IMT-N-II-12-MM2 Marketing Management 2 Session 5

Wednesday October 3rd 2012 Chapter 20, Introducing New Market Offerings, MM, Philip Kotler

Learning Objectives
New Product Development
1.
2. 3.

NPD
NPD- Innovations NPD- Stages

5.1 New Product

New products are critical to survival New-product development (NPD) is essential for companies seeking growth
It should be an on-going, well organized NPD process

having top-management support

What is a new product?

From a firm's perspective, a new product is a product that it

is unfamiliar in any way

New to Industry New to Company

New to Product Line

New Variant

NPD
Acquisition versus Innovation
Corporate acquisition - buy the company rapid entry, total control- invites antitrust attention Patent acquisition - buy the patent avoids antitrust problems- does not give total control License the patent - rent it minimum investment, fast introduction, fast income fast competition, lack of control, less reward

Innovation - develop new products internally maximize long term profit, gain technological leadership no legal problems...

NPD: Innovations

New Product Development

Development of original products, product improvements, product

modifications and new brands through the firms own R&D efforts.

Types of Product Innovations

Discontinuous Innovation : Requires new behavior patterns Wired Phone & Cell Phone Audio Tapes & CDs Walkman & I-Pod Dynamically Continuous Innovation: Established behavior patterns remain CDs to DVDs Wired Phones & CLIP Continuous Innovation: Modified product- Least disruptive 2G to 3G- Voice to data to video I-Pod on Cell phone

The New Product Development Decision Process

NPD: Stage 1- Idea Generation

Idea Generation
Internal idea sources: R & D Cell, Employees, Sales persons, Marketing Intelligence, MR & Consultants External idea sources: Customers, competitors, distributors, suppliers

Methods used:

Brainstorming- Freewheeling Customer Co-creation Focused group discussions Idea Vault Marketing Intelligence

Lateral Mapping

Gas stations + food Cafeteria + Internet Cereal + snacking Candy + toy Audio + portable

NPD: Stage 2- Idea Screening

Idea Screening
Product development costs increase substantially in later

stages; so poor ideas must be dropped Ideas are evaluated against criteria
By internal team of experts Most are eliminated

Screening Errors: Drop Error: A good idea dismissed- realized later Go Error: A poor idea carried fwd
Absolute product failure- loses even variable costs of production Partial product failure- loses money; covers variable costs Relative product failure- yields profits lesser than targeted rate of return

Product-Idea Rating Device

NPD: Stage 3- Concept Testing

Concept Development and Testing

Concept development creates a detailed version of the idea stated in meaningful consumer terms
Who will use this product? What primary benefit should this product provide? What is the fit opportunity to use this product?

Concept testing asks target consumers to evaluate product

concepts:
Product idea Product concept Category concept Brand concept

Concept testing

Tools Used Conjoint Analysis: Symbolic or physical?

Concept Testing

Consumers respond on the question of:

Communicability and believability Need level Gap level Perceived value Purchase intention

User targets, purchase occasions, purchasing frequency

Gives insights on
Consumer appeal Product benefits

Competitive placing
Buyers profile

NPD : Stage 4- Marketing Strategy

Marketing Strategy Development

New Product Managers design 3 Part Plan The target market- Size & structure, product positioning, sales, market share and profit goals for the first few years. Product price, distribution and marketing budget for the first year. Long-run sales and profit goals and the marketing mix strategy.

NPD: Stage 5- Business Analysis

Business Analysis: Proposals Business Attractiveness

Demand, sales, cost and profit projections
Costs & revenue estimates & comparisons done Nature of product, company & industry holds importance Novelty of the product, fitness in product line & nature of

competition play role

NPD: Stage 6- Product Development

Product Development
Prototype development and testing
Product & packaging developed from drawing board All teams work in unison; use of CAD Feasibilities & cost management should be checked

Can take long time

Qualitative improvements can keep happening in PLC Testing of the prototype can begin in house- Alpha, Beta Prevailing regulations regarding trials & Quality

specifications need to be complied

NPD: Stage 7- Test Marketing

Test Marketing
How many test cities? Proportional to targeted market size Which cities? Representative of target market Length of test? Upto repurchase- repeat order duration What information to collect? Warehouse data- Store data- Buyer survey What action to take? High repurchase - launch commercially High trial & low repurchase - redesign product Low trial & high repurchase- redesign communication Low trial & low repurchase- abandon product

NPD: Stage 8- Commercialization

Commercialization
Includes scaling decisions ordering the production materials & equipment starting production, building inventories distribution channel, sales-force mgmt, announcing the new product to the trade & industry advertising to potential customers
Timing Decision First Entry, Parallel Entry, Late Entry Market Coverage Decision Single/multiple, Local, Regional, National, International Launch