Chapter8: Developing New Products And Managing The Product Life Cycle

Question 1

What are new products

Answer 1

New products are original products, product improvements, product modifications, and new brands that the firm develops through its own research and development efforts.

Question 2

Creating successful new products requires

Answer 2

• understanding consumers, markets, and competitors
• developing products that deliver superior value to customers

Question 3

Companies find and develop new product ideas from

Answer 3

1. Internal sources: companies conduct formal R&D, or they pick the brains of their employees, urging them to think up and develop new product ideas.
2. External sources: companies track competitors’ offerings and obtain ideas from distributors and suppliers who are close to the market and can pass along information about consumer problems and new product possibilities.
3. Customers themselves: companies observe customers, invite them to submit their ideas and suggestions, or even involve customers in the new product development process.

Question 4

Why can innovation be very expensive and risky?

Answer 4

1. New products face tough odds
   —> by one estimate, 60% of all new consumer packaged products introduced by established companies fail.
   —> two-thirds of new product concepts are never even launched.
2. Reasons for failure include:
   —> overestimate market size
   —> poor design
   —> incorrectly positioned
   —> wrong timing (launch)
   —> priced too high
   —> poorly advertised

Question 5

Major stages in new product development

Answer 5

Idea generation —> idea screening —> concept development and testing —> marketing strategy development —> business analysis —> product development —> test marketing —> commercialization

Question 6

Idea generation

Answer 6

Systematic search for new product ideas.

Internal idea sources: internal social networks, intrapreneurial programs.
External idea sources: distributors and suppliers, competitors, customers.

Question 7

Idea screening

Answer 7

Screening new product ideas to spot good ones and drop poor ones as soon as possible.

Ways of screening new ideas: new idea write-up reviewed by a committee, R-W-W framework (real, win, worth doing).

Question 8

Idea screening: new idea write-up reviewed by a committee

Answer 8

Many companies require their executives to write up new product ideas in a standard format that can be reviewed by a new product committee. The write-up describes the product, value proposition, the target market, and the competition. It also estimates market size, product price, development time and costs, manufacturing costs, and rate of return. The committee then evaluates the idea against a set of general criteria.

Question 9

Idea screening: R-W-W framework — real, win, worth doing

Answer 9

Asks 3 questions:

1. 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?
2. Can we win? Does the product offer a sustainable competitive advantage? Does the company have the resources to make such a product a success?
3. Is it worth doing? Does the product fit the company’s overall growth strategy? Does it offer sufficient profit potential?

The company should be able to answer yes to all three R-W-W questions before developing the new product idea further.

Question 10

Product idea, product concept, product image

Answer 10

Product idea: an idea for a possible product that the company can see itself offering to the market.
Product concept: a detailed version of the new product idea stated in meaningful consumer terms.
Product image: the way consumers perceive an actual or potential product.

Question 11

Concept development

Answer 11

Developing a new product into alternative product concepts.
Find out how attractive each concept is to customers.
Choose the best one.

Question 12

Concept testing

Answer 12

Testing new product concepts with groups of target customers.

Methods:
- presenting the concepts to consumers symbolically or physically
- asking customers to respond by answering questions about their reactions to the concepts

Question 13

Marketing strategy development

Answer 13

Initial marketing strategy for a new product.

Three parts of the marketing strategy development:
- describes the target market, planned value proposition, sales, market-share, and profit goals.
- determines product’s planned prince, distribution, and marketing budget.
- develops long-run sales, profit goals, and marketing mix strategy.

Question 14

Business analysis

Answer 14

A review of the sales, costs, and profit projections for a new product (to find out whether these factors satisfy the company’s objectives).

Question 15

Product development

Answer 15

Developing the product concept into a physical product (to ensure that the product idea can be turned into a workable market offering).

Question 16

Test marketing

Answer 16

• introduces the product and its proposed marketing program into realistic market settings.
• gives the marketer an experience with marketing a product before full introduction.
• tests the product and is marketing program.
• testing takes time, and costs can be high.

Question 17

Commercialization

Answer 17

Introducing a new product into the market.

Considerations for launching a new product:
- when to launch: cannibalization, further improvements, economic considerations, competitors.
- where to launch: single location, region, national market, or international market.

Question 18

Summary of product life-cycle characteristics

Answer 18

Characteristics —> introduction —> growth —> maturity —> decline

1. Sales —> low sales —> rapidly rising sales —> peak sales —> declining sales.
2. Costs —> high cost per customer —> average cost per customer —> low cost per customer —> low cost per customer.
3. Profits —> negative —> rising profits —> high profits —> declining profits.
4. Customers —> innovators —> early adopters —> middle majority —> laggards.
5. Competitors —> few —> growing number —> stable number beginning to decline —> declining number.

Question 19

Summary of product life-cycle objectives

Answer 19

Marketing objectives —> introduction —> growth —> maturity —> decline.

—> create product awareness and trial —> maximize market share —> maximize profit while defending market share —> reduce expenditure and milk the brand.

Question 20

Summary of product life-cycle strategies

Answer 20

Strategies —> introduction —> growth —> maturity —> decline.

1. Product —> offer a basic product —> offer product extensions, service, and warranty —> diversify brand and models —> phase out weak items.
2. Price —> use cost-plus —> price to penetrate market —> price to match or beat competitors —> cut price.
3. Distribution —> build selective distribution —> build intensive distribution —> build more intensive distribution —> go selective: phase out unprofitable outlets.
4. Advertising —> build product awareness among early adopters and dealers —> build engagement and interest in the mass market —> stress brand differences and benefits —> reduce to level needed to retain hard-core loyal clients.
5. Sales promotion —> use heavy sales promotion to entice trial —> reduce to take advantage of heavy consumer demand —> increase to encourage brand switching —> reduce to minimal level.