Insert Chapter Picture Here Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved Chapter 10 1 Designed by Eric Brengle.

Insert Chapter Picture Here

Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved Chapter 10

1

Designed by Eric Brengle B-books, Ltd.

CHAPTER

10

Developing and Managing Products

Prepared byDeborah Baker

Texas Christian University

MarketingLamb, Hair, McDaniel

9

2Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved Chapter 10

Learning Outcomes

Explain the importance of developing new products and describe the six categories of new products

Explain the steps in the new-product development process

Explain why some products succeed and others fail

LOI

LO2

LO3

3Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved Chapter 10

Learning Outcomes

Discuss global issues in new-product development

Explain the diffusion process through which new products are adopted

Explain the concept of product life cycles

LO5

LO6

LO4

4Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved Chapter 10

Explain the importance of developing new products

and describe the six categories of new products

The Importance of New ProductsLOI

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New ProductNew Product A product new to the world,

the market, the producer,

the seller, or some

combination of these.

LOI New Product

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LOI

MarketDevelopment

Diversification

Increase market share among existing customers

Attract new customers to existing products

Introduce new products into new markets

Create new products for present markets

Categories of New Products

New-to-the-WorldNew-to-the-World

New Product LinesNew Product Lines

Product Line AdditionsProduct Line Additions

Improvements or RevisionsImprovements or Revisions

Repositioned ProductsRepositioned Products

Lower-Priced ProductsLower-Priced Products

7Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved Chapter 10 LOI

New Product for Starbucks

Starbucks recently marketed the film “Akeelah and the Bee”.

It says the film is a natural extension of the Starbucks experience.

Critics say the pervasive chain is overextending its welcome.

SOURCE: Janet Adamy, “Lights, Camera, Action at Starbucks,” Wall Street Journal, April 22-23/2006, A2.

8Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved Chapter 10

REVIEW LEARNING OUTCOMEDeveloping New Products

LOI

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Explain the steps in the new-product

development process

The New Product Development ProcessLO2

10Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved Chapter 10 LO2

The New-Product Development Process

Long-term commitmentLong-term commitment

Company-specific approachCompany-specific approach

Capitalize on experienceCapitalize on experience

Establish an environmentEstablish an environment

New Product Success Factors

11Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved Chapter 10 LO2

New-Product Development Process

New-Product StrategyNew-Product Strategy

Idea GenerationIdea Generation

Idea ScreeningIdea Screening

Business AnalysisBusiness Analysis

DevelopmentDevelopment

Test MarketingTest Marketing

CommercializationCommercialization

New ProductNew Product

12Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved Chapter10

LO2

Diversification

Idea Generation

Customers

Employees

Distributors

Competitors

Vendors

R & D

Consultants

Sources ofSources ofNew-ProductNew-Product

IdeasIdeas

Online

http://www.ideo.com

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LO2 Tips for New Product Development

Disperse R & D around the globe

Keep teams small and empower employees

Flatten hierarchy

Encourage generation of crazy new ideas

Welcome mistakes

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BrainstormingBrainstorming The process of getting a

group to think of unlimited

ways to vary a product or

solve a problem.

LO2 Brainstorming

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ScreeningScreening

LO2 Idea Screening

The first filter in the product

development process, which

eliminates ideas that are

inconsistent with the

organization’s new-product

strategy or are inappropriate

for some other reason.

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LO2 Concept Test

Concept TestConcept Test A test to evaluate a

new-product idea, usually

before any prototype has

been created.

17Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved Chapter 10LO2

Business Analysis

Considerations Considerations in in

Business Business Analysis StageAnalysis Stage

Considerations Considerations in in

Business Business Analysis StageAnalysis Stage

Demand

Cost

Sales

Profitability

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LO2 Development

Creation of prototype

Marketing strategy

Packaging, branding, labeling

Promotion, price, and distribution strategy

Manufacturing feasibility

Final government approvals if needed

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LO2 Simultaneous Product Development

SimultaneousProduct

Development

SimultaneousProduct

Development

A new team-oriented

approach to new-product

development where all

relevant functional areas

and outside suppliers

participate in the

development process.

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LO2

TestMarketing

TestMarketing

The limited introduction of

a product and a marketing

program to determine the

reactions of potential

customers in a market

situation.

Test Marketing

Online

http://www.merwyn.com

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LO2 Alternatives to Test Marketing

Single-source research using supermarket scanner data

Simulated (laboratory) market testing

Online test marketing

Online

http://www.newproductworks.com

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Biz Flix

Oct

ob

er

Sky

22

LO2

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LO2 Commercialization

ProductionProduction

Inventory BuildupInventory Buildup

Distribution ShipmentsDistribution Shipments

Sales TrainingSales Training

Trade AnnouncementsTrade Announcements

Customer AdvertisingCustomer Advertising

24Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved Chapter 10

REVIEW LEARNING OUTCOMENew-Product Development Process

LO2

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Explain why some products succeed and others fail

Why Some Products Succeed and Others FailLO3

26Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved Chapter 10 LO3

Why New Products Fail

No discernible benefits

Poor match between features and customer desires

Overestimation of market size

Incorrect positioning

Price too high or too low

Inadequate distribution

Poor promotion

Inferior product

27Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved Chapter10

LO3 Success Factors

Match between product and market needs

Different from substitute products

Factors in SuccessfulFactors in SuccessfulNew ProductsNew Products

Benefit to large number of people

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LO3 Success Factors

Listening to customers

Producing the best product

Vision of future market

Strong leadership

Commitment to new-product development

Project-based team approach

Getting every aspect right

29Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved Chapter 10

REVIEW LEARNING OUTCOMEWhy Products Succeed and Others Fail

LO3

30Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved Chapter 10

Discuss global issues in new-product development

Global Issues in New-Product DevelopmentLO4

31Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved Chapter 10

LO4 Global Issues

Develop product for potential worldwide distribution

Build in unique market requirements

Design products to meet regulations and key market requirements

32Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved Chapter 10

REVIEW LEARNING OUTCOMEGlobal Issues in New-Product Development

LO4

Single product worldwideSingle product worldwide

Modification of productsModification of products

Multiple products in multiple countriesMultiple products in multiple countries

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Explain the diffusion process through which

new products are adopted

The Spread of New ProductsLO5

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LO5 Diffusion

DiffusionDiffusionThe process by which the

adoption of an innovation

spreads.

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LO5 Categories of Adopters

LaggardsLaggards

Late MajorityLate Majority

Early MajorityEarly Majority

Early AdoptersEarly Adopters

InnovatorsInnovators

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LO5 Product Characteristics and the Rate of Adoption

TrialabilityTrialability

ObservabilityObservability

Relative AdvantageRelative Advantage

CompatibilityCompatibility

ComplexityComplexity

Online

http://www.electronicgadgetdepot.com

37Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved Chapter 10 LO5

Sales of New Audio Products

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LO5Marketing Implications of the Adoption Process

Direct fromMarketer

Direct fromMarketer

Word of MouthWord of Mouth

CommunicationAids the

Diffusion Process

CommunicationAids the

Diffusion Process

39Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved Chapter 10

REVIEW LEARNING OUTCOMEDiffusion Process for New Products

LO5

40Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved Chapter 10

Explain the concept of product life cycles

Product Life CyclesLO6

41Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved Chapter 10

LO6

ProductLife Cycle

ProductLife Cycle

Product Life Cycle

A concept that provides a

way to trace the stages of a

product’s acceptance, from

its introduction (birth) to its

decline (death).

42Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved

Chapter 10

LO6 Product Life Cycle

Time

Do

llar

s

Profits

SalesSales

IntroductoryIntroductoryStageStage

GrowthGrowthStageStage

MaturityMaturityStageStage

DeclineDeclineStageStage

0

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Chapter 10

LO6Product Life Cycles for

Styles, Fashions, and Fads

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Chapter 10

LO6 U.S. Sales of Televisions

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Chapter 10

LO6 Introductory Stage

High failure rates

Little competition

Frequent product modification

Limited distribution

High marketing and production costs

Negative profits with slow sales increases

Promotion focuses on awareness and information

Communication challenge is to stimulate primary demand

46Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved

Chapter 10

LO6 Introductory Stage in Europe

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Chapter 10

LO6 Growth Stage

Increasing rate of sales

Entrance of competitors

Market consolidation

Initial healthy profits

Aggressive advertising of the differences between brands

Wider distribution

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Chapter 10

LO6 Maturity Stage

Sales increase at a decreasing rate

Saturated markets

Annual models appear

Lengthened product lines

Service and repair assume important roles

Heavy promotions to consumers and dealers

Marginal competitors drop out

Niche marketers emerge

49Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved

Chapter 10

LO6 Decline Stage

Long-run drop in sales

Large inventories of unsold items

Elimination of all nonessential marketing expenses

“Organized abandonment”

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LO6 Diffusion Process and PLC Curve

Innovators

Early adopters

Early majorityLate majority

Laggards

ProductProductlife cyclelife cyclecurvecurve

DiffusionDiffusioncurvecurve

Introduction Growth Maturity Decline

Sal

es

51Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved Chapter 10

REVIEW LEARNING OUTCOMELO6

Product Life Cycles

Time

INTRODUCTION GROWTH MATURITY DECLINE

ProductStrategy

DistributionStrategy

PromotionStrategy

PricingStrategy

Limited modelsFrequent changes

More modelsFrequent changes.

Large number of models.

Eliminate unprofitable

models

LimitedWholesale/

retail distributors

Expanded dealers. Long-term relations

Extensive.Margins drop.Shelf space

Phase out unprofitable

outlets

Awareness. Stimulate

demand.Sampling

Aggressive ads.Stimulatedemand

Advertise. Promote heavily

Phase outpromotion

High to recoupdevelopment

costs

Fall as result ofcompetition &

efficient produc-tion.

Prices fall (usually).

Prices stabilize at low level.

Sal

es