Market Research and Development & New Products

What are the features of the development stage?

What are the features of the development stage?

• An organisation will undertake various activities to prepare for the launch of its product, including:

  • generation of ideas

  • analysis of ideas

  • product development

  • Test marketing

  • Launch

• There is no sales revenue during the development stage and a negative cash flow. Cash is required to fund research and development and, if the product is launched, there will be a period of high outflows of cash to purchase equipment, employ staff, conduct market research and finance advertisements for the launch

What are the features of the introduction stage?

This stage starts with the launch and continues during the period in which the product is new to the market. Usually, sales pick up slowly at first, as shops are not always keen to stock a new, unknown product and customers are reluctant to change from their existing brands. Intensive introductory marketing and special offers can lead to increased sales volume as customer awareness grows

What are the features of the growth stage?

As the product becomes more popular, it enters the growth stage. Retailers are more likely to provide shelf space and brand recognition helps to increase sales. Profitability may be reached as the initial burst of marketing is no longer needed and it becomes cheaper to produce each product

What are the features of the maturity stage?

During this stage, the firm will hope to make a profit and sales will tend to stabilise. However, they may increase if the product is in an expanding market. If the market stabilises and stops growing, new competitors will unlikely be attracted to the market. This may mean that the company does not need to spend so much money on marketing and, with low unit costs of production, it can reap high profits

What are the features of the decline stage?

Eventually, Sales of the product will fall. However, some products, such as Kellogg’s Cornflakes, have existed for almost a century. Product life cycles are measured in weeks in more dynamic markets, such as computer games and the popular music industry. Once a product is in decline, the firm may decide to remove it from its range to prevent financial losses

How can you strategically use the introduction stage?

Very low prices are an excellent way to persuade consumers to try a product for the first time. However, it is advisable to clarify that the low price is for a limited period, as goodwill from customers could be lost if there is a sudden price rise later on. For more exclusive products, a high price may be set to show that the product is superior to its rivals

How can you strategically use the growth stage?

The business will adapt its strategies according to its market research results. Possible strategies include modifying the product, targeting new market segments through different promotions, widening the distribution channels and changing prices

How can you strategically use the maturity stage?

A firm will wish to keep its products in this stage for as long as possible and will try to do this by extending their life. It can do this by using extension strategies.

• Attracting new market segments: Firms may target new groups of consumers or market niches in order to expand sales. Bannatyne Spas extended their range of treatments to cater for males as well as their original target of female customers.

• Increasing usage among existing customers: Kellogg's is promoting its cereal products as items that can be eaten throughout the day, rather than just at breakfast time. This is particularly important as fewer people are eating breakfast.

• Modifying the product: Coca-Cola has introduced many variations to its basic product, such as Diet Coke, in order to appeal to different consumers.

• Changing the image: Lucozade was originally promoted to help overcome illness; it has been more successful as an energy drink.

• Targeting new geographical markets: This can involve moving beyond the original region or country targeted by the product. Despite the ethical issues involved, tobacco companies have been very successful in increasing sales in developing countries.

• Promotions, advertising and price offers: To maintain consumer interest, new advertisements, prizes, competitions

How can you strategically use the decline stage?

If the business sees a decline in sales for its product as temporary, it should use extension strategies. Once decline is seen as inevitable, however, the firm can 'milk' the product. By cutting advertising expenditures, it may achieve high profits for a while. Eventually, the firm should take the product off the market, but only if it has ceased to be profitable. If rivals leave the market first, it is even possible that sales will recover

What are the problems with predicting the product life cycle?

The product life cycle is of limited use in strategic planning because the exact life span of a product is never known. In industries that experience relatively few changes, the life cycle can be easier to predict, but it is less useful in times of change. The confectionery market is relatively stable, with some products having extremely long lifetimes

What are the financial implications of the development stage?

Research and development costs at to and some market research is necessary. If it is intended to launch the product, expenditure will be incurred in promoting it just prior to launch and production costs will be high, especially if new equipment is net. make the product. No cash inflows will be received at this point

What are the financial implications of the introduction stage?

Some cash will be received from sales but. promotion costs will be very high to make the public aware of the product. Price offers may reduce the inflows of cash. Production costs per unit be high, as the scale of production will be low

What are the financial implications of the growth stage?

It is generally the first opportunity to make a profit. It may become possible to cut back on promotion costs, and with growth, lower production costs per item can be achieved. The increased sales revenue should enable the business finally to achieve a positive cash flow situation

What are the financial implications of the maturity stage?

The firm will receive the highest revenue from the product and unit costs of production should be at their lowest. Consequently, this is the stage where the majority of the profit is made. (most cash cows tend to be in the maturity stage of the product life cycle

What are the financial implications of the decline stage?

A firm may save money by cutting back on advertising. However, if sales volume falls below a certain level, cash flow may become negative again, particularly because products that are declining in popularity may need price cuts to encourage consumers to buy them. A business may be able to anticipate these problems and withdraw a product before this situation arises

What are the influences on the generation of ideas?

For some products, ideas are likely to come from within the company. This might take the form of research and development, leading to the introduction of a new product. Alternatively, in industries such as broadcasting, ideas are likely to be generated through meetings or suggestions by staff. For other products, ideas will normally come from external market research that will identify the types of new products that customers wish to buy

What are the influences on the analysis of ideas?

The next step is to look at the feasibility of the idea, to consider whether it meets the firm's objectives and fits in with its image

What are the influences on product development?

The working of the product may be tested through a prototype or by simulation on a computer

What are the influences on test marketing?

The use of test marketing (a small-scale release of the product, usually in a limited area is helpful as it can avoid heavy financial losses if a product proves to be unpopular

What are the influences on the launch of new products?

The launch will take place after the business has made modifications suggested by the previous activities. Evidence suggests over 70 per cent of new products that are launched will fail within three years, so firms will want to look closely at the likely future success of any product before its launch. The vast majority of ideas for new products will never reach the launch stage

How is technology an influence on new product development?

• New technology can allow new products to be developed that are considered superior to existing products. The success of Dyson 'cyclonic’ cleaners is based on the fact that the technology is superior to 'vacuum' cleaners, which previously dominated the market

• Technology can lead to the development of totally new products that meet a consumer need that was previously unfilled

• Improvements in technology can bring products into a wider market
  As technology has improved, household items such as computers have moved from niche, business-based markets to mass consumer markets

• Production and process technology has advanced considerably, enabling organisations to produce goods and services that are more advanced and can be made more cost-effectively

• Information and Communication Technology (ICT) has enabled businesses to produce goods and services that are tailored to the individual specifications of the consumer. Organisations such as insurance companies can provide a much quicker and more flexible quotation for a customer

How is technology an influence on new product development?

• The introduction of a new product by a competitor may take away the business's market share. In response, the business may introduce its own new product (known as a 'me-too' product) to match its competitor

• New products from competitors can give a business idea for a new product. For example, Apple's iPhone has led to the introduction of similar products by its competitors

• Changes in consumer tastes may be detected through the actions of a competitor. This may lead to an organisation introducing new products to fulfil consumers' wishes. Fashion retailers often produce new ranges by copying styles launched by competitors

How is technology an influence on new product development?

• If an entrepreneur can be the first person to identify a gap in a market or a potentially successful idea, their business can gain a 'first mover' advantage. This is the benefit of being the first to develop a certain product or concept Previously, most computing companies focused on hardware. The success of Microsoft has enabled Bill Gates to donate over $36 billion to charitable causes.

• Many organisations try to encourage and reward managers who come up with innovative ideas. Organisations use suggestion boxes, kaizen groups or consultation to create a culture in which staff are encouraged to think creatively. This approach means that new ideas, such as suggestions for new products and services, are more likely to occur

• Some new products arise from research and development. Many organisations devote considerable resources to the investigation of new products, especially in industries such as pharmaceuticals, engineering and motor vehicle manufacture

What are the benefits of focusing on the core?

• Concentration on areas of expertise will lead to greater efficiency, as the firm will benefit from specialisation

• The firm is more likely to understand the nature of its core business and so is more likely to recognise the needs of the market

• Each product is more likely to recognise the needs of the market

• Consumers will trust a firm’s ability to deliver quality if it concentrates on a few carefully selected areas of activity

• Directors will be more capable of controlling an organisation with a narrow focus than one that covers many different activities

What are the benefits of product proliferation?

• Increasing the number of products will spread risks and this may help to secure the firm’s future

• Different products or variations of a product can appeal to different market segments, so this approach will allow a firm to increase sales

• Market saturation may mean that a firm can grow only if it diversified into different areas of activity

• Customer tastes may be changing and widening as people want more variety

• There may be greater scope for expansion in other product areas