Products come and go. A company’s challenge is to hold on to its customers longer than it holds on to its products. It needs to watch the market life cycle and the customer life cycle more than the product life cycle. Someone at Ford realized this: “If we’re not customer driven, our cars won’t be either.” One selects marketing tools that are appropriate to the stage of the product’s life cycle. For example, advertising and publicity will produce the biggest payoff in the introduction stage of a product; their job is to build consumer awareness and interest. Sales promotions and personal selling grow more important during a product’s maturity stage. Personal selling can strengthen customers’ comprehension of your product’s advantages and their conviction that the offering is worthwhile.
Product Development and Life-Cycle Strategies:
In the face of changing customer needs, technologies and competition, product innovation or the development of new products has become vital to a company’s survival. Introducing new products, however, is not sufficient. The firm must also know how to manage the new product as it goes through its life cycle: that is, from its birth, through growth and maturity, to eventual demise as newer products come along that better serve consumer needs.
This product life cycle presents two principal challenges. First, because all products eventually decline, the firm must find new products to replace ageing ones (the problem of new-product development). Second, the firm must understand how its products age and adapt its marketing strategies as products pass through life-cycle stages (the problem of product life-cycle, strategies’). We therefore look initially at the problem of finding and developing new products, and then at the challenge of managing them successfully over their life cycles.
Innovation and New-Product Development:
Given the rapid changes in taste, technology and competition, a company cannot rely solely on its existing products to sustain growth or to maintain profitability. The firm can hope to maintain market and profit performance only by continuous product innovation. Product innovation encompasses a variety of product development activities – product improvement, development of entirely new ones, and extensions that increase the range or number of lines of product the firm can offer. Product innovations are not to be confused with inventions. The latter are a new technology or product which may or may not deliver benefits to customers. An innovation is defined as an idea, product or piece of technology that has been developed and marketed to customers ‘who perceive it as novel or new.
We may call it a process of identifying, creating and delivering new-product values or benefits that were not offered before in the marketplace. In this chapter we look specifically at new products as opposed to value creation through marketing actions (such as product/brand repositioning, segmentation of current markets). We also need to distinguish between obtaining new products through acquisition – by buying a whole company, a patent or a licence to produce someone else’s product – and through new-product development in the company’s own research and development department.
As the costs of developing and introducing major new products have climbed, many large companies have decided to acquire existing brands rather than to create new ones. Other firms have saved money by copying competitors’ brands or by reviving old brands. These routes can contribute to a firm’s growth and have both advantages and limitations. In this chapter, we are mainly concerned with how businesses create and market new products. By new products we mean original products, product improvements, pnxhict modifications and new brands that the firm develops through its own research and development efforts.
Risks and Returns Jri Innovation
Innovation can be very risky for a number of reasons:
1. New-product development is an expensive affair – it cost Tate & Lyle around £150 million to develop a new sugar substitute; pharmaceutical firms spend an average of .£100-50 million to develop a new drug; while developing a super-jumbo project could cost billions.
2. New-product development takes time. Although companies can dramatically shorten their development time, in many industries, such as Pharmaceuticals, biotechnology, aerospace and food, new-product development cycles can be as long as 10-15 years. The uncertainty and unpredictability of market environments further raise the risks of commercialization. Roots had to withdraw Manoplex, a heart drug, less than a year after its launch in the United Kingdom, after a trial on 3,000 patients in the United States and Scandinavia suggested an adverse effect on patient survival. The pharmaeeudeals division lost about £200 million on the drug, which cost nearly £100 million to develop over a period of 12 years, and about S20 million was spent on promoting and marketing it.
3. Unexpected delays in development are also a problem. History is littered with grand pioneering engineering projects which have failed to satisfy the original expectations of bankers, investors and politicians. The Seikan rail tunnel, connecting the island of Hokkaido to mainland Japan, was completed 14 years late and billions of pounds over budget; the S10 billion cost of the Channel tunnel, which opened on 6 May ] 994, a year later than originally planned, is more than double the £4,8 billion forecast in 1987.
4. The new-product success record is not encouraging either. New products continue to fail at a disturbing rate. One recent study estimated that new consumer packaged goods (consisting mostly of line extensions) fail at a rate of 80 per cent. The same high failure rate appears to afflict new financial products and services, such as credit cards, insurance plans and brokerage services. Another study found that about 33 per cent of new industrial products fail at launch.
Despite the risks, firms that learn to innovate well become less vulnerable to attacks by new entrants which discover new ways of delivering added values, benefits and solutions to customers’ problems.