Marketing 220 term paper

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New Product Development and Product Life-Cycle

Strategies

Week 5 Notes MKT 220

Charter Oak State College Principles of Marketing Kevin W. Fitzgerald, 2012

Notes based on Marketing, an Introduction by Gary Armstrong & Philip Kotler

Introduction

Week 5 Notes MKT 220

Every product has a life-cycle marked by a changing set of problems and opportunities.

A company’s current products face limited life spans and must be replaced by newer products. But new products can fail – the risks of innovation are as great as the rewards. The key to successful innovation lies in a total-company effort, strong planning, and a systematic new product development process.

Companies find and develop new product ides from a variety of sources, both internally and externally, to augment their current products in the “decline” stage of the life-cycle.

This Week’s Objectives…

Week 5 Notes MKT 220

At the end of this week you should be able to:

1. Explain how companies find and develop new-product ideas.

2. List and define the steps in the new-product development.

3. Describe the stages of the product life-cycle.

4. Describe how marketing strategies change during the products life cycle.

Product Development Strategy

Week 5 Notes MKT 20

Idea Generation

Idea Screening

Concept Development and Testing

Marketing Strategy

Business Analysis

Product Development

Test Marketing

Commercialization

Fitzgerald Fun Fact

Week 5 Notes MKT 220

Coca-Cola has introduced many lines of products, so they can capture more market share.

Every inch of shelf space that Coke has is one less inch their competitor has, so the more products they introduce (as long as they don’t cannibalize their main brand) are a benefit.

Speeding Up Product Development

Week 5 Notes MKT 220

Sequential – One company works to complete its stage before moving the product to the next company

Simultaneous – Various companies work closely together to save time and increase effectiveness

Sales & Profit Life Cycle

Week 5 Notes MKT 220

Introduction Growth Maturity Decline

Time

S a le

s &

P r o

fi t s (

$ )

Product Life Cycle Stages

Week 5 Notes MKT 220

Product Development

Introduction

Growth

Maturity

Decline

Example: Product Life Cycle

Week 5 Notes MKT 220

Technology products

Intro Growth Maturity Decline

Multimedia iPod DVDs VCRs Phones

Key Terms

Week 5 Notes MKT 220

•Business Analysis

•Commercialization

•Concept Testing

•Decline Stage

•Fad

•Fashion

•Growth Stage

•Idea Generation

•Idea Screening

•Introduction Stage

•Marketing Strategy Development

•Maturity Stage

•New-product Development

•Product Concept

•Product Development

•Product Life Cycle (PLC)

•Sequential Product Development

•Simultaneous Product Development

•Style

•Test Marketing

Relevant Websites

Week 5 Notes MKT 220

See how the large company’s introduce new products and deal with product life-cycle changes.

BIC Special Markets Division http://www.bicpromo.com

Walt Disney http://www.disney.com

Kellogg’s http://www.kelloggs.com

Intel http://www.intel.com

Hewlett-Packard http://www.hp.com

General Electric http://www.ge.com

Metro Goldwyn Mayer/US http://www.mgmua.com

http://www.bicpromo.com/

http://www.disney.com/

http://www.kelloggs.com/

http://www.intel.com/

http://www.hp.com/

http://www.ge.com/

http://www.mgmua.com/

Pricing Products: Pricing Considerations

and Strategies

Week 5 Notes MKT 220

Charter Oak State College Principles of Marketing Kevin W. Fitzgerald, 2012

Notes based on Marketing, an Introduction by Gary Armstrong & Philip Kotler

Introduction

Week 5 Notes MKT 220

Price can be defined as the sum of the values that consumers exchange for the benefits of having and using the product or service. It is the only marketing-mix element that produces revenue; all other elements represent costs.

Even so, many companies are not good at handling pricing. Pricing decisions are subject to an incredibly complex array of environmental and competitive forces. Both external and internal factors influence pricing decisions and a proper equilibrium must be maintained between the two.

This Week’s Objectives…

Week 5 Notes MKT 220

At the end of this week you should be able to:

1. Identify & explain the external & internal factors affecting a firms pricing decisions.

2. Contrast the three general approaches to setting prices.

3. Describe the major strategies for pricing imitation and new products.

4. Explain how companies find a set of prices that maximize the profits from the total product mix.

5. Discuss how companies adjust their prices to take into account different types of customers and situations.

6. Discuss the key issues relating to initiating and responding to price changes.

What is Price?

Week 5 Notes MKT 220

“Price is the amount of money charged for a product or service, or the sum of the values that consumers exchange for the benefits of having or using the product or service.”

-Gary Armstrong & Philip Kotler

Factors Affecting Price Decisions

Week 5 Notes MKT 220

Internal Factors:

Marketing Objectives

Marketing-Mix Strategy

Costs

Organizational

Considerations

Pricing Decisions

External Factors:

Nature of the Market & Demand

Competition

Other Environmental Factors (Economy, Reseller, Government)

Demand Curves

Week 5 Notes MKT 220

Price

Q1 Q2

Quality, Demand per period

Example: Tiered Pricing

Week 5 Notes MKT 220

Movie Theater Seats

Movie Theater’s use a “tiered pricing” structure to even out their seats. By charging demographics (Adult, Child & Senior Citizen) different pricing and different prices at different times (regular and matinee) they can maximize their show times, even out their demand cycle and make a profit at each showing.

Different Types of Marketing

Week 5 Notes MKT 220

Pure Competition

Monopolistic Competition

Oligopolistic Competition

Pure Monopoly

What is a Price Elasticity?

Week 5 Notes MKT 220

“Price Elasticity is how responsive demand will be to a change in price. If demand hardly changes with a small change in price, we say demand is inelastic. If demand changes greatly, we say the demand is elastic.”

-Gary Armstrong & Philip Kotler

Price Considerations

Week 5 Notes MKT 220

Competitor’s prices and

other factors

Low Price No possible profit

at this end

High Price No possible

demand at this end

Customers’ perception of

value

Price Costs

Breakeven Chart

Week 5 Notes MKT 220

C o

s t i

n D

o ll

a r s (

t h

o u

s a n

d s )

1,200

1,000

800

600

400

200

10 20 30 40 50 60 70

Sales Volume in Units (thousands)

Total Revenue

Total Cost

Fixed Cost

Break Even Point

Target Profit

Fitzgerald Fun Fact

Week 5 Notes MKT 220

Disposable Video Cameras

It takes a short video clip that can be processed and downloaded onto a CD-ROM. The “shell” of the camera will then be reused by CVS.

The technology to develop was expensive, but CVS is pricing it lower than their break-even cost. They are losing money on the first purchases, and CVS will not see a profit until the 2nd or 3rd use. They are hoping the concept will catch on and the disposable video camera will be used many times.

Cost-based pricing vs. Value-based pricing

Week 5 Notes MKT 220

Product Cost Price Value Customer

Customers Value Price Cost Product

(a) Cost-Based

(b) Value-Based

Price – Quality Strategies

Week 5 Notes MKT 220

Good-Value Strategy

Premium Strategy

Overcharging Strategy

Economy Strategy

Price

Higher Lower

P r o d

u c t Q

u a li t y

L o

w e r

H ig

h e r

Product-Mix Pricing Strategy

Week 5 Notes MKT 220

Product-Line Pricing

Optional-Product Pricing

Captive-Product Pricing

Byproduct Pricing

Price-Adjustment Strategies

Week 5 Notes MKT 220

Discount and Allowance Pricing

Segmented Pricing

Psychological Pricing

Promotional Pricing

Geographical Pricing

International Pricing

Key Terms

Week 5 Notes MKT 220

•Allowance

•Break-even Pricing

•Byproduct Pricing

•Captive-product Pricing

•Competition-based Pricing

•Cost-plus Pricing

•Discount

•Market-penetration Pricing

•Market-skimming Pricing

•Optional-product Pricing

•Price

•Price Elasticity

•Product-bundle Pricing

•Product-line Pricing

•Promotional Pricing

•Psychological Pricing

•Reference Prices

•Segmented Pricing

•Target Costing

•Value Pricing

•Value-based Pricing

Relevant Websites

Week 5 Notes MKT 220

Breakeven Analysis http://www.innovationworks.org/resources/library/be.html

Cost Transparency http://wwwinnovationworks.org/resources/library/pricing.html

Marketing Research Association (MRA) http://www.mra-net.org

Audits and Surveys Worldwide http://www.surveys.com

Gallup and Robinson http://www.gallup.com

International Data Corp (IDC) http://www.idc.com

JD Power and Associates http://ww.jdpower.com

http://www.innovationworks.org/resources/library/be.html

http://wwwinnovationworks.org/resources/library/pricing.html

http://www.mra-net.org/

http://www.surveys.com/

http://www.gallup.com/

http://www.idc.com/

http://ww.jdpower.com/