BA 332 Chapter 8 Notes
BA 332 Chapter 8 Notes BUAD 332 001
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This 20 page Class Notes was uploaded by Morgan Notetaker on Monday October 26, 2015. The Class Notes belongs to BUAD 332 001 at University of Tennessee - Knoxville taught by Mark A Moon (P) in Summer 2015. Since its upload, it has received 20 views. For similar materials see CBM I: Demand Management in Business Administration at University of Tennessee - Knoxville.
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Date Created: 10/26/15
Chapter 8 New Product Development and Life Cycle Strategies BA 332 How products tend to go in their lives Beginning to End Clicker Which are true A B C D Most new products introductions succeed Most of the money spent on new product introductions is spent during the idea generation stage The majority of new products fail within 12 months CORRECT None of the above Which of the following statements is true about the classic Product Life Cycle PLC A Pro ts are greatest during the decline stage B Sales revenue is the highest during the maturity stage CORRECT New Product Development The development of original products product improvements product modifications and new brands through the firm 5 own product development efforts In other words we won t be talking about introducing new products by buying other companies WONT BE TALKING ABOUT Acquisitions Apple Buys Beats for 3 billion tapping tastemakers to regain music mojo Made Dr Dre really rich Made LeBron James really rich too 9 Gave LeBron James equity in the Beats company NewProduct Development Strategy 0 New products can be obtained via acquisition or newproduct development 0 New product development is very expensive and very risky 0 70 to 90 of new consumer products fail within 12 months 0 Products fail for many reasons Not on the shelf after being introduced to the market NEW PRODUCT FAILURE Xerox Star Workstation Xerox computer 9 developed the mouse 9 invented the folders and trash can EVERYTHING about computers Target market corporate executives Sold fewer than 10000 computers 9 couldn39t t recoup investment NewProduct Failures 0 Why do new products fail 0 Overestimation of market size Design problems Incorrectly positioned priced or advertised Pushed despite poor marketing research findings Excessive development costs 0 Reason they had to set the price so high 0 Competitive reaction 0 KILLED THEM THE MOST 0 IBM PC was introduced around the same time 0 Sold millions and millions Not bad products 9 not ready to t in market Figure 81 Major Stages in NewProduct Development Process Idea lt3 39dea l 3 35333 1 I V 39 eneration z 39 screenin 3 r V l I 1 g v g V and testing v x g 4 1 L 39V V m 70 g i i I v a 8 STAGES 1 IDEA GENERATION Purpose develop A LOT of ideas Ideas don t cost you anything Stages 2 8 Purpose get ride of bad ideas before they too much money Make bad decisions earlier rather than later 9 less of an impact New Product Development Process 0 STAGE1 Idea generation 0 Internal sources 0 Company employees at all levels 0 External sources 0 Customers 0 Competitors 0 Distributors 0 Suppliers 0 Outsourcing 0 To thinta quot 3M Famous for creating a culture where they allow research engineers to have 10 15 to do whatever they wantthink is interesting 9 encourage innovation Internal culture that fosters and rewards creativity 9 not scolded for bad ideas Ex Post It Notes 9 glue that didn39t t work very well MAKE LOTS OF IDEAS New Product Development Process 0 STAGE 2 Idea screening REST OF PROCESS 0 Process used to spot good ideas and drop poorones 0 Executives provide a description of the product along with estimates of market size product price development time and costs manufacturing costs and rate of return 0 Evaluated against a set of company criteria 1 for new products NewProduct Development Process 0 STAGE 3 Concept development and testing 0 Product idea 0 Idea for a possible product that the company can see itself offering to the market 0 Product concept 0 Detailed version of the new product idea stated in meaningful consumer terms 0 Concept testing 0 Testing newproduct concepts with groups of target r K consumers to find out if the concepts have strong x f 39 7 7quot Here s what we think this will do Get someone to draw what it will look like Hold focus group to get other s opinions 9 doesn39t cost very much Get great feedback for low cost New Product Development Process 0 STAGE 4 Marketing Strategy Development 0 Part One 0 Describes the target market planned value proposition sales market share and profit goals 0 Part Two 0 Outlines the product s planned price distribution and marketing budget 0 Part Three 39 quot escribes the planned longrun sales ad 1 mixstrate Part 1 What s the target market Part 2 How will we actually do this Part 3 NewProduct Development Process 0 STAGE 5 Business analysis 0 Involves a review of the sales costs and profit projections to assess fit with company objectives 0 If results are positive project moves to the product development phase Hand it off to the accountants nance people 9 does it make sense Cost projections Start off costs Look more carefully at the numbers If it passes 9 START SPENDING REAL MONEY 10 New Product Development Process 0 STAGE 6 Product development 0 Develops concept into a physical product 0 Calls for a large jump in investment 0 Prototypes are made 0 Physical thing in front of you 0 Prototypes must have correct physical features and convey psychological characteristics Prototypes are subjected to physical tests Boeing 787 Dreamlinner new plane 5 years late because making prototypes and making sure its okay Billions of dollars spent before actually get it out Product Testing Gillette Uses employee volunteers to test new shaving products EX Google glass 9 gave it out to people like the head of the marketing department here at UT 11 NewProduct Development Process 0 STAGE 7 Test marketing 0 Product and program are introduced in a more realistic market setting 0 Not needed for all products 0 Can be expensive and time consuming but better than making a major marketing mistake 0 Many CPG companies are using technology to make test marketing faster and less expensive Before we go all in Try it out in a small area 9 see how they like it VERY expensive Some skip this stage Competitors see and know what you are up to Virtual Test Marketing Virtual Reality Store in France Test signage and displays Seeing what the consumer will do 9 what they look at and pick up in the store physically pick it up and look at products on shelf Not as good 9 but WAY faster and WAY cheaper New Product Development Process 0 STAGE 8 Commercialization 0 Must decide on timing ie when to introduce the product 0 Must decide on where to introduce the product eg 0 Must develop a market rollout plan 0 How it goes to the market Passing through all hurdles 9 decide its good Good sense that its going to be successful 9 or else FAILURE single location state region nationally internationally 13 Managing NewProduct Development 0 Teambased newproduct development 0 Various company departments work closely together overlapping the steps in the product develo ment process to save time and increase e ectiveness 0 Some steps are performed simultaneously rather than the entire process being sequen al 0 Create concept that has crossfunctional things mutiple ste s atone time to save time and Increase e ectIVIty 14 The Classic Product Life Cycle PLC Sales and profits 3 Product development Introduction Growth Maturity Decline Losses I r Clicker Product decline is inevitable FALSE 15 Practical Problems of PLC 0 In practice it is difficult to 0 Identify the current stage of a product s PLC 0 Pinpoint when the product moves to the next stage 0 Identify factors that affect product s movement through stages 0 Forecast sales level length of each stage and shape of PLC 0 Develop marketing strategy as strategy is W both a cause and result of the PLC 16 Decline is NOT PreOrdained Managers can do things to keep products from declining 0 Strategies used to manage the PLC during maturity include 0 Modifying the market 0 Modifying the product 0 Modifying the marketing mix 17 How Can Decline Be Avoided 0 Modifying the market 0 Increase the consumption of the current product 0 How 0 Look for new users and market segments 0 Reposition the brand to appeal to larger or fastergrowing segment 0 Look for ways to increase usage among present customers Modify the Market Arm amp Hammer Baking Soda Had baking soda cause lots used to bake back in the day Came up with new use for the product 9 open it in the fridge and it helps with the smell 18 How Can Decline Be Avoided 0 Modifying the product 0 Changing characteristics such as quality features or style to attract new users and to Inspire more usage 0 How 0 Improve durability reliability speed taste 0 Improve styling and attractiveness 0 Add new features 0 Expand usefulness safety convenience Modify the Product Crayola Crayons Wax based crayons were declining New technologies 9 chalk deluxe art set Keep the brand from declining 19 How Can Decline Be Avoided 0 Modifying the marketing mix 0 Improving sales by changing one or more marketing mix elements 0 How 0 Cut prices 0 Implement coupon rebate or other promotions 0 Launch a better ad campaign larger market chan 7 Modify the Marketing Mix Old Spice PampG bought the brand when it was popular Had rep of being grandfather s collogue Resurfaced it to be a younger generation position 9 new approach Kept it alive 20