CH 10 Lamb Product Life Cycle and New Product Development

CHAPTER 10   Developing and Managing Products

Chapter Features

Chapter Features	Key Points
Opening Vignette	Chrysler and other carmakers are relying on the Internet to streamline their new product development process.
Ethics in Marketing	New product claims should be legally substantiated with scientific proof. This is especially important in the tobacco industry.
Global Marketing	[No global marketing box for this chapter.]
Use It	Students can find information on how to get loans to start a new business on the Internet.
Apply It (Application for Entrepreneurs)	Some product innovations are found completely by accident.
Try It (Entrepreneurship Case)	Marketers must consider the diffusion of innovation in order to successfully launch a new product.
CNN video clip	Launching new products through a technology trade show.
PBS Small Business School	When Karsten Solheim invented the now-famous Ping putter, the innovation did not take off quite as well as he had hoped. Clip deals with product development and diffusion of innovation.

Lesson Plan for Lecture

Before Class Preparation:

·         For instructors: 1) Study the chapter thoroughly; 2) bring PowerPoint slides and/or transparencies to class; 3) bring any “props” that will help you communicate an overview of marketing.

·         For students: 1) Read the chapter; 2) complete the Study Guide for this chapter.

Learning Objectives and Topics	PowerPoint Slides	Transparencies
1       Explain the importance of developing new products and describe the six categories of new products. 1.1    The Importance of New Products	1:   Developing and Managing Products 2:   Learning Objectives 3:   Learning Objectives (continued) 4:   Learning Objective (H) 5:   New Product 6:   New Product Introductions 1964-2000 (H) 7:   Categories of New Products (V)
2       Explain the steps in the new-product development process. 2.1      The New-Product Development Process	8:   Learning Objective 9:   New-Product Development Process 10:   New-Product Development Process 11: Idea Generation (H) 12: Brainstorming 13: Idea Screening 14: Concept Test 15: Business Analysis 16: Development 17: Simultaneous Product Development 18: Test Marketing (H) 19: Checklist for Selecting Test Markets 20: Alternatives to Test Marketing 21: Commercialization	10-1: New-Product Development Process 10-2: Idea Generation 10-3: Business Analysis 10-4: Development 10-5:   Commercialization
3       Explain why some products succeed and others fail.	22: Learning Objective 23: Why New Products Fail (V) 24: Success Factors (H) 25: Success Factors	10-6: Why New Products Fail 10-7: Success Factors
4       Discuss global issues in new-product development. 4.1     Global Issues in New-Product Development	26: Learning Objective 27: Global Issues (H)
5       Explain the diffusion process through which new products are adopted. 5.1      The Spread of New Products	28: Learning Objective 29: Diffusion 30: Categories of Adopters 31: Diffusion of Three Familiar Products among U.S. Households 32: Categories of Adopters 33: Product Characteristics and the Rate of Adoption (H) 34: Marketing Implications of the Adoption Process	10-8: Categories of Adopters 10-9: Product Characteristics and the Rate of Adoption
6       Explain the concept of product life cycles. 6.1    Product Life Cycles	35: Learning Objective 36: Product Life Cycle 37: Product Life Cycle 38: Product Life Cycle for Styles, Fashions, and Fads 39: Extending the PLC (V) 40: Introductory Stage (V) 41: Growth Stage 42: Maturity Stage (H) 43: Decline Stage 44: Marketing Strategies for PLC 45: Diffusion Process and PLC Curve	10-10: Product Life Cycle 10-11: Marketing Strategies for PLC 10-12: Diffusion Process and PLC Curve

 

Learning Objectives

1         Explain the importance of developing new products and describe the six categories of new products

2         Explain the steps in the new-product development process

3            Explain why some products succeed and others fail

4         Explain the concept of product life cycles

Define It

adopter	diffusion	product category
brainstorming	growth stage	product development
business analysis	innovation	product life cycle
commercialization	introductory stage	screening
concept test	maturity stage	simulated laboratory market testing
decline stage	new product	simultaneous product development
development	new product strategy	test marketing

Chapter Outline

		Opening Vignette: FastCar Speeds Development Process Chrysler is in the process of developing its FastCar system which will allow the company to use the Internet to streamline its new product development process. FastCar allows Chrysler to link the flow of information from six major information systems that until now have not been able to communicate easily. As car designers and engineers go through hundreds of variations of car models, the other arms of Chrysler can understand what is changing in real time. How has the Internet helped Chrysler reduce the time it takes to design and develop a new car and, at the same time, dramatically reduce costs and increase flexibility? Could those processes be helpful to firms in other industries? 1         Explain the importance of developing new products and describe the six categories of new products I.       The Importance of New Products
Supplemental Article #1: DVD Standards Review It Question 1.1		A new product can be new-to-the-world, to the market, to the producer or seller, or to some combination of these. A.     Categories of New Products 1.      New‑to‑the‑world products are also called discontinuous innovations. The product category itself is new. 2.      New product lines are products the firm has not offered in the past that allow it to enter an established market. 3.      Additions to existing product lines are new products that supplement a firm's established line. 4.      Improvements or revisions of existing products result in new products. 5.      Repositioned products are existing products that are targeted at new markets or market segments. 6.      Lower-priced products are products that provide similar performance to competing brands at a lower cost. Ethics in Marketing: Less Toxins, Great Taste Vector Tobacco Ltd. introduced a new cigarette called Omni with the slogan “reduced carcinogens, premium taste.” Omni was created to cut levels of chemicals that are the major cause of lung cancer in smokers. The product is made with a combination of chemicals, including palladium, which resulted in a cigarette that tastes as good as its competitors but without the number of toxins. Vector acknowledges that it has no scientific proof, however, that the cigarette is less dangerous than the average cigarette. Is Omni a new product? If so, what category of new product does it fit into? Are Vector’s claims for Omni legal and ethical?
		2         Explain the steps in the new-product development process II.      The New Product Development Process
Transparency 10-1: New-Product Development Process Transparency 10-2: Idea Generation		A new product strategy links the new product development process and the objectives of the marketing department, business unit, and corporation. All of those objectives must be consistent. B.      Idea Generation
Review It Questions 2.4 and 2.5 Supplemental Article #2: Wrapped Peanut Butter Slices		New product ideas can come from many sources: 1.      Customers: The marketing concept suggests that customers' needs and wants should be the springboard for developing new products. 2.      Employees: Because of their involvement in and analysis of the marketplace, employees who are not in the research and development department often come up with new product ideas. 3.      A distributor is often more aware of customer needs than the manufacturer because the distributor or dealer is closer to end users. 4.      Competitors may have new products that can or should be a source of new product ideas. 5.      Research and development (R&D) may be a source of new product ideas and innovation. R&D is carried out in four ways: a.      Basic research is scientific research aimed at discovering new technologies. b.      Applied research attempts to find useful applications for new technologies. c.      Product development is the process of converting  applications for new technologies into marketable products. d.      Sometimes research and development involves product modification, cosmetic changes in products or functional product improvements. 6.      Consultant groups are available to examine a business and recommend product ideas. A variety of approaches and techniques have been used to stimulate creative thinking and generate product ideas: a.      Brainstorming is a process for getting a group to think of unlimited ways to vary a product or solve a problem.  b.      Excellent new product ideas are often generated by focus groups, which are interviews usually consisting of seven to ten consumers interacting in a structured discussion. C.      Idea Screening
Class Activity: Students asked to generate and screen new products for a small manufacturer of tennis racquets. Transparency 10-3: Business Analysis		Screening is the first filter in the product development process.  It eliminates ideas that are inconsistent with the organization's new product strategy or are obviously inappropriate for some other reason. 1.      Most new product ideas are rejected at this stage. 2.      Concept tests are often used to rate concept (product) alternatives. A concept test is the evaluation of a new product idea, usually before a prototype has been created. D.     Business Analysis
Review It Question 2.2		The business analysis is the second stage of the screening process where preliminary figures for demand, cost, sales, and profitability are calculated. At the end of this stage, management should have a good idea of the market potential for the product. E.      Development
Transparency 10-4: Development Review It Question 2.1		In the development stage of the product development process, a prototype is developed and a marketing strategy is outlined. Costs increase dramatically as the new product idea moves into the development stage. 1.      In the early stages of development, the research and development or engineering department may develop a prototype or working model. 2.      Decisions such as packaging, branding, and labeling will be made. Preliminary promotion, price, and distribution strategies should be established. 3.      During the development stage, the technical feasibility of manufacturing the product at a reasonable cost is thoroughly examined, and the product may be modified. 4.      Laboratory tests subject the product to much more severe or critical treatment than is anticipated by end users. 5.      Many products that test well in the laboratory are next subjected to use tests, in which they are placed in consumers' homes or businesses for trial. 6.      The development process works best when all the involved areas (departments) work together rather than sequentially. This process is called parallel engineering, simultaneous engineering, or concurrent engineering.
Review It Question 2.3		F.      Test Marketing After products and marketing programs have been developed, they are usually tested in the marketplace.
Supplemental Article #3: The Perfect Test Market? Transparency 10-5:  Commercialization		1.         Test marketing is a limited introduction of a product and a marketing program to determine the reactions of potential customers in a market situation. 2.      Selection of test market cities should ensure that they reflect market conditions in the new product's projected market area. There is no one "perfect" city that reflects the market as a whole, and selecting a test market city is a very difficult task. 3.      Costs of test marketing are very high. Some companies choose to forego this procedure altogether, especially for line extensions of well‑known brands. Test marketing can take twelve to eighteen months and cost in excess of $1 million. 4.      Many firms are looking for cheaper or faster alternatives to test marketing. a.      Supermarket scanner testing (single-source data) keeps track of the sales response to marketing mix alternatives. b.      Another alternative is simulated (laboratory) market tests, which usually entail showing members of the target market advertising for a variety of products. Purchase behavior, in a mock or real store, is then monitored. 5.      One drawback of test marketing is that the product and its marketing mix are exposed to competitors before its introduction. Competitors may sabotage the test or rush an imitation of the new product to market. 6.      Despite the problems associated with test marketing, most firms still consider it essential for new products. The high price of failure prohibits the widespread introduction of a product that might fail.
		3         Explain why some products succeed and others fail
Transparency 10-6:  Why New Products Fail Review It Question 3.1 Transparency 10-7: Success Factors		III.       Product Success and Failure A.       Products fail for many reasons 1.       They do not offer any discernible benefit 2.       Poor match between product features and customer desires 3.       Overestimation of market size 4.       Incorrect positioning 5.       Incorrect pricing 6.       Inadequate distribution 7.       Poor promotion 8.       Inferior product B.        Degrees of failure 1.       Absolute failure occurs when a company actually loses money. 2.       Relative failure occurs when marketing goals are not met, but the product returns a profit. C.        The most important factor in successful new-product introduction is a good match between the product and market needs.
		4         Discuss global issues in new-product development
Review It Question 4.1		IV.      Global Issues in New Product Development A.        A firm that starts with a global strategy is better able to develop products which are marketable worldwide. B.         Some global marketers design their products to meet regulations and other key requirements in their major markets and then, if necessary, meet smaller markets' requirements country by country.
		5         Explain the diffusion process through which new products are adopted
Supplemental Article #4: The Acceptance of Hybrid Vehicles Transparency 10-8: Categories of Adopters Review It Question 5.2 Transparency 10-9: Product Characteristics and Rate of Adoption Review It Question 5.1		V.     The Spread of New Products An adopter is a consumer who is happy enough with his or her trial experience with a product to use it again. A.     Diffusion of Innovation 1.      An innovation is a product perceived as new by a potential adopter.                    2.      Diffusion is the process by which the adoption of an innovation spreads.  B.     Five categories of adopters participate in the diffusion process: 1.      Innovators are eager to try new ideas and products, have higher incomes, and are better educated than noninnovators, and represent the first 2.5 percent of all those who will adopt. 2.      Early adopters represent the next 13.5 percent to adopt the product. Early adopters are much more reliant on group norms, are oriented to the local community, and tend to be opinion leaders. 3.      The early majority, the next 34 percent to adopt, collect more information and evaluate more brands than do early adopters. They rely on friends, neighbors, and opinion leaders for information and norms. 4.      The late majority, the next 34 percent to adopt, do so because most of their friends have already done so. For them, adoption is the result of pressure to conform. This group is older than the others and tends to be below average in income and education.
		6         Explain the concept of product life cycles
Transparency 10-10: Product Life Cycles Review It Question 6.1		VI     Product Life Cycles A.      The product life cycle is a concept that provides a way to trace the stages of a product's acceptance from its introduction to its decline. 1.         The product life cycle refers to the life of the product category, which includes all brands that satisfy a particular type of need. 2.         The length of time a product category spends in any one stage of the  product life cycle may vary dramatically, from a few weeks to decades. 3.         The life cycle concept does not predict how long a product category remains in any one stage, rather, it is an analytical tool to help marketers understand where their product is, what may happen to it, and which strategies are appropriate.
		B.     Stages in the Product Life Cycle 1.         Introductory Stage a.      The introductory stage of the product life cycle represents the full‑scale launch of a new product into the marketplace. b.      The introductory stage is typified by a high failure rate, little competition, frequent product modification, and limited distribution c.       The introductory stage usually has high marketing and production costs and negative profits as sales increase slowly d.      Promotion strategy in this stage focuses on developing product awareness and informing customers of product benefits. The aim is to stimulate primary demand for the product category. e.      Intensive personal selling to retailers and wholesalers is required. Diet Coke moved rapidly from introduction to growth. Mountain Dew took over twenty years to take off. There is a real benefit in being the first into a market.  This results from setting the standard in the eyes of the consumer. The benefit is lasting market share dominance even after competitors enter and the product moves into maturity. 2.      Growth Stage a.      The growth stage of the life cycle is characterized by sales growing at an increasing rate, the entrance of competitors into the market, market consolidation, and healthy profits. .        b.      Promotion in the growth stage emphasizes heavy brand advertising and the differences between brands. c.      Gaining wider distribution is a key goal in this stage. d.      Toward the end of the growth stage, prices normally fall and profits reach their peak. e.      Development costs should be recovered by the end of the growth stage when sales volume has created economies of scale. During the growth stage, the product is offered in more sizes, flavors, and models. 3.      Maturity Stage a.      The maturity stage of the life cycle is characterized by declining sales growth rates, markets approaching saturation, annual product changes that are more cosmetic that substantial, and a move toward the widening or extension of the product line . b.      During the maturity stage, marginal competitors begin dropping out of the market. Heavy promotions to both the dealers and consumers are required. Prices and profits begin to fall. c.       Emergence of "niche marketers" that target narrow, well-defined, under-served segments of a market. Many familiar consumer products are in the maturity stage and seem to be there indefinitely. Procter & Gamble argues that there is no product life cycle and points to Ivory and Camay soaps as examples. 4.      Decline Stage a.      The decline stage is signaled by a long‑run drop in sales. b.      The rate of decline is governed by how rapidly consumer tastes change or how rapidly substitute products are adopted. c.      Falling demand forces many competitors out of the market, often leaving a few small specialty firms manufacturing the product.
		C.      Implications for Marketing Management
Transparency 10-11: Marketing Strategies for PLC Transparency 10-12: Diffusion Process and PLC Curve		1.         Strategies used by marketing managers to prevent products from slipping into the decline stage include a.          Promoting more frequent use of the product by current customers b.          Finding new target markets for the product c.          Finding new uses for the product d.          Pricing the product below the market e.          Developing new distribution channels f.           Adding new ingredients or deleting old ingredients g.          Making a dramatic new guarantee