Document 3 - New-product development in turbulent times - product development strategies PDF

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New-product development in
turbulent times - product development strategies and service marketing...

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New-product development in turbulent times Product life cycle (PLC) strategies • Firms want to earn a profit to cover all the effort and risk that went into launching a new product. • They can do this by looking the PLC, which shows the course of a product’s sales and profits over its lifetime

Product life cycle (PLC) strategies • The five stages of the PLC: • Product development - finding and developing a new-product idea; sales are zero; investment costs are rising. • Introduction – introducing the product into the market; slow sales growth; profits are non-existent. • Growth – rapid market acceptance and increasing profits. • Maturity – slow-down in sales growth because most buyers have accepted the product; profit stabilises or declines because of increased marketing to fight off competitors. • Decline – falling sales and profits. Not all products follow the cycle and some well managed and respected brands manage to live forever (e.g. Coca-Cola).

Product life cycle (PLC) strategies • The PLC concept can help marketers develop good strategies for different stages of the PLC. • However, it may be hard to determine or forecast: • • • •

Which stage of the PLC the product is in When the product moves into a next stage The factors that affect the product’s movement The sales level at each PLC stage, the length of each stage and the shape of the PLC curve.

• Strategy is both a cause and a result of the product’s life cycle. • Firms must continually innovate and challenge the ‘rules’ of the PLC, otherwise they risk extinction.

1. Introduction stage • The stage in which the new product is first distributed and made available for purchase. • Forexample – virtual reality headsets are a good example of a product in the introduction stage, with slow sales volumes which increase slowly, as well as high costs. • The focus is on pushing a basic version of the product to buyers who are most ready to buy. • This stage takes time and profits are low or nonexistent because of low sales income and high distribution and promotion expenses. • The launch strategy should be consistent with the intended long term product positioning.

• For example – firms that choose a launch strategy to make a ‘killing’ are most likely sacrificing long-run revenues for shortterm gains.

2. Growth stage • The new product’s sales start climbing quickly. • New competitors will enter the market to profit and introduce new product features, expanding the market. • Profits increase as promotion costs are spread over a large volume and unit manufacturing costs fall. • For example – electric cars are a good example of a product in the growth stage as they have gradually gained a large enough market to continue production and lower costs. • To sustain rapid market growth firms can: • • • •

Improve product quality and add new features/models Enter new market segments and distribution channels Shift advertising from product awareness to conviction Lower prices to attract more buyers.

• Trade-off between high market share and high current profit.

3. Maturity stage • This is the stage in which sales growth slows or levels off, which lasts longer than the previous stages – most products are in the maturity stage. • For example – smartphones are an example of a product in the maturity stage; their manufacturers must deal with high competition by frequently releasing new models with cutting edge features. • Challenges to marketers: • There are many producers offering many products. • This leads to greater competition and lower profits. • Most successful products in the mature stage evolve to meet changing consumer needs by modifying the: • Market – finding new market segments or increasing usage by current customers • Product – changing characteristics such as quality, features, style or packaging to improve the product • Marketing mix – e.g. cutting prices or using larger channels.

4. Decline stage • This is the stage in which sales decline, either slowly or rapidly, because of, for example, technological advances, changing consumer tastes or increased competition. • For example – desktop PCs are currently in the decline stage, as they are bulky, immobile and unaligned with newer consumer trends. • Firms that remain in the market try to cut back their product offering (e.g. dropping small market segments). • Carrying a weak product has many hidden costs: • • • • •

Takes up too much time from management Requires frequent price and inventory adjustments Requires advertising and sales-force attention Can cause concerns about the firm and its other products Delays the search for replacements, creates a lopsided product mix, hurts current profits and weakens the firm’s future position.

• Firms must therefore identify which products are in the decline stage by reviewing sales, market shares, costs and profit trends. • They must then decide whether to: • Maintain the brand by repositioning or reinvigorating it to try to move it back into the growth stage (e.g. Old Spice from Procter & Gamble)

• Harvest the brand by reducing costs (e.g. maintenance, R&D, advertising) in the hope that sales will hold up, which can increase short-term profits • Drop the product by selling it to another firm or liquidating it at salvage value (e.g. Sony selling off its PC business in recent years).

Product decisions and social responsibility • Marketers should be aware of all the regulations dealing with dropping products, patent protection, product quality and safety, and product warranties. • For example – regulations may prevent firms from adding products through acquisitions if the acquisition threatens to reduce competition • The result is a huge increase in product liability insurance premiums – some firms increase prices to combat this, some are forced to discontinue products, and some appoint ‘product stewards’ to find potential product problems. • Many manufacturers provide written warranties backed by professional quality bodies such as the SABS.

International product and services marketing • International marketers must decide which products/services to introduce in which countries. • Then they must decide whether to:

• Standardise their offering, which supports a consistent image and lowers design, manufacturing and marketing costs • Adapt their offering to respond different consumer needs (e.g. US franchise Dunkin’ Donuts has evolved its menu to cater to global customers, including a Grapefruit Coolata for Korea and the Mango Chocolate Donut for Lebanon)....