Ac114 CH 12 Developing new products

prototype

an original model on which later versions are patterned

Firms pursue various strategies to increase customer base/ defend market share

- Entry into new markets or market segments, including international markets -Development of new products

Late Majority (34%)

- The product has reached its full market potential -by the time late majority enters the market, sales tend to level off or be in decline - skeptics who adopt new products when they feel it is necessary

Early Majority (34%)

- Wait until bugs are worked out. - Experience little risk - Few new products can be profitable until this large group buys them. - When this group enters the market place, number of competitors has reached its peak so these buyers have many quality/price choices

Changing customer needs

- When firms add innovation to their offerings they can create and deliver value more effectively by satisfying the changing needs of current and new customers or by keeping customers from getting bored with current product offerings -sometimes companies can identify problems and develop products that customers never new they needed ex: Apple introducing advanced camera capabilities -in other cases customers enter new stages in their lives that intensify their demand for such innovations

customer input

- because customers for b2b products are few, firms can follow their use of products closely and solicit suggestions and ideas to improve those products either by using a formal approach, such as focus groups, interviews, surveys, or through more informal discussions - Customer input in B2C markets come from a variety of sources though increasingly through social media

Product launch

- full-scale commercialization of the product - Most critical step in the new product introduction. Requires tremendous financial resources and extensive coordination of all aspects of the marketing mix * If the new product fails, it may be difficult for the product and possibly the firm to recover

Introduction stage

- stage of the product life cycle when innovators start buying the product - Sensing the viability and commercialization possibilities, other firms soon enter the market with similar or improved products at lower prices -Intro stage is characterized by initial losses to the firm due to its high start-up costs and low level of sales revenue as the product begins to take of

Early Adopters (13.5%)

- the second group of consumers in the diffusion of innovation model, after innovators, to use a product or service innovation - generally don't like to take as much risk as innovators but instead wait and purchase the product after careful review; but most go ahead an purchase bc early adopters tend to enjoy novelty and are often regarded as opinion leaders *If the early adopter group is relatively small, the number of people who will ultimately adopt the innovation likely will be small

why is the failure rate for new products so high?

-One of the main reasons is the failure to assess the market properly by neglecting to do appropriate product testing, targeting the wrong segment, and/or poor positioning. -Firms may also overextend their abilities or competencies by venturing into products or services that are inconsistent with their brand image and/or value proposition.

Innovators 2.5%

-Want to be the first to have the new product. -Help the new product gain market acceptance. - These buyers enjoy taking risks and are regarded as highly knowledgeable

Growth Stage

-growing number of product adopters -rapid growth in industry sales -increases in both number of competitors and number of available product versions

Firms can measure the success of a new product by 3 interrelated factors:

1) Its satisfaction of technical requirements 2) Customer acceptance 3) Its satisfaction of the firms financial requirements such as sales and profits

R&D consortia

A group of firms and institutions, possibly including government and educational institutions, that explore new ideas or obtain solutions for developing new products. - Here, R&D investments come from the group as a whole and participating firms/institutions share the results

competitors products

A new product entry by a competitor may trigger a market opportunity for a firm, which can use reverse engineering to understand the competitor's product and then bring an improved version to market. *Reverse engineering/copycat approach

Outsourcing

A practice used by different companies to reduce costs by hiring an outside firm to help generate ideas and develop new products

Prototypes are usually tested through

Alpha and beta testing when the firm attempts to determine whether the product will perform according to its design and whether it satisfies the need for which it was intended.

Sources of new product ideas

Customer input Internal R&D R&D Consortia Licensing Brainstorming Outsourcing Competitors Products

List the steps in the product development process

Idea generation → concept testing → product development → market testing →Product Launch→ Evaluation of results

relative advantage

If the product/service is perceived to be better than substitutes, then the diffusion will be relatively quick

Purchasers can be divided into 5 groups according to how soon they buy the products after it has been introduced

Innovators Early adopters Early Majority Late Majority Laggards

What are the different stages of a product life cycle

Introduction stage Growth stage Maturity stage Decline *Not every product follows the same life line curve

Another particularly successful customer input approach is to analyze ______, to help the firm understand general market trends that might be on the horizon

Lead Users

Internal research and development R&D

Many firms have their own R&D departments in which scientists and engineers work to solve complex problems and develop new ideas * The product development costs for these firms are quite high, but the resulting product is expected to have a good chance in the market *Some firms take an approach called reverse innovation, they turn to subsidiaries in less developed markets for new product ideas to cut down on costs

Evaluation of results

Marketers must undertake a critical post launch review to determine whether the product and its launch were a success or failure and what additional resources or changes to the marketing mix are needed, if any

market testing takes two forms:

Now firms must test the market for a new product with a trial batch of products with premarket test or test marketing

Alpha testing

Rather than use potential customers, apha tests occur in the firms R&D department

Diffusion of innovation curve

The number of users of an innovation spreads through the population over a period of time and often follows a bell-shaped curve -few people buy the product at first, then more buy, and finally fewer people buy as the degree of diffusion slows

Laggards 16%

These consumers like to avoid change and rely on traditional products until the products are no longer available. - In some cases laggards never adopt a certain product/ service

compatibility

a diffusion process may be faster or slower, depending on various consumer features, including international cultural differences

Why do firms create new products?

changing customer needs, market saturation, managing risk through diversity, fashion cycles, improving business relationships

maturity stage

characterized by the adoption of the product by the late majority and intense competition for market share among firms -Marketing costs increase as the firms vigorously defend their market share against competitors -Lower prices and increased marketing costs begin to erode the profit margins for many firms - in later phases of the maturity stage, the market has become quite saturated and practically all potential customers have adopted the product

premarket test

conducted before a product or service is brought to market to determine how many customers will try and then continue to use it *This early evaluation saves marketers the costs of a nation wide launch if the product fails

Product development (or product design)

entails a process of balancing various engineering, manufacturing, marketing, and economic considerations to develop a product's form and features or a service's features

Brainstorming

firms often engage in brainstorming sessions to generate ideas

Industry Shakeout

firms that have not established a stronghold in the market may decide to exit referred to as

beta testing

having potential consumers examine a product prototype in a real-use setting to determine its functionality, performance, potential problems, and other issues specific to its use

Observability

how visible a new product and its benefits are to others who might adopt it

fashion cycles

in industries that rely on fashion trends and experience short product life cycles, including apparel, arts, books, and software markets, most sales come from new products. EX: a motion picture generates most of its theater, DVD, and cable TV revenues within a year of its release. Or fashion designers produce entirely new product selections a few times per year.

Licensing

in the search for new products, firms buy the rights to use technology or ideas from other firms through a licensing agreement

panel data

information collected from a group of consumers, organized into panels, over time. *Helps market demand be estimated

Test marketing

introduces a new product or service to a limited geographical area (usually a few cities) prior to a national launch - Strong predictor of product success, because the firm can study actual purchase behavior, which is more reliable than a simulated test *Cost more than premarket tests

Reverse Engineering

involves taking apart a competitor's product, analyzing it, and creating an improved product that does not infringe on the competitor's patents, if any exist *This copycat approach is widespread

pioneers (breakthroughs)

new product introductions that establish a completely new market or radically change both the rules of competition and consumer preferences in a market ex: Apples iPod

First movers

product pioneers that are the first to create a market or product category, making them readily recognizable to consumers and thus establishing a commanding and early market share lead - Can command greater market share over a longer time period than later entrants can - In many cases imitators capitalize on the weakness of pioneers and gain advantage in the market

Complexity and Trialability

products that are relatively less complex are also relatively easy to try - These products will generally diffuse more quickly and lead to greater and faster adoption than will those that are not so easy to try

Improving Business Relationships

sometimes new products function to improve relationships with suppliers ex: Walmart asked its suppliers for data on all their products, even the ones not sold by walmart. Therefore, Walmart can quickly work with suppliers to get these products on its shelves and develop new products that suppliers do not already manufacture

Market saturation

the longer a product exists in the marketplace, the more likely it is that the market will become saturated - Saturated markets can offer opportunities for a company that is willing to adopt a new process of mentality ex: General Mills creating more gluten-free products

innovation

the process by which ideas are transformed into new products and services that will help firms grow * Some estimates indicated only about 3% of new products actually succeed

diffusion of innovation

the process by which the use of an innovation, whether a product or a service, spreads throughout a market group over time and over various categories of adopters - Helps marketers understand the rate at which consumers are likely to adopt a new product/service - Gives marketers a means to identify potential markets for new products/services and predict their sales, even before they introduce the innovations

Concept testing

the process in which a concept statement that describes a product or a service is presented to potential buyers or users to obtain their reactions * Concept testing progresses along the research techniques likely starting with qualitative research such as in depth interviews or focus groups and moving onto quantitative research through internet or mall intercept surveys.

managing risk through diversity

through innovation, firms often create a broader portfolio of products, which help them diversify their risk and enhance firm value better than a single product can - if some products in a portfolio perform poorly others may do well -firms with multiple products can better withstand external shocks like changes in consumer preferences or intense competitive activity

Without new products/services, the value of the firm will

ultimately decline