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

290 Chapter 10

cost. For Xerox to compete, it had to slash its five-year product development cycle.

Many other companies—ranging from manufacturers like Chrysler Corporation and

Hewlett-Packard to Internet service firms like E*Trade and Yahoo—are working to

speed up the new-product development process.^19

To move quickly and also avoid expensive new-product failures, many companies

follow an organized new-product development process. The following pages describe

such a process, which moves logically through five steps: (1) idea generation, (2)

screening, (3) idea evaluation, (4) development (of product and marketing mix),

and (5) commercialization.^20 See Exhibit 10-4.

The general process is similar for both consumer and business markets—and for

both goods and services. There are some significant differences, but we will empha-

size the similarities in the following discussion.

An important element in this new-product development process is continued

evaluation of a new idea’s likely profitability and return on investment. In fact, the

hypothesis-testing approach discussed in Chapter 8 works well for new-product

development. The hypothesis tested is that the new idea will notbe profitable. This

puts the burden on the new idea—to prove itself or be rejected. Such a process may

seem harsh, but experience shows that most new ideas have some flaw that can lead

to problems and even substantial losses. Marketers try to discover those flaws early,

and either find a remedy or reject the idea completely. Applying this process requires

much analysis of the idea, both within and outside the firm, beforethe company

spends money to develop and market a product. This is a major departure from the

usual production-oriented approach—in which a company develops a product first

and then asks sales to “get rid of it.”

Of course, the actual new-product success rate varies among industries and com-

panies. But many companies areimproving the way they develop new products. It’s

important to see that if a firm doesn’t use an organized process like this, it may bring

many bad or weak ideas to market—at a big loss.

New ideas can come from a company’s own sales or production staff, middlemen,

competitors, consumer surveys, or other sources such as trade associations, advertis-

ing agencies, or government agencies. By analyzing new and different views of the

company’s markets and studying present consumer behavior, a marketing manager

can spot opportunities that have not yet occurred to competitors or even to poten-

tial customers. For example, ideas for new service concepts may come directly from

analysis of consumer complaints.

No one firm can always be first with the best new ideas. So in their search for ideas,

companies should pay attention to what current or potential competitors are doing.

Microsoft, for example, had to play catchup with its Internet Explorer browser—and

other changes to Windows—when Netscape Navigator became an instant hit. Some

Idea generation Screening Idea evaluation Development Commercial-

ization

Ideas from:

Customers and

users

Marketing

research

Competitors

Other markets

Company people

Middlemen, etc.

Strengths and

weaknesses

Fit with

objectives

Market trends

Rough ROI

estimate

Concept testing

Reactions from

customers

Rough estimates

of costs, sales,

and profits

R&D

Develop model

or service

prototype

Test marketing

mix

Revise plans as

needed

ROI estimate

Finalize product

and marketing

plan

Start production

and marketing

“Roll out” in

select markets

Final ROI

estimate

Exhibit 10-4 New-Product Development Process

Process tries to kill new
ideas—economically

Step 1: Idea generation