New Product Development: Strategy and Process

New Product Development Strategy

• Acquisition refers to buying a whole company, patent, or license to produce an existing product
• New Product Development refers to original products, modifications, and new brands from a firm's R&D
• 300,000 new products are introduced each year, and 95% fail

New Product Development Process

• Idea generation is the systematic search for new product ideas using internal or external sources
• Internal sources include a company's own R&D, management, staff, and entrepreneurial programs
• External sources include customers, competitors, distributors, and supplies
• Always look at the competition
• Crowdsourcing obtains work, information, or opinions from a large group using digital platforms
• Idea screening identifies good ideas and drops poor ones using the Real, Win, Worth (R-W-W) framework
• The R-W-W framework consists of:
  • Realism assessment based on need, fit, and feasibility
  • Competitive advantage assessment based on the ability to win
  • Profit assessment based on the profitability
• Product idea is a possible offering for the market
• Product concept is a detailed definition of the product idea in consumer terms
• Product image is how consumers perceive an actual or potential product
• Concept tasting involves testing new product concepts with target consumers
• Marketing strategy development involves designing the initial marketing strategy
• A marketing strategy statement includes the description of the target market, the planned value proposition, and the sales, market share, and profit goals
• Business analysis is a review of the sales, costs, and profit projections for a new product to determine if they meet company goals
• Product development develops the product concept into a market offering
• Test marketing tests the product and its marketing program in realistic market settings
• Commercialization involves introducing the product to the market, including deciding when and where to launch
• Successful new product development is customer-centered, team-based, and systematic
• New product development may become less competitive and reduce spending

Product Life-Cycle Strategies

• Product Development is characterized by zero sales and increasing investment costs
• Introduction stage has slow sales and losses
• Growth stage has rapid market acceptance and increasing profits
  • New competitors emerge
  • Lower prices attract more customers, and benefit from economies of scale
• Maturity stage has slow sales growth and profits that level off
  • There is overcapacity which leads to more competition
  • Efforts are increased in promotion and R&D
• Decline stage sales and profits drop
  • Maintenance, harvest (offering in large quantities for low prices), or drop the product

Additional Product and Service Considerations

• Regulations on developing and dropping products, patents, quality, safety, and warranties must be considered
• International product and service marketing involves deciding which products to introduce to which countries

Pricing

• Price is the value exchanged to obtain a product or service
• Value is the rate at which a product or service fulfills the consumer's functional, monetary, social, and psychological needs
• Value Exchange describes that mutual benefits exist for both customer and company
  • Customer: benefits outweigh costs
  • Company: profits outweigh costs
• Companies and customers need to be in a mutually beneficial relationship in order to increase loyalty
• Customer-oriented pricing means the price captures the perceived value
• Good value pricing is the correct amount/quality/service for the price
• Customer value-based pricing means the price seems fair to the customer
• Cost-based pricing sets prices based on the costs of production, distribution, and sales, plus a fair rate of return

Cost-Based Pricing

• Fixed costs include overhead, rent, and management salaries
• Variable costs include raw materials, packaging, and transport
• Total costs are the sum of the fixed and variable costs
• Economies of scale means costs decrease with increased production by spreading fixed costs
• Learning curve means that more volume increases efficiency and economies of scale
• Cost-based pricing uses the cost-plus method by adding markup to the cost
  • Unit cost is variable cost + fixed costs/units sold
  • Markup cost is unit cost / (1-desired return on sales)
• Not considering demand or competition is a main risk
• Companies are more certain about costs
• Most prefer cost-plus because it seems fair and doesn't exploit demand fluctuations
• Break-even pricing sets the price to break even or to achieve a target return

Pricing Strategy Considerations

• Internal factors include company objectives, marketing strategy, and marketing mix
• External factors include the nature of the market, the industry, economy, government, suppliers, and social factors

Pricing Strategies

• Market skimming prices high to get as much revenue as possible when it's unique
  • Maximize revenues before competitors arrive
  • Generate early profits to fund later product investment
• Market penetration prices low to attract a large number of buyers and large market share
  • Encourages consumption and habit-forming
  • The business accepts short-run losses

Price Adjustments

• Discounts/allowances are reductions for volume purchases, early payments, or promotion
• Segmented pricing adjusts prices for differences in the customers, products, or locations
• Psychological pricing makes prices more appealing
• Promotional pricing is temporarily reducing prices to spur sales
• Geographical pricing makes adjustments for geographic location
• Dynamic pricing makes continual adjustments for individual customers
• International pricing makes adjustements for the international market

Price Changes

• Initiating price cuts occur due to excess capacity or increased market share
• Initiating price increases occur due to cost inflation, increased demand, or supply shortages
• Customer reactions to price changes depend on whether the product is "hot" or if there is "company greed"
• Competitor reactions include inquiries about the reason and if it is temporary

Public Policy and Pricing

• Price fixing fixes set prices via agreements with competitors

• Predatory pricing involves selling below cost to punish competitors or gain profits by eliminating them

• Robinson-Patman Act prevents unfair price discrimination - Price discrimination is allowed if costs differ by retailer

• Retail/resale price maintenance dictates a fixed retail price, which is illegal

• Deceptive pricing involves misleading price savings - This includes bogus references or scanner fraud

Marketing Channels

• Supply chains and value delivery networks produce a product/service and make it available to buyers
• Upstream partners supply raw materials, components, and expertise
• Downstream partners are distribution channels, including retailers and wholesalers
• The supply chain view is "make and sell"
• The demand chain view is "sense and respond"
• Value delivery network partners with suppliers, distributors, and customers to improve the system
• A marketing channel (distribution channel) makes the product or service available for use
• Channel members transform assortments for consumers, bridging time, place, and possession gaps
• The channels add value with information, promotion, contact, matching, negotiation, physical distribution, financing, and risk taking

Marketing Channels - Levels

• A channel level of intermediaries brings product and its ownership closer to the buyer
• A direct marketing channel has no intermediaries
• An indirect marketing channel has one or more intermediaries

Marketing Channels - Behavior and Organization

• Marketing channels consist of firms that partner for specialized roles
• Channel conflict is disagreement among members over goals, roles, and rewards
• Horizontal conflict happens among same-level firms, like some stealing sales
• Vertical conflict happens between different levels

Vertical Marketing Systems

• Conventional distribution systems entail independent producers, wholesalers, and retailers seeking to maximize separate profits
• Vertical marketing systems work as a unified system and provide channel leadership
  • Corporate marketing systems entail single ownership
  • Contractual marketing systems connect independent firms
  • Administered marketing systems influence using size and power
• Horizontal marketing systems entail two or more companies who at the same level that join together to follow a new marketing opportunity
• Multichannel distribution systems use two or more channels to reach customer segments
• Disintermediation cuts out channel intermediaries

Channel Design Decisions

• Effective marketing channel needs to analyze consumer needs, set objectives, identify and evaluate channel alternatives
• The number of marketing intermediaries include:
  • Intensive distribution via supermarkets
  • Exclusive distribution via Rolex
  • Selective retailers via Chansaw company
• Channel members need to agree on price policies, conditions of sale, territory rights, and specific services
• International channels entail unique distribution systems that evolve
• Marketers must adapt channel strategies within each country

Marketing Logistics and Supply Chain Management

• Marketing logistics (physical distribution) involves planning, implementing, and controlling the flow of goods to meet requirements at a profit
• Supply chain management handles value-added flows to final consumers
• The goal of marketing logistics provides a targeted level of customer service at the least cost
• Major logistics functions: warehousing, inventory management, transportation, and logistics information management

Personal Selling - The Sales Force

• Personal sales are more effective than advertising in more complex situations, with higher deal values, and tailored offers
• Salespeople link the company and customers to improve value and profit

Sales Force Management

• Sales force management is the analysis, planning, implementation, and control of sales activity
  • Strategies are: territory, product-based, or customer focus
• Salespeople are productive and expensive assets
  • A workload approach refers to class-based grouping
• Outside sales are in the field
• Inside sales work remotely
• Team selling uses collaboration to service customers
• Careful selection in hiring and training increases sales performance
  • Poor hiring increases costs and disrupts relationships
• Sales training provides customer and product knowledge, and outlines the sales process
• Compensation can be fixed or variable, with expenses and benefits
• Supervision helps employees do the right things in the right way Motivation encourages hard work toward goals
• Morale and performance is increased with sales quotas, organizational climate, and positive incentives
• Sales reports, call reports, and expense reports evaluate performance
• Sales performance is improved by relationship marketing instead than transactional selling

Sales Promotion

• Sales promotion provides short-term incentives to encourage purchases
  • Consumer promotions often use coupons and premiums
  • Trade promotions offer shelf space
  • Business promotions offer rewards