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POMLecture 7-a

BBA 2K10

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1. New-Product

Development Strategy2. New-Product

Development Process3. Managing New-Product

Development4. Product Life-Cycle

Strategies5. Additional Product and

Service Considerations

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A firm can obtain new products through:

AcquisitionNew-product development

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Acquisition refers to the buying of a whole

company, a patent, or a license to

produce someone elses product

New product development refers tooriginal products, product

improvements, product modifications,and new brands developed from thefirms own research and development

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As director of consumer Web products Marissa Mayer is a championof innovation. She favors new product launches that are early andoften.

She joined Google in early 1999 as a programmer when theworkforce totaled 20. By 2007 Google had 5,700 employees with

expected sales of $16 billion.How Google Innovates

The search leader has earned a reputation as one of the mostinnovative companies in the world of technology. A few of the ways

Google hatches new ideas: FREE (THINKING) TIME

Google gives all engineers one day a week to develop their own petprojects, no matter how far from the companys central mission. Ifwork gets in the way of free days for a few weeks, they

accumulate. Google News came out of this process.

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THE IDEAS LISTAnyone at Google can post thoughts for new technologies ofbusinesses on an ideas mailing list, available company wide for inputand vetting. But beware: Newbies who suggest familiar or poorlythought-out ideas can face an intellectual pummeling.

OPEN OFFICE HOURSThink back to your professors office hours in college. Thats prettymuch what key managers, including Mayer, do two or three times aweek, to discuss new ideas. One success born of this approach wasGoogles personalized home page.

BIG BRAINSTORMSAs it has grown, Google has cut back on brainstorming sessions.Mayer still has them eight times a year, but limits hers to 100engineers. Six concepts are pitched and discussed for 10 minutes

each. The goal: to build on the initial idea with at least onecomplementary idea per minute. ACQUIRE GOOD IDEAS

Although Google strongly prefers to develop technology in-house, ithas also been willing to snap up small companies with interestinginitiatives. In 2004 it bought Keyhole, including the technology that

let Google offer sophisticated maps with satellite imagery.Source: Managing Googles Idea Factory, BusinessWeek, October 3, 2005, 88-90.

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Reasons for new product failure

Overestimation of market sizePoor designIncorrect positioningWrong timingPriced too highIneffective promotion

Management influenceHigh development costsCompetition

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1. Idea generation2. Idea screening3. Concept

development andtesting

4. Marketing strategydevelopment

5. Business analysis

6. Product development7. Test marketing8. Commercialization

M ajor Stages in New-Product Development

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I dea Generation

Internal sources refer to the companys own

formal research and development,management and staff, and intrapreneurialprograms

External sources refer to sources outside thecompany such as customers, competitors,distributors, suppliers, and outside designfirms

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Concept Development and Testing

Product idea is an idea for a possible product thatthe company can see itself offering to themarket

Product concept is a detailed version of the ideastated in meaningful consumer terms

Product image is the way consumers perceive anactual or potential product

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Concept testing refers tonew-product conceptswith groups of targetconsumers

Concept Development and Testing

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Marketing strategydevelopment refers tothe initial marketingstrategy for introducingthe product to the

market

Marketing strategy statementincludes:

Description of the targetmarketProduct positioning, sales,market share, and profitgoalsPrice, distribution, andbudgetLong-term sales, profitgoals, and marketing mixstrategy

M arketing Str ategy Development

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Business analysis involves a review of thesales, costs, and profit projections tofind out whether they satisfy thecompanys objectives

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Product development involves the creationand testing of one or more physicalversions by the R&D or engineeringdepartments

Requires investment

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Test marketing is the stage at which theproduct and marketing program areintroduced into more realistic marketingsettings

Provides the marketer with experience intesting the product and entiremarketing program before fullintroduction

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When firms test market

New product with largeinvestment

Uncertainty aboutproduct or marketingprogram

When firms may not test

marketSimple line extension

Copy of competitor product

Low costsManagement confidence


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Approaches to testmarketingStandard test marketsControlled test

marketsSimulated testmarkets

http://www.redbox.com/

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M arketing Str ategy and Development

Standard test markets are small representative

markets where the firm conducts a fullmarketing campaign and uses store audits,consumer and distributor surveys, and othermeasures to gauge product performance.Results are used to forecast national sales andprofits, discover product problems, and fine-tune the marketing program.

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Controlled test markets are panels ofstores that have agreed to carry newproducts for a feeLess expensive than standard test

marketsFaster than standard test marketsCompetitors gain access to the newproduct

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Simulated test markets are events wherethe firm will create a shoppingenvironment and note how manyconsumers buy the new product andcompeting products. Provides measureof trial and the effectiveness ofpromotion. Researchers can interviewconsumers.

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Commercialization is the introductionof the new product

When to launchWhere to launch

Planned market rollout

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The process by which the adoption of aninnovation spreads.

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P e r c e n

t a g e o f

A d

o p

t e r s

Time

Innovators2.5%

EarlyAdopters

13.5%

LateMajority

34%

EarlyMajority

34%Laggards

16%

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Trialability

Observability

Relative Advantage

Compatibility

Complexity

ProductCharacteristicsPredict Rate of

Adoption

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Direct fromMarketer

Word of Mouth

CommunicationAids the

Diffusion Process

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Situation involving one product takingsales from another offering in a productline

Cannibalization occurs when sales of anew product cut into (reduce) the sales ofa firms existing products.

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