12-3b Managing Existing Products

concept testing

the step in the new-product development process in which the new product idea is presented to a small sample of the international market to gauge its reaction

business analysis

the step in the new-product development process in which projections of potential revenues and profits for a potential new product are made

market testing

the step in the new-product development process in which a company will develop the marketing mix for a new product

commercialization

the last step in the new-product development process in which the new product is manufactured, the marketing mix is finalized, and the product is introduced to the foreign market

product life cycle (PLC)

a depiction of the sales and profits for a new product over its lifetime

Those product ideas that are not rejected in this step are then subjected to concept testing; the idea is presented to a small sample of the intended market to gauge its reaction. Ideas that succeed in this process are then moved to the business analysis step, where projections of potential revenues and profits are made. If these numbers are acceptable, the physical product is then developed.

One very important aspect of the development step is product design. Chrysler, for example, has used design as a way to differentiate its offerings from those of competitors. Design ideas are borrowed from art, architecture, fashion, and furniture. Some top designers make over $1 million annually and have access to the executive suite.13

Following development, new products are subjected to market testing, the major purpose of which is to develop the most appropriate marketing mix for the new offering. In the last step, commercialization, the new product is manufactured, the marketing strategy is finalized, and the product is introduced to the foreign market.

The product life cycle (PLC) is a useful tool for managing products after they have been introduced to foreign markets. Exhibit 12.4 shows that the lifetime of a product can be divided into four stages. In the introduction (first) stage, sales gradually increase, as do profits, which often are losses in the early part of the first stage. Sales and profits rapidly increase in the growth (second) phase; profits reach a maximum during the latter part of the growth stage, then begin to taper off. In the maturity (third) stage, sales reach a peak and then begin to decline as profits continue to decline. The decline (fourth) phase is aptly named because both sales and profits have continuously declined.

The PLC helps international marketers decide when to modify their marketing strategy. For example, prices will usually need to be reduced in the maturity phase because of the large number of additional competitors. Promotion will need to be increased during the growth and maturity stages because of a desire to begin reaching mass markets and the influx of more competitors.

When products reach the decline stage in their domestic markets, some firms will attempt to increase their commercial lives by turning to international markets. Blockbuster’s slide into the decline stage in the United States ended in its shuttering all of its domestic stores. In Mexico, however, Blockbuster continues to be a viable brand because many of their 300 stores there are located in upscale neighborhoods, and renting movies and video games is still popular there. In the first nine months of 2013, Blockbuster’s Mexican stores generated $118 million in revenues.14

Exhibit 12.4 tHe ProDuCt life CyCle

Introduction Stage The Product Life Cycle

Growth Stage Maturity Stage Decline Stage

Sales and Profits Sales

Profits

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