Priciples of Marketing

by Philip Kotler and Gary Armstrong

Chapter 9
New-Product Development and
Product Life-Cycle Strategies
PEARSON

Objective Outline
New-Product Development Strategy
1

Explain how companies find and develop newproduct ideas.

The New-Product Development Process

Managing New-Product Development
2

List and define the steps in the new-product

development process and the major considerations in
managing this process.

Objective Outline
Product Life-Cycle Strategies
3

Describe the stages of the product life cycle and how

marketing strategies change during a products life
cycle.

Additional Product and Service

Considerations
4

Discuss two additional product issues: socially

responsible product decisions and international
product and services marketing.

New-Product Development Strategy

A firm can obtain new products in two ways.
One is through acquisition by buying a whole compan
y, a patent, or a license to produce someone elses produ
ct.
The other is through the firms own new-product develo
pment which is the development of original products, pr
oduct improvements, product modifications, and new bra
nds through the firms own product development efforts.

The New-Product Development Process

Idea Generation
New-product development starts with idea gener
ation the systematic search for new-product id
eas.
Major sources of new-product ideas include inter
nal sources and external sources such as custome
rs, competitors, distributors and suppliers, and ot
hers.

Internal Idea Sources

Using internal sources, the company can find ne
w ideas through formal R&D.
Thus, beyond its internal R&D process, a compa
ny can pick the brains of its own people from e
xecutives to salespeople to scientists, engineers, a
nd manufacturing staff.

External Idea Sources

Companies can also obtain good
new-product
ideas
of a sources of new Perhaps
thefrom
mostany
important
number product
of external
sources.
ideas
are customers themselves.
Distributors
are close to
marketcustomer
The company
canthe
analyze
and can questions
pass alongand
information
complaints to find new
about consumer
newproductsproblems
that betterand
solve
consumer
product problems.
possibilities.
Suppliers can tell the company about

Or it can invite
customers
share
new
concepts,totechniques,
and materials
suggestions and
thatideas.
can be used to develop new
products.
Competitors are another important
source.

Crowdsourcing
Crowdsourcing throws the innovation doors wid
e open, inviting broad communities of people c
ustomers,
employees,
independent scientists and
Truly innovative
companies dont rely only on one
researchers,
and even
the public ideas.
at large into th
source or another
for new-product
Instead, they innovation
develop extensive
innovation networks
e new-product
process.
that capture ideas and inspiration from every
possible source, from employees and customers to
outside innovators and multiple points beyond.

Idea Screening
The first idea-reducing
stage is idea screening, which hel
New-product
ps spot good ideas and Screening
drop poor ones as soon as possible
.
framework
Product development costs rise greatly in later stages, so t
Asks
Three
Questions
he company wants
to
go
ahead
only with those product id
Asks Three Questions
1. that
Is itwill
real?turn into profitable products.
eas
1.
Is it real?
2. Can we win?
Can we win? require their executives to write up ne
2.
Many
3. Iscompanies
it worth doing?
3.
Is
it
worth
doing?
w-product
ideas
in a standard format that can be reviewed
by a new-product committee.

Concept Development and Testing

A product concept is a detailed version of the new-produ
ct idea stated in meaningful consumer terms.
A product idea is an idea for a possible product that the c
ompany can see itself offering to the market.
A product concept is a detailed version of the idea stated i
n meaningful consumer terms.
A product image is the way consumers perceive an actual
or potential product.

 Concept 1: An affordably priced midsize car designed as a second

family car to be used around town for running errands and visiting
friends.
Concept 2: A mid-priced sporty compact appealing to young singles
and
couples. ahead, the marketers task is to develop
Looking
Concept 3: A green car appealing to environmentally conscious
this new product into alternative product concept
people who want practical, no-polluting transportation.
s, find4:out
how attractive
eachvehicle
concept
is to tocusto
Concept
A high-end
midsize utility
appealing
those who
mers,
and choose
the best
one. the poor gas mileage.
love
the space
SUVs provide
but lament

Concept Development

Concept Testing
Concept testing calls for testing new-product co
ncepts with groups of target consumers.
For some concept tests, a word or picture descript
ion might be sufficient.
However, a more concrete and physical presentati
on of the concept will increase the reliability of t
he concept test.

Marketing Strategy Development

TheStep
marketing
strategy development designs a
1
n initial
marketing strategy for a new product bas
Describes the target market; the planned value proposition;
ed on
product
concept.
and the
the sales,
market
share, and profit goals for the first few
Theyears.
marketing strategy statement consists of thre
e parts.
Step 2

Outlines the products planned price, distribution, and

marketing budget for the first year.

Step 3
Describes the planned long-run sales, profit goals, and
marketing mix strategy.

Business Analysis
Business analysis involves a review of the sales,
costs, and profit projections for a new product to
find out whether they satisfy the companys objec
tives.

Product Development
Product development develops the product concept into
a physical product to ensure that the product idea can be t
urned into a workable market offering.
R&D hopes to design a prototype that will satisfy and exc
ite consumers and that can be produced quickly and at bu
dgeted costs.
Often, products undergo rigorous tests to make sure that t
hey perform safely and effectively, or that consumers will
find value in them.

Test Marketing
Controlled Test Markets Test marketing gives the marketer

If the product passes both the

experience with marketing a Both
In fact, test marketing
by consumerconcept test and the product
test,
the
product before going to the great
controlled test
firmsare
hastested
been declining in
New products goods
and tactics
next step is test marketing,
the of full introduction. markets and
expense
recent
years.
among controlled
panels
of shoppers and
stage at which the product
Itand
letsitsthe company test the simulated test
Companies often
do not test-market
stores.
proposed marketing program
are
product and its entire marketing
markets
simple line extensions or copies of
introduced into realistic market
program targeting and
reduce the
competitors successful products.
settings. Test Markets positioning strategy, advertising,
Simulated
costs of test
distribution, pricing, brandingmarketing
and
and
packaging,
and budget levels.speed up the
Researchers measure consumer
responses
process.
to new products and marketing tactics in
laboratory stores or simulated online
shopping environments.

Commercialization
If the company goes ahead with commercialization int
roducing the new product into the market it will face hi
gh costs.
A company launching a new product must first decide on
introduction timing.
Next, the company must decide where to launch the new
product in a single location, a region, the national mark
et, 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 thi
s process.
Customer-Centered New-Product Development
Team-Based New-Product Development
Systematic New-Product Development

Customer-Centered New-Product Develo

pment
Customer-centered new-product development focuses
on finding new ways to solve customer problems and crea
te more customer-satisfying experiences.
The most successful new products are ones that are differ
entiated, solve major customer problems, and offer a com
pelling customer value proposition.

Team-Based New-Product Development

Team-based new-product development is the various c
ompany departments work closely together, overlapping t
he steps in the product development process to save time
and increase effectiveness.
This approach does have some limitations. For example, i
t sometimes creates more organizational tension and conf
usion than the more orderly sequential approach.

Systematic New-Product Development

The new-product development process should be holistic
and systematic rather than compartmentalized and haphaz
It helps create an innovation-oriented company
ard.
culture.
First
To avoidthese
problems,
a company
can install
an innova
It shows
that top
management
supports,
tion management
systemand
to collect,
evaluate, and
encourages,
rewardsreview,
innovation.
manage new-product ideas.
The innovation management system approach yields two
It will yield a larger number of new-product ideas,
favorable outcomes.
among which will be found some especially good
Seco
ones.
nd

New-Product Development in Turbulent T

imes
In fact, tough times might call for even greater new-produ
ct development, as the company struggles to better align i
ts market offerings with changing consumer needs and tas
tes.
In difficult times, innovation more often helps than hurts i
n making the company more competitive and positioning
it better for the future.

Product Life-Cycle Strategies

The product life cycle
(PLC) has five distinct stages:

It is a period of slowdown in sales

because the product has
It is a periodgrowth
of
slow
sales growth as the
It begins when the company
finds
and develops
achieved acceptance
by most potential
product is introduced in the market. It is the period when
a new-product idea. buyers.
Decline
Growth
Maturity
Product Profits
are nonexistent
in thisofstage
sales fall off and

It
is
a
period
rapid
market
During productIntroduction
development,
Profits sales
level are
off zero,
or decline because of
development
because of the heavy
expenses
of
profits drop.
acceptance
and
increasing
and the companys investment
costs
mount.
increased marketing out lays to defend
product introduction.
theprofits.
product against competition.

Product
Development

Introduction

Growth

Maturity

Decline

Product Life-Cycle Strategies

The PLC concept can describe a product class (g
asoline-powered automobiles), a product form (S
UVs), or a brand (the Ford Escape).
The PLC concept also can be applied to what are
known as styles, fashions, and fads.

Introduction Stage
The introduction stage starts when a new product is first
launched.
In this stage, as compared to other stages, profits are nega
tive or low because of the low sales and high distribution
and promotion expenses.
A company, especially the market pioneer, must choose a
launch strategy that is consistent with the intended produ
ct positioning.

Growth Stage
If the new product satisfies the market, it will enter a growth stage, in
which sales will start climbing quickly.
Attracted by the opportunities for profit, new competitors will enter
the market.
They will introduce new-product features, and the market will
expand.
The increase in competitors leads to an increase in the number of
distribution outlets, and sales jump just to build reseller inventories.
Profits increase during the growth stage as promotion costs are
spread over a large volume and as unit manufacturing costs decrease.
The firm uses several strategies to sustain rapid market growth as
long as possible.
It improves product quality and adds new product features and
models.

Maturity Stage

Decline Stage
Sales may plunge to zero, or they may drop to a low level
where they continue for many years. This is the decline s
tage.
Sales decline for many reasons, including technological a
dvances, shifts in consumer tastes, and increased competit
ion.
A products failing reputation can cause customer concern
s about the company and its other products.

Additional Product and Service Consider

ations
There are two additional considerations:
Social responsibility in product decisions
Issues of international product and services

Product Decisions and Social Responsibili

ty
Marketers should carefully consider public policy issues
and regulations regarding acquiring or dropping
products, patent protection, product quality and safety,
and product warranties.

Regarding new products, the government may prevent

companies from adding products through acquisitions if the
effect threatens to lessen competition.
Companies dropping products must be aware that they have
legal obligations, written or implied, to their suppliers,
dealers, and customers who have a stake in the dropped
product.

International Product and Services Mar

keting
First Marketers must figure out what products and service
s to introduce and in which countries.
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 the
ir offerings.
On the other hand, markets and consumers around the wo
rld differ widely.
Companies must usually respond to these differences by a
dapting their product offerings.

The End