Ch.12

Steps in developing new products?

1. Idea generation 2. Concept testing 3. Product development 4. Market testing 5. Product launch 6. Evaluation of Results

1. Relative Advantage

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

Strategies Based on Product Life Cycle: Some Caveats

Managers do not know exactly what shape each product's life cycle will take so it is challenging to know precisely the stage of the Product Life Cycle

4. Market Testing

Now it must test the market for the new product with a trial batch of products.

Decline components

Sales: declining sales Profits: declining profits Typical Consumers: Laggards Competitors: low competitors

2. Concept Testing

Testing the new product idea among a set of potential customers

Introduction stage (takes the longest, smallest profit)

The introduction stage for a new, innovative product or service usually starts with a single firm, and innovators are the ones to try the new offering

Premarket tests

are conducted 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

Trade Promotions

are promotions to wholesalers or retailers to get them to purchase the new products, often combine introductory price promotions, special events, and personal selling

Pioneers have the advantage of being ______

first movers

Firms with ______ products can better withstand ______ shocks, including changes in consumer preferences or intensive competitive activity

multiple; external

Because concept testing occurs very early in the new product introduction process, even before a real product has been made, it helps the firm avoid __________

the costs of unnecessary product development.

The Shape of the Product Life Cycle Curve

Bell shaped, but, in theory, can take many shapes

In order to generate ideas for new products, a firm can use......

Brainstorming Outsourcing Licensing Competitor's products Customer input Internal Research and Development

a. Changing Customer Needs: firms can create and deliver value more effectively by ....

satisfying the changing needs of their current and new customers or by keeping customers from getting bored with the current product or service offering

What does a product launch involve?

- First, on the basis of the research it has gathered on consumer perceptions, the tests it has conducted, and competitive considerations, the firm confirms its TARGET MARKET (or markets) and decides how the product will be POSITIONED - Then the firm finalizes the remaining marketing mix variables for the new product, including the marketing budget for the first year

Why is the failure rate for new products so high?

- 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

Stage 4. Late Majority

- the next group of buyers to enter a new product market. When they do, the product has achieved its full market potential - By the time the late majority enters the market, sales tend to level off or may be in decline.

Stage 3. Early majority

- this stage is crucial because 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 - Its members don't like to take as much risk and therefore tend to wait until the bugs are worked out of a particular product or service.

Without innovation and its resulting new products and services, firms would have only two choices:

1. continue to market current products to current customers or 2. take the same product to another market with similar customers

What factors enhance the diffusion of a good or service?

1. relative advantage 2. compatibility 3. observability 4. complexity and trialability

2. Compatibility

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

3. Product Development

Development of prototypes and/or the product.

1. Idea Generation

Development of viable new product ideas

Decline stage

Firms with products in the decline stage either position themselves for a niche segment of diehard consumers or those with special needs or they completely exit the market. The few laggards who have not yet tried the product or service enter the market at this stage.

5. Evaluation of Results

For those products that do move on, firms can measure the success of a new product by three interrelated factors: - satisfaction of technical requirements - customer acceptance - satisfaction of the firm's financial requirements

5. Product Launch

Full-scale commercialization of the product

d. 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.

e. Improving Business Relationships

New products do not always target end consumers; sometimes they function to improve relationships with suppliers

4. 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/faster adoption than those that are not so easy to try

New product marketing ix

Promotion Price Place Timing

3 Components of Product Development

Prototype Alpha testing Beta testing

b. Market Saturation

The longer a product exists in the marketplace, the more likely it is that the market will become saturated.

Another outlet for exposing buyers to new products is a trade show:

a temporary concentration of manufacturers that provides retailers the opportunity to view what is available and new in the marketplace

WHY DO FIRMS CREATE NEW PRODUCTS?

a. Changing Customer Needs b. Market Saturation c. Managing Risk Through Diversity d. Fashion Cycles e. Improving Business Relationships

Saturated markets can also offer opportunities for a company that is willing to _______

adopt a new process or mentality

Product prototypes are usually tested through ____________ testing

alpha and beta

Ideas with potential are developed further into ______, which refer to _________ of the product; its technology, working principles, and forms; and what customer needs it would satisfy

concepts; brief written descriptions

Test marketing _______________ than premarket tests, which may provide an advantage to competitors that could get a similar or better product to market first without test marketing.

costs more and takes longer

Sometimes companies can identify problems and develop products or services that ______

customers never knew they needed

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.

This most critical step in the new product introduction requires tremendous _______ and extensive coordination of all aspects of the _______.

financial resources; marketing mix

Also during the growth stage.....

firms attempt to reach new consumers by studying their preferences and producing different product variations—varied colors, styles, or features—which enable them to segment the market more precisely.

Using the Diffusion of Innovation Theory

firms can predict which types of customers will buy their new product or service immediately after its introduction as well as later as the product is more and more accepted by the market.

Because pioneering products and brands face the uphill task of establishing the market alone, they pave the way for _____, who can spend less marketing effort creating demand for the product line and focus directly on creating demand for their specific _____

followers; brand

The diffusion of innovation theory thus comes into play in the ____________ of a new product or service introduction.

immediate and long-term aftermath

Test Marketing

introduces the offering to a limited geographical area (usually a few cities) prior to a national launch

Reverse Engineering

involves taking apart a product, analyzing it, and creating an improved product that does not infringe on the competitor's patents, if any exist.

Also, because the pioneer is the first product in the market, it often has a ________ and may be priced ________, leaving room for better and lower-priced competitive products

less sophisticated design; relatively higeher

Studies also have found that market pioneers can command a greater _________than later entrants can

market share over a longer time period

concept testing triggers the...

marketing research process

Pioneers or "Breakthroughs"

new product introductions that establish a completely new market and/or radically change competition and consumer preferences in a market

If the product is not performing sufficiently well then......

poor customer acceptance will result, which in turn leads to poor financial performance

It also gives them a means to identify _____ for their new products or services and predict their______, even before they introduce the innovations

potential markets; potential sales

These tests can take two forms:

premarket testing and test marketing

_____ for new products is required at each link in the supply chain.

promotion

With this knowledge, the firm can develop effective _________________ to push acceptance among each customer group.

promotion, pricing, and other marketing strategies

An engineering team develops a product _____ that is based on research findings from the previous concept testing step as well as their own knowledge about materials and technology

prototype

These _____ enable the developer to estimate the sales value of the product or service concept, possibly make changes to enhance its sales value, and determine whether the idea is worth ________

reactions from potential customers; further development

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.

Introductory Price Promotions

short term price discounts designed to encourage trial

The diffusion of innovation curve

shows the number of users of an innovative product or service spreads through the population over a period of time and generally follows a bell-shaped curve (a few people buy the product or service at first, then more buy, and finally fewer people buy as the degree of the diffusion slows; 5 stages)

Test marketing is a strong predictor of product success because ......

the firm can study actual purchase behavior, which is more reliable than a simulated test

Prototype

the first physical form or service description of a new product, still in rough or tentative form, which has the same properties as a new product but is produced through different manufacturing processes—sometimes even crafted individually

The theory surrounding diffusion of innovation helps marketers understand ______ at which consumers are likely to _____ a new product or service

the rate; adopt

Stage 1. Innovators

those buyers who want to be the first on the block to have the new product or service; enjoy taking risks and are regarded as highly knowledgeable.

Without new products or services, the value of the firm will ______

ultimately decline

Beta testing

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

Stages of the Product Life Cyle

when the product category first launches, its products initiate the 1. introduction stage. In the 2.growth stage, the product gains acceptance, demand and sales increase, and more competitors emerge in the product category. In the 3. maturity stage, industry sales reach their peak, so firms try to rejuvenate their products by adding new features or repositioning them. If these efforts succeed, the product achieves new life. If not, it goes into 4. decline and eventually exits the market

Customer Input

- as much as 85% of new business to business products come from customers - lead users modify existing products according to their own specific needs

In premarket tests...

- customers are exposed - customers surveyed - firm makes decision

Product Life Cycle

- defines the stages that products move through as they enter, get established in, and ultimately leave the marketplace - offers marketers a starting point for their strategy planning

Stage 2. Early Adopters

- generally don't like to take as much risk as innovators do but instead wait and purchase the product after careful review - but, most of them go ahead and purchase because early adopters tend to enjoy novelty and often are regarded as the opinion leaders for particular product categories

Growth Stage

- 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 - the market becomes more segmented and consumer preferences more varied, which increases the potential for new markets or new uses of the product or service

In Test marketing...

- mini product launch - more expensive than premarket tests - market demand is estimated

Maturity Stage

- the 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

Alpha testing

- 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 consumers, alpha tests occur in the firm's R&D department

Introduction components

Sales: low sales Profits: low profits Typical Consumers: innovators Competitors: one or few competitors

Maturity components

Sales: peaking sales Profits: peaking to declining profits Typical Consumers: late majority Competitors: high number of competitors

Growth componenents

Sales: rising sales Profits: rapidly rising profits Typical Consumers: early adopters and early majority Competitors: few but increasing competitors

Diffusion of Innovation

The process by which the use of an innovation—whether a product, a service, or a process—spreads throughout a market group, over time and across various categories of adopters

Stage 5. Laggards

These consumers like to avoid change and rely on traditional products until they are no longer available. In some cases, laggards may never adopt a certain product or service.

c. 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

3. Observability

When products are easily observed, their benefits or uses are easily communicated to others, which enhances the diffusion process

First movers

product pioneers that are the first to create the market or product category, they become readily recognizable to consumers and thus establish a commanding and early market share lead