Chapter 10 - New Product Development Flashcards
Define New/Product Development.
New product development: The development of original product, product improvement, product modification and new brands through the firm’s own R&D efforts.
Describe the Product Life Cycle strategies.
- Introduction stage strategy:
New product is first distributed and made available for purchase.
Company need to have reserve funds as Introduction takes time and sale growth is likely to be slow. In the introduction stage profits are negative or low because of low sales and heavy distribution and promotion expenses. Promotional expenditures are heavy because of the new and unknown product, to attract trial of the product and to secure distribution in retail outlets.
Set Product Price high because costs tend to go high due to relatively low output,
Set high profit margin to support heavy promotional expenditures. - Growth Stage
Introduce new product features to expand the market.
Maintain stable product prices to increase demand
Maintain promotional expenditure at same or slightly raised level to meet competition.
Focus on large scale production as promotion costs spread over a large volume and per unit manufacturing cost falls due to economies and meet the growing product demand at market.
- Growth Stage
- Maturity Stage
Price cut likely to be initiated since it results in creating over capacity in the industry. This over capacity leads to intensified competition. Competitors engage in price cutting.
Increase R&D budgets and find better versions of the product.
Start dropping weaker products and focus on:
Market modification: Increase the consumption of the existing product by looking out for new users and market segments.
b) Product modification: Product characteristics such as quality, features or style can be modified to attract new users and more usage.
c) Market mix modification: Stimulate sales by modifying one or more of the market mix elements. Prices can be cut to attract new customers. Aggressive sales promotion methods like trade deals, gifts and contests can be use to generate interest in the product.
- Maturity Stage
- Decline Stage
The company must constantly review sales, market share, cost and profit trends of its product to identify those products in the declining stage. The company will have to decide whether to maintain, harvest or terminate the product.
Harvest the product by reducing various cost such as maintenance R&D advertising etc to maintain its brand in the hope that competitors will leave the industry, it may decide to. Hoping that sales will continue fairly well continuing for the whole.
If successful harvesting will increase the company’s profits in the short term, the company may decide to terminate the product either way selling it to another firm or by liquidating it.
- Decline Stage
Describe the New Product Development Process.
New product development Process:
Idea Generation
Idea Screening
Concept development and Testing
Marketing Strategy
Business Analysis
Product Development
Test Marketing
Commercialisation
Sequential Product development
Define Assortment.
Assortment planning also known as Range Planning is defined asthe process a marketer use to decide which products and variations to carry and sell in an upcoming season.
Define Product Depth and Product Breadth.
- Product breadth is how many different products a store is offering for sale.The more products are offered the broader is the product assortment of this business.
- Product depth is how many different variations of each product the store is carrying.These variations can be different colors, sizes or any attribute related to the same product. The more variations the store is offering, the deeper is its product assortment.
Define Product Mix Depth and Product Mix Breadth.
- Product Mix Depth
Product Mixdepthrefers to the number of specific products or variety within a product line. Variety will vary depending on the nature of the products but can be different across brands. - Product Mix Breadth
The product mix breadth refers to all the products a business or company offers. Many of their products will fall into different categories which may or may not be related.
Define Product Mix or Product Assortment.
Theproduct mix or product assortment refers to different products offered to its customers.
What are the effects of Depth and Breadth on Buying?
When a retailer decides on product assortmentstrategy and choose between depth vs. breadth during assortment planning, then they need to adapt their buying choice.
If a retailer opts for ahigher breadth/ lower depthstrategy, they will need to carry a wide variety of products. This will mean that a retailer will have to find new suppliers and new product categories/styles/options to buy to offer to their customers.
Also due to the fact that this strategy dictates a lower depth, this would mean that retailer will need to find suppliers and wholesale vendors that will accommodate low MOQs (minimum order quantity), since for each product might not be able to meet the high MOQs required by many suppliers.
On the other hand, if retailer opts forlower breadth/higher depthstrategy, they need to pick and choose between different products/styles and invest more in the styles they pick.
So instead of spreading the budget over 10 styles and buying 1000 pieces each, they decide to pick only 4 styles and buy 2500 pieces each.
This strategy would mean that product line is less diversified, and a wrong choice could have an amplified effect on the sales, but it also means a retailer is providing more variations per product for their customers to choose from.
To implement this successfully, a retailer have to track and analyze their sales data carefully and make product/style decisions and make sure to adapt and adjust as per the demand. A retailer also need to keep an eye on changing trends in their retail segment to spot new options and options that are getting out of style fast enough.
