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Chapter 10

Chapter 10 - Week 8


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

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1 | Page/MGTB0 4 We e k 8
- Apple excels at developing and managing new products
- The product life cycle presents two major challenges
o Since all products decline, a firm must be good at developing new products to replace
the aging ones (the challenge of new-product development)
o The firm must be good at adapting its marketing strategies in the face of changing
tastes, technologies, and competition (the challenge of product life-cycle)
New-Product Development Strategy
- A firm can obtain new products in two ways, through acquisition (buying a whole company,
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- New-product development is the development of original products, product improvements,
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- New products are important to both the customers and the marketers
o Customers: brings new solutions and variety to their lives
o Companies: new products are a key source of growth
- Innovation can be very expensive and risky where approximately 90% of all new products fail
- Some new products fail because the company may overestimate market size, product is
poorly designed, priced too high, poorly advertised, costs exceeded budget, competitors
The New-Product Development Process
- In order to successfully develop new products, must set up a customer-driven new-product
development process for finding and growing new products, there are eight major steps
1. Idea Generation
- Idea generation is the systematic search for new-product ideas (create large number of ideas)
- A company typically generates hundreds of ideas, even thousands, to find a few good ones
- Major sources of new-product ideas include internal sources and external sources
o Internal Idea Sources
By using internal sources, companies find new ideas through traditional R&D
(14% of the time), employees (41% of the time), and customers (36%)
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encourages employees to think up and develop new-product ideas
o External Idea Source
Distributors and suppliers
x Since distributors are close to the market, they can pass along
information about consumer problems and new-product possibilities
x Suppliers can tell the company about new concepts, techniques, and
materials that can be used to develop new products
Competitors
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products (buy competing products and dissemble, analyze sales)
Other idea sources include trade magazines, shows, and seminars
Companies can also seek help from new-product consultancies and design firm
Turn to online collaborative communities to help solve problems (e.g. P&G)
Customers
Chapter 10 ± New-Product Development and Product Life-Cycle Strategies (pg. 312 ± 339)
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2 | Page/MGTB0 4 We e k 8
x Most important source of new-product ideas are customers themselves
x Companies can analyze customer questions and complaints to find new
products that better solve consumer problems
x E.g. LEGO invited 250 enthusiasts to assess new designs
x Company must be careful not to rely too heavily on what customers say
since some customers may not know what they need
2. Idea Screening
- Idea screening is the first idea-reducing stage and it screens new-product ideas to spot good
ideas and drop poor ones as soon as possible
- Many companies require their executives to write up new-product ideas in a standard format
that can be reviewed by a new-product committee
o Write up: describe the product/service, proposed customer value proposition, target
market, competition, rough estimates of market size, product price development time
and costs, manufacturing costs, and rate of return
- Marketing expert proposes an R-W-W (real, win, worth it) new-product screening framework
o R : Is it real? Is there a real need and is there a clear product concept?
o W: Can we win? Does the product offer a substantial competitive advantage?
o W: Is it worth doing? Does it offer sufficient profit potential?
3. Concept Development and Testing
- An attractive idea must be developed into a product concept which is a detailed version of
the new-product idea stated in meaningful consumer terms
- Concept Development
o A marketer may develop a new product into alternative product concepts and choose
the one that is most attractive to customers
o E.g. Concept I ± affordable midsize car designed as a second family car
Concept II ± midpriced sporty compact appealing to young singles and couples
- Concept Testing
o Concept testing is testing new-product concepts with a group of target consumers to
find out if the concepts have strong customer appeal
o Many firms test new-product concepts with consumers before making new products
o For some concept tests, a word or picture description is sufficient while others may
need a more concrete and physical presentation of the concept
4. Marketing Strategy Development
- Marketing strategy development is designing an initial marketing strategy for a new
product based on the product concept
- The marketing strategy statement consists of three parts
o Part I ± target market, planned value proposition, sales, market share, profit goals
o Part II ± RXWOLQHVSURGXFW¶VSODQQHGSULFHGLVWULEXWLRQPDUNHWLQJEXGJHWIRUst year
o Part III ± describes the planned long-run sales, profit goals, & marketing mix strategy
5. Business Analysis
- Business analysis is a review of the sales, costs, and profit projections for a new product to
find out whether these factors satisfy the compDQ\¶VREMHFWLYHV
- If the business analysis is favourable, the product can move to the product development stage
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attractiveness
6. Product Development
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