Marketing: An Introduction
Thirteenth Edition
Chapter 8
Developing New Products: and Managing the Product Life Cycle
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Copyright © 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
1
Learning Objectives (1 of 4)
8-1. Explain how companies find and develop new product ideas.
8-2. List and define the steps in the new product development process and the major considerations in managing this process.
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This chapter explains how companies find and develop new product ideas. It also lists and defines the steps in the new product development process and the major considerations in managing this process.
2
Learning Objectives (2 of 4)
8-3. Describe the stages of the product life cycle and how marketing strategies change during a product’s life cycle.
8-4. Discuss two additional product issues: socially responsible product decisions and international product and services marketing.
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This chapter also describes the stages of the product life cycle and how marketing strategies change during a product’s life cycle. The chapter discusses two additional product issues: socially responsible product decisions and international product and services marketing.
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First Stop Google: The New Product Moonshot Factory
Google’s innovation machine is renowned for producing new product “moonshots.”
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Google is wildly innovative. Its innovation machine is renowned for producing new product “moonshots,” futuristic longshots that, if successful, will profoundly change how people live.
Google’s famously chaotic, wild-eyed innovation process has unleashed a seemingly unending flurry of diverse new products. But at Google, innovation is more than a process. It’s part of the company’s DNA. “Where does innovation happen at Google? It happens everywhere.”
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Learning Objective 8-1
Explain how companies find and develop new product ideas.
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New Product Development Strategy
Developing new products through the firm’s own research and development efforts
Creating successful new products requires
Understanding consumers, markets, and competitors
Developing products that deliver superior value to customers
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A firm can obtain new products in two ways. One is through acquisition—by buying a whole company, a patent, or a license to produce someone else’s product. The other is through the firm’s own new product development efforts.
New products are original products, product improvements, product modifications, and new brands that the firm develops through its own research and development efforts.
To create successful new products, a company must understand its consumers, markets, and competitors and develop products that deliver superior value to customers.
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Learning Objective 8-1 Summary
New product ideas from the firm’s own research and development efforts
External sources include competitor's offerings, ideas from distributors and suppliers, as well as customers themselves
Crowdsourcing or open-innovation new product idea programs
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Many new product ideas stem from firm’s own research and development efforts. Companies also track competitors’ offerings and obtain ideas from distributors and suppliers who are close to the market and can pass along information about consumer problems and new product possibilities.
Perhaps the most important sources of new product ideas are customers themselves. Companies observe customers, invite them to submit their ideas and suggestions, or even involve customers in the new product development process. Many companies are now developing crowdsourcing or open-innovation new product idea programs, which invite broad communities of people—customers, employees, independent scientists and researchers, and even the general public—into the new product innovation process. Truly innovative companies do not rely only on one source for new product ideas.
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Learning Objective 8-2
List and define the steps in the new product development process and the major considerations in managing this process.
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Figure 8.1 - Major Stages in New Product Development
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This figure shows the eight major steps in the new product development process. New product development starts with good new product ideas. A company typically generates hundreds or even thousands of ideas to find a few good ones. The remaining steps reduce the number of ideas and develop only the best ones into profitable products.
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Idea Generation (1 of 2)
Systematic search for new product ideas
Internal idea sources:
Internal social networks
Intrapreneurial programs
External idea sources:
Distributors and suppliers
Competitors
Customers
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New product development starts with idea generation, which is the systematic search for new product ideas. Major sources of new product ideas include internal sources and external sources.
Beyond a company’s internal R&D process, a company can pick the brains of its own people. Many companies have developed successful internal social networks and intrapreneurial programs that encourage employees to develop new product ideas.
Companies can also obtain good new product ideas from any of a number of external sources, such as distributors and suppliers, competitors, and customers themselves.
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Idea Generation (2 of 2)
Crowdsourcing:
Inviting broad communities of people into the new product innovation process
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Many companies are now developing crowdsourcing or open-innovation new product idea programs. Crowdsourcing invites broad communities of people—customers, employees, independent scientists and researchers, and even the public at large—into the innovation process.
For example, Victorinox used third-party crowdsourcing network jovoto to capture creative designs for limited fashion editions of its venerable Swiss Army Knife. The crowdsourced designed models had 20 percent better sales success than any previous internally created limited editions.
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Idea Screening
Screening new product ideas to spot good ones and drop poor ones as soon as possible
Ways of screening new ideas:
New idea write-up reviewed by a committee
R-W-W framework–Real, win, worth doing
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The purpose of idea generation is to create a large number of ideas. The purpose of the succeeding stages is to reduce that number.
Many companies require their executives to write up new product ideas in a standard format that can be reviewed by a new product committee. The write-up describes the product, value proposition, the target market, and the competition. It also estimates market size, product price, development time and costs, manufacturing costs, and rate of return. The committee then evaluates the idea against a set of general criteria.
R-W-W, that is, “real, win, worth doing,” refers to a new product screening framework that asks three questions:
First, Is it real? Is there a real need and desire for the product and will customers buy it? Is there a clear product concept and will such a product satisfy the market?
Second, Can we win? Does the product offer a sustainable competitive advantage? Does the company have the resources to make such a product a success?
Finally, Is it worth doing? Does the product fit the company’s overall growth strategy? Does it offer sufficient profit potential? The company should be able to answer yes to all three R-W-W questions before developing the new product idea further.
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Product Concept
A product idea is an idea for a possible product that the company can see itself offering to the market.
A product concept is a detailed version of the new product idea stated in meaningful consumer terms.
Product image is the way consumers perceive an actual or potential product.
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An attractive idea must then be developed into a product concept. It is important to distinguish between a product idea, a product concept, and a product image.
A product idea is an idea for a possible product that the company can see itself offering to the market. A product concept is a detailed version of the idea stated in meaningful consumer terms. A product image is the way consumers perceive an actual or potential product.
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Concept Development (1 of 2)
This is Tesla’s initial all-electric roadster. Later, more affordable mass-market models will be developed.
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This is Tesla’s initial all-electric roadster. Later, more-affordable mass-market models will travel more than 300 miles on a single charge, recharge in 45 minutes from a normal 120-volt electrical outlet, and cost about one penny per mile to power.
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Concept Development (2 of 2)
Developing a new product into alternative product concepts
Find out how attractive each concept is to customers
Choose the best one
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Suppose a car manufacturer has developed a battery-powered, all-electric car. Its initial prototype is a sleek, sporty roadster convertible that sells for more than $100,000.
The marketer’s task is to develop this new product into alternative product concepts, find out how attractive each concept is to customers, and choose the best one.
It could introduce more affordable, mass-market versions, such as a family car, a sporty compact for young couples and singles, a “green” car that appeals to the environmentally conscious, and even a high-end midsize utility vehicle.
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Concept Testing
Testing new product concepts with groups of target consumers
Methods:
Presenting the concepts to consumers symbolically or physically
Asking customers to respond by answering questions about their reactions to the concepts
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Concept testing calls for testing new product concepts with groups of target consumers. The concepts may be presented to consumers symbolically or physically. Many firms routinely test new product concepts with consumers before attempting to turn them into actual new products. For some concept tests, a word or picture description might be sufficient.
A more concrete and physical presentation of the concept will increase the reliability of the concept test. After being exposed to the concept, consumers then may be asked to react to it by answering questions. The answers to such questions will help the company decide which concept has the strongest appeal.
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Marketing Strategy Development
Initial marketing strategy for a new product
Three parts of the marketing strategy statement:
Describes the target market, planned value proposition, sales, market-share, and profit goals
Determines product’s planned price, distribution, and marketing budget
Develops long-run sales, profit goals, and marketing mix strategy
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Marketing strategy development involves designing an initial marketing strategy for introducing a new product to the market.
The marketing strategy statement consists of three parts:
The first part describes the target market; the planned value proposition; and the sales, market-share, and profit goals for the first few years.
The second part of the marketing strategy statement outlines the product’s planned price, distribution, and marketing budget for the first year.
The third part of the marketing strategy statement describes the planned long-run sales, profit goals, and marketing mix strategy.
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Business Analysis and Product Development
Business analysis: A review of the sales, costs, and profit projections for a new product
To find out whether these factors satisfy the company’s objectives
Product development: Developing the product concept into a physical product
To ensure that the product idea can be turned into a workable market offering
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Once management has decided on its product concept and marketing strategy, it can evaluate the business attractiveness of the proposal. Business analysis involves a review of the sales, costs, and profit projections for a new product to find out whether they satisfy the company’s objectives. If the projections satisfy the company objectives, the product can move to the product development stage.
If the product concept passes the business test, it moves into product development. This refers to developing the product concept into a physical product to ensure that the product idea can be turned into a workable market offering. The R&D department will develop and test one or more physical versions of the product concept. R&D hopes to design a prototype that will satisfy and excite consumers and that can be produced quickly and at budgeted costs.
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Test Marketing (1 of 3)
Introduces the product and its proposed marketing program into realistic market settings
Gives the marketer an experience with marketing a product before full introduction
Tests the product and its marketing program
Testing takes time, and costs can be high.
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If the product passes both the concept test and the product test, the next step is test marketing, the stage at which the product and its proposed marketing program are introduced into realistic market settings.
Test marketing gives the marketer experience with marketing a product before going to the great expense of full introduction. It lets the company test the product and its entire marketing program—targeting and positioning strategy, advertising, distribution, pricing, branding and packaging, and budget levels.
However, test marketing costs can be high, and testing takes time that may allow market opportunities to slip by or competitors to gain advantages.
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Test Marketing (2 of 3)
Starbucks quickly introduced a less-than-perfect mobile payments app, then worked out the flaws.
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Companies sometimes shorten or skip test marketing to take advantage of fast-changing market developments, as Starbucks did with its hugely successful mobile payments app.
To take advantage of digital and mobile trends, Starbucks quickly introduced a less-than-perfect mobile payments app, then worked out the flaws during the six months after launch. The Starbucks app now accounts for 6 million transactions per week.
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Test Marketing (3 of 3)
Alternatives to standard test markets
Controlled test markets
Simulated test markets
Reasons for using alternative test markets
Reducing the costs
Speeding up the process
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As an alternative to extensive and costly standard test markets, companies can use controlled test markets or simulated test markets. In controlled test markets, new products and tactics are tested among controlled panels of shoppers and stores. Using simulated test markets, researchers measure consumer responses to new products and marketing tactics in laboratory stores or simulated online shopping environments.
Both controlled test markets and simulated test markets reduce the costs of test marketing and speed up the process.
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Commercialization
Introducing a new product into the market
Considerations for launching a new product
When to launch
Where to launch
Single location, region, national market, or international market
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Commercialization refers to introducing the new product into the market. If a company goes ahead with commercialization, it will face high costs.
A company launching a new product must first decide on introduction timing. If the new product will eat into the sales of other company products, the introduction may be delayed. If the product can be improved further, or if the economy is down, the company may wait until the following year to launch it. However, if competitors are ready to introduce their own competing products, the company may push to introduce its new product sooner.
The company must also decide where to launch the new product, whether in a single location, a region, the national market, or the international market. Some companies may quickly introduce new models into the full national market. Companies with international distribution systems may introduce new products through swift global rollouts.
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Managing New Product Development
Requires a holistic approach
Customer-centered new product development
Team-based new product development
Systematic new product development
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Successful new product development requires a customer-centered, team-based, and systematic effort. Each of these efforts are discussed in greater detail in the following slides.
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Customer-Centered New Product Development (1 of 2)
Customer-centered new product development focuses on finding new ways to solve customer problems and create more customer-satisfying experiences.
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Successful new product development begins with a thorough understanding of what consumers need and value. Customer-centered new product development focuses on finding new ways to solve customer problems and create more customer-satisfying experiences.
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Customer-Centered New Product Development (2 of 2)
Financial software maker Intuit follows a “Design for Delight” philosophy.
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As an illustration of Customer-centered new product development: Financial software maker Intuit follows a “Design for Delight” philosophy that says products should delight customers by providing experiences that go beyond their expectations.
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Team-Based and Systematic New Product Development
Team-based new product development
Various company departments work together, overlapping the steps in the product development process
Systematic new product development
Innovation management systems collect, review, evaluate, and manage new product ideas
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To get their new products to market more quickly, many companies use a team-based and systematic new product development approach.
Under this approach, company departments work closely together in cross-functional teams, overlapping the steps in the product development process to save time and increase effectiveness. In this approach, if one area hits snags, it works to resolve them while the team moves on. The team-based approach does have some limitations, however, for it sometimes creates more organizational tension and confusion than the more orderly sequential approach.
Finally, the new product development process should be holistic and systematic rather than compartmentalized and haphazard. Otherwise, few new ideas will surface, and many good ideas will sputter and die. To avoid these problems, a company can install an innovation management system to collect, review, evaluate, and manage new product ideas. The innovation management system approach yields two favorable outcomes. First, it helps create an innovation-oriented company culture. Second, it will yield a larger number of new product ideas, among which will be found some especially good ones. The good new ideas will be more systematically developed, producing more new product successes.
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Learning Objective 8-2 Summary
New product development process includes
Idea generation, idea screening, product concept development and testing, and marketing strategy development
Business analysis, product development, test marketing, and commercialization
New product development requires a customer-centered, team-based, systematic effort.
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The new product development process consists of eight sequential stages. The process starts with idea generation. Next comes idea screening, which reduces the number of ideas based on the company’s own criteria. Ideas that pass the screening stage continue through product concept development, in which a detailed version of the new product idea is stated in meaningful consumer terms. This stage includes concept testing, in which new product concepts are tested with a group of target consumers to determine whether the concepts have strong consumer appeal. Strong concepts proceed to marketing strategy development, in which an initial marketing strategy for the new product is developed from the product concept. In the business-analysis stage, a review of the sales, costs, and profit projections for a new product is conducted to determine whether the new product is likely to satisfy the company’s objectives. With positive results here, the ideas become more concrete through product development and test marketing and finally are launched during commercialization.
New product development involves more than just going through a set of steps. Companies must take a systematic, holistic approach to managing this process. Successful new product development requires a customer-centered, team-based, systematic effort.
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Learning Objective 8-3
Describe the stages of the product life cycle and how marketing strategies change during a product’s life cycle.
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Figure 8.2 - Sales and Profits over the Product’s Life from Inception to Decline
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This figure shows a typical product life cycle (PLC), the course that a product’s sales and profits take over its lifetime. The PLC has five distinct stages.
Product development begins when the company finds and develops a new product idea. During product development, sales are zero, and the company’s investment costs mount.
Introduction is a period of slow sales growth as the product is introduced in the market. Profits are nonexistent in this stage because of the heavy expenses of product introduction.
Growth is a period of rapid market acceptance and increasing profits.
Maturity is a period of slowdown in sales growth because the product has achieved acceptance by most potential buyers. Profits level off or decline because of increased marketing outlays to defend the product against competition.
Decline is the period when sales fall off and profits drop.
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Product Life-Cycle Strategies
Thanks to the “Quaker Up” campaign, 137-year-old Quaker has a contemporary appeal as a lifestyle brand.
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Quaker Oats is a good example of managing the product life cycle. Thanks to the “Quaker Up” campaign, 137-year-old Quaker now has a more contemporary appeal as a lifestyle brand that helps give young families the fuel and energy needed to get through the day.
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Figure 8.3 - Styles, Fashions, and Fads
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The PLC concept also can be applied to what are known as styles, fashions, and fads. This figure shows their special life cycles.
A style is a basic and distinctive mode of expression. For example, styles appear in homes (colonial, ranch, transitional), clothing (formal, casual), and art (realist, surrealist, abstract). A style may last for generations, passing in and out of vogue. A style has a cycle showing several periods of renewed interest.
A fashion is a currently accepted or popular style in a given field. For example, the more formal “business attire” look of corporate dress of the 1980s and 1990s gave way to the “business casual” look of the 2000s and 2010s. Fashions tend to grow slowly, remain popular for a while, and then decline slowly.
Fads are temporary periods of unusually high sales driven by consumer enthusiasm and immediate product or brand popularity. A fad may be part of an otherwise normal life cycle. Or the fad may comprise a brand’s or product’s entire life cycle. Pet Rocks are a classic example.
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Table 8.2 Summary of Product Life-Cycle Characteristics, Objectives and Strategies (1 of 3)
blank Introduction Growth Maturity Decline
Characteristics blank blank blank blank
Sales Low sales Rapidly rising sales Peak sales Declining sales
Costs High cost per customer Average cost per customer Low cost per customer Low cost per customer
Profits Negative Rising profits High profits Declining profits
Customers Innovators Early adopters Middle majority Laggards
Competitors Few Growing number Stable number beginning to decline Declining number
Marketing objectives blank blank blank blank
blank Create product awareness and trial Maximize market share Maximize profit while defending market share Reduce expenditure and milk the brand
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This table depicts the various characteristics and objectives of each of the product life-cycle stages. The next slide continues Table 8.2 on Product Life Cycle Strategies.
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Table 8.2 Summary of Product Life-Cycle Characteristics, Objectives and Strategies (2 of 3)
blank Introduction Growth Maturity Decline
Strategies blank blank blank blank
Product Offer a basic product Offer product extensions, service, and warranty Diversify brand and models Phase out weak items
Price Use cost-plus Price to penetrate market Price to match or beat competitors Cut price
Distribution Built selective distribution Build intensive distribution Build more intensive distribution Go selective: phase out unprofitable outlets
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This table depicts the various strategies of each of the product life-cycle stages.
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Table 8.2 Summary of Product Life-Cycle Characteristics, Objectives and Strategies (3 of 3)
blank Introduction Growth Maturity Decline
Strategies blank blank blank blank
Advertising Build product awareness among early adopters and dealers Build engagement and interest in the mass market Stress brand differences and benefits Reduce to level needed to retain hard-core loyals
Sales Promotion Use heavy sales promotion to entice trial Reduce to take advantage of heavy consumer demand Increase to encourage brand switching Reduce to minimal level
Source: Based on Philip Kotler and Kevin Lane Keller, Marketing Management, 15th ed. (Upper Saddle River, NJ: Pearson Education, 2016), p. 358. © 2016. Printed and Electronically reproduced by permission of Pearson Education, Inc., Upper Saddle River, New Jersey
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This table depicts the various strategies of each of the product life-cycle stages.
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Learning Objective 8-3 Summary
Stages of the product life cycle:
Product development
Introduction stage
Growth stage
Maturity stage
Decline stage
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Each product has a life cycle marked by a changing set of problems and opportunities. The sales of the typical product follow an S-shaped curve made up of five stages. The cycle begins with the product development stage in which the company finds and develops a new product idea. The introduction stage is marked by slow growth and low profits as the product is distributed to the market. If successful, the product enters a growth stage, which offers rapid sales growth and increasing profits. Next comes a maturity stage in which the product’s sales growth slows down and profits stabilize. Finally, the product enters a decline stage in which sales and profits dwindle. The company’s task during this stage is to recognize the decline and decide whether it should maintain, harvest, or drop the product. The different stages of the PLC require different marketing strategies and tactics.
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Learning Objective 8-4
Discuss two additional product issues: socially responsible product decisions and international product and services marketing.
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Product Decisions and Social Responsibility
Considerations for companies
Public policy issues
Regulations regarding acquiring or dropping products
Patent protection
Product quality and safety
Product warranties
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Marketers should carefully consider public policy issues and regulations regarding acquiring or dropping products, patent protection, product quality and safety, and product warranties.
Regarding new products, the government may prevent companies from adding products through acquisitions if the effect threatens to lessen competition. Companies must also obey U.S. patent laws when developing new products. A company cannot make its product illegally similar to another company’s established product.
Manufacturers must comply with specific laws regarding product quality and safety. For example, various acts provide for the inspection of sanitary conditions in the meat-and poultry-processing industries. Safety legislation has been passed to regulate fabrics, chemical substances, automobiles, toys, drugs and poisons.
If consumers have been injured by a product with a defective design, they can sue manufacturers or dealers. Some companies are now appointing product stewards, whose job is to protect consumers from harm and the company from liability by proactively ferreting out potential product problems.
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International Product and Services Marketing (1 of 2)
Lay’s famously funky Chinese chip flavors include cucumber.
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A good example of global product adaptation is Frito-Lay’s chips. Lay’s famously funky Chinese chip flavors include cucumber (a best-seller), iced lemon tea, “Numb & Spicy Hot Pot,” and “Sha LaChui,” a concoction that tastes like a baked salad.
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International Product and Services Marketing (2 of 2)
Challenges facing international marketers:
Finding what products and services to introduce and in which countries
Deciding on how much to standardize or adapt the products and services for world markets
Service firms are taking the lead in international expansion.
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International product and services marketers face special challenges. First, they must figure out what products and services to introduce and in which countries. Then they must decide how much to standardize or adapt their products and services for world markets.
On the one hand, companies would like to standardize their offerings. Standardization helps a company develop a consistent worldwide image. It also lowers the product design, manufacturing, and marketing costs of offering a large variety of products. On the other hand, markets and consumers around the world differ widely.
Today, service firms are no longer simply following their manufacturing customers. Instead, they are taking the lead in international expansion.
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Learning Objective 8-4 Summary
Socially responsible product decisions
Public policy issues and regulations
International product and services marketing
Standardize or adapt offerings for world markets
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Marketers must consider two additional product issues. The first is social responsibility. This includes public policy issues and regulations involving acquiring or dropping products, patent protection, product quality and safety, and product warranties. The second involves the special challenges facing international product and services marketers. International marketers must decide how much to standardize or adapt their offerings for world markets.
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Learning Objectives (3 of 4)
8-1. Explain how companies find and develop new product ideas.
8-2. List and define the steps in the new product development process and the major considerations in managing this process.
Copyright © 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
This chapter explained how companies find and develop new product ideas. It also listed and defined the steps in the new product development process and the major considerations in managing this process.
41
Learning Objectives (4 of 4)
8-3. Describe the stages of the product life cycle and how marketing strategies change during a product’s life cycle.
8-4. Discuss two additional product issues: socially responsible product decisions and international product and services marketing.
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This chapter also described the stages of the product life cycle and how marketing strategies change during a product’s life cycle. The chapter discussed two additional product issues, socially responsible product decisions and international product and services marketing.
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