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Ch 8: New Product Development - Coggle Diagram
Ch 8: New Product Development
The Product Life Cycle
See Figure 8.1 & Figure 8.3
Introduction Stage
Few competitors
Marketing objective: Awareness & stimulate trial (first purchase)
Focus on new product/brand
Use skimming or penetration strategy
Limited distribution
Promotion focused on building awareness with advertising
Minimal profit, if any
Starts when product first intro to intended target market
Profit is minimal because
1) Slow sales growth
2) High product development costs
3) High levels of marketing spending needed to launch new product
Radical new categories or tech innovations come with added challenge of having educate consumers on existence and relevancy of category itself
Money spent on advertising & promotion is focused on developing demand for the product class rather that just the brand, since there's few competitors
Marketing mix carefully crafted to ensure they are in step with product launch and its consumers
Price can be high or low
Initial high price: Skimming strategy to help recover R&D costs (takes advantage of price insensitivity of innovators & early adopters). Common in electronics market
Low price to enter market: Penetration pricing strategy & used to encourage rapid acceptance of innovation or to combat competitive threat
Distribution challenging cause channel members hesitant to carry new product that's unproven. Listing fees may also be expensive for marketers who often exp retailers charging to recover costs & risks of listing, shelving, merchandising new product in stores.
Growth Stage
More competitors enter market
Marketing objective: Product differentiation
Intro more product features
Prices slowly reduced
Place: Distribution increased
Promo emphasize points of diff vs. the competition
Increased profits that reach their max
Rapid rise in sales & profits
Market flooded with competing brands that thrust a category & its products into the forefront
Results in new consumers being enticed into the category & a resultant increase in sales
Promo becomes more product-specific, with ads playing key role in focusing consumers toward particular brands
Profits often reach peak in this stage cause more focused on promo & a decline in dev & production costs
Maturity Stage
Many competitors in market
Marketing objective: Brand loyalty
Ensure full product line is available and innovative with new ideas
Price discounts used frequently
Place: Full distribution is achieved
Promo focused on pricing & sales promo
Maxed profits that lvl off
Characterized by slowdown of sales growth & profit
Competitors well-established & fewer new consumers enter market
Marketing focused on holding or gaining market share by continuing to differentiate product & building on existing customer loyalty
Profits lvl off cause of price competition
Major strategy is control overall marketing costs by improving promo & distribution efficiency
Longest stage in product life cycle - Marketers focusing efforts to ensure product doesn't go into decline
Marketers use short-term promo consumer promos to encourage consumers to purchase product.
Product innovation priority to reposition products & revamp product line to be more competitive & relevant to consumers' needs - Why: It's to try to take product back into growth or early maturity stages of product life cycle
Packaging changes, product modifications, extended-usage approaches often used to keep product relevant
Decline Stage
Reduced competition, with some competitors leaving the market
Marketing objective: Product rationalization
Product: Retain only best sellers or discontinue
Very low prices
Place: Distribution reduced
Promo : Only minimal promotion, if any
Decreasing & minimal profits
Happens when sales & profits steadily decline over time. Products usually enter this stage when they become obsolete due to technological innovation or changes in consumer needs
Products take disproportionate share of management & financial resources relative to their future value
Results in company using 1 of 2 strategies to deal with product
1) Delete product - Product discontinued. Not a decision made lightly cause of residual customers who still use product
2) Harvest product - Keeps product but reduces marketing support in attempt to reap some minor profits
Length of the Product Life Cycle
Length varies based on industry, competition, tech innovation, approaches to marketing the product
No set timeframe for product to move through its life cycle
Generally, consumer products have shorter life cycles than business products
Availability of mass communication vehicles informs consumers quickly and shortens life cycle
Tech change shortens product life cycles as product innovation replaces existing products
Shape of the Product Life Cycle
High-learning products
There's an extended introductory period cause of significant efforts required to educate customers on usage & benefits of product
Low-learning products
Short introductory stage in the product life cycle. Benefits of purchasing product are self-evident & very little learning is required
Fashion products
Cyclical. Length of cycle will vary, but it's relatively short, going from intro to decline, generally within 2-3 years, only to resurface again in a few years later
Fad products
Very short product life cycle. Typically experiences immediate rapid growth, followed by equally rapid decline, with no real maturity stage at all. Products tend to be novelties
Product Life Cycle
Stages that new product goes through, starting with initial introduction into marketplace & moving through stages of growth, maturity, and decline
Used by many marketers to help manage product from its initial launch through eventual decline
Marketers try to manage products so they extend time till decline stage or so don't reach decline at all
Done by changing, updating, repositioning products to meet evolving consumer needs & competitive challenges
Online Products & Tech
Often experience shorter cycles that require frequent product updates to stay competitive
Seen frequently in social media
Intro stage
Product experiences minimal sales and grows slowly
Minimal or nonexistent profits
Few competitors
Over time, via marketing programs & product demand, product moves to rapid growth & profit increases
As competition becomes more severe, consumers presented with competitive products, which cause product's sales & profits to flatten out and eventually decline
Length of each stage in product life cycle depends on product, category, how it's being marketed
Product Life Cycle Strategies
Modifying the Product
Product improvements & line extensions are often used by marketers to ensure products remain competitive & address new trends in market
Line extensions
When a new item is added to an already existing product line
Modifying the Market
Finding new customers
Company may decide current product is under-represented with certain consumer groups & see opp to target these consumers
Marketers often cautious & somewhat reluctant to follow this approach as it can be expensive proposition that yields few results
Top 3 CA brands - Tim Hortons, WestJet, McCain Foods
Increasing a product's use
Encourages more frequent usage of product by existing customers
Typically used by products with strong & loyal customer base
Creating a new use situation
Finding new uses for existing product isn't a simple task cause many products don't lend themselves to this approach
Repositioning a Product
When product reaches maturity stage, often needs injection of newness to focus the market on product & to provide it with renewed competitive advantage
Meet changing consumer needs
React to competitor's move
Improve value offered to consumer
Introducing a New Product
Brings product back into the product life cycle to either the growth or early maturity stages
Regardless of type of product, new products have greater chance of success if they provide meaningful benefits to its target market
Drivers of product success
2020 BrandSpark Canadian Shopper Study
Consumers want value for their money
Convenience plays a lesser role in shopping decisions. Shoppers like trying new products & willing to pay more if the new product is better than what is currently available
New Products
Types of New Products
How new products are categorized depends on degree of newness involved and how much time a consumer needs to learn to use the product
Minor innovations
Minor modification that requires no new learning by consumers
Marketing emphasis - Gain consumer awareness & wide distribution
Continuous innovations
New products that include more than just minor product improvement but doesn't require totally new learning
Marketing emphasis - Advertise points of difference & benefit to consumers
Not as common & requires extensive product development by company
Marketers must invest in marketing communication programs that launch these innovative products & communicate benefits to consumers
Radical innovations
Into totally new product to market & requires new learning & consumption patterns by consumers
Marketing emphasis - Educate consumers through advertising, product trial, personal selling; public relations can play major role
Least common form of innovation
Success of product depends on education of consumer, usually through ads or PR efforts
The Adoption Curve
Takes the POV that some consumers are more ready than other to buy a product innovation
North American R
2.5% of pop are innovators who are the first to purchase new products
13.5% considered early adopters
34% early & late majority
34% once innovators & early adopters accept it, adoption of new products move to early majority & late majority, who respond to product being well-established in market & influenced by purchase habits of their peers
16% are laggards, who either reluctant or late purchasers of innovation & may never purchase
See Figure 8.6
Innovators - Venturesome, higher educated, use multiple info sources
Early adopters - Leaders in social settings, slightly above average education
Early majority - Deliberate, many informal social contacts
Late majority - Skeptical, below average social status
Laggards - Fear of debt, neighbours & friends are info sources
For product to be successful it must be purchased by innovators & early adopters
Marketers often spend a lot of effort involving this group with their new product prior to launch
They are opinion leaders in particular product category & their experiences plays integral role in future demand for product
After this marketers try to move products to early majority
Quickly reap benefits of increased sales & profits ASAP
Marketing programs designed to target specific groups in diff ways & separately focus marketing programs on demo & psychographic needs & interest of target group
Several barriers that deter consumers from adopting new product
Usage barriers - Product not consistent with existing usage habits
Value barriers - No incentive to change
Risk barriers - Existence of physical, economic, social risks if product purchased
Psychological barriers - Cultural or image differences
New Product Development
Approaches to New Product Development
Strategic Direction
Companies can follow different approaches to growth
Dependent on degree of risk & investment that companies willing to take
Focus on current customers
Market penetration - Finding ways to make current products appeal to current customers
Product development - Reaching current customers with new product
Focus on new customers
Market Development - Reaching new customers with current product
Diversification - Reaching new customers with new product
Company Structure
Many companies use cross-functional team-based approach that includes representation from many departments across an org, inc. marketers, regulatory experts, product developers, quality assurance specialists, sales
Other orgs can follow more focused approached by centralizing product dev responsibilities with one person (new product dev manager) or to full dept
Other orgs, new product dev is inc. in role of general marketer - New venture teams used to concentrate on all innovation projects for org, which could inc. new products, new processes, new business ventures
Regardless of formal structure
The success of new product dev requires expertise of ppl with diff specializations & from varied backgrounds to ensure best product ideas are developed
Experts are either fully involved in process from the start, or brought in along the way to contribute to the journey
The New Product Development Process
Way of minimizing risk
Many orgs use Stage Gate process that focuses on collection of data & analysis at each step in process to determine whether results successful enough to justify proceeding to next stage
If results can't be improved, project doesn't proceed to next step, product dev is halted
1) New product dev strategy
Purpose: ID new product dev focus that meets company objectives
Marketing info & methods: Company objectives, SWOT analysis of org/product/brand
Setting new product strategic direction for org as a whole, and the precise objectives for innovation at hand. There must be consistency between the two
2) Idea generation
Purpose - Brainstorm new ideas
Marketing info & methods - Ideas from employees, co-workers, consumers
Brainstorm session must include ppl who are creative, have varied experiences, have differing areas of expertise
For this to work, participants must be willing to share their most ridiculous or boring ideas with group, need to be open-minded, energetic, flexible, willing to build on each other's ideas
Can get useful info from customers & suppliers
3) Screening and evaluation
Purpose - Evaluate product ideas & dev concepts
Marketing info & methods - Internal eval of technical requirements, external concept tests
Ideas initially screened internally by new product dev team, who eliminates ideas that don't meet objectives & not technically feasible. Those that make it get moved to concept stage
Concept
More detailed idea, written in consumer terms, with enough detail for consumers to fully understand
Consumers presented with short descriptive paragraph & accompanying visual
Then asked for feedback
Concept test
External eval of new product idea, rather than actual product itself
Issues addressed - How customers perceive product, who would use it, how it would be used
Purpose of eval is to get feedback on pros & cons of concepts & understand what further mods needed
4) Business analysis
Purpose - ID product's features & its marketing strategy, and make financial projections
Marketing info & methods - Product's key features & anticipated marketing mix; assessment of production, legal, and profitability issues
Typically financial projections for a new product cover 3-year period & often look 5 years into future
Marketers are checking commercial viability of new product
Requires strong analytical skills & ability to understand dynamics of market
Marketers need to initially establish positioning of product in market & what marketing elements needed for successful launch
New product studied to determine whether it can and should be protected with patent, trademark or copyright
Marketer must be able to anticipate competitive reactions & foresee target market needs
Marketers must determine market share projections, price points, costs parameters, special discounts, distribution requirements, R needs, all marketing comms program needed to ensure product success
Need to understand whether product will require investment in infrastructure, software, machinery, people or training programs & whether it will effect sales of existing products
Marketers review profit projections, & decide whether concept has real financial merit. Must be realistic
If product can meet sales, profit, market share targets, then new product dev process will move to next step
If not, marketers may reassess concept, going back to consumers to conduct further R. This is usually the last checkpoint before significant resources invested in creating prototype, a full scale operating model of product
5) Development
Purpose - Create prototype & test it internally at company & externally with consumers
Marketing info & methods - Internal company assessments & external tests on product prototypes
Complex step, involving labs and consumer tests to ensure product consistently meets legal and quality control requirements
Manufacturing trials conducted to eliminate manufacturing problems & reduce costs
Time-consuming, with some products requiring extensive testing before safely brought to market
Pros - Allows marketers to take actual product prototypes into consumer R or show them to potential buyers
Platform to probe preliminary sales strategies with key accounts or marketing ideas with consumers
6) Test marketing
Purpose - Test product & marketing strategy in marketplace on limited scale (if necessary)
Marketing info & methods - Test marketing in defined areas
Test marketing - Offering product for sale on limited basis in defined geographic area
Done to find out whether consumers will buy the product & to what extent
May use this to test different marketing approaches to support product
Test cities tend to be under 1million in pop & need to be similar culturally to rest of country, with variety of socio-economic backgrounds represented, making them rep of CA in general
Tech is assisting marketers by creating simulated test markets through a number of software programs. Emerging trend uses VR testing to allow marketers to present consumers with range of experiences like simulated store enviro
Cons
Expensive to conduct
Immediately alerts competition
Competitors can easily sabo test markets by altering own pricing & marketing support to render test market unsuccessful - So many marketers try not to do test marketing ad rely on R to provide good direction for full product launch
7) Commercialization
Purpose - Launch and fully market product in marketplace
Marketing info & methods - Implement all areas of marketing mix; possible regional rollout
Orgs proceed very carefully cause most expensive stage for most new products
To minimize risk of financial failure, many orgs use regional rollouts, introing product sequentially into geographic areas of the country to allow production levels & marketing activities to build gradually
Marketing plays crucial role in success of new product, & marketers need to intimately understand their consumers and what's important to their purchase decisions - Each element of marketing mix needs to be carefully crafted to help make new product successful
Developing & launching new products is expensive with high risk of failure
R costs are high, and time and effort spent on developing prototypes & marketing materials are extensive
Only 15%-50% of new products are successful, success rate vary between industries, with consumer products experiencing highest failure rates
Product failure can result in expensive product write-offs and lack of future credibility in market
New products become successful over time & marketers work to finesse new products with upgrades & improvements that better meet consumer needs & expectations
But many product launches also fail for reasons spanning from insignificant point of difference to inadequate market distribution strategy
Why New Products & Services Fail
Insignificant point of difference
Determine distinctive & meaningful point of difference for target audience
Conduct R with consumers & monitor competitors' products/activities
Incomplete new concept definition
ID consumer insights & clearly def product's features & benefits
Develop clear positioning
Insufficient market attractiveness
ID target market (with a need) that is large enough & has growth potential to support the product
Poor execution of the marketing mix
Ensure 4Ps (inc. brand name & package) are aligned and attrative to consumers
Focus on gaining sufficient distribution to access consumers
Bad timing
Launch products when consumers are eager to purchase
Monitor market conditions & competitor actions
Costs to an org for poor quality can be staggering and inc. labour, materials, other expenses to fix prob, not to mention lost sales, profits, market share that usually results
To avoid expensive product failures, companies use number of difference approaches when developing new products - Clear strategic direction to creating particular company structures to instituting rigorous product development process