New Product Development, Innovation, and Product Life Cycle - Essay Example

Introduction

Due to rising globalization, there is increased interest across different industries to new product development (NPD). Moreover, research indicates that innovative firms, which use innovation to differentiate their products and services, perform twice better regarding profits compared to other firms (Tidd et al., 1997). Nevertheless, managing NPD and Innovation is very challenging because it may fail to yield results (Trott, 2008). Thus, firms should understand the mechanism of products and innovation to succeed in the market. As the business environments evolve, so does marketing into a discipline as itself, evaluation of all the variables that affect the consumer behavior is paramount. One of the most significant concepts underlying business planning models is product life cycle (PLC). This is based on the assumption that sales position, as well as the profitability of products, changes over time; therefore, firms should revise their product strategies periodically. In this paper we will look at NPD, and how it is related to PLC, stages in PLC and associated marketing strategies appropriate for each stage, and how PLC is used to strategize for international markets.

NPD and PLC

New Product Development refers to the development of new products and services to the market through research and development. The new product may be as a result of improvement and modification of existing products, and creates a completely new product, which lengthens the existing product line or creates a new one. However creating successful new products requires an understanding of changing customers' preferences and taste, markets and competitors. According to Cooper (2001) NPD aim is to improve the methods guiding the process of taking the new product to target market. Thus, companies should continue to innovate and develop new products that ensure superior value if they want to grow and prosper.

PLC

Once the new product is launched, the management wants the new product to enjoy a long product life. In other words, the company wants to earn more profit fully enough cater for the risk they encountered when it was launched. Management understands product will undergo PLC although it is difficult to tell its shape and length in advance. The PLC is the life of a product in the market in regards the cost involved and sales performance. Product Life Cycle is measured using sales in the marketplace, or its longevity in the product portfolio of the firm.

How NPD and first-mover concepts are related to PLC

Before launching a new product, a firm needs to make strategic decisions. A useful framework to think about the need of NPD is that of PLC. According to Trott (2008) recognizes that NPD is paramount in a rapidly changing environment and addresses how to apply the PLC concept in NPD performance measurement. PLC concepts imply that products regarding sales and profits go through various stages; therefore, NPD concept requires substantial upfront investments that need to be recouped from new product performance in the market. Application of the concept of PLC to NPD can lead to continuous improvements resulting in successful product lifecycles. One of the NPD strategies is pioneers, where the firms make large up-front investments in R&D to develop a new product, which entails technological as well as commercial risks. However, there is the risk of imitation and leap-frogging associated with this strategy. Therefore, there is a need to create first-mover advantages through experience curve effect, get the first crack in the market, obtain product patent, create difficulties to copy product, exceed competitors product features, control market, and promote the product as the industry standards and this act as barriers to entry (Rao, Klein & Joseph, 2013). The first movers advantages can also be supplemented by the penetration strategy, which helps to squeeze out more sales of the product and market through the greater usage of the current customers. Success in NPD has an impact on the firm's image because it makes it more attractive to the investors, as well as attract and retain creative employees. Furthermore, it may help to develop learning curve on how to synergize various functions such as marketing, R &D, and production and sales. As a result, the firm can create first movers barriers, and the more the advantages, the greater the likelihood that the firm will perceive potential competition as low. The firms start with a high price and gradually reduces the price to the PLC (Rao, Klein & Joseph, 2013).

Stages of PLC

PLC has five distinct stages including product development, introduction, growth, maturity, and decline.

Product development

This phase began when the firms were translating the available information and incorporating them to find and make a new product. At this stage, a lot of money and time is required before it is exposed to the customers. During this phase, sales are zero and negative revenue, money and time are spent with nothing in return.

Introduction Phase

The introduction phase of a new product includes the launch to ensure that the product will have a maximum effect at the moment of sale. At this phase, the company uses a lot of money on promotion and advertisements. This period has low sales, costs per customers are high, and the company profits are negative because the sales cannot recoup heavy investment expenses in the new product. At this stage, the clientele base for the new product is primarily from the innovator customers.

Growth Phase

This stage is when the new product take-off in the market, and is perceived to be the appropriate time for a company to focus on increasing its market share. At this stage of PLC, the sales are rising not just among the innovator customers but also among other targets such as the early adopters within the consumer population. Therefore, many people accept the new product resulting to increasing profits.

Maturity Phase

This is the period when the market becomes saturated with a variation of product, and competitors are perceived as alternative products. It occurs when a solid market share has been achieved, the clientele base also increases to middle adopters and the cost per customer reduces. The sales growth reduces as the product has been already accepted by the buyers. Profits decline as the firm increases marketing outlays to defend the new product against competition.

Decline Phase

At some point, the product will reach the decline stage as other more effective products enters the market to meet changing customer needs. The product sale begins to decrease and profit drops. This calls for serious marketing decisions for a possibility to extend the life of product through packaging, repositioning and so on. Alternatively, the product may be removed from the market.

Appropriate Marketing Strategies for each PLC Stages

In the introduction stage, the firm marketing objective is to create product awareness and trial. The marketer focuses on generating interest in a product through the use of different types of promotion. The company can use penetration strategy and skimming strategy. This advertising creates product awareness among early adopters and dealers.

During the growth stage, a firm uses various strategies to sustain growth. The marketers may lower prices to the next layer of price to attract sensitive buyers and eliminate competition (Syckle & Tietje, 2010). Furthermore, increase distribution coverage and enters new distribution channels to spur demand from customers. The marketers may also change from product awareness advertising to preference product advertising to retain and attract new market segments.

In the maturity stage, the marketers emphasize on brand name through market, product, and marketing modification to build customer loyalty. Market modification refers to expanding the number of brand users by attracting competitor's customers. Product modification through quality improvement and product performance increase sales.

As the product declines, marketers may decide to reduce distribution and advertising to a level needed to retain hard-core loyal customers.

Managers use the PLC to strategize for International Markets and Business

The international product life cycle states that firms will start by exporting its product before offshoring as the products move through its life cycle. For instance, due to increasing costs, legal considerations, a firm may opt to outsource some of its function to a developing country with cheaper labor, or less regulation to relieve its cost burdens. When a firm takes an international perspective, the new product stage is spurred by demand and purchasing power. In the second stage, maturing product stage, the home market and abroad becomes aware of the product. During this period, the product generates enough sales to establish a new plant in an offshore company. In the last stage, competition forces the firm to lower price to maintain sales level (Soloman, Poatsy & Martin, 2012). The company focuses on achieving low-cost production in developing countries. Consequently, the home market may become importers of the product.

Conclusion

Although the product life cycle but all products do not strictly follow all the stages, therefore, it should be used carefully when predicting future sales. Also, company create new product and make modification very quickly. Although many product will follow the product life cycle, a company may employ strategies to make the life cycle of a product circular. The company may reposition the product to reverse PLCs last stage as the customer will think about the product differently. The company may also manage the product to delay the last stage through marketing modification such as new packaging to extend its life.