New-Product

Development and
Product Life-Cycle
Strategies
Chapter 9
Philip Kotler & Gari Amstrong
New Product Development
• A firm can obtain new products in two
ways. One is through acquisition—by
buying a whole company, a patent, or a
license to produce someone else’s product.
The other is through the firm’s own new-
product development efforts.
• The development of original products,
product improvements, product
modifications, and new brands through the
firm’s own product development efforts
• For company a new product are a key source of
growth.
• Yet innovation can be very expensive and very risky.
• According to one estimate, 80 percent of all new
products fail or dramatically underperform. Each year,
companies lose an estimated $20 billion to $30 billion
on failed food products alone.
• Why do so many new products fail? There are several
reasons. Although an idea may be good, the company
may overestimate market size. The actual product
may be poorly designed. Or it might be incorrectly
positioned, launched at the wrong time, priced too
high, or poorly advertised.
 The new product development process

Concept Marketing
Idea Idea
development strategy
generation screening and testing development

Business Product Test Commerciali

analysis development marketing zation
 Ide generations
The systematic search for new product ideas

• Mayor sources of new product includes internal

sources and external sources such customer,
competitors, distributors and suppliers, and others.
• Internal idea sources : Using internal sources,
the company can find new ideas through formal
R&D. However, in one survey, 750 global CEOs
reported that only 14 percent of their innovation
ideas came from traditional R&D. Instead, 41
percent came from employees, and 36 percent
came from customers.
• For Example : Samsung built a special value
innovation program (VIP) centre in Suwon-
South Korea, to encourage and support internal
new-product innovation.
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.
• Competitors are another important source. 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
 Idea screening
• Many companies require their executives write up new-
product ideas in standard format that can be review by a
new product committee.
• One marketing expert proposes an R-W-W (real, win,
worth) New product screening framework that asks tree
question : first (it is real), is there a real need and desire for
the product and will customers buy it?. Second (can we
win), does the product offer a sustainable competitive
advantage. Finally, (is it worth doing), Does the product set
the company’s over all growth strategy? Does is offer
sufficient profit potential, The company should to be able
answer yes to all tree R-W-W question before developing
the new product idea further.
 Concept Development and testing
• Product concept : A
detailed version of the
new-product idea
stated in meaningful
consumer terms.
• Testing new-product
concepts with a group
of target consumers to
find out if the concepts
have strong consumer
appeal.
Marketing Strategy Development
• Designing an initial marketing strategy for a new product based on
the product concept. The marketing strategy statement consist of
three parts
• The first part describes the target market, the planned value
proposition, and the sales, market share and profit goals for the
first few years.
• For example : The target market is younger, well-educated,
moderate- to high-income individuals, couples, or small families
seeking practical, environmentally responsible transportation. The
car will be positioned as more fun to drive and less polluting than
today’s internal combustion engine or hybrid cars. The company
will aim to sell 50,000 cars in the first year, at a loss of not more
than $15 million. In the second year, the company will aim for
sales of 90,000 cars and a profit of $25 million.
• The second part of the marketing strategy statement
outline the product planned price, distribution, and
marketing budged for the first year
• For Example : The battery-powered electric car will be
offered in three colors—red, white, and blue—and will have
a full set of accessories as standard features. It will sell at a
retail price of $25,000, with 15 percent off the list price to
dealers. Dealers who sell more than 10 cars per month will
get an additional discount of 5 percent on each car sold that
month. A marketing budget of $50 million will be split 50–50
between a national media campaign and local event
marketing. Advertising and the Web site will emphasize the
car’s fun spirit and low emissions. During the first year,
$100,000 will be spent on marketing research to find out
who is buying the car and what their satisfaction levels are.
• The Third part of marketing strategy statement
describes the planned long-rum sales, profit goals, and
marketing mix strategy.
• For example : We intend to capture a 3 percent long-
run share of the total auto market and realize an after-
tax return on investment of 15 percent. To achieve
this, product quality will start high and be improved
over time. Price will be raised in the second and third
years if competition and the economy permit. The
total marketing budget will be raised each year by
about 10 percent. Marketing research will be reduced
to $60,000 per year after the first year.
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..
• 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. The company then
uses the sales and costs figures (S/C) to analyze
the new product’s financial attractiveness.
Product Development
• Developing the product concept into
a physical product in order to ensure
that the product idea can be turned
into a workable market offering.
• The R&D department will develop
and test one or more physical
versions of the product concept.
• R&D hopes to design a prototype
that will satisfy and excite and that
can be produced quickly and at
budgeted costs.
 Test Marketing
• The stage of new product
development in which the product
and marketing program are tested
in realistic market setting.
• Test marketing gives the marketer
experience with marketing the
product before going to the great
expense of full introduction.
• It lets the company test the
product and its entire marketing
program : targeting and positioning
strategy, advertising, distribution,
pricing, branding, and packaging.
Commercialization
Introducing a new product into the market.

• Test marketing gives management

the information needed to make a
final decision about whether to
launch the new product.
• Commercialization : Introducing
the new product into the market-
it will pace high costs.
• For example : when unilever
introduced its sunsilk hair care
line, it spent $200 million in one
country alone.
Product life-cycle strategies
The course of a product’s sales and profits over its lifetime. It involves five distinct
stages
Product development

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.
 Introduction

Introduction : is a period of slow sales growth as the product is

introduced in the market. Profit are nonexistent in this stage
because of the heavy expenses of product introduction.
 Growth

Growth is period of rapid market acceptance

and increase profit
 Maturity

Maturity is a period of slowdown is sales growth because the

product has achieved acceptance by most potential buyers. Profit
level off or decline becase of increased marketing outlays to
defend the product against ompetition.
 Decline

Decline is the period when sales fall off and profit

drop.
• Not all products follow this product life
ciycle. Some product are introduced and
die quicly; other stay in the mature stage for
a long time. Some enter the decline stage
and are then cycled back into the stage
through strong promotion or repositioning.
• It seems that a well-managed brand could
live forever. Such venerable brand as Coca-
cola, reuters, HSBC, siemens, and Tobasco
for instance, are still going strong after more
than 100 years.