NEW PRODUCT DEVELOPMENT AND PRODUCT LIFE CYCLE
Product planning is sometimes used inter-changeably with new product development. Product development according to Kalu (1995) is the creation of either new or improved products and services for the primary purpose of enabling a company maintain or improve its current market position. In consistent with the above Aligbe (1991) opined that new product development “is a process of creating a product with unique or added bundle of characteristics or user benefits in the company – or in the market”.
What is a New Product (Innovation)
What is “new” about new product? In modern marketing concept when we talk about new products, we do not mean that the product must be “brand new”, but that there is a change in the make-up of a product. Kotler (1991) says that what may be referred to as a new product is when there is either a modification of existing products, an innovation or complete invention of an entirely new concept.
Stanton (1981) stated that what determine a new product depends on how the intended market perceives it. If buyers perceive that a given item is significantly different is some characteristics, then it is a new product. Any change in a physical feature (design, colour, size, packaging), however minor it may be, creates another product.
Various factors are taken into consideration when we talk of new products. A product can be new in the following ways:
New Cost or Price: A product is regarded as being new to the firm if there are changes in costs or price.
New Conveniences: New conveniences in use can also make a product new. For example, the addition of safety belts and air conditioners in a saloon car makes it new both to the company and to the user.
New Performance: Sometimes, new performance is discovered in using a product and this too changes the value of that product:
New Availability: A product which might have been an old one in one market might be new in another one where it has not been available before.
New Method of Use: When new method of use is developed, a product becomes “new”.
Unfamiliar Patterns of Use: Like new methods, unfamiliar patterns of use can make a product new. For example, “semovita” which is used as a break-fast porridge by Americans acquires a new pattern in Africa, when it is used as a substitute for yam-fufu. That is, it is a swallow-able food.
Product Development Process
New product development has been identified as a very complex one. Before a product is put on the market, it has to pass through six stages of evolution. And this procedure’ is called product evolution.
Authors such as Booz, Allen and Hamilton (1982), Kotler (1988), Staudt and Taylor (1970), and Stanton (1981) have developed a guide that must be followed systematically to develop and market new product as follows:
* Idea Generation
* Idea Screening
* Analysis of Idea
* Product Development
* Market Testing
* Commercialization
Idea Generalization: Good ideas are said to come from Ifiipirttion and other techniques. A number of “creativity” techniques can help individuals and groups generate better ideas (Kotler 1988), The firm that develop products may generate ideas from techniques such as from sales or service people, research staff, scientists, competitors, final consumers, or industrial users, government agencies, representatives and dealers, non-marketing employees, trade associations, inventors, etc.
Idea Screening: Ideas discovered in the first stage are subjected to examination so as to drop those ideas that are not consistent with the objectives and policies of the firm. Raw ideas are developed into potential products while those that are rejected are dropped. According to Kotler (1988) management must be careful in screening ideas as the purpose of the idea screening stage is to reduce the number of ideas to attractive practicable few.
Analysis of Idea: Product proposals- that pass preliminary screening are next subjected to intensive scrutiny and evaluation. In this stage emphasis is placed on the technical feasibility and likely profitability of the proposed innovation.
The decision here is basically to determine, if possible the likely rate of return on investment that would be expected from the new product. Other considerations are strengthening the product line, and establishing a reputation for technical competence, consumer satisfaction, estimate of market demand, financial resources, and so on.
Product Development: This is the stage where a prototype of the product, embodying all the desirable features that will appeal to buyers or customers is produced. The idea that existed only as a word description is put into physical form. In this stage, the product is designed and produced, branded, packaged and consumer engaged to try and evaluate the concept.
Market Testing: The main objective of the market testing is to measure the likely acceptability of the product through technical and market testing, and to see what the level of sales would be under normal market conditions. In this, stage, several factors may have to be adjusted as a result of test findings. At this point, management -must make a final decision regarding whether or not to market the product commercially. Normally, (here are two aspect of the testing stage (which are to some extent interrelated). The stages are:
Testing the product itself to ensure that it rneets intended physical specification, and
Testing the new product to ensure that it will meet the commercial specifications upon which it is based.
Commercialization: This is the actual introduction of the market on a commercial scale. The goal of commercializing the product is to ensure that the product becomes a regular feature of the firm’s product line. On commercialization, the company is faced with problems associated with full-scale production such as decision on whether to build or rent the manufacturing facility, the size of the plant, and also decision on advertisement and promotion.
During commercialization, Kotler (1991) pointed out that market entry timing is crucial to the product’s performance in the market. In a competitive market, he suggested that the company faces three choices to make as regards when to enter market. These are first entry, parallel and late entry.
* First Entry: If a firm chooses to enter the market first before its competitors, the company may enjoy such advantage as, winning major distributors, customers, and more so, gaining reputation as a leader. On the other hand, if the product was rushed to the market before it is thoroughly debugged, the company can acquire a flawed image.
* Parallel Entry: Here the company chooses to enter the market the same time with the competitors.
* Late Entry: The company may choose to delay launching its product until competitors have entered the market.
However, more importantly, many products fail because the first three stages where not thoroughly scrutinized, resulting in either a wrong idea or timing. Among the six steps the first three stages: the idea generation, idea screening, and analysis of idea are the critical ones.
Reasons for New Product Development
Companies or firms do not embark into innovation or the development of new products for the sake of doing so. Before a firm innovates there must be a sound reason which have been advanced for new product development or innovation:
(i) Company Growth: This has been pin pointed as one of the most important reasons why companies or firms embark on new product development. A company that desire to grow should add new products to its line, modify its product in line with changing consumer needs which will automatically increase sales volume and the profit level of the company.
(ii) Utilisation of Resources: Ceteris Paribus, management is interested in full utilization of resources such as time, personnel, machines, capital and other material resources. Full utilization of resources enable a company gain the advantage of large scale production resulting in the economies of scale.
(iii) Company Survival: Since innovations and products are prone to change, in many industries the creation of new products is a condition of survival. Failure to keep abreast of competition, in terms of new products mean that the company’s product-mix will become obsolete and thus un-saleable.
Product Failure
Crawford (1979) see product failure as a condition “when product fails to meet the expectation of .their developer”. Even after going through the six stages of product evolution new products can still fail. Therefore, a product failure can be classified as follows:
(a) Absolute Product Failure: This is an extreme case of product whose performance turns out so badly forcing the company that launched it to remove the product from the market. This is a case when, the product launched does not yield enough returns to cover not even the variable cost.
(b) Potential Product Failure: In this case the product’s sales level is enough to cover the variable cost but not enough to cover the fixed cost of production. And as such no profit is realized by the company that launched the product.
(c) Relative Product Failure: A product exhibit this characteristics when its performance in the market falls short of that originally envisaged by the company that launched it. Profit is realized from the sales of the product but it is lesser than company’s normal or anticipated rate of returns.
Why New Product Fail
Newly developed and introduced products can fail because of one, or a combination of the following reasons:
1. Inadequate Market Analysis: This includes.
* Inaccurate quantitative measurements of the market,
* Inability to determine buying motives and habits,
* Misjudging of what products the market wanted,
* Failure to provide a sufficiently new and different product.
2. Product Defects: A major fault in production process can lead to product failure. Inability of the product to meet company’s sales target could be as a result of problem existing on the product itself. Thus, product defects could be: lack of durability, poor design and inadequate quality control.
3. Higher Costs than Anticipated: This sometimes result in higher prices which in turn ends in smaller volumes of sales than anticipated. Most products fail in the market because of the price attached to them. Kalu (1994) asserts that higher final costs that were not considered at the initial planning, stage can cause a product to fail.
4. Poor Timing: Some products become technically obsolescent between the conception of the idea and the commercialization of the product. Sometimes the product may be introduced into the market either too late or prematurely.
5. Competition: This is another contributing factor of product failure. Price reductions by competitors under cut the market entry of some new products. Hence, the inability of the firm to control the strength and tactics of its or competitors lead to product failure.
6. Insufficient Marketing Effort: Failure to commit the resources needed for intensive marketing effort hurt some firms, thereby leading to product failure. Resources is needed to promote the product through the various promotional means. So when this is not adequately done it affect the success of the company’s products.
7. Inadequate Sales Force: When salesmen were insufficiently trained or motivated to do the necessary job.
8. Weakness in Distribution: Some firms products fail because the company failed to select proper trade channels or do a poor job in product promotion to wholesalers and retailers.
Measures to Improve on New Product Planning and Development
Study indicated that most companies have taken positive steps to remedy the deficiencies in their new product planning and development programmes. This corrective action are listed as follows:
Improved screening and evaluation of ideas and products.
Orgainsation changes.
Changes in procedures and communications.
Strengthening research and development promotion efforts.
Improvements in production and quality control.
Improved caliber of personnel working on new product programmes.
Product Life Cycle (PLC)
Products are like human beings or living organisms. They are born, they live, and they die. Just as man passes his life in phases: birth, childhood, adolescence, adulthood, old age and death. Interestingly, so do products as evidenced by the product life cycle theory. According to the theory of the cycle, products stay in a market for a limited time. That is, product like people have a life span during which they pass through different phases or stages as soon as production is terminated.
The concept has been presented somewhat differently by different authors and for different audiences. The number of phases or stages of the product life cycle range from four to six, although the four-stage model is the most widely accepted. Onah and Thomas (1993) suggested six stages: introduction, growth, maturity, saturation, decline, and abandonment. While Martin Christopher et al (1981) in their book introducing marketing presented five stages of introduction, growth, maturity, saturation and decline. Whereas the four-stage model which is widely accepted include introduction, growth, maturity, and decline. Some researchers regard product development as a stage before introduction and others believe that product saturation is a stage before decline stage.
Stages of Product Life Cycle
The life story of most successful products is a history of their passing through certain recognizable stages or phases. Products must have to pass through these stages or phases because of instability of demand and competition.
Demand for products is not stable but varies from one phase or stage to another. In fact, one can rightly say that it is the level of demand for a product that determines its cycle.
Stage one Introduction
Stage One – Introduction: This is when a new product is first brought to market. Bringing a new product to market is fraught with unknowns, uncertainties and risks. Generally, demand has to be “created” during the product initial introduction stage. This is so because the product is not yet known. Sales are low and creep along slowly. At this early stage consumers and industrial buyers are reluctant to change to new and relatively unfamiliar product. Most of the consumers are not willing to take the risk of buying a product they are not sure of. Heavy promotional cost will be incurred by the company to make the product known. The type of strategy to be adopted however, will depend upon whether the company intends to position the product as high quality and recover its profit fast, hence charging high price and incurring high promotional expense (rapid skimming strategy), or adopt slow skimming strategy (with low promotional expense and high pricing). The company may also charge a low price and advertising heavily. This is called a rapid penetration strategy. It can also use the slow penetration strategy by charging a low price and keeping advertising expense low.
Stage Two – Growth: After the product is introduced in the market the product enter the second stage, i.e. growth stage. Demand begins to accelerate and the size of the total market expands rapidly. It might also be called the “take off stage”. Under this stage, the product gains popularity and recognition from the customers. The demand and sales goes up tremendously due to promotional efforts.. Consequently, profits of the firm start going up. Everything is growing at a rapid speed. Consumers, retailers and distributors who hesitated to take on the product make a headway in the market.
Strategies to be used must include that which will win over additional customers and convince “doubting Thomases”. High profits attract the competitors to enter the market.
Stage Three – Maturity: In this stage competition increases. Identical products have started to enter the market. This means that most consumers or households will be owning or using the product. Almost all the consumers have bought the product.
At this stage, the emphasis is on promotion by the manufacturers trying to retain their position’ in .the market. Quality has become important because the consumer is now in a position to compare one product with another product. Profit margins also begin to fall. The manufacturer makes search for new markets. Market and marketing research expenditure goes up. The prices came down due to stiff competition.
Stage Four – Decline: The decline stage is when the product / becomes obsolete, and its lack of competitive advantage result in sales decline. Sales have started to fall faster than was the case in the maturity stage. New products are introduced in the market by competitors, thus making a better substitute in the market. Profit margins are falling rapidly too. Consumers get bored.
The Importance of Product Life Cycle
The concept of product life cycle is very important from marketing point of view for a manufacturer or marketer.
One major implication of the product life cycle concept is the assistance it provides top management in planning their product replacement strategies. Once a product reaches the maturity stage, management as a matter of rational strategic positioning, should initiate a product replacement process that will eventually lead to the launching of a successor to the about-to-decline product such that immediately the decline stage is reached, appropriate product phase out strategies can be used to handle the declining product while the newly developed product is launched as a replacement.
Instead of following the product life cycle concept blindly, management must attempt to determine what has gone wrong and then introduce measures to rectify the situation and jump start sales increase. This is where most managers fail as they quickly drop a product that shows the slightest sign of maturity. For success and profitability, matured products must be carefully handled.
Since the product life cycle is limited management know that the product will die out over a period of time irrespective of the fact, that the product had made tremendous progress during the past. Knowing this fact, management always to improve its existing product or develop a new product.
Management can always estimate profits. The quantum and rate of profits increases or decreases with the quantum of turnover. At introductory stage, profits are negligible, then go up at growth and maturity stage, and after some time begin to fail gradually. Thus management can well predict the firm’s profits in different stages of the product life cycle.
Finally, management can prepare marketing programmes using the product life cycle. This is possible because different policies, procedures and strategies are followed in the different stages of the life cycle of a product.
Product Adoption and Diffusion Process
Thomas S. Robertson (1971) defined adoption as the acceptance and continued use of a product. Kotler (1988) define adoption as the decision of an individual to become a regular user of a product. Whereas McCarthy (1981) sees the new product adoption process as the steps which individuals go through on .the way to accepting or rejecting a new idea. From these definitions we could say that the purchase of a product is a necessary but not sufficient condition for adoption, since adoption includes a sense of product commitment, involving acceptance and use over time.
Marketers of new products are naturally concerned about the adoption process, because their success or failure will be determined by product diffusion and adoption by consumers throughout the market. The diffusion of the new product is the process which the innovation is spread through a social system over time. If a product diffuses quickly it has a good chance of becoming a success, if diffusion is slow, the marketer may have to sustain losses on it for a long time until enough consumers have adopted it.
There are five mental stages through which buyers pass in purchasing new products as identified at each stage, there are certain communication channels that could be used more effectively than others could. They include:
Awareness Stage: At this stage the individual learns of the existence of an innovation appropriate to his situation but has little knowledge about it. It is at this stage that mass media (i.e. Radio, Television and Print media) devices have their greatest impact. At this awareness stage the marketer has to get the consumer motivated to seek to know more about the product. In Nigeria, radio is the most effective means because it is accessible to most families.
Interest Stage: At this stage the individual begin to develop interest in the new idea or product. He seeks/search for more information about it and considers its general merits. Mass media will still plays an important role in providing the type of information needed. It provides information which is timely and readily available from a wide range of sources. The channels of communication which can provide general information are the most influential at this stage.
Evaluation Stage: At this stage, the individual makes mental application of the idea or product and weighs its merit for his own situation. He obtains information about the new product and decides whether or not to try it. Personal contact is regarded as the best communication channel at this stage. Friends, peer groups and neighbours are sources of information.
Trial Stage: The trial stage is when the individual actually applies the idea or product. Neighbours and friends are good sources of information at this stage. A two way information on how to use the new product such as demonstration is the best channel of communication at this stage. Literature materials may also prove very useful at this stage especially for the educated users.
Adoption Stage: The adoption stage is the stage of acceptance leading to continuous use. This is after the product have passed the trial test. The consumer at this stage decides to make full use of the product. Personal contacts, demonstrations and literature may be very useful at this stage for a continuous improvement on the product.
Adoption Categories
People vary markedly in their attempt to adopt new products, like wise no two consumers adopt goods at the same rate. Some consumers take more time than others in accepting or adopting products. In each product area, there are apt to be “consumption pioneers” and early adopters. Other individuals, tend to adopt innovations much later. This lead to a classification of people into the adopter categories of five as articulated by Rogers (1983) as follows: innovators, early adopters, early majority, late majority and laggards. The purpose of the classification is to help marketers and advertisers understand their customers and to know the type of message and programme to direct to each category. Normal distribution when plotted overtime.
1. Innovators (Risk Takers): The innovators are eager to try new ideas or products and willing to take risks. Innovators tends to be young and at the same time high in social and economic status,. They take pleasure in being the first users of a new product. They are mobile and sophisticated with many contacts outside their own social group and community. They read articles or informative advertisement in sophisticated magazines or newspapers/ Only about 2.5 percent of consumers are involved.
2. Early Adopters (Respectable): Early adopters are relatively high in social status well respected by their peers and usually high in opinion leadership, as their opinions are valued. They are generally influential. Unlike the innovators, they have few contacts outside their own social group or community. About 13.5 percent of the consumers belong to this group.
3. Early Majority (Deliberate): They are the most deliberate of their peers have done so. Put differently, the early majority will usually not consider a new product until many early adopters have tried. The early majority are 122 with above average status. They do not want to blut.
Accordingly to Rogers, about 34 percent of the consumers belong to this class.
4. Late Majority (Skeptical): The late majority tends to be below average in social status and income. Late majority hesitate to adopt a new product until everyone has adopted. They are skeptical and cautious about new ideas. They are below average in income and social prestige, and are older than members of the earlier groups. They make little use of mass media, and need strong social pressure from their own peer group before adopting a new product. This is also a large group making up to 34 percent of the consumers.
5. Laggards (Traditional): They have lower incomes and social status. They are traditional oriented and are the last to adopt a new product. They are suspicious of anything new, therefore not interested. They prefer to do things the way they have been done in the past. This group came into product adoption almost at the time the product is declining. Such customers are of no interest to the marketer because no amount of promotional strategy would make them change their opinion.
Factors that Affect Diffusion and Adoption
Study of the diffusion and adoption process has also uncovered interesting data concerning the rate_ of diffusion and adoption. Marketers want their new products to diffuse as rapidly as possible. Rogers and Shoemaker identify the following characteristics of products as those which appear to influence the speed and extent of adoption:
1. Relative Advantage:, The degree to which an innovation is perceived as being superior to preceding competing products. Products with greater relative advantage will be adopted more rapidly.
2. Compatibility: The degree to which an innovation is consistent with the cultural values and experiences of the adopters. Products that are not compatible with consumers norms will take longer to be adopted.
3. Complexity: The more complex an innovation is, the less quickly it will be adopted.
4. Trialability: The degree to which the new idea or item may be sampled on some limited basis. If sampling is not possible, adoption will be slower.
5. Observability: The more an innovation can be seen to work, the more likely it is to be adopted.
6. Cost: How expensive (in money, time, risk of loss, and so on) the product is to buy and to use. Expensive products involve greater risk of economic loss and require, a greater commitment; inexpensive items require little investment and deliberation. Companies offer “easy payment plans” to increase speed of diffusion for expensive products.
