CH 11 - DEVELOPING AND MANAGING PRODUCTS

improvements or revisions of existing products

-"new and improved" - product may be significantly or only slightly changed ex: Miller Coors changed their bottle that features a better grip

Booz Allen Hamilton, a management consulting firm, concluded that the companies most likely to succeed in developing and introducing new products are those that take the following actions:

-Make the long-term commitment needed to support innovation and new-product development. -Use a company-specific approach, driven by corporate objectives and strategies, with a well-defined new-product strategy at its core. -Capitalize on experience to achieve and maintain competitive advantage. -Establish an environment—a management style, organizational structure, and degree of top management support—conducive to achieving company-specific new-product and corporate objectives.

new-to-the-world products

-These products create an entirely new market. -represent the smallest category of new products.

new product lines

-These products, which the firm has not previously offered, allow it to enter an established market. ex: Moleskin started off with just black journals. Later, has lines with pens and travel bags.

lower-priced products

-refers to products that provide performance similar to competing brands at a lower price ex: The HP LaserJet Color MFP is a scanner, copier, printer, and fax machine combined. This new product is priced lower than many conventional color copiers and much lower than the combined price of the four items purchased separately.

New products are important to

-sustain growth -increase revenues and profits -replace obsolete items

New-Product Development process

1) New-product strategy 2) Idea generation 3) Idea Screening 4) business analysis 5) development 6) test marketing 7) commercialization 8) new product

Key Concept: Discuss global issues in new-product development

A marketer with global vision seeks to develop products that can easily be adapted to suit local needs. The goal is not simply to develop a standard product that can be sold worldwide. Smart global marketers also look for good product ideas worldwide.

other experts

A technique that is being used increasingly to generate new product ideas is called "crowdsourcing." General information regarding ideas being sought is provided to a wide range of potential sources such as industry experts, independent researchers, and academics. These experts then develop ideas for the company.

distributors

A well-trained sales force routinely asks distributors about needs that are not being met. Because they are closer to end users, distributors are often more aware of customer needs than are manufacturers

idea screening

After new ideas have been generated, they pass through the first filter in the product development process

Key Concept: Explain the concept of product life cycles.

All brands and product categories undergo a life cycle with four stages: introduction, growth, maturity, and decline. The rate at which products move through these stages varies dramatically. Marketing managers use the product life cycle concept as an analytical tool to forecast a product's future and devise effective marketing strategies.

early adopters

Although early adopters are not the very first, they do adopt early in the product's life cycle. Compared to innovators, they rely much more on group norms and values. They are also more oriented to the local community, in contrast to the innovators' worldly outlook. Early adopters are more likely than innovators to be opinion leaders because of their closer affiliation with groups. Early adopters are a new product's best friends. Because viral, buzz, and word-of-mouth advertising is on the rise, marketers focus a lot of attention identifying the group that begins the viral marketing chain—the influencers. Part of the challenge is that this group of customers is distinguished not by demographics but by behavior. Influencers come from all age, gender, and income groups, and they do not use media any differently than other users who are considered followers. The characteristic influencers share is their desire to talk to others about their experiences with goods and services. A desire to earn the respect of others is a dominant characteristic among early adopters.

Key Concept: Understand why some products succeed and others fail.

Despite the amount of time and money spent on developing and testing new products, a large proportion of new-product introductions fail. Products fail for a number of reasons. Failure can be a matter of degree—absolute failure occurs when a company cannot recoup its development, marketing, and production costs, while relative product failure occurs when the product returns a profit but fails to achieve sales, profit, or market share goals.

Key Concept: Explain the steps in the new-product development process

First, a firm forms a new-product strategy by outlining the characteristics and roles of future products. Then new-product ideas are generated by customers, employees, distributors, competitors, vendors, and internal research and development personnel. Once a product idea has survived initial screening by an appointed screening group, it undergoes business analysis to determine its potential profitability. If a product concept seems viable, it progresses into the development phase, in which the technical and economic feasibility of the manufacturing process is evaluated. The development phase also includes laboratory and use testing of a product for performance and safety. Following initial testing and refinement, most products are introduced in a test market to evaluate consumer response and marketing strategies. Finally, test market successes are propelled into full commercialization. The commercialization process involves starting up production, building inventories, shipping to distributors, training a sales force, announcing the product to the trade, and advertising to consumers.

product characteristcs

Five product characteristics can be used to predict and explain the rate of acceptance and diffusion of a new product: complexity compatibility relative advantage observability trialability

innovators

Innovators are eager to try new ideas and products, almost as an obsession. In addition to having higher incomes, they are more worldly and more active outside their community than noninnovators. They rely less on group norms and are more self-confident. Because they are well educated, they are more likely to get their information from scientific sources and experts. Innovators are characterized as being venturesome.

laggards

Like innovators, laggards do not rely on group norms. Their independence is rooted in their ties to tradition. Thus, the past heavily influences their decisions. By the time laggards adopt an innovation, it has probably been outmoded and replaced by something else. -They tend to be suspicious of new products and alienated from a rapidly advancing society.

alternatives to test marketing

Many firms are looking for cheaper, faster, safer alternatives to traditional test marketing. In the early 1980s, Information Resources Inc. pioneered one alternative: scanner-based research -Advertising and other promotional materials for several products, including the test product, are shown to members of the product's target market. These people are then taken to shop at a mock or real store, where their purchases are recorded

Key Concept: Explain the importance of developing new products and describe the six categories of new products

New products are important to sustain growth and profits and to replace obsolete items. New products can be classified as new-to-the-world products (discontinuous innovations), new product lines, additions to existing product lines, improvements or revisions of existing products, repositioned products, or lower-priced products. To sustain or increase profits, a firm must innovate.

idea generation

New-product ideas come from many sources, including customers, employees, distributors, competitors, research and development (R&D), consultants, and other experts

consultants

Outside consultants are always available to examine a business and recommend product ideas

employees

Sometimes employees know a company's products and processes better than anyone else

the high costs of test marketing

Test marketing frequently takes one year or longer, and costs can exceed $1 million. Some products remain in test markets even longer -The high cost of test marketing is not just financial. One unavoidable problem is that test marketing exposes the new product and its marketing mix to competitors before its introduction. Thus, the element of surprise is lost.

Key Concept: Explain the diffusion process through which new products are adopted

The diffusion process is the spread of a new product from its producer to ultimate adopters. Adopters in the diffusion process belong to five categories: innovators, early adopters, the early majority, the late majority, and laggards. Product characteristics that affect the rate of adoption include product complexity, compatibility with existing social values, relative advantage over existing substitutes, visibility, and "trialability." The diffusion process is facilitated by word- of-mouth communication and communication from marketers to consumers.

early majority

The early majority weighs the pros and cons before adopting a new product. They are likely to collect more information and evaluate more brands than early adopters, thereby extending the adoption process. They rely on the group for information but are unlikely to be opinion leaders themselves. Instead, they tend to be opinion leaders' friends and neighbors. Consumers trust positive word-of-mouth reviews from friends, family, and peers.

late majority

The late majority adopts a new product because most of their friends have already adopted it. Because they also rely on group norms, their adoption stems from pressure to conform. This group tends to be older and below average in income and education. They depend mainly on word-of-mouth communication rather than on the mass media. The dominant characteristic of the late majority is skepticism.

customers

The marketing concept suggests that customers' wants and needs should be the springboard for developing new products

implications for marketing management

The new-product development process, the diffusion process, and the PLC concept all have implications for marketing managers.

additions to existing product lines

This category includes new products that supplement a firm's established line. ex: Taco Bell, added Doritos to tacos

marketing implications of the adoption process

Two types of communication aid the diffusion process: word-of-mouth communication among consumers and communication from marketers to consumers.

common questions in the business analysis stage

What is the likely demand for the product? What impact would the new product probably have on total sales, profits, market share, and return on investment? How would the introduction of the product affect existing products? Would the new product cannibalize existing products? Would current customers benefit from the product? Would the product enhance the image of the company's overall product mix? Would the new product affect current employees in any way? Would it lead to increasing or reducing the size of the workforce? What new facilities, if any, would be needed? How might competitors respond? What is the risk of failure? Is the company willing to take the risk?

product life cycle (PLC)

a concept provides a way to trace the stages of a product acceptance, from its introduction (birth) to it decline (death)

decline stage

a long-run drop in sales

product development

a marketing strategy that entails the creation of marketable new products; the process of converting applications for new technologies into marketable products

maturity stage

a period during which sales increase at a decreasing rate

New- Product Strategy

a plan that links the new-product development process with the objectives of the marketing department, the business unit, and the corporation -provides general guidelines for generating, screening, and evaluating new-product ideas -describes the characteristics of products the organization wants to offer and the markets it wants to serve

new product

a product new to the world, the market, the producer, the seller, or some combination of these

innovation

a product perceived as new by a potential adopter

simultaneous product development

a team-oriented approach to new-product development

test marketing

a team-oriented approach to new-product development

concept test

a test to evaluate a new-product idea, usually before any prototype has been created

business analysis

a test to evaluate a new-product idea, usually before any prototype has been created -where preliminary figures for demand, cost, sales, and profitability are calculated

discontinuous innovations

aka new-to-the-world products

product category

all brands that satisfy a particular type of need

research and development

basic research, applied research, product development, product

repositioned products

existing products targeted at new markets or market segments, or ones repositioned to change the current market's perception of the product or company, which may be done to boost declining sales ex: Ford Mustang used to target baby boomers. Now targeting youth.

four stages of the product life cycle

introduction, growth, maturity, and decline.

competitors

one purpose of competitive monitoring is to determine which, if any, of the competitors' products should be copied.

The average fast moving consumer goods company introduces

seventy to eighty new products per year

commercialization

the decision to market a product

complexity

the degree of difficulty involved in understanding and using a new product. The more complex the product, the slower is its diffusion.

trialability

the degree to which a product can be tried on a limited basis. It is much easier to try a new toothpaste or breakfast cereal, for example, than a new personal computer.

relative advantage

the degree to which a product is perceived as superior to existing substitutes. Because it can store and play back thousands of songs, the iPod and its many variants have a clear relative advantage over the portable CD player.

observability

the degree to which the benefits or other results of using the product can be observed by others and communicated to target customers. For instance, fashion items and automobiles are highly visible and more observable than personal-care items.

compatibility

the degree to which the new product is consistent with existing values and product knowledge, past experiences, and current needs. Incompatible products diffuse more slowly than compatible products.

screening

the first filter in the product development process, which eliminates ideas that are inconsistent with the organization's new-product strategy or are obviously inappropriate for some other reason

introductory stage

the full-scale launch of a new product into the marketplace - A high failure rate, little competition, frequent product modification, and limited distribution typify the introductory stage of the PLC.

simulated (laboratory) market testing

the presentation of advertising and other promotional materials for several products, including a test product, to members of the product's target market

diffusion

the process by which the adoption of an innovation spreads

brainstorming

the process of getting a group to think of unlimited ways to vary a product or solve a problem

growth stage

the second stage of the product life cycle when sales typically grow at an increasing rate, many competitors enter the market, large companies may start to acquire small pioneering firms, and profits are healthy -sales typically grow at an increasing rate, many competitors enter the market, and large companies may start to acquire small pioneering firms. Profits rise rapidly in the growth stage, reach their peak, and begin declining as competition intensifies

development

the stage in the product development process in which a prototype is developed and a marketing strategy is outlined