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MGT301 - Principles of Marketing - Lecture Handout 22

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Lesson overview and learning objectives:

In last Lesson we discussed the process of new product development in detail today we will discuss the types of new products new product development process and strategies and stages of Product life cycle.

A. NEW PRODUCT DEVELOPMENT
B. PRODUCT LIFE- CYCLE STAGES AND STRATEGIES

A. Types of New Products Include

Types of the new products include mainly two categories either to introduce totally new product like entirely new product for the world or increasing the product line second way is sometimes modifications in the existing product are adopted like existing product is repositioned or strategies are formulated to improve the products.

B. Consumer Adoption Process

a) Stages in the Adoption Process

  1. Awareness. In this stage the consumer is aware of the new product but lacks further information about it.
  2. Interest. The consumer is motivated to seek information about the new product.
  3. Evaluation. The consumer determines whether or not to try the new product.
  4. Trial. The consumer tries the new product on a small scale to test its efficacy in meeting his or her needs. Trial can be imagined use of the product in some cases.
  5. Adoption. The consumer decides to make use of the product on a regular basis.

b) Individual differences in the adoption of innovations

  1. Innovators. Innovators help get the product exposure but are not often perceived by the majority of potential buyers as typical consumers.
  2. Early Adopters. This group serves as opinion leaders to the rest of the market.
  3. Early Majority. Some 34% of the market that is the "typical consumer" but likely to adopt innovations a little sooner.
  4. Late Majority. This group is skeptical and adopts innovations only after most of the market has accepted the product.
  5. Laggards. This group is suspicious of change and adopts only after the product is no longer considered an innovation.

C. Product Life-Cycle Strategies

After launching the new product, management wants the product to enjoy a long and happy life. Although it does not expect the product to sell forever, the company wants to earn a decent profit to cover all the effort and risk that went into launching it. Management is aware that each product will have a life cycle, although the exact shape and length is not known in advance. Figure shows a typical product life cycle (PLC), the course that a product's sales and profits take over its lifetime. The product life cycle has five distinct stages:

  1. Product development begins when the company finds and develops a new-product idea. During product development, sales are zero and the company's investment costs mount.
  2. Introduction is a period of slow sales growth as the product is introduced in the market. Profits are nonexistent in this stage because of the heavy expenses of product introduction.
  3. Growth is a period of rapid market acceptance and increasing profits.
  4. Maturity is a period of slowdown in sales growth because the product has achieved acceptance by most potential buyers. Profits level off or decline because of increased marketing outlays to defend the product against competition.
  5. Decline is the period when sales fall off and profits drop.

Not all products follow this product life cycle. Some products are introduced and die quickly; others stay in the mature stage for a long, long time. Some enter the decline stage and are then cycled back into the growth stage through strong promotion or repositioning

a) Product development

Product development begins when the company finds and develops a new-product idea. During product development, sales are zero and the company's investment costs mount.

b) Introduction stage

The introduction stage starts when the new product is first launched. Introduction takes time, and sales growth is apt to be slow. In this stage, as compared to other stages, profits are negative or low because of the low sales and high distribution and promotion expenses. Much money is needed to attract distributors and build their inventories. Promotion spending is relatively high to inform consumers of the new product and get them to try it. Because the market is not generally ready for product refinements at this stage, the company and its few competitors produce basic versions of the product. These firms focus their selling on those buyers who are the readiest to buy.
A company, especially the market pioneer, must choose a launch strategy that is consistent with the intended product positioning. It should realize that the initial strategy is just the first step in a grander marketing plan for the product's entire life cycle. If the pioneer chooses its launch strategy to make a "killing," it will be sacrificing long-run revenue for the sake of short-run gain. As the pioneer moves through later stages of the life cycle, it will have to continuously formulate new pricing, promotion, and other marketing strategies. It has the best chance of building and retaining market leadership if it plays its cards correctly from the start.

c) Growth Stage

If the new product satisfies the market, it will enter a growth stage, in which sales will start climbing quickly. The early adopters will continue to buy, and later buyers will start following their lead, especially if they hear favorable word of mouth. Attracted by the opportunities for profit, new competitors will enter the market. They will introduce new product features, and the market will expand. The increase in competitors leads to an increase in the number of distribution outlets, and sales jump just to build reseller inventories. Prices remain where they are or fall only slightly.
Companies keep their promotion spending at the same or a slightly higher level. Educating the market remains a goal, but now the company must also meet the competition.
Profits increase during the growth stage, as promotion costs are spread over a large volume and as unit manufacturing costs fall. The firm uses several strategies to sustain rapid market growth as long as possible. It improves product quality and adds new product features and models. It enters new market segments and new distribution channels. It shifts some advertising from building product awareness to building product conviction and purchase, and it lowers prices at the right time to attract more buyers.
In the growth stage, the firm faces a trade-off between high market share and high current profit. By spending a lot of money on product improvement, promotion, and distribution, the company can capture a dominant position. In doing so, however, it gives up maximum current profit, which it hopes to make up in the next stage

d) Maturity Stage

At some point, a product's sales growth will slow down, and the product will enter a maturity stage. This maturity stage normally lasts longer than the previous stages, and it poses strong challenges to marketing management. Most products are in the maturity stage of the life cycle, and therefore most of marketing management deals with the mature product.

The slowdown in sales growth results in many producers with many products to sell. In turn, this overcapacity leads to greater competition. Competitors begin marking down prices, increasing their advertising and sales promotions, and upping their R&D budgets to find better versions of the product. These steps lead to a drop in profit. Some of the weaker competitors start dropping out, and the industry eventually contains only well-established competitors.
Although many products in the mature stage appear to remain unchanged for long periods, most successful ones are actually evolving to meet changing consumer needs. Product managers should do more than simply ride along with or defend their mature products—a good offense is the best defense. They should consider modifying the market, product, and marketing mix.
In modifying the market, the company tries to increase the consumption of the current product. It looks for new users and market segments, as when Johnson & Johnson targeted the adult market with its baby powder and shampoo. The manager also looks for ways to increase usage among present customers. Campbell does this by offering recipes and convincing consumers that "soup is good food." Or the company may want to reposition the brand to appeal to a larger or fastergrowing segment, as Arrow did when it introduced its new line of casual shirts and announced, "We're loosening our collars."
The company might also try modifying the product—changing characteristics such as quality, features, or style to attract new users and to inspire more usage. It might improve the product's quality and performance—its durability, reliability, speed, or taste. Or it might add new features that expand the product's usefulness, safety, or convenience. For example, Sony keeps adding new styles and features to its Walkman and Discman lines, and Volvo adds new safety features to its cars. Finally, the company can improve the product's styling and attractiveness. Thus, car manufacturers restyle their cars to attract buyers who want a new look. The makers of consumer food and household products introduce new flavors, colors, ingredients, or packages to revitalize consumer buying.
Finally, the company can try modifying the marketing mix—improving sales by changing one or more marketing mix elements. It can cut prices to attract new users and competitors' customers. It can launch a better advertising campaign or use aggressive sales promotions—trade deals, centsoff, premiums, and contests. The company can also move into larger market channels, using mass merchandisers, if these channels are growing. Finally, the company can offer new or improved services to buyers.

e) Decline Stage

The sales of most product forms and brands eventually dip. The decline may be slow, as in the case of oatmeal cereal, or rapid, as in the case of phonograph records. Sales may plunge to zero, or they may drop to a low level where they continue for many years. This is the decline stage. Sales decline for many reasons, including technological advances, shifts in consumer tastes, and increased competition. As sales and profits decline, some firms withdraw from the market. Those remaining may prune their product offerings. They may drop smaller market segments and marginal trade channels, or they may cut the promotion budget and reduce their prices further. Carrying a weak product can be very costly to a firm, and not just in profit terms. There are many hidden costs. A weak product may take up too much of management's time. It often requires frequent price and inventory adjustments. It requires advertising and sales force attention that might be better used to make "healthy" products more profitable. A product's failing reputation can cause customer concerns about the company and its other products. The biggest cost may well lie in the future. Keeping weak products delays the search for replacements, creates a lopsided product mix, hurts current profits, and weakens the company's foothold on the future. For these reasons, companies need to pay more attention to their aging products. The firm's first task is to identify those products in the decline stage by regularly reviewing sales, market shares, costs, and profit trends. Then, management must decide whether to maintain, harvest, or drop each of these declining products. Management may decide to harvest the product, which means reducing various costs (plant and equipment, maintenance, R&D, advertising, sales force) and hoping that sales hold up. If successful, harvesting will increase the company's profits in the short run. Or management may decide to drop the product from the line. It can sell it to another firm or simply liquidate it at salvage value. If the company plans to find a buyer, it will not want to run
down the product through harvesting. the Product Life Cycle can be extended by two ways either by modifying the target market by finding and adding new users etc or by modifying the product Adding new features, variations, model varieties will change the consumer reaction - create more demand therefore you attract more users To prevent the product going into decline you modify the product

KEY TERMS

Introduction stage The product life-cycle stage in which the new product is first distributed and made available for purchase.

Growth stage The product life-cycle stage in which a product's sales start climbing quickly.

Maturity stage The stage in the product life cycle in which sales growth slows or levels off.

Decline stage The product life-cycle stage in which a product's sales decline.

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