Product Life CYcle

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New Product
DeveloPment &
Product Life CYcle
Q. 1 What is the need for new product development?
Ans: Every organization wants to achieve growth and development in its business To
develop the business' innovation is required No business can grow by offering
same Product in the market'
. Need for new Product develoPment:
i) Consumer Demands Change
Consumerdemandscontinuous|ychange'Companiesshou|dconsiderthese
changing demands of customers and offer their products and services lf an
organisation is unable to fulfill the customer demands' customers will switch to
other Products in the market'
Today consumers nave become health conscious' so they prefer low sugar' fat
and salt products. Hence, companies must produce th€ products that contain less
sugar, salt and fats fn't
'""0t
to new product development' For example' Coca
Cola has introduced a new product called diet coke'
ii) Product Reaches the End Of lts Product Life Cycle
When the its product life cycle' it earns less profit to
the compa to launch new and improved product in the
market. S ths sales and earns good profit to the
company For example, Microsoft has launchod Xbox 360 that allow the company
to refresh the product through small changes'
iii) Product ls At The Maturity Stage Of lts Product Life Cycle
Sem - ll)Marketing lvlanagement 2 New Product & Produot Llfr
iv)
When the product is at the maturity stage of its life cycle, its sales rate becomcl
stagnant. The product does not earn high profit to the company So' in order to
boost the sales, the product needs modifications'
For example, Nintendo have replaced its DSi console with the 3DS console which
contains additional features such as an extra camera so that you can film in 3D, a
3D screen which doesn't require glasses, a joystick and motion sensors'
Environmental Changes and new trends
The companies take advantage of the environmental changes' As the market
environment changes, new trends emerge in the market Companies have to keep
pace with these changes in order to survive in the cutthroat competition These
environmental changes force the company to develop new products'
For example, Music companles are now selling more music via internet downloads
than through tradiiional retail shops. In March 20',11 Mercury Records stopped
releasing singles on CD as by then 99% of single sales were through downloads'
Competitors
Today, there is a huge competitiorl in every field in the market New products are
constantly being introduced to a target market that welcomes change and
innovation. Technology consumers are not afraid to try new products' in fact they
often want the latest gadget. lf a product is successful, then competitors will
attempt to develop slmilar products. The competitors force to develop the new
products.
For example, Google say that they developed the Android operating system to
prevent the technology market for products such as mobile phones and tablets
being dominated bY one suPPlier'
vi) All Products Experiencing Problems
lf all of the products are experiencing poor sales or suffering from a negative
reputation, company needs to change the product offering To survive in the
compelition and develop the business, companies have to develop new products'
The new products can only solve the product experiencing problems'
For example, in 2oo1 the introduction of the Pod MP3 player reversed the fortunes
ofApp|eComputers.SincethenApp|ehasintroducedthesuccessfu|iPhoneand
iPadandincreaseditssharepricefrom$9.07pershare(oct2001)toover$400
oer share
v)
Sem - ll) Marketing 3 New Product & Product Life Cycle
. Conclusion
New product deveropment is an essential activity for all businesses, rt heros the
business to suryive in the competition. rf a company does not deverop new products,
the competitors will grab your customers. The number of businesses that have gone
into administration during the current world recession demonstrate the importance of
change management.
Q.2 Explain the Booz Allen and Hamirton crassification scheme for the New
Products.
Ans. :
. The Booz Allen Hamirton scheme was founded in 1914 by Edwin G. Booz, which
is one of the ordest management consurting firms in the worrd. The firm once
suggested that only 1 in 100 new product ideas succeed in the market.
. However, the reasons for the failures of the new product vary from product to
product and situation to situation.
. The reason that makes the organisations take the risks attached to innovation is
the possibility of high rewards and survival in the cutthroat competition.
. The newest companies are the business organizations that have never produced
and marketed any product or service, regardless of other competitors who have
already done so.
. Such companies have to undergo a learning process in all respects i.e. regarding
new technology, the body of knowledge, the tools, and the techniques derived
from science and the practical experiences, which are used in the develooment.
design, production, and application of the products, processes, systems, and the
servtces.
' The firm must arso learn about its new marketprace i.e. the consumers. the
competitors, and the channels of distribution.
. The newness to the market is concemed with whether the target market believes
that the product is new and will accept the change.
. Therefore from this perspective, an innovation can be defined as any product i.e.
goods, services, or ideas which is perceived by the potential buyer to be new. . The perceived newness determines the extent the consumer is learning or is
possibly innovation resistance and prefers to exist i.e. his behaviour over the
familiar products and over the less familiar ones.
. The continuous innovations include the following categories of the new product
types according to the Booz Allen &Hamilton for New products classification
scneme:
Sem - ll) l\4arketing lvlanagement 4 New Product Dovolopttrrtrrl & l'r{'{lrrr I I lln ( Vr ltl
1. The cost reductions.
.Thenewproductprimari|yimp|ementsthecostreductionstrategy|()tl('|
maximumbenefitfromthe|ow-priceofferedthanmostora||ofthecornpetitors
o This is due to the lower manufacturing cost or marketing costs that the
marketer bears.
2. The repositioning ofthe Product'
. The psychological positioning enables in differentiating a brand from the
competitors brand in the minds of the buyer' This can be done by positioning
thebrandinthatcustomer,smindbyhighIightingthea|ternativeusesofthe
oroduct.
. The repositioning or remarketing of the product means creating a new image
for the brand in the marketplace by making changes in the product' such as
values and norms, its demographics, the competitive positioning' and by
changing the technologY
3. The new-and-improved Products or the next-generation products'
.Themodificationsmadeintheexistingproductsaimsinrep|acingtheprevious
version of the product by a new version'
. This can be done by making quality improvement' by changing design' by an
improved formula, a revision or an upgrade and by functional enhancement'
4. The additions made to the existing product lines'
. The additions are made to the current product line rather than replacing it ie'
to portray the exlsting product as the "new-and-improved" products
. They include new forms and more variety for e g styles' scents' coloufs'
flavours, sizes, shapes, packaging options, etc When any additions are made
to the product line, they carry a new brand name, they are known as flankers
e.g. PePSiCo added Mountain Dew
5. The New Product line.
. When the producer takes a decision to manufacture a new line of product'
generally such products are already established in the marketplace but are
new to the firm launching them.
.Becausetheconsumersdonotassociatetheparticu|arproductwiththe
individual company, they may term the products as "new " When a firm's new
line includes their welFknown and trusted brand or corporate name, they are
known as brand franchise extensions or brand expansions'
Sem - ll)Marketing l,4a New Product Development & product Life Cycle
. Lrke the product line e):tensions, the brand franchise extensions also capitalize on
the brand equity, the value of the brand name to consumers.
Q. 3 Describe the process of new product development.
Ans:
The new product development process is a multistage process. Introducing
new products is important for the future success of the organization, The process of
new product development starts with idea generation and following the various steps
finally end with commercialization.
The following are the steps of new product development process:
i r ldea Generation
) t ldentifying Prospects & Defining Target Market
Feasibility Analysis
1) ldea Generation:
The first step in new product development process is idea generation. Generating
rnnovative ideas is one of the hardest parts of this whole process. To be
successful, idea generation is important for every business. New ideas can be
generated by:
. Conducting market research to understand the consumer's ne€ds rnd
demands.
o Inviting suggestions from consumers and employees
. Brainstorming suggestions for new product ideas'
. Searching in different markets viz., national and intemational markets for new
oroduct ideas.
.obtainingfeedbackfromagentsordea|ersaboutservicesofferedby
competitors.
. Studying the new products ofthe competitors
2) ldentifying Prospects and Defining Target Market:
The second step in the new product development process is identifying target
customei.s and defining target market. A company should define its target market
and evaluate the cost of seruing this market. This will help the company focus on
its decision field.
ln this step. the success factors in different product ideas should be identified by
the company. This will help the company to strengthen itself in the particular field.
Thecompanyshou|dexplorethewaytoacquiretherequiredStrength.|ta|so
should investigate whether the search of new product ideas will result in adequate
profits.
3) Concept Development and Testing:
ThethirdStepinthenewproductdeve|opmentisconceptdeve|opmeniand
tesiing.Thisisanimportantstepintheprocess,butsomecompaniesskipthis
step thinking that if they have great ideas, customers will accept them without
developing the concePt.
Theodore Levitt says, "customers buy concepts and not just the tangible product."
According to Kotler, Product concept is an elaborated version of the idea
expressed in meaningful consumer terms
After developing the product concept, the next step is concept testing The new
conceptsaretestedontargetcustomergroups.Bytestingtheproduct,the
company finds out:
. Whether the customers understand the product concept or not
o Whether the customers need the new product or not
. Whether the customers will accept the new product or noi
NIBA -_l(Sem - ll) Marketing lManagement 7 New Product Developmenf & Product Life Cycle
To test the product concept, a target customer group is give information about the
new product. Customer feedback about the new product is obtained.
4) FeasibilityAnalltsis:
The next step after coirii;cpt testing is conducting a market feasibility analysis. The
feasibility analysis is done to find out whether the new product is commercially
profitable or not. The study involves:
. Assessnrent of target customers dernands, at various price levels
. Estimation of sales depending on demand evaluation and competitive analysis
" Evaluation of the cost of serving the market segment considering
transportation cost, warehousing, margins required by the trade to market the
new product, advertising cost, and sales force cost (if additional sales force is
reouired)
. Calculation of break-even price and the sales volume depending on the cost
and expected sales revenue.
Thus, the company studies the new product from business point of view. The new
product will be accepted if and only if it is profitable.
5) ProductDevelopment:
Once the product concept is found feasible, the company takes the concept to the
next level i.e. product development. In this step, the company introduces the new
product in the market. lt has to take all necessary steps to produce and distribute
the new product.
The production department will make plans io produce the product. The marketing
department \iill make plans to distribute the product The finance department will
provide the finance for introducing the new pi'oduct. The advertising department
will plan the advertisements for the new product.
While developing the new product, the customer feedback should be considered.
Company should ensure that the product is easy and safe to use by the
customers. This is significant in case of durable and other industrial products
where the user may not have the same knowledge level and understanding as the
R&D,
6) Test Marketing:
The next step after development of product is test marketing. In this siep, the
product is introduced in the market on a very small scale in a very small market lf
the nev/ product is successful in this market, then it is introduced in larger one.
lf the product fails in the test market, then the company finds out th6 r6aron0 for
its failure. lt makes required modifications in the new product and introduc€8 lt
again in the test market. EVen after modifications, the product fai|s, then th6
company rejects it.
Test marketing reduces the risk of large-scale marketing. lt is safe and secured lt
isquitetime-consumingandespecia||ydoneforexpensiveproducts.Theproduct
testing is done based on four factors: trial, first purchase, adoption frequency, and
the volume bought each time.
7) Commercialisation:
After successful test marketing, the company introduces the new product in a
larger market, say all over the country. In this step, the company makes a large
investment in the new product keeping expectations from it. lt manufactures and
distributes the new product on a large scale. lt promotes the new product through
mass media like TV, Radio, Newspapers, Magazines, Interne1 etc'
The new oroduct is launched on large scale considering the following factors:
Timing
Place
. Strategy
Q.4 Define Packaging. Also state
Shipment packaging'
Secondary Packaging and
Ans. :
r Definitions:
Packaging is defined in the regulations as "all products made of any materials of
anynaturetobeusedforthecontainment,protection,handling,deliveryand
preservation of goods froYn the producer to the user or consumer."
Kofler defines packaging as "all the activities of designing and producing the
container for a Product."
Packaging can be defined as "The wrapping material around a product that serves
to contain identify, describe, protect, display, promote and otherwise make the
oroduct marketable and keep it clean. "
The different iypes of packaging are commonly referred to as primary, secondary and
tertiary packaging. Their explanation is as follows:
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('l ) Tho Prlmary Packaging :
. The meaning of primary packaging is,
"the material that is first used to
envelope the product and holds it, i.e.
the package is in direct contact with the
contents of the Products.'
. For examole in a 12-pack box of canned
soda, the cans are used as the Primary
packaging material. Other types of
primary packaging include potato chip
9 New Product Development & Product Life Cycle
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bags, pharmaceutical bottles, egg cartons, etc.
. lt is not mandatory for every product to have layers of packaging material. lt is
depending on the product whether it really needs packaging.
The Secondary Packaging :
o The secondary packaging is the packaging which is done outside the primary
packaging, i.e. it may be used to group primary packages together.
o For e.g. in case of the 12-pack of soda cans, the box that stores and carries
the cans would be the secondary packaging.
The Shipment packages :
. The shipment packages are used for the purpose of shipping, bulk handling
and for warehouse storage and are not commonly displayed on the retail shelf'
. The pallets used to transport products are considered as the shifting
packaging material.
. In addition, the stretch wrappers used to unitize pallet loads for easier, more
stable transport are also a type of shipment packages.
. The right material should be used as a packaging material, which can be the
different for different products depending upon the product characteristics
. However, there are some factors that should be considered when choosing an
appropriate packaging material, this include the strength of the item being
packed, its weight, the value of the item and whether the package will be
subjected to moisture or to any other adverse conditions
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Management 10 New Product & Produot Llta
Q. 5 Explain the concept and characteristics of product Life Cycle.
Ans:
A. Concept:
The Product Life cycre (plc) is used to prot the lifespan of a product. The life
cycte concept may apply to a brand or to a category of a product. There are
generally four stages in product life cycle. These are:
1. The Introduction Stage
In this stage, a new product is raunched into the market. The Introduction stage is
probably the most important stage in the product life cycle_ This is the stage in
which the product is initially promoted. In this stage, cusromers are made aware of
the oroduct.
2. The Growth Stage :
In the gfovvth stage, the market has accepted the product and sales begin to
increase. This is the stage where the product starts to grow. The company may
desire to make improvemenis into the product to stay in the competition.
3. The Maturity Stage :
In the maturity stage, the sares grow considerabry and then gradualy become
stable. To survive in this stage, it is important for the companies to differentiate -.
their product from the similar product offered by their competitors.
4. Decline Stage :
ln the decline stage of the product life cycle, the sales of the product begin to fall.
Most of the products are phased out of the market at this point due to the
decrease in sares and arso due to aggressive competition. In this stage, many
companies decide to withdraw their products from the market.
B. Characteristics of Product Life Cycle:
1. The Introduction Stage:
a) The introduction stage is the expensive stage as launching of new product is
done. In this stage, market is small, which results in low sares.
b) The cost of research and deveropment, consumer testing and the marketing
required to launch the product in introduction stage is quite high.
c) Profits are low because of low sales and high unit costs.
d) There is little or no competition in the market.
e) lt is important for the company to create demand for the oroduct.
IVBA - I (Sem - ll) Marketing Management 11 New Product Development & Product Life Cycle
2. The Growth Stage:
a) There is strong grovvth in sales and profits.
b) Company can invest more money in the advertising and promotional activities
to make best use of the potential of the growth stage.
c) Public awareness increases.
d) Competition begins to increase with a few new players in establishing market.
e) Increased competition leads to price decreases.
3. The Maturity Stage:
a) The product is accepted and companies have to maintain its position in
comDetitive market.
b) Companies need to invest wisely in marketing to convince customers that
oroduct is best.
c) Companies also have to modify or improve the product as per requirement
face the comoetition.
d) Costs are lowered as a result of production volumes increasing
exDerience curve effects.
e) Prices tend to drop due to increasing competing products.
f) Industrial profit goes down
4. The Decline Stage:
a) The market for a product starts to contract due to saturation or consumers
switching to different type of product.
b) Sales and profit begins to drop in this stage due to product removal.
c) Profit becomes more a challenge of production / distribution efficiency ihan
increased sales.
Q. 6 Discuss the Types of Product Life Gycle
Ans :A product life cycle includes various stages such as the introduction stage, the
grolvth stage, the maturity stage and the decline stage. Not all products follow
the standard product life cycle and many of them have a very short life while
some stay in the maturity stage but do not progress up to the decline stage.
When the marketing managers observe changes in the sales of their brands,
particularly when the sales are declining, the changes are made in one or more
elements of the marketrno mix
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N,4BA - l (Sem - ll) l\larketing lvlanagement 1, N"* Pr"d,,.t Det
These changes are intended to reverse the position of the declintng salcr rnd lf
the manager is successful, the trend of the declining sales will correct itself et
least for some period of time.
However, the sales again will eventually decline again and \,.langes will again
have to be made to some aspects of the marketing mix, so this is a continuous
cycle. The types of product life cycle can be explained by dividing a group of
product into the following categories.
. A High Learning Product
i) A high learning product is a product which
needs a certain type of education to be
given to the consumers. For example,
understanding the operation of an android
phone will not be possible by the
uneducated rural consumer. For this, they
first should be educated on how to qse the
features.
This can be done by insefting an information manual with the product, which
would make operating of the features easier. Hence ihe market reach of the
company becomes limited. The prominent features of this *ltegory are:
It requires significant education of the customer.
iv) lt requires extended introductory period.
A Low Learning Product :
i) A low learning product is a product which
requires no special knowledge or very
little knowledge is required i.e it can be
operated by anybody.
ii) Hence the cc npany has a large market
available for the sales of the product
The prominent features of this category
The sales begin immediately
Very little learning or know-how rs reqLrired by the c(rrrsumer.
The benefits of the purchase are readily understood.
ii)
iii)
rv)
v)