marketing module 4 chapter 12 developing new products
completely new to the market products represent less than
10% of all new product introductions each year
premarket testing test marketing
2 forms of market testing
*entry into new markets or market segments *Develop new products
2 strategies firms pursue in the maturity stage
*introduction *growth *maturity *decline
4 stages of product life cycle
*innovtaors *early adopters *early majority *late majority *laggards
5 groups in the diffusion of innovation curve
Saturated market
A market in which most of the potential customers who need, want, and can afford a product have bought it
market saturation
Occurs when most consumers already own the product and the market is not growing; any sales that occur are replacement sales.
To develop new product ideas more and more firms have been joining in r& d consortia or groups of other firms and institutions to explore new ideas or obtain solutions for developing new products. Here the r&d investments come from the group as a whole and the participating firms and institutions share the results In many cases the consortia involves pharma and high tech companies whose research costs run into the millions which is too much for one firm. It leads to quicker less expensive medicine and tech produced.
R & D consortia
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 *rather than use potential customers, use employees ex: ben and jerrys employees test the ice cream in sermon
alpha testing
o By using this firms can predict which types of customers wil buy their product immediately as well as later on. o With this knowledge the firm can develop effective promotion, pricing and other marketing strategies to push acceptance among each customer group.
benefits of using the diffusion of innovation thoery
*uses potential consumers who examine the product prototype in a real-use setting to determine its functionality, performance, potential problems and other issues specific to its use.
beta testing
Groups break together to generate ideas. One of the key characteristics is no idea can be immediately accepted or rejected. Only at the end of the session do members vote on the best ideas or combination of ideas the ideas that receive the most votes are carried forward to the next stage
brainstorming
Based on the marketing plan does the new product or brand meet the IRR thresholds needed by the company? Risk Assessment and time to breakeven. Sales, costs, profit projections
business analysis
o Firms can create and deliver value more effectively by Satisfy the needs of current and new customers or by keeping customers from getting bored with the current product or service o Sometimes companies can identify problems and develop products that customers never knew they needed. Ex: apple introducing its smartphone with camera capabilities o Growing aging population o Steady market for baby and moms
changing customer needs
A diffusion process may be faster or slower depending on various consumer features including international cultural differneces. A vacuum in order to be more compativle with the needs of people in different cultures is made in several sizes. The us version is bigger for the bigger homes and the Asian one is smaller for their tiny apartments
compatibility
Products that are less complex are easier to try. These products will diffuse more quickly and lead to greater and faster adoption than will those that aren't easy to try. In the cleaning product industry its much easier to try a new cleaning spray than a vaccum. In response firms seek ways to help people conduct trials. Ex: bed bath and beyond ppl can test out shit. Knowledge of how a product or service will diffuse is useful for devleoing marketing strategies.
complexity and trialiability
A bride written description of the product; its technology, working principles and forms; and what customers needs it would satisfy might also include visual images of what the product would look like
concept
an idea with potential is developed further into a
concept
*starts with qualitative research like in-depth interviews or focus groups to test the concept then goes to quantitative research through internet or mall surveys . video clips on the internett might show a virtual prototype and the way it works so customers can evaluate it in a mall interview the interviewer would provide a description of the concept
concept testing
The actual product idea is described in words or presented in marketing research. Questions are asked to assess the saliency of the product attributes to the consumer. (Must test pricing!) *MIGHT ALSO INCLUDE VISUAL IMAGES OF WHAT THE PRODUCT WOULD LOOK LIKE
concept testing
a concept statement is presented to potential buyers or users to obtain their reactions these reactions enable the developer to estimate the sales value of the product or service concept, possibly make changes to enahce its sales vale and detemrmine whether the idea is worth further development if it fails to meet customers expectations it is doubtful it would succeed if it were to be produced and marketed.
concept testing
explain, show, inquire
concept testing
occurs very early in the product introduction process even before a real product has been made so it helps the firm avoid the costs of unnecessary product devleopment
concept testing
some products dont make it past this stage particularly if respondents seem uninterested. if customers are interested the product moves to product development
concept testing
the most important question pertains to the respondents purchase intentions if the product or service were made available. marketers should ask whether the product would satisfy a need that other products arent meeting. might also ask about the expected freuqeucny of purchase and if the price indicates a good value.
concept testing
In some cases consumers may not demand a new product directly but their behavior shows they want it. Ex: pretzel rolls no one said they wanted it but everyone loved them
consumer input
Listening to the customer in both business to business and business to consumer markets is essential for successfull idea generation an throughout the product development process Because customers for B2B are few firms can follow their use of products closely and solicit suggestions and ideas to improve those products by using focus groups, interviews, surveys or through informal discussions. Customer input in B2c markets comes from a variety of sources though increasingly through social media. By monitoring online feedback, whether requested or provided voluntarily through online reviews companies get better ideas about new products or changes to existing ones ex: green giant getting an idea from a competitor then using customer feedback for flavor ideas
consumer input
analyze leader users, those innovative product users who modify existing products according to their own ideas to suit their specific needs. If lead users customize a firms product, other customers might want to as well. So studying lead users helps the firm understand the general market trends that might be on the horizon. Retailers of fashion products often spot new trends by noticing how innovative trendsetter have altered their clothing and shoes. Designers of high fashion jeans look at leader users toon the street to see how to cut their jeans. Innovative customers called lead users are very influential in the fashion industry because designers frequrntly look at their trends to make fashion
consumer inputs
without innovation firms wouldd have to
continue to market current products to current customers or take the same product to another market with similar customers
*declining sales *declining profits *laggards as consumers *low* number of competitors and products ***********
decline stage
*firms with products in this stage either position themselves for a niche segment of diehard consumers or those with special needs or they exit the market *laggards who haven't tried the product enter
decline stage
if firms cant rejuvinate their product from the maturity stage goes to this and eventually exits the market
decline stage
becoming less likely to continue to upgrade their phones and tablets
device exhaustion
The number of users of an innovative product or service spreads through the population over a period of time and follows a bell shaped curve. A few people buy the product or serv ice at first, then more buy and finally fewer people buy as the degree of the diffusion slows
diffusion of innovation curve
The process by which the use of innovation spread throughout a market group over time and across various categories of adopters is diffusion of innovation. helps marketers understand the rate at which consumers are likely to adopt a new product or service and gives them a means to identify potential markets for their new products or services and predict potential sales
diffusion of innovation theory
*managers dont know exactly what shape each products life cycle will take so there is no way to know precisely what stage a product is in *ex: if a product has declining sales a manager might remove it when the product was a great idea it just wasn't marketed correctly (a growth product was doomed to an unnecessary decline) *research states the the product life cycle concept is a valid idea
downsides to the product life cycle
Represent 13.5% of all buyers in the market, they spread the word. They are crucial. If this group is small the number of people who adopt the innovation is small most likely
early adopters
• Don't take as much risk as innovated but wait and purchase the product after careful review. • This market waits for the first reviews before buying. They wait until the innovators complaints and praise come before they go and buy. • Most go ahead and buy because early adopters tend to enjoy novelty and are regarded as the opinion leaders for particular product categories.
early adopters
• Represent 34% of the population, is crucial because few new product and services can be profitable until this large group buys them. If this group doesn't become large enough the product fails
early majority
• This group would wait to rent the star wars movie till it comes out on dvd. • They experience little risk because all the reviews are in and their costs are lower because they're renting the movie instead of going to the theater. • When this group of customers enter the market the number of competitors is at its peaks, so these buyers have many price and quality choices
early majority
*after product launch marketers must undertake a critical post launch review to determine whether the product and its launch were a success or a failure and what additional resources or changes to the marketing mix are needed if any *panel data to test this
evaluation of results
o In industries that rely on fashion trend and experience short product life cycles most sales come from new products. These industries include (apparel, arts, books, software markets) o For example a motion pictures generates most of its theater, dvd and cable tv revenues within a year of its release. But new versions of familiar titles like Cinderalla can be a powerful means to prompt consumers to purchase. o In the case of apparel, fashion designers produce new product selection a few times per year.
fashion cycles
characterized by: *rising sales *rapidly rising profits *early adopters and early majority as costumers *few but increasing competitiors
growth
*firms attempt to reach new consumers in this stage by studying their preferences and producing different product variations-varied colors, styles or features which enable them to segment the market more precisely the goal is to ride the rising sales trend and establish the firms brand before a competitor swoops in ex:many food companies want to be the first brand ppl think of when thinking of organic products
growth stage
*rapid growth in industry sales, and increases in both competitors and number of available product versions
growth stage
as firms ride the increasing industry sales, profits in the growth stage also rise because of the economies of scale associate with manufacturing and marketing costs but if firms have established a stronghold in the market they might exit which is an industry shakeout
growth stage
the product gains acceptance, demand and sales increase, and more competitors emerge in the product category
growth state
*alpha testing *beta testing
how product prototypes are tested
o New products don't always have an end target of consumers, sometimes they function to improve relationships with suppliers. For example, kraft the maker of capri sun found that its lemonade flavor was selling poorly. They found that lemonade was the last flavor retailers would sell. By changing and innovating its pallet they offered something for the retailer stockers to reach each flavor more easily. Sales of capri sun lemonade improved by 162%.
improving business relationships
refers to the process by which ideas are transformed into new offerings including products, services , processes and branding concepts that will help firms grow
innovation
They only represent 2.5% of the total market for ay new product or service though. are crucial to the success of any new product or service because they help the product gain market acceptance through talking and spreading positive word of mouth they are important in bringing in the early adopters
innovators
• The buyers that want to be the first on the block to have the new product or service. They enjoy taking risks and are regarded as very knowledgeable. Ex: the person that sits in line overnight to get a ticket for the first showing of a movie is an innovator, those consumers who have drones. • Firms that invest in the latest technology either to use or to make the firm more efficient are innovators. • Innovators keep themselves very well informed about the product category by subscribing to trade magazines, talking to experts, visiting blogs and attending product related forums, seminars and special events.
innovators
firms have to be able to
innvoate
Many firms have their own r and d departments in witch scientists and engineers develop new ideas. Ex: in the fast food industry many chains run vast test kitchen that experiment with various flavors, concepts and food groups to create new offerings. Lots of times firms use their franchise models to support new product development. Ex: the egg mcmuffin was created by a franchisee. In other industries like music, and movies product development comes from internal ideas and r and d financial investments. The product development costs are high but the resulting new product or service is expected to have a good chance of being a technological breakthrough.
internal R&D
characterized by low sales *negative or low profits *innovators as consumers *one or few competitors
introduction
characterized by initial losses to the firm due to its high start-up costs and low levels of sales revenue as the product takes off if successful firms might see profits toward the end of this stage
introduction stage
starts with a single firm and innovators are the ones to try it sensing viability and commercialization, other firms soon enter with similar or improve products at lower prices
introduction stage
when the product category first launches and innovators start buying the producti
introduction stage
• Make up 16% of the market. • These consumers like to avoid change and rely on traditional product until the products are no longer available. May never adopt a certain product or service
laggards
• 34% of the market this group enters the market when the product has achieved its full market potential. They wait till the movie is on Netflix. • By the time they come the sales tend to level off or may be in decline
late majority
those innovative product users who modify existing products according to their own ideas to suit their specific needs.
lead users
In the search for new products firms buy the rights to use technology or ideas from other firms through a licensing agreement. This saves the high costs of r&d but it means that the firm is banking on a solution that already exists but hasn't been marketed
licesing
those firms that follow a follower strategy are more likely to
look at their competitors products to generate ideas
* a new product by a competitor may trigger a market opportunity for a firm which can use reverse engineering to understand the competitors product and then bring na improved version to market *this copycat approach to new product development is widespread and practiced by even the most research intesive firms. *copycat consumer goods show up in apparel, grocery, and drugstore products as well as in technologically more complex products like cars and computers
looking at competitors products for idea generation
o Through innovation firms create a broader portfolio of products which help them diversify their risks and enhance firm value better than a single product can. o Firms with multiple products can better withstand external shocks like change in consumer preferences or competitive activity. For this reason firms like keeble offer many variations of its basic product, cookies including animals, chips deluxe, el fudge, gripz, vanilla wafer, etc. this diversification enables Keebler to enjoy more consistent performance than it would with just one kind of cookie
managing risk through diversity
the longer a product exists in the marketplace the more likely it is that the market will become saturated. without new products or services the value of the firms will decline without new products or services the value of the firm will decline ex: a car company never offering new cars
market saturatoin
Who is the target, what benefit is provided, how big is the market, what share can we gain, how long will it take to be profitable? Where will it be sold, at what price, how much will we spend on promotion? What are the long range sales and profit goals?
marketing strategy development
the stages of the life cycle often reflect ___________________ ______________, such as the healthy lifestyle trend that today places organic and green products in their growth stages
marketplace trendds
modify the "market" = market development Increase use among current customers = penetration Modify the product = product development, change the product in some way, new flavors Modify the marketing mix (service, price, distribution, promotion)
mature stage-extending product life
characterized by *sales are at their peak *profits are peak and starting to decline *late majority consumers *lots of competitors and competitive products
maturity
many products such as home appliances stay in the __________________ stage for a long time. firms may add features to dishwashers but the category remains essentialy the same and seems unlikely to decline unless some innovative superior solution comes along
maturity
*late majority *intense competition for market share among firms *marketing costs increase as they defend against competitors *intense price competition as the average price of the product falls compared with the first two stage *lower prices and increased marketing costs erode profit margins
maturity stage
in the later phases of this stage the market has become saturated and all potential customers for the product have already gotten the product.
maturity stage
industry sales reach their peak, firms try to rejuvante their products by adding new features or repositioning them
maturity stage
*because a market is saturated firms may attempt to enter new geographical markets including international markets that may be less statured ex: pharma companies going to BRIC countries to grow *even in mature markets firms are able to find new market segments ex: apple releases new iPhones every year- people are starting to suffer from device exhaustion tho so iPhones seem completely mature to expand to lower income market segments when apple gets a new phone they dont get rid of old ones but lower the prices so they can reach customers that wouldn't be able to afford an iPhone otherwise
maturity: entry into new market segments
despite market saturation firms still introduce new products with improved features or find new uses for existing products because they need constant innovation to defend market share from intense competition firms continually introduce new products to ensure that they are able to retain or grow their respective market shares. ex:hallmark
maturity:development of new products
new products and services that consumers accept very quickly have higher consumer adoption rates very early in their product life cycles and ex: blu ray players moved much faster than dads
move faster across the various stages
*Not all succeed imitators capitalize on the weaknesses of pioneers and gain advantage in the market . pioneering products have to establish the market so they pave the way for followers who can spend less marketing effort creating demand for the product line and focus directly on creating demand for their specific brand. Also pioneers might have a less sophisticated design and may be priced relatively high leaving room for better and lower priced competitive products
negatives of pioneers
idea generation concept testing product development market testing product launch evaluation of results
new product development
when followed rationally and sequentially helps avoid failures
new product development process
theres a scope of products from _________________to slightly repositiond
new-to-the-world
does every product follow the same life cycle curve?
no
When products are easily observed, their benefits or uses are easily communicated to others which enhances the diffusion probes. To demonstrate why consumers should spend $400 on a blender blendtec launch an extensive YouTube campaign titled "will it blend" to demonstrate the effectiveness of the blender. The humor and innovativeness of this product caused the videos to go viral. However some products face a challenge in making their innovations observable because few consumers spend time talking about products that are person like cleaning toilets. Even an amazing product might diffuse more slowly if people feel uncomfy talking about what they perceive to be involved in their personal care
observabiltiy
When companies have trouble moving through these steps alone they turn to outsourcing, a practice in which they hire an outside firm to help generate ideas and develop new products and services. IDEO is a design firm that helps clients generate new product and service ideas in industries like health care toys and computers.
outsourcing
common d a greater market share over a longer time period than later entrants
pioneeers
have the advantage of being the first movers as the first to create the market or product category they become readily recognizable to consumer and establish a commanding and early market share lead
pioneers
*new product innovations *establish new markets or radically change the rules of competition as well as consumer preferences ex: iPod-changed the way people listen to music and created a new industry devoted to case, speaker, etc.
pioneers or breakthroughs
*one popular one is called NIELSEN BASES *potential customers are exposed to the marketing mix variables then surveyed and given a sample of the product to try. they are then surveyed about whether they would buy or use the product again which provides an estimation of the porabbiltiy of a consumers repeat purchase the firm can generate a sales estimate from this. this is helpful to introduce to the whole market saving them from a nationwide product fai
premarket tests
firms conduct these before they actually bring a product or service to market to determine how many customers will try and then continue to use the product or service according to a small group of potential consumers
premarket tests
*look at engineering, manufacturing, marketing and economic considerations to develop a product *devleop a prototybe based on research findings from concept testing
product development
Physical Development Timeline to launch Multiple Versions for Test Marketing Costing Engineering and Manufacturing Process Development
product development
*firm confirms its target market *decides how the product will be positioned *then the firm finalizes the remaining marketing mix variables including the marketing budget for the first year which includes just getting people to try a product *timing is so important (ex: waiting to launch g and pg movies till the summer for the kids)
product launch
after market testing this occurs firm is ready to introduce the product to the entire market the most critical step in the new product introduction because it requires lots of financial resources and coordination off all aspects of the marketing mix
product launch
if this fails it might be difficult for the product and the firm to recover.
product launch
helps marketers manage their products marketing mix during and after introduction
product life cycle
offers a useful tool for managers to analyze the types of strategies that may be required over the life of their products.
product life cycle
defines the stages that products move through as they enter, get established in and leave the marketplace. it offers marketers a starting point for their strategy planning
product life cycles
The first physical form or service description of a new product, still in rough form, having the same properties as a new product, but produced through different manufacturing processes, is called
prototype
pioneers use
r&d to generate ideas
failure to assess the market properly by neglecting to do appropriate product testing, targeting the wrong segment and or poor positioning. Firms might also overextend their abilities tor competencies by venturing into products or services that are not consistent with their brand image and or value proposition. ex: heinze colorful squirt ketchup
reasons why the new product failure rate is so high
If a product or service is perceived to be better than substitutes, then the diffusion will be quick. Ex: Swiffer trys to market all types of ages that clean: old people don't have to get on their hands and knees, kids can swipe fast, and a man who has lost an arm to cancer can still help his family clean. So Swiffer has a relative advantage over the competition because they make cleaning faster, easier and more efficient for old people, kids and people with mobility issues.
relative advantage
the degree to which a consumer perceives that a new product provides superior benefits the degree to which a product is perceived as superior to existing substitutes
relative advantage
involves taking apart a product aanalyzing it and creating an improved product that does not infringe on the competitors patents if any exist
reverse engineering
turning to subsidiaries in less developed markets for new product ideas.
reverse innovation
can offer opportunities for a company that is willing to adopt a new process or mentality. at one point marketers wouldn't enter a market that wouldn't earn at least 50 million but general mills is looking to niche markets for its future growth. Ex: general mills creating gluten free products
saturated markets
From the created ideas companies attempt to quickly separate those with merit from those that are not as strong. In the next slide we will look at some specific criteria but they may be organized around the ideas above.
screening
Reduce the number of ideas and drop poor ones before incurring significant expense.
screening
licensing
selling the right to use some process, trademark, patent, or other right for a fee or royalty
in theory the product life cycle is bell shaped with regard to sales and profits but in reality each product or service category has its own individual shape; some more more rapidly through their product life cycles than others depending on how different the category is from offerings currently in the market and how valuable it is to the consumer.
shape of the product life cycle
*another method of determined the success potential of a new product *introduces the offering to a limited geographical area prior to national launch *strong indicator of products success because the firm can study actual purchase behavior which is more reliable than a simulated test
test marketing
*uses all the elements of the marketing mix: promotions like advertising and coupons just as if the product were being introduced nationally and appears with appropriate pricigin as well ex: corona refresca *costs more and takes more time than premarket tests which may provide an advantage to competitors that could get a similar or better product to market first.
test marketing
Can provide data for assessment of effectiveness of various mix elements on sales. Beta Test marketing is expensive. Test marketing is fallible and subject to competitive disruption.It's risky as it can provide information to competitors. Use controlled or simulated test marketing (Nielsen)-premarket testing
test marketing
product testing with a sample that can be generalized to the larger target.
test markting
after concept testing and product development its time to
test the market
1. satisfaction of technical requirements such as perfromance 2. customer acceptance 3. its satisfaction of the firms financial requirements such as sales and profits if the product isn't performing well customers wont happy and the firm wont make a profit
the ways firms can measure success of a new product
what do companies do in the maturity stage
try to set themselves apart, add something else. pursue strategies to increase their customer base and or defend their market share
*observability *complexity and trial-ability *compatabiltiy *relative advantage
types of diffusion theory
*own internal research and development, *collaborate with other firms and institutions (R&D consortia) *licensing *brainstorm *outsource *research competitors products and services *conduct consumer research to get customer input
ways to generate ideas
Potential (Worth doing - badly?) Cost Degree of Difficulty Competitive Fit Barriers to Entry Longevity What else?
what screening is based on
when would reverse engineering taske place
when looking to get ideas from competitors products
*changing customer needs *improving business relationships *fashion cycles *managing risk through diversity *market saturation
why firms create new products
