Developing Your Product: Product Planning and Strategies

Learning Objectives

  • By the end of Topic 7b, you should be able to …
    • 7b-17b\text{-}1 Describe the six categories of new products.
    • 7b-27b\text{-}2 Explain the steps in the new-product development (NPD) process.
    • 7b-37b\text{-}3 Summarize why some products succeed and others fail.
    • 7b-47b\text{-}4 Explain how diffusion of innovation drives adoption of new products.
    • 7b-57b\text{-}5 Explain the concept and strategic value of product life cycles (PLC).

The Importance of New Products

  • Strategic necessity
    • Sustain growth, increase revenues/profits, replace obsolete items.
    • Maintain competitive advantage in fast-moving markets (e.g., tech, fashion).
  • Timing challenges
    • Unknowns: market readiness, technology maturity, competitive response.
    • Firms may launch even when cannibalization of current products is likely (Apple: iPhone ≈ iPod cannibalization).
  • Investment reality
    • Many companies devote large, recurring R&D budgets (e.g., ≈15%\approx 15\% of sales in pharmaceuticals).
    • Long-term commitment to innovation correlates with superior shareholder returns.

Categories of New Products (Six-fold Classification)

  • New-to-the-world (Pioneering) products
    • Create entirely new markets (e.g., first 3-D printer for home use).
  • New product lines
    • Let the firm enter an established market for the first time (e.g., Samsung entering EV batteries).
  • Additions to existing lines
    • Line extensions or supplements (e.g., Diet Coke → Coke Zero Sugar).
  • Improvements or revisions of existing products
    • Significant or slight enhancements (e.g., yearly smartphone camera upgrades).
  • Repositioned products
    • Target new segments/uses (e.g., Arm & Hammer baking soda repositioned as refrigerator deodorizer).
  • Cost-reduced products
    • Same/similar performance at lower price (generic OTC drugs, private-label cereals).

New-Product Development Process (8 Core Stages)

  • 1. New-Product Strategy
    • Clear plan linking NPD to corporate, SBU, and marketing objectives.
    • Ensures resource alignment and strategic coherence.
  • 2. Idea Generation
    • Sources: customers, employees, distributors, competitors, consultants, academics, crowdsourcing.
    • Techniques
    • Brainstorming – unrestricted idea flow.
    • Focus groups – qualitative consumer insight.
    • Competitive monitoring – decide what to copy/avoid.
    • Product development vs. product modification distinction.
  • 3. Idea Screening
    • Gatekeeper filter using the firm’s strategy and feasibility criteria.
    • Concept tests – present abstract product description to gauge reactions before prototypes.
    • Ethical aspect: avoid biasing respondents with leading descriptions.
  • 4. Business Analysis
    • Preliminary demand, cost, sales, profitability estimates.
    • Key questions (illustrative):
    • Likely demand? Impact on total ROI\text{ROI}? Cannibalization risk?
    • Facilities/personnel changes? Competitive retaliation? Failure risk tolerance?
    • Hardest when niche, fragmented, or early-stage categories involved.
  • 5. Development
    • Engineering + marketing craft a prototype & draft marketing mix.
    • Simultaneous product development – cross-functional, parallel-processing to shorten timelines.
    • Internet enables global R&D collaboration & customer co-creation (open innovation platforms).
    • Laboratory & consumer use-tests validate performance/safety.
  • 6. Test Marketing
    • Limited rollout to real/simulated markets to read purchase behavior.
    • Can last ≥12\ge 12 months; cost > \$1\text{ million}.
    • Simulated market testing (e.g., virtual stores, online sampling) reduces expense/time.
    • Risk–benefit: fail small vs. fail nationally.
  • 7. Commercialization
    • “Go-to-market” decision launches tasks:
    • Order materials, start production, build inventory, ship, train sales, trade announcements, consumer advertising.
  • 8. Post-launch evaluation (implicit best practice)
    • Track KPIs, learnings feed next NPD cycle.
Success Factors in NPD
  • Long-term innovation culture, experiential learning, supportive environment.
  • Company-specific NPD model aligned with core competencies.

Why Some Products Succeed vs. Fail

  • Frequent failure reasons
    • No clear differential benefit.
    • Poor feature–need match.
    • Overestimated market size; mis-targeting or mis-positioning.
    • Pricing errors (too high → low adoption; too low → no profits, cheap image).
    • Inferior quality / execution.
  • Success correlates
    • Unique, superior value proposition; significant relative advantage.
    • Adequate market analysis and testing; timely launch.
    • Effective marketing mix + distribution penetration.
    • Financial/operational support post-launch.

Diffusion of Innovation

  • Key concepts
    • Innovation – any product perceived as new by an adopter.
    • Diffusion – spread of adoption through a social system.
  • Adopter Categories (with approximate percentages)
    • Innovators (2.5%2.5\%)
    • Venturesome, higher income/education, cosmopolitan, rely on scientific info.
    • Early Adopters (13.5%13.5\%)
    • Local opinion leaders, respect-seeking, integrate new ideas into social norms.
    • Early Majority (34%34\%)
    • Deliberate information search, evaluate alternatives, trust peer recommendations.
    • Late Majority (34%34\%)
    • Skeptical, adopt under social pressure or economic necessity, lower SES.
    • Laggards (16%16\%)
    • Tradition-bound, minimal media exposure, adopt when product is possibly obsolete.
  • Product characteristics influencing adoption speed
    • Complexity (↑ complexity = ↓ adoption rate).
    • Compatibility with existing values/needs.
    • Relative Advantage over current solutions.
    • Observability – ease of seeing benefits.
    • Trialability – ability to experiment on a limited basis.
  • Communication channels
    • Word-of-mouth (WOM) among consumers – especially powerful for later adopters.
    • Marketer-led mass media, social media, influencer outreach.

Product Life Cycle (PLC)

  • Definition – model tracing product acceptance from intro to decline.
  • Levels
    • Product class, product form, brand – longevity decreases in that order.
  • Stage profiles & strategies
    • Introductory Stage
    • High failure, high costs, limited distribution, slow sales growth.
    • Goal: create awareness & trial through informing promotion.
    • Growth Stage
    • Rapid sales/profit rise, entrant competition, possible mergers/acquisitions.
    • Shift to selective demand (brand) promotion; build intensive distribution.
    • Maturity Stage
    • Sales growth slows; longest PLC phase.
    • Heavy promotions, line extensions, service differentiation; risk of price wars.
    • Decline Stage
    • Sustained sales drop due to tech/consumer shifts or substitutes.
    • Typical tactic: harvest – cut non-essential marketing; maintain profitability until discontinuation.
  • Managerial implications
    • Adopter segments align with PLC phases (innovators → intro, etc.).
    • Majority of maturity/decline sales are repeat purchases – focus on loyalty & cost control.
    • PLC is a forecasting & strategy tool, not a deterministic timeline.

Integrative Insights & Ethical / Practical Considerations

  • Cannibalization vs. competitive pre-emption
    • Launching a self-cannibalizing product may be rational if it prevents rival capture of emerging segment.
  • Cross-functional collaboration
    • Simultaneous development fosters market-ready solutions but requires honest communication and IP safeguards.
  • Customer co-creation & crowdsourcing
    • Enhances relevance but must manage expectation and data privacy.
  • Failure tolerance
    • Firms should design staged gates enabling “fast, inexpensive failure” and learning loops.
  • Globalization
    • Differing adopter categories/PLC pacing across regions necessitate localized rollouts and staged commercialization.
  • Sustainability & societal impact
    • Ethical imperative to assess environmental footprint during development (life-cycle analysis) and avoid planned obsolescence.

Quick Reference Equations & Figures

  • Adopter percentages (diffusion curve):
    • Innovators=2.5%\text{Innovators}=2.5\%, Early Adopters=13.5%\text{Early Adopters}=13.5\%, Early Majority=34%\text{Early Majority}=34\%, Late Majority=34%\text{Late Majority}=34\%, Laggards=16%\text{Laggards}=16\%.
  • ROI rough estimate (Business Analysis stage):
    • ROI=Net ProfitInvestment×100%\text{ROI}=\frac{\text{Net\,Profit}}{\text{Investment}} \times 100\% – managers forecast using demand, cost, price assumptions.