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Chapter 10

MGT252 - Chapter 10 Notes.doc

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Matthew Osborne

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Chapter 10 • 10.1 • New-product development strategy • The development of original products, improvements, modifications, and new brands through the firm’s own product-development efforts. • Obtain new products in 2 ways: acquisition (buying a whole company, patent or a license to produce someone else’s product) and new-product development • 10.2 • Idea generation - the systematic search for new-product ideas • Internal idea sources • External idea sources • E.g. Distributors, suppliers, competitors, customers etc. • Idea screening • Screening new-product ideas to spot good ideas and drop poor ones ASAP. • R-W-W: real, win, worth it • Concept development and testing ProductIdea ProductConcept ProductImage An idea for a possible product A detailed version of the new- The way consumers perceive that the company can see product idea stated in an actual/potential product itself offering to the market meaningful consumer terms • Concept development • Concept testing • Testing new-product concepts with a group of target consumers to find out if the concepts have strong consumer appeal • For some concept tests, a word or picture description might be sufficient. • However a more concrete and physical presentation of the concept wll increase the reliability of the concept test. • Marketing strategy development • Designing an initial marketing strategy for a new product based on the product concept • Marketing strategy contains 3 parts: 1. Describes the target market, planned value proposition, sales, market share and profit goals for the first few years. 2. Outlines the product’s planned price, distribution and marketing budget for the 1st year. 3. Describes the planned LT sales, profit goals and marketing mix strategy. • Business analysis • A 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 • Developing the product concept into a physical product to ensure that the product idea can be turned into a workable market offering. • R&D department will develop and test one or more physical versions of the product concept. Hopes that the prototype will satisfy and excite consumers and that can be • produced quickly and at budgeted costs. • Products undergo rigorous tests to make sure they perform safely and effectively, or that consumers will find value in them. • Companies can do their own product testing or outsource testing to other firms. • Test marketing • The stage of new-product development in which the product and marketing program are tested in realistic market settings • Lets the company test the product and its entire marketing program - targeting and positioning strategy, advertising, distribution, pricing, branding, packaging and budget levels. • When the costs of developing and introducing the product are low, or when management is already confident about the new product, the company may do little or no test marketing. • Companies often do not test-market simple line extensions or copies of successful competitor products. • 3 approaches TestMarketsApproach Standard Company finds a small no. of representative test cities, conducts a full marketing campaign in those cities, and uses store audits, consumer and distributor surveys and other measures to gauge product performance. Results are used to forecast national sales and profits, discover potential problems, and fine- tune the marketing program Drawbacks: • Can be very costly and may take a long time • Competitors can monitor test market results or interfere with them by cutting their prices in test cities, increasing their promotion or buying up the product being tested • Give competitors a look at the company’s at the company’s new product well before it’s introduced nationally • Competitors may have time to develop defensive strategies and may even beat the company’s product to the market. Most widely used approach for major in-market testing. TestMarketsApproach Controlled Controlled test marketing systems (e.g. ACNielsen’s Scantrack and IRI’s BehaviorScan) track consumer behavior for new products from the TV set to the checkout counter. Cost less and completed much more quickly than standard test markets. • Retail distribution is “forced” in the first week of the test Drawbacks • Allow competitors to get a look at the company’s new product. • Concerns that the limited no. of controlled test markets used by research services may not be representative of their product’s markets or target consumers. • However, the research firms are experienced in projecting test market results to broader markets and can usually account for biases in the test markets used. Simulated Company or research firm shows ads and promotions for a variety of products to a sample of consumers. Gives consumers a small amount of money and invites them to a real or laboratory store where they may keep the money or use it to buy items. Researchers note how many consumers buy the new product and competing brands and ask the reasons for their purchase/non-purchase. • They may even interview the consumers to determine product attitudes, usage, satisfaction and repurchase intentions. Provides a measure of trial and the commercial’s effectiveness against competing commercials. Recent usage of high-tech approaches, e.g. virtual reality and Internet. Cost much less, can be run in 8 weeks and keep the new product out of competitors’ view. Drawbacks: • Not accurate or reliable as larger real world tests. • Small samples and simulated shopping environments. • Commercialization • Introducing a new product into the market • Factors: timing, location (e.g. market rollout) Managing new-product development • Customer-centered new-product development approach • New-product development that focuses on finding new ways to solve customer problems and create more customer-satisfying experiences • Begins and ends with solving customer problems. Team-based new-product development approach • An approach to developing new products in which various company departments work close together overlapping the steps in the product-development process to save time and increase effectiveness. • Company assembles a team of people from various departments that stays with the new product from start to finish. • E.g. people from the marketing, finance, design, manufacturing and legal departments, and even supplier and customer companies • If one area hits snags, it works to resolve them while the team moves on. • Disadvantages • Creates more organizational tension and confusion than the sequential approach. Sequential product development approach • One department works individually to complete its stage of the process before passing the new product along to the next department and stage. • Brings control to complex and risky projects, but is very slow. • May result in product failures, lost sales and profits and crumbling market positions. • A bottleneck at one phase can slow the entire project. Systematic new-product development •Innovation management system • Yields 2 favorable outcomes 1.Helps create an innovation-oriented company culture. • Shows that top management supports, encourages, and rewards innovation. 2. Yields a larger no. of new product ideas. • Good ideas will be more systematically developed, producing more new-product successes. • 10.3 • Product life cycle (PLC) The course of a product’s sales and profits over its lifetime. It involves 5 distinct stages: • product development, introduction, growth, maturity and decline. PLC 1.Product Development
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