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Chapter 10

Chapter 10 Notes


Department
Management (MGM)
Course Code
MGMA01H3
Professor
Alison Jing Xu
Chapter
10

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Chapter 10 New Product Development and Product Life Cycle Strategies Notes
New-Product Development Strategy
a firm can obtain new products in two ways: (1) acquisition, and (2) new-product development
acquisition buying a whole company, a patent, or a licence to produce someone else’s product
new-product development the development of original products, product improvements, product modifications, and new
brands through the firm’s own product-development efforts
new products are important—to both customers and the marketers who serve them
for companies, new products are a key source of growth; for customers, they bring new solutions and variety to their lives
The New-Product Development Process
new product development process: idea generation idea screening concept development and testing marketing strategy
development business analysis product development test marketing commercialization
Idea Generation
idea generation the systematic search for new-product ideas
major sources include internal sources and external sources such as customers, competitors, distributors, suppliers, and others
Internal Idea Sources
using internal sources, the company can find new ideas through formal research and development
companies can pick the brains of employees—from executives to scientists, engineer, manufacturing staff, and salespeople
some companies have developed successful “intrapreneurial” programs that encourage employees to think up and develop ideas
External Idea Sources
distributors are close to the market and can pass along information about consumer problems and new-product possibilities
suppliers can tell the company about new concepts, techniques, and materials that can be used to develop new products
companies watch competitors’ ads to get clues about their new products; they buy competing new products, take them apart to
see how they work, analyze their sales, and decide whether they should bring out a new product of their own
other idea sources include trade magazines, shows, seminars; government agencies; advertising agencies; marketing research
firms; university and commercial laboratories; and inventors
the company can analyze customer questions and complaints to find new products that better solve consumer problems
company engineers or salespeople ca meet with and work alongside customers to get suggestions and ideas
other companies actively solicit ideas from customers and turn customers into co-creators
finally, customers often create new products and uses on their own, and companies can benefit by putting them on the market
Idea Screening
idea screening screening new-product ideas to spot good ideas and drop poor ones as soon as possible
product-development costs rise greatly, so the company wants to go ahead only with the product ideas that will turn profitable
many companies require their executives to write up new-product ideas in a standard format that can be reviewed by a new-
product committee—describes product or service, proposed customer value proposition, target market, and competition; it also
makes rough estimates of market size, product price, development time and costs, manufacturing costs, and rate of return
Concept Development and Testing
product concept a detailed version of the new-product idea stated in meaningful consumer terms
Concept Testing
concept testing testing new-product concepts with a group of target consumers to find out if concepts have strong appeal
the concept may be presented to consumers symbolically or physically
many firms routinely test new-product concepts with consumers before attempting to turn them into actual new products
Marketing Strategy Development
marketing strategy development designing an initial marketing strategy for a new product based on the product concept
the marketing strategy statement consists of 3 parts—(1) describe the target market; the planned value proposition; and the sales,
market share, and profit goals for the first few years; (2) outline the product’s planned price, distribution, and marketing budget
for the first year; and (3) describe the planned long-run sales, profit goals, and marketing mix strategy
Business Analysis
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; if they do, the product can move to the product development stage
to estimate sales, the company might look at the sales history of similar products and conduct market surveys
after preparing the sales forecast, management can estimate the expected costs and profits for the product, including marketing,
R & D, operations, accounting, and finance costs, which can be used to analyze the new product’s financial attractiveness
Product Development
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product development developing concept into physical product to ensure that idea can be turned into practical market offering
the R & D department will develop and test one or more physical versions of the product concept
often, 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 that specialize in testing
Test Marketing
test marketing the stage in which the product and marketing program (targeting and positioning strategy, advertising,
distribution, pricing, branding and packaging, and budget levels) are tested in realistic market settings
test marketing costs can be high, and it takes time that may allow competitors to gain advantages
when using test marketing, consumer products companies usually choose 1 of 3 approaches—standard, controlled, or simulated
Standard Test Markets
using standard test markets, the company finds a small number of representative test cities, conducts a full marketing campaign
in those cities, and uses store audits, customer and distributor surveys, and other measures to gauge product performance
they can be very costly and they make take a long time; moreover, competitors can monitor test market results or interfere with
them by cutting their prices in test cities, by increasing their promotion, or even by buying up the product being tested; finally,
test markets give competitors a look at the company’s new product well before it is introduced nationally
Controlled Test Markets
controlled test markets usually cost less than standard test markets
also because retail distribution is “forced” in the first week of test, controlled test markets can be completed much more quickly
allow competitors to get a look at the company’s new product and some companies are concerned that the limited number of
controlled test markets used by the research services may not be representative of their products’ markets or target consumers
Simulated Test Markets
the simulation provides a measure of trial and the commercial’s effectiveness against competing commercials, and then the
researchers ask consumers the reasons for their purchase or non-purchase
weeks later, they interview consumers by phone to determine product attitudes, usage, satisfaction, and repurchase intentions
they usually cost much less, can be run in 8 weeks, and keep the new product out of competitors’ view
many marketers do not think that simulated test markets are as accurate or reliable as larger, real-world tests
because they are fast and inexpensive, they can be run in order to quickly assess a new product or its marketing program
Commercialization
commercialization introducing a new product into the market
the company launching a new product must first decide on introduction timing
next, company must decide where to launch new product—in single location, region, national market, or international market
few companies have the confidence, capital, and capacity to launch new products into full national or international distribution
right away; instead, they develop a planned market rollout over time
some companies, however, may quickly introduce new models into the full national market
companies with international distribution systems may introduce new products through swift global rollouts
Managing New-Product Development
however, new-product development involves more than just going through a set of steps
successful new-product development requires a customer-centred, team-based, and systematic effort
Customer-Centred New-Product Development
customer-centred new-product development new-product development that focuses on finding new ways to solve customer
problems and create more customer-satisfying experiences
today’s innovative companies are getting out of research lab and mingling with customers in the search for new customer value
thus, customer-centred new-product development begins and ends with solving customer problems
Team-Based New-Product Development
in fast-changing, highly competitive markets, such slow-but-sure product development (the sequential product development) can
result in product failures, lost sales and profits, and crumbling market positions
team-based new-product development an approach to developing new products in which various company departments work
closely together, overlapping the steps in the product-development process to save time and increase effectiveness
Systematic New-Product Development
a company can install an innovation management system to collect, review, evaluate, and manage new-product ideas
this approach yields 2 favourable outcomes—(1) it helps create an innovation-oriented company culture and shows that top
management supports, encourages, and rewards innovation; and (2) it will yield a larger number of new-product ideas, among
which will be some especially good ones, which will be more systematically developed, producing more new-product successes
new-product success requires a holistic approach for finding new ways to create valued customer experiences, from generating
and screening new-product ideas to creating and rolling out want-satisfying products to customers
more than this, successful new-product development requires a whole-company commitment
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