Basic Marketing: A Global Managerial Approach

Perreault−McCarthy: Basic
Marketing: A
Global−Managerial
Approach, 14/e

10. Product Management
    and New−Product
    Development

Text © The McGraw−Hill

Companies, 2002

Product Management and New-Product Development 277

In the market introductionstage, sales are low as a new idea is first introduced

to a market. Customers aren’t looking for the product. Even if the product offers

superior value, customers don’t even know about it. Informative promotion is

needed to tell potential customers about the advantages and uses of the new prod-

uct concept.

Even though a firm promotes its new product, it takes time for customers to learn

that the product is available. Most companies experience losses during the intro-

duction stage because they spend so much money for Promotion, Product, and Place

development. Of course, they invest the money in the hope of future profits.

In the market growthstage, industry sales grow fast—but industry profits rise and

then start falling. The innovator begins to make big profits as more and more cus-

tomers buy. But competitors see the opportunity and enter the market. Some just

copy the most successful product or try to improve it to compete better. Others try

to refine their offerings to do a better job of appealing to some target markets. The

new entries result in much product variety. So monopolistic competition—with

down-sloping demand curves—is typical of the market growth stage.

This is the time of biggest profits for the industry. It is also a time of rapid sales

and earnings growth for companies with effective strategies. But it is toward the end

of this stage when industry profits begin to declineas competition and consumer price

sensitivity increase. See Exhibit 10-1.

Some firms make big strategy planning mistakes at this stage by not understand-

ing the product life cycle. They see the big sales and profit opportunities of the early

market growth stage but ignore the competition that will soon follow. When they

realize their mistake, it may be too late. This happened with many dot-coms dur-

ing the late 1990s. Marketing managers who understand the cycle and pay attention

to competitor analysis are less likely to encounter this problem.

The market maturitystage occurs when industry sales level off and competition

gets tougher. Many aggressive competitors have entered the race for profits—except

in oligopoly situations. Industry profits go down throughout the market maturity

stage because promotion costs rise and some competitors cut prices to attract busi-

ness. Less efficient firms can’t compete with this pressure—and they drop out of the

market. Even in oligopoly situations, there is a long-run downward pressure on prices.

New firms may still enter the market at this stage—increasing competition even

more. Note that late entries skip the early life-cycle stages, including the profitable

market growth stage. And they must try to take a share of the saturated market from

established firms, which is difficult and expensive. The market leaders have a lot at

stake, so they usually will fight hard to defend their market share and revenue stream.

Satisfied customers who are happy with their current relationship typically won’t be

interested in switching to a new brand. So late entrants usually have a tough battle.

Market introduction—

investing in the future

Market growth—profits

go up and down

Market maturity—sales

level off, profits

continue down

Market

introduction

Market

growth

Market

maturity

Sales

decline

Total industry

sales

Total industry

profit

Time

$ 0

+

Exhibit 10-1

Typical Life Cycle of a New

Product Concept