9-1 9-1

Financial Engineering

unit-II New Product Development and Product Life-Cycle Strategies

Causes of New Product Failures

Overestimation of Market Size Product Design Problems Product Incorrectly Positioned Priced or !dvertised "osts of Product Develo#ment "om#etitive !ctions $o create successful ne% #roducts t&e com#any must'
understand it(s customers markets and com#etitors develo# #roducts t&at deliver su#erior value to customers)

9-2 9-2

9-* 9-*

New Product Development Process

Idea +eneration and Screening "once#t Develo#ment and $esting Marketing Strategy ,usiness !nalysis Product Develo#ment $est Marketing "ommercialization

New New Product Product Development Development Process Process

Step Step 1. 1. Idea Idea Generation Generation

9-9--

Systematic Searc& for .e% Product Ideas Internal sources "ustomers "om#etitors Distributors Su##liers

New New Product Product Development Development Process Process

Step Step 2. 2. Idea Idea Screening Screening

9-/ 9-/

Process to s#ot good ideas and dro# #oor ones "riteria

Market Size Product Price Develo#ment $ime 0 "osts Manufacturing "osts 1ate of 1eturn

New New Product Product Development Development Process Process

Step Step 3. 3. Concept Concept Development Development
1) 1) Develo# Develo#Product ProductIdeas Ideasinto into !lternative !lternative Product Product"once#ts "once#ts

9-2 9-2

!esting !esting

2) 2) "once#t "once#t$esting $esting--$est $estt&e t&e Product Product"once#ts "once#ts%it& %it&+rou#s +rou#s of of$arget $arget"ustomers "ustomers

*) *) "&oose "&ooset&e t&e,est ,estOne One

New New Product Product Development Development Process Process

9-3 9-3

Step Step ". ". #ar$eting #ar$eting Strateg% Strateg% Development Development Marketing Strategy Statement 6ormulation
Part Part One One -- Overall' Overall'

$arget $arget Market Market Planned Planned Product Product Positioning Positioning Sales Sales 0 0 Profit Profit +oals +oals Market Market S&are S&are

Part Part $%o $%o -- S&ort-$erm' S&ort-$erm'

Product(s Product(s Planned Planned Price Price Distribution Distribution Marketing Marketing ,udget ,udget

Part Part $&ree $&ree -- 4ong-$erm' 4ong-$erm'

Sales Sales 0 0 Profit Profit +oals +oals Marketing Marketing Mi5 Mi5 Strategy Strategy

New New Product Product Development Development Process Process

Step Step &. &. 'usiness 'usiness (nal%sis (nal%sis Step Step ). ). Product Product Development Development

9-7 9-7

,usiness ,usiness !nalysis !nalysis 1evie% 1evie% of of Product Product Sales Sales "osts "osts and and Profits Profits Pro8ections Pro8ections to to See See if if $&ey $&ey Meet Meet "om#any "om#any Ob8ectives Ob8ectives

If If .o .o :liminate :liminate Product Product "once#t "once#t If If 9es 9es Move Move to to Product Product Develo#ment Develo#ment

New New Product Product Development Development Process Process

Step Step *. *. !est !est #ar$eting #ar$eting
Standard Standard $est $est Market Market
6ull 6ullmarketing marketingcam#aign cam#aign in a small number in a small numberof of re#resentative re#resentativecities) cities)

9-9 9-9

"ontrolled "ontrolled $est $est Market Market

! !fe% fe%stores storest&at t&at&ave &ave agreed agreedto tocarry carryne% ne% #roducts #roductsfor fora afee) fee)

Simulated Simulated $est $est Market Market

$est $estin ina asimulated simulated s&o##ing s&o##ingenvironment environment to toa asam#le sam#leof of consumers) consumers)

Product +ife C%cle

9-1; 9-1;

Sales and Profits ($) Sales

Profits Time Product Development Losses/ Investments ($) Introduction Growth Maturity Decline

Introduction Stage of t,e P+C

Sales Sales "osts "osts Profits Profits
Marketing Marketing Ob8ectives Ob8ectives

9-11 9-11

4o% 4o% sales sales <ig& <ig& cost cost #er #er customer customer .egative .egative "reate "reate #roduct #roduct a%areness a%areness and and trial trial Offer Offer a a basic basic #roduct #roduct =se =se cost-#lus cost-#lus ,uild ,uild selective selective distribution distribution ,uild ,uild #roduct #roduct a%areness a%areness among among early early ado#ters ado#ters and and dealers dealers

Product Product Price Price Distribution Distribution !dvertising !dvertising

Growt, Stage of t,e P+C

9-12 9-12

Sales Sales "osts "osts Profits Profits

Marketing Marketing Ob8ectives Ob8ectives

1a#idly 1a#idly rising rising sales sales !verage !verage cost cost #er #er customer customer 1ising 1ising #rofits #rofits Ma5imize Ma5imize market market s&are s&are Offer Offer #roduct #roduct e5tensions e5tensions service service %arranty %arranty Price Price to to #enetrate #enetrate market market ,uild ,uild intensive intensive distribution distribution ,uild ,uild a%areness a%areness and and interest interest in in t&e t&e mass mass market market

Product Product Price Price Distribution Distribution !dvertising !dvertising

#aturit% Stage of t,e P+C

9-1* 9-1*

Sales Sales "osts "osts Profits Profits

Marketing Marketing Ob8ectives Ob8ectives

Peak Peak sales sales 4o% 4o% cost cost #er #er customer customer <ig& <ig& #rofits #rofits Ma5imize Ma5imize #rofit #rofit %&ile %&ile defending defending market market s&are s&are Diversify Diversify brand brand and and models models Price Price to to matc& matc& or or best best com#etitors com#etitors ,uild ,uild more more intensive intensive distribution distribution Stress Stress brand brand differences differences and and benefits benefits

Product Product Price Price Distribution Distribution !dvertising !dvertising

Decline Stage of t,e P+C

9-19-1-

Sales Sales "osts "osts Profits Profits

Marketing Marketing Ob8ectives Ob8ectives

Declining Declining sales sales 4o% 4o% cost cost #er #er customer customer Declining Declining #rofits #rofits 1educe 1educe e5#enditure e5#enditure and and milk milk t&e t&e brand brand P&ase P&ase out out %eak %eak items items "ut "ut #rice #rice +o +o selective' selective' #&ase #&ase out out un#rofitable un#rofitable outlets outlets 1educe 1educe to to level level needed needed to to retain retain &ard-core &ard-core loyal loyal customers customers

Product Product Price Price Distribution Distribution !dvertising !dvertising