Chapter 12: Developing New Products

concepts

Brief written descriptions of a product or service; its technology, working principles, and forms; and what customer needs it would satisfy.

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 starting point for their strategy planning.

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.

early adopters

The second group of consumers in the diffusion of innovation model, after innovators, to use a product or service innovation; generally don't like to take as much risk as innovators but instead wait and purchase the product after careful review.

What are the steps in the new product development process?

First, they generate new ideas for the product or service. Second, firms test their concepts by either describing the idea of the new product or service to potential customers or showing them images of what the product would look like. Third, the design process entails determining what the product or service will actually include and provide. Fourth, firms test market their designs. Fifth, if everything goes well in the test market, the product is launched. Sixth, firms must evaluate the new product or service to determine its success.

late majority

The last group of buyers to enter anew product market; when they do, the product has achieved its full market potential.

manufacturer's suggested retail price (MSRP)

The price that manufacturers suggest retailers use to sell their merchandise.

Innovation

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

concept testing

The process in which a concept statement that describes a product or a service is presented to potential buyers or users to obtain their reactions.

early majority

A group of consumers in the diffusion of innovation model that represents approximately 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.

trade promotions

Advertising to wholesalers or retailers to get them to purchase new products, often through special pricing incentives.

alpha testing

An attempt by the firm to determine whether a product will perform according to its design and whether it satisfies the need for which it was intended; occurs in the firm's research and development (R&D) department.

What are the reasons firms innovate?

Changing customer needs, market saturation, managing risk through diversity, and fashion cycles.

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.

laggards

Consumers who like to avoid change and rely on traditional products until they are no longer available.

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 features.

slotting allowance

Fees firms pay to retailers simply to get new products into stores or to gain more or better shelf space for their products.

Identify the reasons firms create new products.

Firms need to innovate to respond to changing customer needs, prevent declines in sales from market saturation, diversify their risk, and respond to short product life cycles, especially in industries such as fashion, apparel, arts, books, and software markets, where most sales come form new products. Finally, innovations can help firms improve their business relationships with suppliers.

beta testing

Having potential consumers examine a product prototype in a real-use setting to determine its functionality, performance, potential problems, and other issues specific to its use.

product development process

Idea generation--->Concept testing--->Product development--->Market testing--->Product launch--->Evaluation of results.

lead users

Innovative product users who modify existing products according to their own ideas to suit their specific needs.

What are the five groups on the diffusion of innovation curve?

Innovators, early adopters, early majority, late majority, and laggards.

Identify different sources of new product ideas.

Internal R&D, collaborate with other firms and institutions, license technology from research-intensive firms, brainstorm, research competitor's products and services, and/or conduct consumer research.

test marketing

Introduces a new product or service to a limited geographical area (usually a few cities) prior to a national launch.

What are the stages in the product life cycle?

Introduction, growth, maturity, and decline.

reverse engineering

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

trade show

Major events attended by buyers who choose to be exposed to products and services offered by potential suppliers in an industry.

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.

how do sales and profits change during the various stages?

Profits and sales grow until maturity and then begin to decline.

What factors enhance the diffusion of a good or service?

Relative advantage, compatibility, complexity, and trialability.

introductory price promotions

Short-term price discounts designed to encourage trial.

maturity stage

Stage of product life cycle when industry sales reach their peak, so firms try to rejuvenate their products by adding new features or repositioning them.

introduction stage

Stage of the product life cycle when innovators start buying the product.

decline

Stage of the product life cycle when sales decline and the product eventually exits the market.

growth stage

Stage of the product life cycle when the product gains acceptance, demand and sales increase and competitors emerge in the product category.

Describe the different groups of adopters articulated by the diffusion of innovation theory.

The diffusion of innovation theory can help firms predict which types of customers will buy their products or services immediately upon introduction as well as later as they gain more acceptance in the market. Innovators are those buyers who want to be the first to have the new product or service. Early adopters do not take as much risk as innovators but instead wait and purchase the product after careful review. The members of the early majority really don't like to take risk and therefore tend to wait until the bugs have been worked out of a particular product or service. The late majority are buyers who purchase the product after it has achieved its full market potential. Finally, laggards like to avoid change and rely on traditional products until they are no longer available. Laggards may never adopt a certain product or service.

prototype

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

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.

Explain the product life cycle.

The product life cycle helps firms make marketing mix decisions on the basis of the product's stage in its life cycle. In the introduction stage, companies attempt to gain a strong foothold in the market quickly by appealing to innovators. During the growth stage, the objective is to establish the brand firmly. When the product reaches the maturity stage, firms compete intensely for market share, and many potential customers already own the product or use the service. Eventually, most products enter the decline phase, during which firms withdraw marketing support and eventually phase out the product. Knowing where a product or service is in its life cycle helps managers determine its specific strategy at any given point in time.

innovators

Those buyers who want to be the first to have the new product or service.

Describe the various stages involved in developing a new product or service.

When firms develop new products, they go through several steps. First, they generate ideas for the product or service, using several alternative techniques, such as internal R&D, R&D consortia, licensing, brainstorming, tracking competitors' products or services, or working with customers. Second, firms test their concepts by either describing the idea of the new product or service to potential customers or showing them images of what the product would look like. Third, the design process entails determining what the product or service will actually include and provide. Fourth, firms test market their designs. Fifth, if everything goes well in the test market, the product is launched. Sixth, firms must evaluate the new product or service to determine its success.