per
per customer
customer
Profits
Profits Declining
Declining profits
profits
Marketing Reduce
Reduce expenditure
expenditure and
and milk
milk the
the
Marketing Objectives
Objectives
brand
brand
Product
Product Phase
Phase out
out weak
weak items
items
Price
Price Cut
Cut price
price
Go
Go selective:
selective: phase
phase out
out
Distribution
Distribution unprofitable
unprofitable outlets
outlets
Advertising
Advertising Reduce
Reduce to
to level
level needed
needed toto retain
retain
hard-core
hard-core loyal
loyal customers
customers
 9-15
9-15

The
The Boston
Boston Matrix
Matrix
• The Boston Matrix:
– A means of analysing the product portfolio and
informing decision making about possible
marketing strategies
– Developed by the Boston Consulting Group – a
business strategy and marketing consultancy in
1968
– Links growth rate, market share and cash flow
 9-16
9-16

The
The Boston
Boston Matrix
Matrix
• Classifies Products into four simple categories:
• Stars – products in markets experiencing high growth
rates with a high or increasing share of the market
- Potential for high revenue growth
 9-17
9-17

The
The Boston
Boston Matrix
Matrix
• Cash Cows:
– High market share
– Low growth
markets – maturity
stage of PLC
– Low cost support
– High cash revenue
– positive cash
flows
 9-18
9-18

The
The Boston
Boston Matrix
Matrix
• Dogs:
– Products in a low
growth market
– Have low or declining
market share (decline
stage of PLC)
– Associated with
negative cash flow
– May require large sums
of money to support
Is your product starting to
embarrass your company?
 9-19
9-19

The
The Boston
Boston Matrix
Matrix
• Problem Child:
- Products having a low
market share in a high
growth market
- Need money spent to
develop them
- May produce negative
cash flow
Problem children – worth spending
- Potential for the
good money on?
future?
 9-20
9-20

The
The Boston
Boston Matrix
Matrix
Market Growth

High Problem Children Stars

Dogs Cash Cows

Market Share
Low High
 9-21
9-21

The
The Boston
Boston Matrix
Matrix
• Implications:
• Dogs:
– Are they worth persevering with?
– How much are they costing?
– Could they be revived in some way?
– How much would it cost to continue
to support such products?
– How much would it cost to remove
from the market?
 9-22
9-22

The
The Boston
Boston Matrix
Matrix
• Implications:
• Problem Children:
– What are the chances of these products securing a hold
in the market?
– How much will it cost to promote them to a stronger position?
– Is it worth it?
 9-23
9-23

The
The Boston
Boston Matrix
Matrix
• Implications:
• Stars:
– Huge potential
– May have been expensive to develop
– Worth spending money to promote
– Consider the extent of their product life cycle in decision making
 9-24
9-24

The
The Boston
Boston Matrix
Matrix
• Implications:
• Cash Cows:
– Cheap to promote
– Generate large amounts of cash –
use for further R&D?
– Costs of developing and promoting
have largely gone
– Need to monitor their performance –
the long term?
– At the maturity stage of the PLC?
 9-25
9-25

The
The Product
Product Life
Life Cycle
Cycle and
and the
the Boston
Boston Mat
Mat
Importance of
Sales (3)
(2) Cash
Cash
maintaining from
froma ‘C’‘B’
(1)
The ‘A’ is at
product
used
used
balanceto
maturity support
to of
support – ‘C’
products
stage
portfolio
growth
in thecow.of– four
‘D’ and
portfolio at
(1) (2) (3) through
cash growth
products
possibly
different
Generates
in
to
stages theof
finance
funds for
stage and to
portfolio
extension
the PLC ‘D’. strategy
– Boston
development of
launch ‘A’ now
Matrix
for
‘D’ ‘B’?helps with the
possibly a dog?
analysis

B
A C

Time