Chapter 8 - Developing New Products PDF

Chapter 8: Developing New Products and Managing the Product Life Cycle First Stop: Google (Alphabet) - The New Product Moon Shot Factory Google is renowned for its continuous innovation and has become one of the most innovative companies globally....

Chapter 8: Developing New Products and Managing the Product Life Cycle First Stop: Google (Alphabet) - The New Product Moon Shot Factory Google is renowned for its continuous innovation and has become one of the most innovative companies globally. Initially focused on online search with a mission to “organize the world’s information and make it universally accessible and useful.” Dominates online search with a 94% market share in mobile search and a significant share of online advertising revenue. Over the years, Google has expanded beyond search into various markets by leveraging its core information mission: ○ Software Innovations: Gmail, Google Maps, Google Docs, Google Photos, Google Cloud, and Chrome. ○ Hardware Innovations: Pixel smartphones, Nest smart home devices, and Pixel Buds. Acquisition Strategy: Entered new markets like smart homes (Nest Labs) and mobile navigation (Waze) through acquisitions. Alphabet, Google’s parent company, was created to contain diverse projects like self-driving cars (Waymo) and health tech (Verily). Alphabet’s Moonshot Projects: X Lab: Alphabet's secretive innovation lab focused on projects addressing massive global issues with breakthrough technology. ○ Projects like Waymo (self-driving cars), Verily (healthcare devices), Wing (drone deliveries), and Everyday Robot Project (AI robots). ○ The criteria for green-lighting projects: Addressing significant problems, proposing radical solutions, and leveraging breakthrough technology. Key Takeaway: Google’s culture encourages employees to innovate fearlessly, with a focus on projects that can change the world.  I - New Product Development Strategy Objective 8-1: Explain how companies find and develop new product ideas New Product Development: The development of original products, product improvements, modifications, and new brands through the firm’s own efforts. Ways to Obtain New Products: 1. Acquisition: ○ Buying another company, acquiring a patent, or licensing someone else’s product. ○ Example: Google’s acquisition of Nest for smart home products and Waze for mobile navigation. 2. Internal Development: ○ Developing original products, product improvements, or new brands through internal efforts. ○ Example: Many of Google’s products like Gmail and Google Docs were developed internally. Importance of New Products: Critical for customer satisfaction and company growth. Companies rely heavily on new products for their growth. ○ Example: Apple’s iPhone and iPad now account for nearly 60% of its global revenues. Challenges of New Product Development: Innovation is expensive and risky. High failure rate: Approximately 95% of new products fail. Common reasons for failure: ○ Overestimated market size. ○ Poor product design or positioning. ○ Launched at the wrong time, set at the wrong price, or poorly advertised. ○ Internal biases or pressure from top executives. Key to Successful New Product Development: Companies must thoroughly understand their customers, markets, and competitors. Focus on developing products that deliver superior value.  II - The New Product Development Process Objective 8-2: List and define the steps in the new product development process and the major considerations in managing this process. Companies must implement a customer-driven new product development process to ensure successful innovation. This process includes eight major steps (refer to Figure 8.1 in the textbook). A. Idea Generation Idea Generation: The systematic search for new product ideas. New product development begins with generating a large pool of ideas to find a few good ones. Sources of New Product Ideas: 1. Internal Sources: ○ Internal R&D: Formal research and development teams focus on creating new innovations. Example: Ford’s “D-Ford” centers in multiple locations focus on solving transportation challenges. Example: Chick-fil-A’s innovation center "Hatch" explores food, design, and service innovations. ○ Employee Contributions: Companies leverage internal talent through intrapreneurship. Example: Google’s “Area 120” incubator allows employees to work full-time on passion projects. Example: Facebook’s hackathons have produced features like the “Like” button and friend tagging. 2. External Sources: ○ Distributors & Suppliers: Provide insights on market needs, new techniques, and materials. ○ Competitors: Companies analyze competitors’ products, sales, and ads to generate ideas. ○ Customers: Engaging customers for feedback and suggestions. Example: Salesforce’s IdeaExchange allows customers to suggest new software features. 3. Crowdsourcing: Crowdsourcing: Inviting a broad range of people (customers, employees, researchers, the public) to contribute to product ideas.  ○ Examples: Ben & Jerry’s crowdsourced new ice cream flavors through their “Do the World a Flavor” campaign. Tupperware crowdsourced designs for smart food containers. Migros’ Migipedia invites customers to suggest and rate product ideas. Key Takeaway: Successful companies use a combination of internal and external sources for idea generation to build extensive innovation networks. B. Idea Screening Idea Screening: The process of filtering new product ideas to spot the best ones while dropping poor ideas early on. Purpose: To reduce the number of ideas before investing in development, as costs rise significantly in later stages. Companies use criteria like: ○ Customer value proposition. ○ Market size and potential. ○ Development time and costs. ○ Profitability projections. R-W-W Framework: Real: Is there a real customer need? Will customers buy it? Win: Does the product offer a competitive advantage? Can the company succeed with it? Worth Doing: Does the product align with the company’s strategy? Is it profitable? C. Concept Development and Testing 1. Concept Development Product Concept: A detailed version of the idea stated in meaningful consumer terms. Difference: - Product Idea: A general idea for a product. - Product Concept: A detailed, consumer-focused version of the idea. - Product Image: The way consumers perceive the product. Example: HondaJet Elite concepts include: - Concept 1: Serving traditional corporate jet markets. - Concept 2: Targeting intercontinental travel with a larger jet. - Concept 3: Luxury jet for wealthy families. - Concept 4: Air taxi market with a no-frills, efficient aircraft. 2. Concept Testing: Concept Testing: Testing new product concepts with target consumers to gauge appeal. - The concept can be presented using descriptions, images, or prototypes. - Example: HondaJet FamilyV concept tested on potential consumers with questions about their reactions to the product. - Purpose: To identify which concepts resonate best with customers before moving to the next stages. D. Marketing Strategy Development Marketing Strategy Development: Designing an initial marketing strategy for a new product based on the product concept. 1. Purpose: To outline how the new product will be introduced into the market, with strategies for pricing, distribution, and marketing efforts. 2. Marketing Strategy Statement consists of three parts: ○ Part 1: Describes the target market, planned value proposition, and sales, market-share, and profit goals for the first few years. Example: The HondaJet FamilyV targets high-income individuals and families seeking luxurious, efficient travel. ○ Part 2: Outlines the product’s planned price, distribution channels, and marketing budget. Example: HondaJet plans to sell directly to consumers using a mix of traditional and digital advertising. ○ Part 3: Describes long-term sales and profit goals, as well as strategies for adjusting prices and increasing budgets over time.  E. Business Analysis Business Analysis: Reviewing sales, costs, and profit projections to determine if they align with company objectives. 1. Purpose: To evaluate whether the new product will be financially viable. 2. Process: ○ Estimate sales based on historical data and market surveys. ○ Project costs and profits, taking into account marketing, R&D, operations, and other expenses. ○ Assess the financial attractiveness of the new product before moving to the next stage. F. Product Development Product Development: Transforming the product concept into a physical product to verify that it can be produced and marketed effectively. 1. Purpose: To create a prototype that satisfies customer needs and meets cost objectives. 2. Process: ○ R&D and engineering develop physical versions of the product. ○ Prototypes undergo rigorous testing for safety, functionality, and consumer acceptance. ○ Example: Carhartt’s Carhartt Crew tests products in real-world conditions, providing feedback to refine product designs. G. Test Marketing Test Marketing: Testing the product and marketing strategy in a real-world market setting before full-scale launch. 1. Purpose: To gain experience and reduce risk before committing to a major launch. 2. Scenarios Requiring Extensive Test Marketing: ○ High investment and high-risk products. ○ Example: Taco Bell tested Doritos Locos Tacos for three years before its successful launch. 3. Methods to Reduce Time and Cost: ○ Controlled Test Markets: Testing in selected stores with controlled variables. ○ Simulated Test Markets: Using lab environments or online simulations to measure consumer reactions.  H. Commercialization Commercialization: Introducing a new product into the market. 1. Purpose: To officially launch the product and scale marketing efforts. 2. Considerations: ○ Timing: Determining the best time to launch (e.g., avoiding economic downturns or maximizing seasonal demand). ○ Geographic Strategy: Deciding whether to launch in a single location, regionally, nationally, or globally. Example: Apple’s swift global rollout of the iPhone 12 in over 50 countries simultaneously. Managing New Product Development To succeed in new product development, companies must adopt a holistic, customer-centered, team-based, and systematic approach. 1. Customer-Centered New Product Development Customer-Centered New Product Development: Focusing on solving customer problems and creating satisfying experiences. Importance: ○ Involving customers in the development process leads to higher returns on investment and growth. ○ Example: ASICS uses customer input to personalize products like running shoes, enhancing customer satisfaction. Team-Based New Product Development Definition: Cross-functional teams work closely together to speed up the process and improve effectiveness. 1. Purpose: To overlap development stages, reducing bottlenecks and bringing products to market faster. 2. Advantages: ○ Faster and more flexible than sequential approaches.  ○ Teams consist of experts from multiple departments who collaborate throughout the process. ○ Example: Apple’s collaborative teams worked across 40 departments to develop its dual-camera lens. 3. Systematic New Product Development Systematic New Product Development: Implementing a structured process to manage innovation and product development. Innovation Management Systems: ○ Encourages stakeholders to contribute ideas. ○ Utilizes technology and recognition programs to foster a culture of innovation. ○ Benefits include a larger pool of new product ideas and a systematic approach to development. Case Study: Apple - Innovative to Its Core Apple’s Success Factors: ○ Focus on user experience and deep understanding of customer needs. ○ Emphasis on detail, collaboration, and innovation in both product design and customer service. Challenges: ○ Competitors like Samsung and Huawei are closing the innovation gap, especially in emerging markets. Current Standing: Apple remains a leader in innovation and brand value, but it must continue innovating to maintain its position. III - Product Life-Cycle Strategies Objective 8-3: Describe the stages of the product life cycle and how marketing strategies change during a product’s life cycle. A. Product Life Cycle (PLC) Product Life Cycle (PLC): The course of a product’s sales and profits over its lifetime. The PLC has five stages:  1. Product Development: The company develops a new product idea. Sales are zero, and investment costs increase. 2. Introduction: The product is launched. Sales growth is slow, and profits are nonexistent due to high costs of product introduction. 3. Growth: Sales increase rapidly, and profits rise. 4. Maturity: Sales growth slows down as the product achieves market acceptance. Profits level off or decline due to increased competition and marketing expenses. 5. Decline: Sales fall off, and profits drop. Figure 8.2 (not shown here) illustrates the typical PLC curve for sales and profits. B. Types of Product Life Cycles 1. Style: A basic and distinctive mode of expression that may last for generations (e.g., clothing styles like formal or casual). 2. Fashion: A currently accepted or popular style that grows slowly, remains in favor for a while, then declines (e.g., business casual attire). 3. Fads: Temporary periods of high sales driven by consumer enthusiasm (e.g., fidget spinners, Pokémon Go). PLC Strategies for Each Stage: A. Introduction Stage Introduction Stage: The stage where a new product is first made available to consumers. Characteristics: ○ Sales are low, and profits are negative or minimal due to high distribution and promotion costs. ○ The focus is on building awareness among early adopters and creating a market. ○ Companies often introduce basic versions of the product. ○ High promotional spending is required to inform and persuade potential buyers. ○ The launch strategy should align with long-term goals, not just short-term gains. Example: L’Oréal adapted its strategy to stay competitive in the makeup market by launching the Makeup Genius App, a revolutionary digital tool that allowed users to try makeup virtually. B. Growth Stage Growth Stage: The stage where the product gains rapid market acceptance, and profits increase.  Characteristics: ○ Sales rise quickly as the product gains popularity among a wider audience. ○ Companies may lower prices slightly to attract more buyers and fend off competition. ○ Profits increase due to higher sales volume and economies of scale. ○ The focus is on maximizing market share and improving product features. Strategy: ○ Expand distribution channels. ○ Introduce new product features or variations to differentiate from competitors. C. Maturity Stage Maturity Stage: The stage where a product’s sales growth slows or levels off. Characteristics: 1. The longest stage in the PLC, presenting strong challenges due to market saturation. 2. Profits may decline as companies increase marketing efforts to defend market share. 3. Overcapacity in the market leads to intense competition, price cuts, and higher promotional expenses. 4. Strategies for the Maturity Stage: 1. Market Modification: Increase consumption by finding new users or segments. Example: L’Oréal expanded into men’s grooming with the Men Expert line. 2. Product Modification: Enhance product features, quality, or technology. Example: Samsung added smart-home features to its Chef Collection appliances, allowing remote control via smartphone apps. 3. Marketing Mix Modification: Adjust pricing, distribution, or promotion to attract new customers. Example: PepsiCo reinvigorated its Quaker Oats brand by refreshing its advertising and product offerings. D. Decline Stage Decline Stage: The stage where sales and profits decline. Characteristics: 1. Decline can result from technological advances, shifts in consumer preferences, or increased competition. 2. Companies must decide whether to maintain, harvest, or discontinue the product. Strategies:  1. Maintain the Product: Keep investing in the product to remain competitive. 2. Harvest the Product: Reduce costs and continue selling without much support to maximize short-term profits. 3. Drop the Product: Discontinue the product if it’s no longer profitable. Using the PLC as a Strategic Tool The PLC framework helps marketers understand how products evolve over time. Marketers can use the PLC concept to adapt their strategies at each stage. Challenges: - Difficult to predict the exact duration of each stage. - The PLC shape varies depending on product class, product form, or brand. - Strategies must be flexible to adapt to unexpected changes in market conditions. C - Decline Stage Decline Stage: The PLC stage where a product’s sales gradually fade away. 1. Key Characteristics of the Decline Stage Reasons for Decline: ○ Technological advances ○ Changes in consumer preferences ○ Increased competition Sales may decline slowly (e.g., postage stamps) or rapidly (e.g., VHS tapes). Sales may eventually drop to zero or stabilize at a low level for many years. 2. Challenges of the Decline Stage Carrying a declining product can be costly: ○ Consumes management’s time and resources. ○ Requires frequent price and inventory adjustments. ○ Demands advertising and sales force efforts that could be redirected to healthier products. Reputation impact:  ○ A failing product may damage the company’s brand image. ○ It can delay efforts to innovate and replace products. ○ Results in a misaligned product mix that hurts current profits and weakens the company’s future potential. 3. Strategies for Managing Products in Decline Maintain: - Reposition or reinvigorate the brand to extend its life and move it back into the growth stage. Example: LEGO. - Faced declining sales and a debt crisis in the early 2000s. - By refocusing on its core products and competencies, it reduced its product range and divested from non-core ventures. - This turnaround strategy quadrupled its pre-tax profits, making LEGO one of the strongest global brands. Harvest: - Reduce costs related to production, maintenance, R&D, advertising, and sales. - This strategy aims to increase short-term profits by maintaining minimal investment while sales continue. Example: Companies may reduce marketing expenditures while still selling existing inventory. Drop: - Discontinue the product if it no longer aligns with the company’s strategy or profitability goals. - Options include selling the product to another company or liquidating inventory at salvage value. Example: Ford discontinued brands and sedan models like the Ford Taurus and Focus to focus on its more profitable SUVs and trucks. IV - Additional Product and Service Considerations Objective 8-4: Discuss two additional product issues: socially responsible product decisions and international product and services marketing.  A. Product Decisions and Social Responsibility Marketers must consider public policy and ethical implications when making product decisions. These include: 1. Acquiring or Dropping Products: - The government may block acquisitions if they reduce competition. - Companies dropping products must consider legal obligations to stakeholders, such as suppliers, dealers, and customers. 2. Patent Protection: Companies must comply with U.S. patent laws, ensuring their products do not infringe on existing patents. 3. Product Quality and Safety: Specific laws regulate product safety to protect consumers: - The Federal Food, Drug, and Cosmetic Act regulates the safety of food, drugs, and cosmetics. - The Consumer Product Safety Act established the Consumer Product Safety Commission (CPSC), which can ban or seize unsafe products. - 4. Product Liability: - Companies face lawsuits if their products cause consumer harm due to defects. - Product liability is a significant concern, with potential damages running into millions or even billions of dollars, especially in class-action lawsuits. Example: Volkswagen's diesel emissions scandal led to over $25 billion in fines and settlements in the U.S. 5. Product Stewards: Some companies appoint product stewards to proactively identify potential product issues to protect both consumers and the company from liability. B. International Product and Services Marketing International marketers face unique challenges, such as: 1. Product and Service Adaptation: Companies must decide which products to introduce in various countries and whether to standardize or adapt them: - Standardization can create a consistent global image and reduce costs. - Adaptation is necessary when consumer preferences and market conditions vary widely across countries. - 2. Examples of Adaptation: McDonald’s customizes its menu to local tastes: - Norway: Salmon burgers - Japan: Shrimp burgers - Germany: Nürnburger (bratwurst sandwich) - France: Freshly baked baguettes with McBaguette sandwiches McDonald's adapts not just its menu but also its restaurant interiors and services to fit local lifestyles, such as longer mealtimes in France. 3. Service Industry Global Expansion: Service industries like banking and retail have gone global to meet international demand: - Chase Bank operates in over 100 countries, supporting clients with global financial needs. - Walmart has over 11,500 stores in 26 countries, with international sales contributing to 23% of its total revenue. Carrefour, a French retailer, operates over 12,000 stores in 30 countries, leading in Europe, Brazil, and Argentina. 4. Future Trends: - Global growth in service industries such as banking, airlines, telecommunications, and professional services is expected to continue. - Service firms are now leading international expansions rather than merely following their manufacturing clients.