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Chapter 10

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

Management Core
Course Code
MGCR 352
Sameer Mathur

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
nt and
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: 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)