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Chapter 10

MGCR 352 Chapter Notes - Chapter 10: Bengay, Target Market, Test Market


Department
Management Core
Course Code
MGCR 352
Professor
Sameer Mathur
Chapter
10

Page:
of 4
Chapter 10: New-Product Development and
Product Life-Cycle Strategies
New-Product Development Strategy
New-product development: development of original products, product improvements, product modifications,
and new brands through the firm’s own product-development efforts.
Can get new products in 2 ways:
o Acquisition (buying another company) and new-product development efforts
Picture: NewProductWorks Smuckers Ketchup, Ben-Gay aspirin, etc.
o Visiting the NewProductWorks is like finding yourself in some nightmare version of a supermarket. Each
product failure represents squandered dollars and hopes.
The New-Product Development Process
Idea Generation
Idea generation: systematic search for new-product ideas
o Internal idea sources
Picture: Samsung
Internal new-product idea sources: Samsung built a special Value Innovation Program
Center in which company researchers, engineers, and designers co-mingle to come up
with creative new-product ideas.
o External idea sources
Distributors and suppliers, competitors, clients
Picture: Lego
Product ideas from customers: advice from 250 train-set enthusiasts resulted in LEGO
Santa Fe Super Chief set, a blockbuster new product that sold out in less than 2 weeks
Idea Screening
Idea screening: screening new-product ideas to spot good ideas and drop poor ones as soon as possible
Concept Development and Testing
Product concept: detailed version of the new-product idea stated in meaningful consumer terms
Product idea, product concept, product image
Concept development: develop alternative product concepts, find out how attractive each concept is to
consumers, choose best one
Concept testing: testing new-product concepts with a group of target consumers to find out if the concepts have
strong consumer appeal
Idea
generation
Idea
screening
Concept
developme
nt and
testing
Marketing
strategy
developme
nt
Business
analysis
Product
developme
nt
Test
marketing
Commerci
alization
Marketing Strategy Development
Marketing strategy development: designing an initial marketing strategy for a new product based on the
product concept
Marketing strategy statement has 3 parts
o Target market, planned value proposition, sales/market share/profit goals for first few years
o Product’s planned price, distribution, and marketing budget for first year
o Long-run sales, profit goals, and marketing mix strategy
Business Analysis
Business analysis: review of the sales, costs, and profit projections for a new product to find out whether these
factors satisfy the company’s objectives
Product Development
Product development: developing the product concept into a physical product to ensure that the product idea
can be turned into a workable market offering
R&D departments
Picture: Gillette
o Product testing: Gillette uses employee-volunteers to test new shaving products “we bleed so you’ll
get a good shave at home” says one Gillette employee
Test Marketing
Test marketing: stage of new-product development in which the product and marketing program are tested in
realistic market settings
Cadbury uses Ontario as its test market
Amount of test marketing varies per product
Picture: KFC
o Test marketing: KFC test marketed its new Kentucky Grilled Chicken product for 3 years before rolling it
out nationally. Says the chain’s president, “we had to get it right”
Standard test markets: small # of representative test cities and go all out in them
Controlled test markets: controlled panels of stores that have agreed to carry new product for a fee
Simulated test markets: simulated shopping environment to sample set of consumers
o Picture: virtual stores
New test marketing technologies: FritoLay worked with research firm Decision Insight to create
an online virtual convenience store in which to test new products and marketing ideas
o Cost less, can be run in shorter time periods
Commercialization
Commercialization: introducing a new product into the market
o High costs
Picture: Windows Vista
o Commercialization: Microsoft launched its new Windows Vista operating system in a swift global rollout.
Its mammoth “Wow” advertising blitz hit more than 30 market worldwide simultaneously, creating
some 6.6 billion global impressions in just its first 2 months
Managing New-Product Development
Customer-Centered New-Product Development
Customer-centered new product development: new product development that focuses on finding new ways
to solve customer problems and create more customer-satisfying experiences
Team-Based New-Product Development
Total-company, cross-functional effort
Sequential product development approach: ne company department works individually to complete its stage of
the process before passing new product along next department and stage
Team-based new-product development approach: approach to developing new products in which various
company departments work closely together, overlapping the steps in the product-development
Systematic New-Product Development
Innovation management system: to collect, review, evaluate, and manage new-product ideas
o 2 favorable outcomes: creates innovation-oriented company culture, and yield larger number of new
product ideas
Picture: Google’s offices
o Google is both spectacularly successful and wildly innovative. At Google, innovation is more than just a
process it’s in the air, in the spirit of the place
Product Life-Cycle Strategies
Product life cycle: course of a product’s sales and profits over its lifetime. It involves 5 distinct stages
o Product development
Sales are zero, cash outflow (investments)
o Introduction
Slow sales growth, no profits
o Growth
Rapid market acceptance
o Maturity
Slowdown in sales growth. Profits level off or decline
Picture: Modifying the market Glad Press’n Seal
Modifying the marketing: Glad helps customers swap new uses for its Press’n Seal wrap
on its “1000s of uses. What’s yours?” website
o Decline
Sales fall off and profits drop
May decide to maintain brand in case competitors leave industry
Harvest: reducing various costs and hoping sales hold up (increase profits in short run)
Not all products follow the typical PLC.
o Picture: Tabasco advertisement
Product life cycle: some products die quickly; others stay in the mature stage for a long, long
time. TABASCO sauce is “over 130 years old and yet still able to totally whup your butt”
PLC can describe:
o Product class (gasoline-powered automobiles)
o Product form (SUVs)
o Brand (Ford Escape)