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New product development process & pricing strategies
1. Introducing New Market Offerings
| Companies cannot rest on today’s products. Tastes change, technology changes, competitors copy. New-product development is risky, though: many new products fail. The reasons include a good idea pushed through by a senior executive despite weak research, an overestimated market size, a poorly designed product, wrong positioning or pricing, higher-than-expected development costs, and strong competitive reaction. |
1.1 Organising for new-product development
A company needs a clear structure for managing new products. Common arrangements are product managers, new-product managers, new-product committees, new-product departments and venture teams. Increasingly, firms use cross-functional teams, link up with outsiders through crowdsourcing and open innovation, and develop multiple concepts rather than betting on one. A stage-gate system, in which the project must pass a review before it moves to the next stage, helps control risk and cost.
1.2 The eight stages of new-product development
At every stage the firm decides: drop the idea or move forward? Ideas are cheap to kill early and expensive to kill late.
|
# |
Stage |
What happens |
|---|---|---|
|
1 |
Idea generation |
Collect ideas from internal sources, customers, competitors, distributors, suppliers and outsiders (crowdsourcing). Creativity tools include attribute listing, forced relationships, reverse assumption analysis, new contexts and mind mapping. |
|
2 |
Idea screening |
Drop poor ideas fast. Typical questions: Is it real (is there demand)? Can we win (are we capable)? Is it worth doing (is it profitable)? |
|
3 |
Concept development and testing |
Turn the idea into a detailed product concept in meaningful consumer terms, then test it with a target group. A product idea is what the firm has in mind; a product concept is the idea expressed in consumer language; a product image is how consumers picture it. |
|
4 |
Marketing strategy development |
Draft a three-part plan: (1) target market, positioning and sales, share, profit goals; (2) planned price, distribution and budget for the first year; (3) long-run sales, profit goals and marketing mix. |
|
5 |
Business analysis |
Estimate sales, costs and profits (including break-even) to see if the project meets objectives. |
|
6 |
Product development |
R&D or engineering builds a prototype. Testing includes alpha testing (in the company) and beta testing (with customers). The product must deliver functional and psychological benefits. |
|
7 |
Market testing |
Try the product in realistic settings. Consumer goods: sales-wave research, simulated test marketing, controlled test marketing or full test markets. Business goods: alpha-beta testing, trade shows, distributor and dealer display rooms. |
|
8 |
Commercialisation |
Full-scale launch. Four big decisions: when (first entry, parallel entry or late entry), where (geographic strategy), to whom (target prospects), and how (introductory market strategy and budget). |
Companies that want a faster launch use overlapping (parallel) development rather than doing each stage in strict sequence.
1.3 The consumer-adoption process
Adoption is the process by which customers learn about new products, try them, and adopt or reject them. The mental stages are: awareness → interest → evaluation → trial → adoption. Today many marketers target heavy users and early adopters first, because they can be reached through specific media and tend to be opinion leaders.
Rogers’ five adopter groups
|
Group |
Approx. share |
Profile |
|---|---|---|
|
Innovators |
2.5% |
Technology enthusiasts; venturesome and eager to experiment |
|
Early adopters |
13.5% |
Opinion leaders who look for new technologies that give a dramatic advantage |
|
Early majority |
34% |
Deliberate pragmatists who adopt once benefits are proven |
|
Late majority |
34% |
Sceptical, risk-averse and price-sensitive |
|
Laggards |
16% |
Tradition-bound; adopt only when the old way is no longer workable |
What makes an innovation spread faster?
- Relative advantage: how much better it is than what exists.
- Compatibility: how well it fits with consumers’ values and experience.
- Complexity: how hard it is to understand or use (simpler is better).
- Divisibility: whether it can be tried on a limited basis.
- Communicability: how easily its benefits can be observed or described.
Adoption is also influenced by factors beyond the marketer’s control: people’s and organisations’ willingness to try new things, personal influences, and the characteristics of the innovation itself.
| Remember this Eight stages: idea generation, screening, concept development and testing, marketing strategy, business analysis, product development, market testing, commercialisation.Adoption stages: awareness, interest, evaluation, trial, adoption.Adopter groups: innovators, early adopters, early majority, late majority, laggards. |
2. Product Life Cycle (PLC)
| Just like people, products are born, grow, mature and eventually decline. The life cycle idea helps a firm decide what marketing actions make sense at each stage. It is applied to product categories (e.g. smartphones), product forms (e.g. flip phones), and brands. |
2.1 The four stages
|
Stage |
Sales |
Profits |
Typical marketing response |
|---|---|---|---|
|
Introduction |
Slow growth |
Minimal or negative (heavy launch costs) |
Create awareness and get trial; limited product versions; high price or penetration price |
|
Growth |
Rapid climb |
Rising |
Improve quality, add features and models, enter new segments, widen distribution, shift from awareness ads to preference ads, cut prices to attract more buyers |
|
Maturity |
Slows, then plateaus |
Stable, then pressured |
Modify the market, the product or the marketing mix to defend share |
|
Decline |
Falls |
Falls |
Decide whether to continue, concentrate, harvest or divest |
Most products today are in the maturity stage.
2.2 Introduction-stage launch strategies
Based on the combination of price and promotion, a firm can choose from four strategies:
|
|
High promotion |
Low promotion |
|---|---|---|
|
High price |
Rapid skimming: high price and heavy promotion to recover costs quickly |
Slow skimming: high price and low promotion to keep costs down |
|
Low price |
Rapid penetration: low price and heavy promotion for fast market share |
Slow penetration: low price and low promotion; the market is price-sensitive and well aware |
2.3 Maturity-stage options
- Market modification: attract new users (convert nonusers, enter new segments, win competitors’ customers) or encourage more usage (more frequent use, more per occasion, new uses).
- Product modification: improve quality, features or style.
- Marketing-mix modification: adjust price, distribution, advertising, promotions or services.
2.4 Decline-stage strategies
First identify the truly weak products and then choose: continue (stay in the market), concentrate (focus on the strongest segments), harvest (cut investment but milk remaining sales), or divest (sell or drop the product). Harvesting and divesting are different things: harvesting quietly reduces costs while keeping sales going, whereas divesting exits the business.
2.5 Other life-cycle shapes
- Style, fashion and fad: a style is a basic mode of expression that lasts for generations, a fashion is a currently accepted style, and a fad is a short-lived burst of interest.
- Growth-slump-maturity: sales rise, drop sharply, then settle at a lower level (typical of many kitchen gadgets).
- Cycle-recycle: a second wave of sales, often from a promotional push (new drugs).
- Scalloped: successive life cycles driven by new features, uses or users.
Criticism of the PLC: it is not a law of nature. Stages vary in length, products do not always follow the pattern, and managers can influence the curve. Use it as a guide, not as a rule.
2.6 Market evolution
Markets also go through stages: emergence, growth, maturity and decline. New needs and technologies create new markets and kill old ones, so firms must keep watching how the market itself is changing, not just their product.
2.7 Marketing in a slow-growth economy
When the economy slows, successful firms do five things: explore the upside of increasing investment rather than cutting it, get closer to customers, review budget allocations, strengthen the value proposition, and fine-tune brands and products.
| Remember this Leader defences (6): position, flank, preemptive, counteroffensive, mobile, contraction.Challenger attacks (5): frontal, flank, encirclement, bypass, guerrilla.Follower types: counterfeiter, cloner, imitator, adapter.PLC: introduction, growth, maturity, decline. Decline choices: continue, concentrate, harvest, divest. |
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