BA370- EXAM 2 CH 12

Licensing

- a method used in developing new products in which a firm buys the rights to use a technology or idea from another firm

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 -occurs in the firm's R&D department

Product Launch:

-if the market testing returns with positive results, the firm is ready to introduce the product to the entire market

True or False: New products must be targeted toward end consumers.

False

What will happen to a firm if it continues to produce the same products in a saturated market?

It will eventually decline

Concept Testing:

- refers to the process in which a concept statement is presented to potential buyers or users to obtain their reactions -an idea with potential is developed further into a concept: refers to a brief written description of the product; its technology, working principles, and forms; and what customer needs it would satisfy -concept might also include visual images of what the product would look like

Laggards

- represent about 16% of the population -like to avoid change and rely on traditional products until they are no longer available -sometimes these consumers never adopt a product or service

Late majority

- the last group of buyers to enter a new product market -represents about 34% of the population -when they do enter the market, the product has achieved its full market potential

Compatibility:

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

Relative Advantage:

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

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 -new versions of familiar titles also can be a powerful means to prompt consumers to purchase

Complexity and Trialability:

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

Idea Generation:

-a firm can use its own internal research and development (R&D) efforts, collaborate with other firms and institutions (R&D consortia), license technology, brainstorm, outsource, research competitor's products and services, and or/conduct consumer research

Test marketing

-a method of determining the success potential of a new product; it introduces the offering to a limited geographical area 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 -costs more and takes longer than premarket tests do

Outsourcing

-a practice in which companies hire an outside firm to help generate ideas and develop new products and services

Evaluation of Results:

-after the product has been launched, 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

Entry into New Markets or Market Segments:

-because a market is saturated, firms may attempt to enter new geographic markets, including internal markets, that may be less saturated

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

product life cycle

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

Development of New Products:

-despite market saturation, firms continually introduce with improved features or find new uses for existing products because they need constant innovation and product proliferation 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

R&D consortia

-groups of other firms and institutions, possibly including government and educational institutions, to explore new ideas or obtain solutions for developing new products -investments come from the group as a whole

The Shape of the Product Life Cycle Curve:

-in theory, the product life cycle curve is bell shaped with regard to sales and profits -in reality, however, 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 the consumer -new products and services that consumers accept very quickly have higher consumer adoption rate very early in their product life cycle and move faster across the various stages

Maturity stage

-industry sales reach their peak, so firms try to rejuvenate their products by adding new features or repositioning them -intense competition for market share among firms -market costs (ex: promotion, distribution) increase as these firms vigorously defend their market share against competitors -in the later phases of the maturity stage, the market has become quite saturated, and practically all potential customers for the product have already adopted the product -peak sales, peak/declining profits, late majority consumers, many competitors

purchasers can be divided into five groups:

-innovators, early adopters, early majority, late majority, and laggards

Customer Input:

-listening to the customer in both B2B and B2C markets is essential for successful idea generation and throughout the product development process -lead users: innovative product users who modify existing products according to their own ideas to suit their specific needs

Strategies Based on Product Life Cycle: Some Caveats:

-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

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: Apple iPod -have the advantage of being first movers -not all pioneers succeed, in many cases, imitators capitalize on the weakness of pioneers and subsequently gain an advantage in the market

Improving Business Relationships:

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

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

Growth stage

-product gains acceptance, demand and sales increase, and more 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 -market becomes more segmented and consumer preferences more varied -sales rising, rapidly rising growth, early adopters/majority consumers, few but increasing competitors

Innovation

-refers to the process by which ideas are transformed into new offerings, including products, services, process, and branding concepts that will help firms grow -without innovation, firms would have only two choices: continue to market current products to current customers or take the same product to another market with similar customers

Early majority

-represents about 34% of the population -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

Competitor's Products:

-reverse engineering: taking apart a competitor's product, analyzing it, and creating an improved product that

Prototype

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

first movers

-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 Not all pioneers succeed, in many cases, imitators capitalize on the weakness of pioneers and subsequently gain an advantage in the market

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 -saturated markets can also offer opportunities for a company that is willing to adopt a new process or mentality

Diffusion of innovation

-the process by which the use of innovation- whether a product, a service, or a process- spreads throughout a market group over time and other various categories of adopters -helps marketers understand the rate at which consumers are likely to adopt a new product or service and identify potential markets for their new products or services

Which of the following is a way by which risk can be diversified?

By creating a broader portfolio of products through innovation

Without innovation, what options would be available to firms? (Choose every correct answer.)

Continue to market current products to current customers, Take current products to new markets

Product development entails a variety of processes and considerations to determine which aspects of a product or service?

Forms and features

Hightower Industries wants to be a pioneering firm in the robotics and artificial intelligence industry. Which strategy is the company most likely to pursue?

Invest heavily in research and development

Which of the following is a market testing method that offers a strong predictor of product success based on actual purchasing behavior?

Test marketing

True or False: If market testing returns with positive results, the firm is then ready to introduce the product to the entire market, which is called a product launch.

True

Adding new products is MOST likely to prompt consumers to purchase in which of the following industries?

Video games

New products and services that consumers accept quickly will have a high ______ rate early in their product life cycles, which will accelerate the diffusion process across the various stages.

adoption

Firms need to continue to innovate because customer needs ______.

are constantly changing

Some markets demand a higher frequency of new product releases than others. In which of the following markets do sales come from new products? (Choose every correct answer.)

books, movies, video games

The process by which the use of an innovation, whether it be a product or service, is spread throughout a market group over time and over various categories of adopters, is known as ______.

diffusion of innovation

One advantage of product innovation is that a firm can expand into different product categories. The point of the risk ______ strategy is that if some products in one category are competing poorly, others in another category could be doing very well.

diversification

Product development (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 feature -Prototype -Alpha testing -Beta testing

_____ is the process by which ideas are transformed into new products and services that will help firms grow.

innovation

During the ______ stage of the product life cycle, the market for the product usually becomes saturated.

maturity

Market Testing:

premarket tests and test marketing

New product and service innovation is important because the longer a product or service exists in a given marketplace, the more likely that the market will become ______.

saturated

What objectives do firms have in adding new products, services, and processes to their offerings? (Choose every correct answer.)

to keep customers from getting bored with existing products, To satisfy the changing needs of consumers

The problem with using the product life cycle concept is that no one can predict the shape that the product's life cycle will take; therefore, it is impossible to know ______.

which stage the product is in

Observability:

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

Early adopters

-the second subgroup of consumers -represents about 13.5% of the population -generally don't like to take as much risk as innovators but instead wait and purchase the product after careful review

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

Decline stage

-when sales decline and the product eventually exists the market -either position themselves for a niche segment of die-hard consumers or those with special needs completely exit the market -sales declining, profits declining, laggard consumers, few/decreasing competitors

Introduction stage

-when the product category fist launches and innovators start buying the product -characterized by initial losses to the firm due to its high startup costs and low levels of sales revenue as the product begins to take off -sales low, negative/low profits, innovator consumers, one or few competitors

Changing Customer Needs:

-when they add products, services, and processes to their offerings, firms can create and deliver value more effectively by satisfying the changing needs of their current and new customers -sometimes companies can identify problems and develop products or services that customers never knew they needed -in other cases, customers enter new stages in their lives that intensify their demand for such innovations

The stages of new product development:

1. idea generation 2. concept testing 3. product development 4. market testing 5. product launch 6. evaluation of results

Internal Research and Development:

-many firms have their own R&D departments in which scientists and engineers work to solve complex problems and develop new ideas -industry uses its common franchise models to support new product development -product development costs for these firms are quite high, but the resulting new product or service is expected to have a good chance of being a technological or market breakthrough -investments normally considered continuous -take an approach called reverse innovation, where they turn to subsidiaries in less developed markets for new product ideas

brainstorming

-sessions during which a group works together to generate ideas -no idea can be immediately accepted or rejected

Innovators

-those buyers who want to be the first on the block to have the new product or service -about 2.5% of the population -enjoy taking risks and are regarded as highly knowledgeable -crucial to the success of any new product or service because they help gain market acceptance

Managing Risk through Diversity:

-through innovation, firms often create a broad 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 intensive competitive activity

Beta testing

-uses potential customers who examine the product prototype in a real-use setting to determine its functionality, performance, potential problems, and other issues specific to its use

Using the Diffusion of Innovation Theory:

-using this 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 -with this knowledge, firms can develop effective promotion, pricing, and other marketing strategies to push acceptance among each customer group