978-0134149530 Chapter 8 Lecture Note Part 1

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Chapter 8 Developing New Products and Managing the Product Life Cycle

CHAPTER 8

DEVELOPING NEW PRODUCTS AND MANAGING THE PRODUCT LIFE CYCLE

PREVIEWING THE CONCEPTS – CHAPTER OBJECTIVES

1. Explain how companies find and develop new product ideas.

2. List and define the steps in the new product development process and the major

considerations in managing this process.

3. Describe the stages of the product life cycle and how marketing strategies change during a

product’s life cycle.

4. Discuss two additional product issues: socially responsible product decisions and

international product and services marketing.

JUST THE BASICS

CHAPTER OVERVIEW

In this chapter, we’ll look into two product topics:

1. Developing new products

2. Managing products through their life cycles.

New-product development is risky, and many new products fail.

The first part of this chapter lays out a process for finding and growing successful new products.

In the second part of the chapter, we see that every product passes through several life-cycle

stages and that each stage poses new challenges requiring different marketing strategies and

tactics.

Finally, we look at two additional considerations: social responsibility in product decisions and

international product and services marketing.

ANNOTATED CHAPTER NOTES/OUTLINE

FIRST STOP

Google: The New Product Moonshot Factory

Google is wildly innovative. Over the past decade, it has become a top five fixture in every list of

most-innovative companies.

But Google has rapidly become much more than just an online search and advertising company.

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Chapter 8 Developing New Products and Managing the Product Life Cycle

Google’s mission is “to organize the world’s information and make it universally accessible and

useful.”

Google’s most recent innovations are taking it well beyond simply organizing and searching for

information. The company is now leading the way in harnessing the potential of the Internet to

connect virtually everything in people’s lives.

Google’s innovation machine is renowned for “moonshots”— futuristic, breathtakingly idealistic

long shots that, if successful, will profoundly change how people live.

Google is open to new product ideas from just about any source. But the company also places

responsibility for innovation on every employee. Google is famous for its Innovation Time-Off

program, which encourages engineers and developers to spend 20 percent of their time—one day

a week—developing their own “cool and wacky” new product ideas.

When it comes to innovation, Google is different. But the difference isn’t tangible. It’s in the air

—in the spirit of the place.

INTRODUCTION

Every product seems to go through a life cycle.

This product life cycle presents two major challenges:

1. Because all products eventually decline, a firm must be good at developing new products

to replace aging ones (the challenge of new-product development).

2. The firm must be good at adapting its marketing strategies in the face of changing tastes,

technologies, and competition as products pass through life-cycle stages (the challenge of

product life-cycle strategies).

NEW-PRODUCT DEVELOPMENT STRATEGY

Use Key Term New Product Development here.

Use Critical Thinking Exercise 8-6 here.

By new products we mean original products, product improvements, product modifications, and

new brands that the firm develops through its own research and development (R&D) efforts.

A firm can obtain new products in two ways.

1. Acquisition—by buying a whole company, a patent, or a license to produce someone

else’s product.

2. New-product development efforts.

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Chapter 8 Developing New Products and Managing the Product Life Cycle

Use Chapter Objective 1 here.

THE NEW-PRODUCT DEVELOPMENT PROCESS

Figure 8.1 shows the eight major steps in the new-product development process.

Use Figure 8.1 here.

Use Chapter Objective 2 here.

1. Idea Generation

Use Critical Thinking Exercise 8-8 here.

Use Key Term Idea Generation here.

Idea generation is the systematic search for new-product ideas.

Internal Idea Sources

Using internal sources, the company can find new ideas through formal research and

development. Or it can pick the brains of employees—from executives to salespeople to

scientists, engineers, and manufacturing staff.

External Idea Sources

Companies can also obtain good new-product ideas from any of a number of external sources,

such as distributors and suppliers or even competitors.

Perhaps the most important source of new-product ideas is customers themselves.

Crowdsourcing

Many companies are now developing crowdsourcing new-product idea programs.

Crowdsourcing invites broad communities of people into the new-product innovation process.

Use Key Term Crowdsourcing here.

Use Marketing at Work 8.1 here.

Use Discussion Question 8-1 here.

2. Idea Screening

Use Key Term Idea Screening here.

The first idea-reducing stage is idea screening, which helps spot good ideas and drop poor ones

as soon as possible.

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Chapter 8 Developing New Products and Managing the Product Life Cycle

3. Concept Development and Testing

Use Key Terms Product Concept and Concept Testing here.

Use Table 8.1 here.

A product idea is an idea for a possible product that the company can see itself offering to the

market.

A product concept is a detailed version of the idea stated in meaningful consumer terms.

A product image is the way consumers perceive an actual or potential product.

Concept Development

In concept development, several descriptions of the product are generated to find out how

attractive each concept is to customers. From these concepts, the best one is chosen.

Concept Testing

Concept testing calls for testing new-product concepts with groups of target consumers. (Table

8.1)

Marketing Strategy Development

4. Marketing strategy development involves designing an initial marketing strategy for

a new product based on the product concept.

Use Key Term Marketing Strategy Development here.

Use Discussion Question 8-2 here.

The marketing strategy statement consists of three parts.

1. A description of the target market; the planned value proposition; and the sales, market

share, and profit goals for the first few years

2. An outline of the product’s planned price, distribution, and marketing budget for the first

year

3. A description of the planned long-run sales, profit goals, and marketing mix strategy

5. Business Analysis

Use Discussion Question 8-3 here.

Use Key Term Business Analysis here.

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Chapter 8 Developing New Products and Managing the Product Life Cycle

Business analysis involves a review of the sales, costs, and profit projections for a new product

to find out whether they satisfy the company’s objectives.

6. Product Development

Use Key Term Product Development here.

In product development, R&D or engineering develops the product concept into a physical

product.

The product development step calls for a large jump in investment.

7. Test Marketing

Use Key Term Test Marketing here.

Test marketing is the stage at which the product and marketing program are introduced into

realistic market settings.

8. Commercialization

Use Key Term Commercialization here.

Commercialization involves introducing the new product into the market.

Decisions must be made about introduction timing as well as where to launch the new product.

Use Critical Thinking Exercise 8-7 here.

MANAGING NEW-PRODUCT DEVELOPMENT

Customer-Centered New-Product Development

Use Key Term Customer-Centered New-Product Development here.

New-product development must be customer centered.

Customer-centered new-product development focuses on finding new ways to solve

customer problems and create more customer-satisfying experiences.

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Chapter 8 Developing New Products and Managing the Product Life Cycle

Team-Based New-Product Development

Under the sequential product development approach, one company department works

individually to complete its stage of the process before passing the new product along to the next

department and stage.

This orderly, step-by-step process can help bring control to complex and risky projects. But it

also can be dangerously slow.

In order to get their new products to market more quickly, many companies use a team-based

new-product development approach.

Use Key Term Team-Based New-Product Development here.

Under this approach, company departments work closely together in cross-functional teams,

overlapping the steps in the product development process to save time and increase effectiveness.

Instead of passing the new product from department to department, the company assembles a

team of people from various departments that stay with the new product from start to finish.

Systematic New-Product Development

An innovation management system can be used to collect, review, evaluate, and manage

new-product ideas.

The innovation management system approach yields two favorable outcomes.

1. It helps create an innovation-oriented company culture.

2. It will yield a larger number of new-product ideas, among which will be found some

especially good ones.

New-Product Development in Turbulent Times

In difficult times, innovation more often helps than hurts in making the company more

competitive and positioning it better for the future.

Use Discussion Question 8-4 here.

PRODUCT LIFE-CYCLE STRATEGIES

Figure 8.2 shows a typical product life cycle (PLC), the course that a product’s sales and

profits take over its lifetime.

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Chapter 8 Developing New Products and Managing the Product Life Cycle

Use Key Term Product Life Cycle (PLC) here.

Use Figure 8.2 here.

Use Chapter Objective 3 here.

The product life cycle has five distinct stages:

1. Product development begins when the company finds and develops a new-product idea.

During product development, sales are zero, and the company’s investment costs mount.

2. Introduction is a period of slow sales growth as the product is introduced in the market.

Profits are nonexistent in this stage because of the heavy expenses of product introduction.

3. Growth is a period of rapid market acceptance and increasing profits.

4. Maturity is a period of slowdown in sales growth because the product has achieved

acceptance by most potential buyers. Profits level off or decline because of increased

marketing outlays to defend the product against competition.

5. Decline is the period when sales fall off and profits drop.

The PLC concept can describe a product class (gasoline-powered automobiles), a product form

(SUVs), or a brand (the Ford Escape).

Product classes have the longest life cycles.

Product forms have the standard PLC shape.

Product brand PLC can change quickly because of changing competitive attacks and responses.

The PLC can be applied to styles, fashions, and fads (Figure 8.3).

•A style is a basic and distinctive mode of expression.

•A fashion is a currently accepted or popular style in a given field.

•Fads are temporary periods of unusually high sales driven by consumer enthusiasm and

immediate product or brand popularity.

Use Key Terms Style, Fashion, and Fad here.

Use Figure 8.3 here.

Use Marketing at Work 8.2 here.

Strategies for each of the other life-cycle stages:

Introduction Stage

Use Key Term Introduction Stage here.

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Chapter 8 Developing New Products and Managing the Product Life Cycle

The introduction stage starts when the new product is first launched.

In this stage, profits are negative or low, promotion spending is relatively high, and only basic

versions of the product are produced.

A company, especially the market pioneer, must choose a launch strategy that is consistent with

the intended product positioning.

Growth Stage

Use Key Term Growth Stage here.

The growth stage is where sales begin to climb quickly.

New competitors will enter the market. They will introduce new product features, and the market

will expand.

The increase in competitors leads to an increase in the number of distribution outlets.

Prices remain stable.

Profits increase during the growth stage.

Maturity Stage

Use Key Term Maturity Stage here.

The maturity stage is characterized by slowing product growth.

The slowdown in sales growth results in many producers with many products to sell.

Competitors begin marking down prices, increasing their advertising and sales promotions, and

upping their product-development budgets to find better versions of the product.

These steps lead to a drop in profit.

Product managers should consider modifying the market, product, and marketing mix.

In modifying the market, the company tries to increase the consumption of the current product.

In modifying the product, the company tries changing characteristics such as quality, features,

style, or packaging to attract new users and to inspire more usage.

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Chapter 8 Developing New Products and Managing the Product Life Cycle

In modifying the marketing mix, the company tries changing one or more marketing mix

elements.

Use Marketing at Work 8.2 here.

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