CH. 12: Product Strategy Part 2 (Developing New Products)

Early Adopters

- Generally don't like to take as much risk as innovators, but instead wait and purchase the product after careful review (ME!). - represents around *13.5%* of all buyers in the market - this market awaits for the first reviews of the latest movie before purchasing a ticket, though they likely go a week or two after it opens (still pretty early). - some wait for early critics and reviews on products, but most go ahead and purchase because they tend to enjoy *novelty* (the quality of being new, original), and often are regarded as the *opinion leaders* for particular product categories. - spread word of the product and are crucial for bringing the other three buyer categories to the market. - if the early adopter group is relatively small, the number of people who ultimately adopt the innovation are likely to also be small.

Early Majority

- represents approximately *34%* of the population is crucial because few new products and services can be profitable until this large group buys them. - members don't like to take much risk and therefore tend to wait until bugs are worked out of a particular product or service, few new products and services can be profitable until this large group buys them, if the group- never becomes large enough, the product or service typically fails. - Movie comparison: rents the latest Hunger Games movie during the first week it comes out on video, rather than watching in theaters. - 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 majority enters the market, the number of competitors int he market has also reached its peak, so these buyers have *many price and quality choices*.

Market saturation

- 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 firm will ultimately decline - Ex. if car companies assumed/expected that people would keep their cars until they stopped running, there would be no need to come up with new & innovative models, as they would stick with models that sell well. - these firms sustain their growth by getting consumers excited by the new looks and features (this prompts car buyers to exchange their old vehicle years before its functional life is over). - *saturated markets* also offer opportunities for a company that is wiling to adopt a new process or mentality

What is the most challenging part of using the product life cycle?

- the most challenging part of applying the product life cycle concept is that managers do not know exactly what shape each product's life cycle will take, so there is no way to know precisely what stage a product is in. - The product life cycle becomes a self-fulfilling prophecy and a growth product was doomed to an unnecessary decline. (ex. managers notice that their product is experiencing a large decline in sales, therefore they assume they are in the declining stage and stop working to promote the product, which further decreases sales, this could have been counteracted by establishing new advertising techniques.

Managing risk through diversity

- through *innovation*, firms often create a broader portfolio of products, which helps them diversify their risk and enhance firm value better than a single product can. (some products in a portfolio perform poorly, while others may do well.) - firms with multiple products can better withstand external shocks, including changes in consumer preferences or intensive competitive activity.

Changing customer needs

- when adding new products, services and processes to their offerings, firms can create & deliver value more effectively by satisfying the changing needs of their current/new customers or by keeping customers from getting bored with the current product/service offering. -companies sometimes develop products/services they never realized they needed. -customers enter new stages in their lives that intensify their demand for such innovations

What are the 5 groups of the diffusion of innovation curve?

1) innovators 2) early adopters 3) early majority 4) late majority 5) laggards

What are the 4 stages of the product cycle?

1) introduction stage 2) growth stage 3) maturity stage 4) decline stage

Is the Product Life Cycle Valid?

Due to new research, bases on the history of dozens of consumer products, suggests that the product life cycle is valid and new analytical tools now provide rules for detecting the key turning points in the cycle.

What's the term to describe firms exiting the growth stage?

Industry Shakeout

Laggards

Make up roughly 16% of the market. - like to avoid change and rely on traditional products until they are no longer available. - sometimes they never adopt a certain product or service. - when the sequel to hunger games eventually shows up on their regular television networks, they are likely to watch it.

Why do product imitators of pioneers have an advantage of not being the first movers?

Pioneering products and brands face the uphill task of establishing the market alone, therefore they pave the way for followers who can spend *less* effort creating demand for the product line and focus on directly creating demand for their *specific brand*. - also, because the pioneer is the first product, in the market it often has a less sophisticated design and may be priced relatively high, leaving room for better and lower-priced competitive products.

Complexity & trialability

Products that are relatively *less complex* are also relatively easy to try. - these products will generally diffuse more quickly and lead to greater/faster adoption than those that are not so easy to try. - ex. for cleaning supplies: easier to pick up a new cleaning spray to test at home than a new vacuum cleaner. -to counteract this issue, manufacturers seek ways to help people conduct trials. (ex. Bed, Bath & Beyond often includes floor space that allows shoppers to run the machine to see how well the roller ball works or watch it pick up dirt.

Observability

When products are easily observed, their benefits or uses are easily *communicated* to others, which enhances the diffusion process. - ex. The PNE market place - more personal products (such as cleaning supplies) face a serious challenge in making their personal innovations more widely observable, because few consumers spend a lot of time talking about the products that are of a more personal nature. - even a great product might diffuse more slowly if people feel uncomfortable talking about what they perceive to be involved with their personal care.

Compatibility

a diffusion process may be faster or slower, depending on various consumer features, including international cultural differences. Ex. offering different vacuums to satisfy different consumer needs. - bigger vacuums for American carpeted needs, while offering smaller more compact ones for smaller, Japanese homes.

Entry into New Markets or Segments

because a market is saturated, firms may attempt to enter new geographical markets, including international markets that may be less saturated. - even in mature (saturated) markets, firms may be able to find new market segments (ex. new iphone releases every year)

The product life cycle

defines the stages that new products move through as they enter, get established in, and ultimately leave the marketplace and thereby offers marketers a staring point for their strategy planning. - the stages of the life cycle often reflect marketplace trend, such as the healthy lifestyle trend that today places organic and green product categories in their growth stages. - not every product follows the same life cycle curve. - the 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. - even the strategic emphasis of a firm and its *marketing mix* strategies can be adapted from insights about the characteristics of each stage of the cycle.

Relative Advantage

if a product or service is *perceived* to be *better than substitutes*, then the diffusion will be relatively quick. - seeks to highlight the relative advantage for all other substitutes.

Fashion Cycles

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. - with no new products, there would be no reason for consumers to buy more. - consumers of computer software & video games demand new offers because once they have beaten the game, they want to be challenged by another game or experience the most recent version.

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; also called breakthroughs. * have the advantage of being *first movers* * market pioneers command a greater market share over a long period of time than later entrants. * not all pioneers succeed, *imitators* capitalize on the weakness of pioneers and subsequently gain advantage in the market. (see what needs improvement, build their own product based on that.) ex. Apple Ipod

Improving business relationships

new products do not always target end consumers, sometimes they function to improve relationships with suppliers.

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.

Innovation

refers to the process by which ideas are transformed into new offerings, including products, services, processes, and branding concepts that will help firms grow. - without *innovation* (new products & services) firms would only have *two choices*: 1) continue to market current products to current customers 2) take the same product to another market with similar customers *CON*: innovation strategies may not always work in the short run, some estimates indicate only about 3% of new products succeed, various overriding and long-term reasons compel firms to continue introducing new products and services.

The Diffusion of Innovation Curve

shows the # of users of an innovative product or service spreads through the population over a period of time and generally follows a *bell-shaped curve*. - first a few people buy the product, then more buy, and finally fewer people buy as a degree of the diffusion slows.

Maturity stage

stage of the product life cycle when industry sales reach their peak, so firms try to rejuvenate their products by adding new features or repositioning them - adoption of the product by the late majority and intense competition for market share among firms. - marketing costs increase as these firms vigorously defend their market share against competitors. - face intense competition on price as the average price of the product falls substantially compared with the shifts during the previous two stages of the life cycle. - these lowered prices and increased marketing costs begin to erode the profit margins for many firms. - in the later phases of the maturity stage, the market has become saturated and practically all potential customers for the product have already adopted the product. (ex. in developed countries) - firms pursue various strategies during this stage to increase their customer base and/or defend their market share. - some tactics: entry into *new markets* and *market segments* and developing *new products*

Introduction stage

stage of the product life cycle when innovators start buying the product - starts with a single firm, and innovators are the ones to try the new offering. - some new to the world products and services that defined their own product category and industry include the telephone - sensing the viability (ability to work successfully) and commercialization possibilities of some market-creating new product, other firms soon enter the market with *similar or improved* products at *lower prices* - characterized by initial losses to the firm due to its high start-up costs and low levels of sales revenue as the product begins to take off (if successful, firms begin to see profits at the end of this stage).

The shape of the product life cycle curve

- Generally, bell shaped with regard to sales and profits. - in reality, each product or service category has its own individual shape, some move 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 consumers. ( new products/services that consumers *accept* very quickly have *higher consumer adoption rates* very early in their product life cycles and move faster across the various stages )

Late Majority

- also around 34% of the market - at this point the product has achieved its full market potential. - Movie watchers wait until the newest movie is easy to find at Red Box or put it on low on their Netflix Queue, to be delivered after the consumers interested in watching it have already seen it. - By the time the late majority enters, sales tend to level off or may be in decline.

New

- can mean adding something new to an existing product (such as introducing a new flavor) - or relying on different packaging that provides added value - most exhilarating type of new product is one that has never been offered before - how companies add value to product and service offerings through innovation

Development of New Products

- despite market saturation, firms continually introduce new products with improved features or find new uses for existing products because they need constant innovation and product proliferation (rapid increase in numbers) to defend market share from intense competition. - introduce new products to ensure that they are able to retain or grow their respective market shares.

why is the failure rate for new products so high?

- failure to *assess the market properly* by neglecting to do appropriate *product testing, targeting the wrong segments, 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*.

How can firms use the Diffusion of Innovation Theory?

- firms can predict *which types of customers* will buy their new product or services *immediately* after its introduction as well as *later* as the product is more accepted by the market. - with this knowledge, the firm can develop *effective promotion, pricing, and other marketing strategies* to push acceptance among each customer group.

Why do firms create new products?

- new market offerings provide *value* to both *firms* and *customers* (the degree to which they add value depends on how new the product truly is). - new doesn't necessarily mean never-seen-before products, as these represent only fewer than 10% of all new product introductions each year. - useful to think of the degree of newness or innovativeness on a continuum from truly new-to-the-world to slightly repositioned (regardless of where on the continuum a new product lies, firms have to *innovate*) 1) changing customer needs 2) market saturation 3) managing risk through diversity 4) fashion cycles 5) improving business relationships

Diffusion of innovation

new-to-the-world products are not adopted by everyone at the same time, rather they diffuse or spread through a population in a process known as *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. - this theory of diffusion of innovation helps marketers understand the rate at which consumers are likely to adopt a new product or service. - also gives marketers a means to identify potential markets for their new products or services and predict their potential sales, even before they introduce the innovations

Decline stage

stage of the product life cycle when sales decline and the product eventually exits the market. - firms in this stage either position themselves for a niche segment of diehard consumers or those with special needs or they completely exit the market. - the laggards who have not tried the product or service begin to enter the market at this stage. (ex. record players)

Growth stage

stage of the product life cycle when the product gains acceptance, demand and sales increase, and competitors emerge in the product category. - growing number of product adopters, rapid growth in industry sales, and increases in both the number of competitors and the number of available product versions. - during this stage, firms attempt to reach new consumers by studying their preferences and producing different product variations - varies colours, styles, or features - which enable them to segment the market more precisely. - goal of this segmentation is to ride the rising sales trend and firmly establish the firm's brand - profits rise because of the economies of scale associated with manufacturing and marketing costs, especially promotion and advertising. - not yet established a stronghold in the market, even in narrow segments, may decide to *exit* in what is referred to as an *industry shakeout*

Innovators

those buyers who want to be the first on the block to have the new product or service. - represent only about *2.5%* of the total market for any *new product or service* Characteristics: - enjoy taking risks and are regarded as highly knowledgeable. Ex. the person who stood in line overnight to be sure to get a ticket for the very first showing of the latest superhero movie are an innovator of that context. - firms that invest in the latest technology either to use in their products or services or to make the firm more efficient are also considered innovators. - keep themselves very well informed about the product category by subscribing to *trade and specialty magazines, talking to other experts, visiting product-specific blogs and forms, and attending product related forums, seminars, and special events.* - crucial to the success of any new product or service, because they help the product gain *market acceptance* Through talking about and spreading positive word of mouth about the new product, they prove instrumental in bringing in the next adopter category, known as the *early adopters*