Transcript Product Life Cycles - Southern Methodist University

PRODUCT LIFE CYCLES
AND NEW PRODUCT
DEVELOPMENT
Professor Chip Besio
Cox School of Business
Southern Methodist University
Stages of the Product Life Cycle
Sales
Intro- Growth Mature
duction
Time
Decline
Intro
Growth
Mature
Decline
Sales
Low
Rising
Peak, Flattening Declining
Cost
Highest
Average
Lowest
Depends
Profits
Negative
Rising
Higher
Declining
Intro
Customers
Growth
Mature
Innovators Early
Middle
Adopters Majority
Competitors Few
Growing
Many
Decline
Laggards
Few
Introduction Stage
ISSUES
 Supply side
– Technological leap-froging
– Assume industry-wide start-up costs
 Demand side
– Some uncertainty in market size
– Some uncertainty in market tastes
– Innovators critical
Introduction Stage
STRATEGIES
 Market pioneers
– Very risky
– Need financial resources
• The “bleeding edge”
 Pricing
– Skimming
– Penetration
Growth Stage
STRATEGIES
 Early followers
 Emergence of repeat buyers
 Options
– Imitate
– Innovate
– Differentiate
Maturity Stage
ISSUES
 Technical certainty
 Initial costs covered
 Experienced, well-informed buyers
 Replacement sales greater than initial
sales
 Problem - Commoditization
Maturity Stage STRATEGIES
 Pioneer new segment
 Head-to-head competition with leader
 Low cost strategy
 Catch leader asleep
Decline Stage
STRATEGIES
 Understanding reasons for decline
 Options in order...
– Maintain
– Harvest
– Drop
What Is A New Product?
New to the world
New to the company
Flankers
– Line extensions
– Brand extensions
Repositioning
Model changes
Dyson Products
Swiffer
Products
New Product Development
New product development is the most
important strategic activity of any firm
 However, it is the most risky venture
Most new products fail!
New Product Development
Risks
 Study by Assoc. of National Advertisers
(2004) --across all types of industries
– 27% of line extensions failed
– 31% of new brands introduced in categories
where company already had a product failed
– 46% of new products introduced to new
categories failed
 Only 1 in 7 new product ideas are carried to
the commercialization phase
Why New Products Fail
 Poor planning and strategy
– Market is not attractive
 Poor concept
 Poor execution
 Poor use of research
 Poor technology
 Poor timing
– Changes in tastes/environment
 Bad support from channel
How New Products Succeed
 Top-management commitment
 Start with the consumer -- not the factory
 Intelligent use of research
 Find a competitive advantage
 Move quickly
 Know when to get out
 Accept, but manage risk
New Product Success Factors
Be close to the market (trends)
Set a strategic direction
Play to your strengths
Strong organizational support
Speed to market
Why Speed to Market?
 Markets are getting more specialized
 Intensified competition
 Changing technology
 Changing tastes
 Rampant copying
 Gaining shelf space early
New Product Development
Process
–Idea
–Generation
–Concept
–Idea –Development
–Screening –and Testing
–Commercialization
–Test
–Product
–Business –Development –Marketing
–Marketing
–Analysis
–Strategy
New Product Development Process
IDEA GENERATION
Gaps
– Are there unfilled current consumer needs?
Growth
– Are there unfilled future needs?
Synergies
– Is there unfilled potential in the firm’s existing
product portfolio?
New Product Development Process
SOURCES OF NEW IDEAS
 Technology
 Market needs and user solutions
 Competitors and other firms
 Channels of distribution and suppliers
 Management and employees
 Environmental changes
New Product Development Process
CONCEPT TESTING
 Goal
– Use primary market information to better
define the product, forecast likely demand,
and clarify target buyer
 Common tools
– Focus Groups
– Conjoint Analysis
– Web-based Panels
New Product Development Process
BUSINESS ANALYSIS
–Review Product Sales, Costs, and Profits Projectio
–to See if They Meet Company Objectives
–
–If No, Eliminate
–Product Concept
–If Yes, Move to
–Product Development
–Source: Prentice Hall
Business Analysis
WHEN TO STOP A BAD IDEA
 Rule 1: Remember the sunk cost fallacy
 Rule 2: Set benchmarks for success
beforehand and stick to them
 Rule 3: Be sure to plan research so that it
will allow you to diagnose the cause of
problems
New Product Development Process
TEST MARKETING
–Standard
–Test Market
–Full marketing campaign
–in a small number of
–representative cities.
–Controlled
–Test Market
–A few stores that have
–agreed to carry new
–products for a fee
Simulated
Test Market
–Test in a simulated
–shopping environment
–to a sample of
–consumers
–Source: Prentice Hall