GS MKT 306 CH 6 Product Development

Firms that want to maintain or improve their competitive position in the marketplace generally must develop new products.

Failure to do so carries tremendous risk; that risk is greatest for companies that develop products that quickly become obsolete. Any product, for example, that is on the "cutting edge" of technology, such as phone apps or computer games can rapidly become obsolete as new technology products enter the market.

4 of 5 New-product characteristics : Complexity

Typically, the easier it is to understand and use a product, the faster it will diffuse. If the market finds a new product too difficult to use, as happened with the first videocassette recording (VCR) devices, sales often will not increase until the product is simplified. The effect of complexity may differ between regions of the world. In industrialized societies, consumers are exposed to and use more technologically complex products

6 of 7 new-product development (NPD) process. Test Marketing A product that makes it past the product development stage is ready to be tested more fully with potential customers.

involves introducing a new product in its final form to a geographically limited market to see how well the product sells and to get reactions from potential users. The product or service being tested at this stage may be different from the prototype in the earlier stage. The company selects test markets based on how well they mirror the overall target market in terms of demographics, income levels, and lifestyles. The selection of test markets is critical to ensuring that the results of the test will be representative of the sales the company can expect. Some cities are regularly selected for test sites because they reflect the demographics of the nation as a whole. These include Albany, Syracuse, and Rochester, New York; Greensboro and Charlotte, North Carolina; Birmingham, Alabama; Nashville, Tennessee; and Eugene, Oregon.

Customer adoption of new products also follows a process. The consumer-adoption process is the process by which customers formally accept and purchase products. It includes the following five stages.

1. Awareness 2. Interest 3. Evaluation. 4. Trial 5. Adoption

Categories of adopters aren't the only thing that affects the diffusion of a new product. New-product characteristics, including the following, also affect the adoption rate.

1. Competitive advantage 2. Compatibility 3. Observability 4. Complexity 5 .Trialability

4 of 7 new-product development (NPD) process. Business Analysis (continued) To determine profitability, a company must undertake a business analysis, which includes:

1. Estimating costs. Firms must estimate all costs related to the product. To limit costs, firms often try to achieve economies of scale, which allow them to spread the cost of production across a large number of goods, thereby reducing the average cost of each. In our global economy, many companies find offshore companies that will produce a good or perform a service for less than domestic suppliers. An offshore organization is one that is located or based in a foreign country. 2. Identifying at what price the product will likely be sold. Setting the price involves both marketing research and the cost estimates mentioned previously. If customers won't pay a price high enough to cover the cost of developing the product, the company will not make any money and may abandon the idea. 3. Estimating demand for the product. This is the trickiest part. If the product is similar to ones the company or other companies have marketed already, the company can use an established sales baseline to estimate the sales forecast. For new-to-the-market products, firms research a number of factors to gauge potential opportunities for, or threats to, future sales of the product: the potential size of the market; what customers are willing to pay; market trends; and economic indicators.

Types of Adopters

1. Innovators 2. Early Adopters 3. Early Majority 4. Late Majority 5. Laggards

Reducing Risks in New-Product Development Companies can reduce the risk of new-product failures by doing the following: Firms that take steps to reduce risk in new-product development, particularly by analyzing and learning from mistakes, are well positioned to see their new products adopted by consumers.

1. Listening to the customer carefully. Customer needs and wants drive purchasing behavior. 2. Making a commitment to the NPD process. Every stage of the NPD process must be followed for the process to work correctly. 3. Understanding current market trends and anticipating changes in the market. Gathering data requires a commitment to both marketing and technical research. A firm must stay on top of changing economic, demographic, cultural, and technological conditions so it can anticipate market demand over time. 4. Asking the right questions. Some questions a firm should ask include: What is the expected demand for the good or service over time? How much will it cost to produce and distribute the good or service at varying levels of demand? 5. Being willing to fail on occasion. Companies that develop new products sometimes will fail. However, firms must learn from past failures. Learning should come not only from products that failed after launch but also from those that failed during the NPD process.

Stages of the Product Life Cycle The five stages of the PLC and shows the general trends of sales and profits during the life of a product. In general:

1. new-product development stage, 2. introduction stage 3. growth stage 4. maturity 5. decline stage

4 of 5 Types of Adopters : Late Majority The late majority also comprises about 34 percent of adopters. rely on others for information, buying a good or service because others have already done so. They tend to be cautious about new things and ideas. They often are older than members of the previous three categories and may not act on a new product without peer pressure.

Adopters in the late majority often rely on others for information, buying a good or service because their friends have already done so. Members of this group tend to be below average in income and education. When the late majority purchases a product, the product has typically achieved all it can from a market in terms of profitability and growth.

4. A new product is : Revamped Products which has new packaging, different features, and updated designs and functions. If you have seen a label claiming a product is new and improved, it falls within this category. Legally, according to the Federal Trade Commission (FTC), a company can label a product new only if the product has been changed in a "functionally significant or substantial respect."

Also, the company can advertise a product as new and improved for only six months after it hits store shelves. Reformulations of current products are a common type of revamped product. Because firms base revamped products on existing brands, the new products carry much less risk than new-to-the-market products or new-category entries. In addition to leveraging brand recognition and customer loyalty to existing products, firms can advertise the revamped products along with existing ones and capitalize on the network that already exists to sell the products.

Sometimes companies get into trouble by diluting their markets with too many products. Unilever, for example, was forced to reduce the number of its products by 30 percent. Many of these products were introduced to sell as special offers in particular countries and, over time, proved no longer profitable.

Another issue is that although consumers like choice, having too much choice can hurt sales, because consumers often rebel against having too many options from which to choose.

1 of 7 new-product development (NPD) process. New-Product Strategy Development (continued)

As with goods, the strategy for developing a new service should be tied to overall marketing plans. It should also identify the type of service the company plans to develop as well as the specific target markets to be served. A new-product strategy also should consider the potential benefits and risks of bringing new products into international markets. Some new products are standardized for global distribution. Others are individualized for specific markets.

Mass production

Books, for example, used to be copied by hand, greatly limiting the number of copies available to prospective readers. Around 1439, Johannes Gutenberg was the first European to use movable-type printing, which allowed books to be mass-produced. With few exceptions, most modern products can be mass-produced. Mass production makes products available to many more customers as well as more affordable.

However, NPD comes with its own sets of risks. Table 6.2 identifies some of these risks, their level of severity, and possible outcomes to firms.

Companies need to understand both the types and severity of risks and how to mitigate those risks in order to succeed in introducing new products to the marketplace. Very high risk: Changes to recipes are very risky because taste matters a great deal in food and drink products. High risk: a significant change to its structure is high risk if the market concludes that it is not as durable as previous pickups. Moderate risk: a new type of machine to make sodas. The risk will be Coca-Cola's investment to build the machines. Will consumers decide that the ability to make Coca-Cola at home warrants the cost of the machine and the pods necessary to make the soda?

International Product-Adoption Considerations Cultural and societal issues also come into play with product adoption. At the international level, several factors can affect the adoption of a product or service.

Cosmopolitanism, the extent to which a country is connected to other cultures, can play a part in adoption. The more cosmopolitan a country, the more potential customers are exposed to the adoption of a new product or service elsewhere in the world, and the easier it is for the product to be adopted. Modernity refers to the extent to which a culture values "progress." For example, in the U.S., the claim of "new and improved" can be considered a selling point for many consumers. In more traditional countries, the potential for disruption to the culture can cause new products to be seen as undesirable. Homiphily, the extent to which consumers in a society are relatively similar to each other, can help the adoption of a new product or service if it fits well with the society's culture. People who are similar usually have many of the same needs, likes and dislikes, social taboos, and culturally acceptable ways to act. This similarity can help a new product or service be adopted more readily. Physical distance can hurt the adoption of new products and services. If consumers are not in close proximity to each other, they are less likely to interact with other users of a product. The result is less observability and trialability available, and so the adoption rate is slower.

A company's core competencies and strengths influence its strategy toward developing new products.

Design-led companies, which tend to have strong research and development (R&D) departments, will focus on developing new-to-the-market products to beat the competition. Firms that have a strong brand and company image can take advantage of existing products to extend or revamp their current product lines with similar but differentiated attributes.

Strategic Implications for the Marketing Mix : Place (distribution strategies)

Distribution is generally limited in the introductory phase. Distribution channels increase during the growth stage and become extensive in the maturity stage. As the product loses profitability, the number of distribution channels contracts.

3 of 5 Stages of the Product Life Cycle : growth stage brings a spike in sales and profits as consumers recognize the product's ability to satisfy their needs and wants. If the product satisfies the market, repeat purchases help make the product profitable, and brand loyalty begins to develop. Blu-ray players are examples of a product in the growth stage. Their sales are increasing due to their advanced technology, offering customers an excellent viewing experience.

Early adopters, followed by the early majority, begin to buy the product during the growth stage. when sales, profits, and competition increase. At this stage, companies begin to take advantage of economies of scale in purchasing, manufacturing, and distribution. As competitors enter the market, the firm has to promote the differences between its brand and the competition's. It may attempt to refine aspects of the product by improving quality or adding new features. Making product changes that improve quality or add new features will enable the company to maintain initial pricing. The firm also must concentrate on building the distribution of the product to increase market share. For products, it takes place by expanding the service distribution network through additional locations or personnel.

5 of 7 new-product development (NPD) process. Product Development Once a firm feels confident that the new product will generate a profit for the company, it enters the product development stage. In this stage, the firm determines that the good can be produced or the service can be offered in a way that meets customer needs and generates profits. The marketing department should also begin developing a marketing strategy during this stage.

For a good, the company may create a prototype based on previous concept testing. A prototype is a mock-up of the good, often created individually with the materials the firm expects to use in the final product. Prototype tests seek to ensure favorable responses to questions such as: • Will the product be safe to users or their families? • Can it be produced in the company's or supplier's manufacturing facilities? • Can it be manufactured at a cost low enough to generate profits?

Examples of Product Line Extensions: FedEx, for example, started its service business by offering air shipment and home delivery of packages. Over the years, it has extended its product line and now offers FedEx Ground, SmartPost, Freight, Custom Critical, Supply Chain, and Office delivery services. All provide a number of services based on the same model: shipping packages for customers.

For example, Procter & Gamble Co. plans to launch a new bargain version of its staple product Tide for budget-oriented consumers. This product-line extension follows another Tide product called Tide Pods, which pack detergent into premeasured capsules for the convenience of customers.

3 of 7 new-product development (NPD) process. Idea Screening (continued) The use of accurate data at this stage cannot be overemphasized. A company that makes a decision based on the "gut-feeling" of a high-level executive, without knowing all of the facts, can lose money on a new-product idea.

Idea-Screening Questions • Will the product sell? Companies can often confirm an idea's sales potential through a concept test. In a concept test, marketing professionals ask consumers for their reactions to verbal descriptions and rough visual models of a potential product. • Can the product be developed and marketed within the time and budget constraints of the company? New ideas must be compared based on the expenditure of these resources. A perfectly good idea may need to be rejected if another new idea that requires the same resources seems more promising. • Is the proposed product within the company's ability to produce? Some new products require the company to purchase new equipment, build more space, or establish different processes. Again, such considerations often make product-line extension and revamped product ideas more attractive than other new-product types.

1 of 5 New-product characteristics : Competitive advantage A product obtains a competitive advantage over competing products if consumers believe it has more value than other products in its category.

If a product has a competitive advantage, consumers will quickly adopt it. The Apple iPhone had a competitive advantage over the original BlackBerry because its operating system used icons for navigation on the phone, which users were familiar and comfortable with.

5 of 5 Types of Adopters : Laggards Laggards make up about 16 percent of the market. do not like change and may remain loyal to a product until it is no longer available for sale. Laggards are typically older and less-educated than members of the other four categories.31 Many choose not to use the Internet. They tend to be tied to tradition and are not easily motivated by promotional strategies.

In fact, marketers may never convince laggards to buy their good or service. For example, if an individual has no access to the Internet, or has access but rarely ventures there, he or she is not likely to use Amazon as a source from which to buy products. As a result, marketers often do not expend a great deal of time or effort trying to reach this group.

4 of 5 Stages of the Product Life Cycle : maturity Sales and profits begin to drop in the maturity stage, as competition increases and customers begin to look for the next big thing Companies may use price reductions, more effective advertising, and trade promotions to generate demand in the maturity stage. Promotion to resellers often increases during this stage, to entice them to continue to buy the company's product rather than a competitor's. Customer service and repairs begin to take on significance and can serve as a source of differentiation from competing products. The maturity stage is usually the longest stage of the PLC.

In the maturity stage, late majority and repeat buyers make up an increasing percentage of the customer base. The main focuses of the maturity stage are profitability and maintaining the firm's market share for as long as possible. As the market becomes saturated, sales level off and competition becomes fierce. Companies not doing well will drop out of the market. During the maturity stage, marketing costs rise due to competition, as each firm tries to find ways to gain market share. The firm may need to make large promotional expenditures to show the differences between the firm's product and the competition. The firm also may feel pressure to reduce prices. As a result, profits typically begin to decline during this stage.

A new product is : new-to-the-market products : Service Innovation : Changes to the way a service is processed or delivered

Innovative service processes involve new methods to perform an existing service. For example, instead of delivering all of the packages it picks up from shippers, UPS and FedEx now use the United States Postal Service (USPS) as a partner to deliver packages to customers. Doing so saves money, particularly in rural areas where the postal service is delivering to homes six days a week; for UPS and FedEx, such deliveries used to involve a special trip to deliver the package.

A new product is : new-to-the-market products : Service Innovation : New types of services

Innovative services are ones that are brand new to a market or that have been considerably changed to meet customers' needs better. Netflix and Uber are examples of innovative services; they significantly change the way people watch shows or get transportation.

1 of 5 Types of Adopters : Innovators Approximately 2.5 percent of those who adopt a product do so almost immediately after the product is launched.

Innovators tend to be younger and more mobile than those who adopt a product later in the diffusion process. They are often obsessed with the idea of newness and unafraid to take risks when it comes to trying new products. In addition, they tend to be very knowledgeable, have higher-than-average incomes, possess self-confidence, and choose not to follow conventional norms. Firms value innovators because they share information about the product with others, which can help promote market acceptance. Innovators are important to companies introducing new-to-the-world products and services, particularly those based on transformative innovation. These products and services are often a difficult sell due to the reluctance of many people to try new experiences or learn how to use new products.

2 of 7 new-product development (NPD) process. Idea Generation involves generating a set of product concepts from which to identify potentially viable new products. Few of these ideas ever become marketed products. In fact, a firm must generate as many as 100 ideas to find one product that will actually make it to the marketplace.

Internal Idea Generation Ideas for new products can come from a variety of sources. Some come from company employees. Smart companies give their employees incentives to suggest new-product ideas. Research and development departments within a company exist to come up with innovative product ideas for companies. In practice, though, only a small percentage of new-product ideas come from this source. External Idea Generation Many ideas originate from external sources. Procter & Gamble, for example, gets more than half of its new-product ideas from outside the company. Customers, too, can be excellent sources of ideas. Salespeople talk on a regular basis to individual customers as well as business customers like re-sellers; if salespeople ask the right questions, they can gather ideas about what their customers need and want. Competitors' products also provide an important idea source. Many companies, such as automobile manufacturers, purchase the new products their competitors offer; they then analyze and use those products to devise similar, but better, alternatives. Companies with cultures that value all new-product ideas, whatever the source, tend to develop more blockbuster products than companies that are unwilling to search far and wide for new ideas.

1. A new product is : new-to-the-market products

Inventions that have never before been seen and create a new market They make up the smallest percentage of new products, but they carry the most potential for the company introducing them. They also carry the most risk, because of the cost to develop and market them. New-to-the-market products include those that are saleable throughout the world, Or they may be designed to sell to a certain region of the world. new-to-the-market products can be time-consuming and expensive to develop. They often create significant risk for a firm. The vast majority of new products fail. Such failures leave the firm with development costs and no offsetting revenue to compensate for expenditures of financial and human resources. Certain types of products can be particularly difficult to get consumers to try. Food and beverage consumers, for example, are often creatures of habit, making it difficult to sell them something new.

New goods, services, and ideas are critical to a company's survival in today's marketing environment. That environment places an ever-increasing emphasis on new, improved, and technologically advanced product offerings.

Many companies have fallen by the wayside because they failed to innovate. Atari, for example, dominated the home video game market in the early to mid-1980s but lost ground to Nintendo and Sony when they introduced superior technology.

3 of 5 Types of Adopters : Early Majority comprises approximately 34 percent of the adopters of a new product. Adopters in the early majority gather more information and spend more time deciding to make a purchase than innovators and early adopters. They are careful in their approach. Typically, by the time the early majority buys a product, more competitors have entered the market; this group will have some choice as to which product to buy.

Members of the early majority generally are not opinion leaders themselves, but they often are associated with such leaders. If this group does not purchase the product, the good or service will likely fail to be profitable. The early majority also serves as a bridge to the next group of adopters: the late majority.

The advent of electronic communication

Modern communication enables news of a product to spread quickly around the globe. Consumers now become aware of new products through television advertising, company web pages, social media, and smartphone apps. Electronic communication also enables companies to create excitement about new products even before they reach the market. Consumers now hold more power because they can access information about products easily, including features, functions, and price.

2. A new product is : New-category entries are products that are new to a company but not new to the marketplace. These new products help companies compete better in an already-established market or enter a new market. Entering new markets is very important to businesses because it opens up a whole new set of customers and potentially a great deal more revenue and profits.

New-category entries are less risky than new-to-the-market products. Because other companies have sold similar products, the company introducing the new-category entry can access information on sales trends, competitor products and prices, and location of markets. However, there still can be considerable risk in developing a new-category entry, even if a company has experience with an older product. For example, BlackBerry (formerly known as Research in Motion Ltd.) used to dominate the cell phone market. To gain back market share, BlackBerry developed a new phone, the Z10, to compete with other companies' new smartphones. However, the Z10 failed to deliver sufficient features to differentiate itself from its competitors.

2 of 5 consumer-adoption process : Interest.

Occurs when the product registers as a potential purchase in a consumer's mind, and he or she begins to look for information about it.

2 of 5 Stages of the Product Life Cycle : introduction stage sales increase slowly, as the firm's marketing activities begin to raise awareness of the product. The firm may not yet be making a profit on the product, because of the costs of advertising, manufacturing, and distribution.

Once the firm launches the product into the marketplace and innovators begin to buy it, it has entered the introduction stage of the PLC. characterized by few or no competitors if the product is new to the market. Sales are typically slow, because customers are not yet accustomed to the product If a firm is first to market, it may be able to capture a large percentage of the market early, giving it advantages in economies of scale and brand recognition. Also, if the product is a good, the company may be able to monopolize the capacity of available suppliers. Other companies then will find it more difficult to get supplies of components from which to make competing products of their own

3 of 7 new-product development (NPD) process. Idea Screening : The Role of Social Media in Idea Screening

Organizations increasingly use social media to evaluate potential new products. Social media are especially valuable for small businesses and nonprofit organizations, which typically have less money to spend on the NPD process. Through social media, consumers can help screen ideas to ensure only those new products that will be best received in the market move ahead in the process. Flash Purchase in Charlotte, North Carolina, deployed surveys on various social media platforms to gauge which new-product ideas would be of most interest to consumers. Crème-Delicious, a dessert boutique in New York City, uploaded pictures of new cake designs to its Facebook page to obtain consumer feedback.

2 of 7 new-product development (NPD) process. Idea Generation (continued) Firms can also outsource their R&D to independent laboratories that provide new-product ideas. Other possible sources of external inspiration include suppliers, universities, and independent inventors.

Outsourcing occurs when a firm procures goods, services, or ideas from a third-party supplier rather than from an internal source. Many companies use open innovation, a way of generating new-product ideas by gathering both external ideas and internal ideas. A form of open innovation is crowdsourcing, in which companies ask for opinions from a large and relatively undefined group of people outside the company. Flexibility can be an asset as well. Sometimes ideas that start out in one direction can be pivoted to another, better direction. (Development of Post-it Notes is an example.) Pivoting typically occurs in the mobile and web sectors, where it is possible to quickly and inexpensively develop and change a software product.

3 of 7 new-product development (NPD) process. Idea Screening the firm evaluates ideas to determine their fit within the new-product strategy. At this stage, the company often ends up rejecting, for one reason or another, most ideas for new goods and services.

Potential issues with product safety may cause a firm to reject an idea for regulatory compliance, liability, and ethical reasons. Firms will also want to make sure that the potential product meets their return-on-investment (ROI) requirements. Companies often have a minimum ROI "hurdle" that a new product must clear to be considered for further development. If the potential revenue generated by the product doesn't meet the minimum requirement, the idea goes no further. It's not unusual to attend product meetings in which the head of the finance department rejects several new-product ideas based on such an ROI hurdle.

Strategic Implications for the Marketing Mix : Price Strategy

Price is usually higher in the introductory phase due to lack of competition and high launch costs. It then starts to fall in the growth stage as competition becomes more intense. Price continues to fall through the maturity stage, when a firm must defend its market share. It then levels out in the decline stage

Strategic Implications for the Marketing Mix Just as our interest, activities, and abilities change as we enter various stages of life, the stage of a product's life has many implications for how a firm markets the product. Firms can modify their marketing-mix (four P) strategies in response to what stage of life a product is in.

Product strategies Place (distribution) strategies Promotional strategies Price strategies

3. A new product is : Product Line Extensions Product Line : a group of related products marketed by the same firm. Product-line extensions are products that extend and supplement a company's established product line. Product-line extensions add new functions, flavors, or other attributes to an existing product line.

Product-line extensions have various advantages: • The company and brand may be easily recognized. • Customers may already feel loyal to the product line. • For goods, manufacturing may be easier and more efficient because the firm already produces similar goods. • The new product can be advertised alongside existing products. Product-line extensions are common, especially among companies hoping to offset reduced sales on other products due to seasonality or trends. Product-line extensions carry some risk, due to uncertainty about how well the new products will be accepted by the market. Overall, though, they carry far less risk than new-to-the-market products or new-category entries.

high-learning products

Products that take longer for consumers to see the benefits of or that do not have a good infrastructure in place to support them are called High-learning products will have a life cycle curve with a long, flat-shaped introductory and growth phase.

low-learning products

Products with benefits customers can easily see oncentrated laundry detergent is an example of a product in which consumers can easily see benefits. An example of a low-learning service is a free checking account at a local bank. Low-learning products have a curve that is steep through the maturity phase.

4 of 7 new-product development (NPD) process. Business Analysis Even if a product passes the idea-screening step, the firm cannot guarantee that it will be profitable. The first step in determining profitability is the ROI hurdle. However, ROI calculations don't take into account the changing value of money over time (due to compounding of interest).

Profitability is measured by subtracting costs (all the costs to produce and sell the good or service) from revenue (the price of the good or service multiplied by the number of units sold). That calculation can be difficult to determine: For new products, costs and revenues are projected (estimated) amounts; those projections are that much harder to get right if the product is new-to-the-market.

Strategic Implications for the Marketing Mix : Promotional Strategies

Promotional strategies in the introductory stage usually involve making customers aware of the product and its attributes. Intensive advertising that stresses how the product differs from the competition appears in the growth stage. In the maturity stage, advertising typically reminds consumers about the product and its value to them. Minimal promotion, or none at all, takes place in the decline stage.

6 of 7 new-product development (NPD) process. Test Marketing (continued) During the test-marketing stage, the firm tests not only the product itself but also the marketing strategy related to it. The marketing department may simultaneously try different approaches in different test markets, to see which marketing-mix approach works best.

Risks of Test Marketing Although test marketing can be valuable, there are downsides. First, the process is expensive. Second, it can be time-consuming. A third risk to test marketing is that firms show their ideas and open themselves up to imitation from competitors, which can diminish the advantages of being first to market.

2 of 5 Stages of the Product Life Cycle : introduction stage (continued)

Sales typically increase slowly during the introduction stage. Companies may need to offer incentives to stores to get them to carry the product, thus limiting distribution A number of factors influence how long the introduction stage lasts. These include the product's relative advantage, the amount of resources the company puts into promoting the product, and the effort required to educate the market about the product's attributes

6 of 7 new-product development (NPD) process. Test Marketing (continued) Some companies use less-costly means for test marketing. New products can be introduced through simulated test markets, in which the firm builds a mock shopping experience for participants, in order to observe their response to marketing stimuli.

Simulated test markets often show potential consumers advertisements for the new product and its competitors; they ask consumers to choose between the firm's product and competing products. Online test marketing is another economical test-marketing tool. In an online test market, firms use their website to sell to consumers sample products that are unavailable in stores. This practice allows the firm to keep costs down while still obtaining valuable information. Test marketing can keep firms from potentially wasting money before they know what the consumer reaction to the product will be. Further, it allows them to fine-tune the marketing plan as they prepare to launch the product.

The most common ethical issue involves the Federal Trade Commission's definition of the term new.

Sometimes, firms make only minor changes to a product and then claim that it is changed in a way that makes it "new and improved." Such actions raise ethical issues; they also may result in legal issues if the FTC disagrees with the company's viewpoint. The FTC's position is that the product in question must actually be entirely new or be "changed in a functionally significant and substantial respect." If the product fails to meet this standard, the company can be fined and required to remove the claim from the label.

An alternate process is concurrent new-product development. It uses cross-functional teams made up of representatives from various departments to develop goods and services.

Teams typically include members from R&D, manufacturing, marketing, engineering, and purchasing. Teams also can include suppliers and customers. In a concurrent approach, work teams complete tasks simultaneously; a problem that occurs in one area does not necessarily affect the overall project timeline. Most supply chain management professionals prefer this approach. However, concurrent NPD can be more difficult to control and create more tension between departments than the more traditional sequential approach. For goods such as high-tech electronics, the speed of a concurrent NPD process will likely outweigh the risk of any such issues.

A new product is : new-to-the-market products : Service Innovation Services as well as products can be "new-to-the-market." Service innovation involves a new or considerably changed service concept.

That change might occur in how the company interacts with a customer or how it delivers the service. Or the change might involve an entirely new technology altogether. Typically, the changes, alone or in combination, result in a service function that the market recognizes as new and valuable. Types of service innovation include: • New types of services • Changes to the way a service is processed or delivered

1 of 5 Stages of the Product Life Cycle : new-product development stage the product actually costs the company money in development costs

The ability of companies to have a full pipeline of new ideas that result in market-winning products is the difference between success and failure in the marketplace.

5 of 5 consumer-adoption process : Adoption

The consumer buys and uses the product.

1 of 5 consumer-adoption process : Awareness.

The consumer has been exposed to the product and knows it is available on the market.

4 of 5 consumer-adoption process : Trial

The consumer tests or uses the product to see if it meets requirements. Trials include things like test-driving an automobile, borrowing a new shampoo from a friend, or signing up for 30-day access to Hulu's online streaming services.

3 of 5 consumer-adoption process : Evaluation

The customer thinks about the product's value and whether to try it out. He or she also evaluates competing products to determine which product best satisfies his or her needs and wants.

5 of 5 Stages of the Product Life Cycle : decline stage Sales and profits then fall off completely In the decline stage, the firm will likely cut prices to generate sales. Coupons or buy-one-get-one-free promotions may be used to prolong sales and reduce existing inventories. The firm also will look for ways to cut costs: curtail advertising, eliminate unprofitable items from the product line, and reduce or eliminate promotion to individual consumers and re-sellers. At this stage, little or no effort is put into changing a good's appearance or functionality;

The decline stage of the PLC is characterized by decreases in sales and profits. Depending on the product, the decline in sales during this stage may be rapid or could occur over a long period of time. During the decline stage, competitors drop out of the market as the product becomes unprofitable. At this point the firm must decide whether to discontinue the product. If the product or service is deemed obsolete, the firm may be able to sell it off to discount retailers, such as Odd Lots. If the firm keeps the product active, it may put little effort into selling or advertising it, happy just to have any sales it produces. Or the firm may attempt to find a niche market for the product that may be small but profitable.

7 of 7 new-product development (NPD) process. Product Launch (continued) Firms must carefully plan the product launch to ensure that the product hits the market according to schedule. Numerous product launches have been delayed because suppliers could not deliver on time, consumer demand was unexpectedly high, or goods couldn't be released due to quality problems. Delayed product launches also often cost companies a great deal of money. Companies often will incur overtime labor and shipping charges to get a product delivered as soon as possible, to keep customers happy.

The launch stage of the NPD process is usually the most expensive stage for new products. To minimize the cost implications and smooth out production levels and marketing activities, some companies release new products to geographic areas in a gradual manner. But firms take a risk by proceeding slowly with product launches. The speed with which a company launches a product (its time to market) can be extremely important, especially for high-tech products. Being the first company to market a new product can mean the difference between success and failure.

Strategic Implications for the Marketing Mix : Product Strategies

The number of products a firm offers will change over a product's life cycle. Firms will typically offer a small number of models or service offerings in the introductory stage. As adopters of the product increase in the growth stage, the firm will expand the number of products, reaching a full line of products in the maturity stage. In the decline stage, the firm will reduce the number of models or service offerings, so that only the best-selling products remain.

Sequential new-product development follows a sequence in which functional areas consecutively complete their development tasks.

This approach helps ensure that the firm performs only one set of activities at a time. The project can be easily tracked. This approach is effective in controlling complex and risky projects. However, sequential NPD can also be time-consuming. Since the product can progress along only one development path, a delay in one area holds up the whole process. Because of the importance of time to market, the sequential approach may prevent the product from achieving its full potential.

Whatever new-product type a firm plans to develop, it will likely follow a formal new-product development (NPD) process.

This process, shown in Figure 6.1, consists of seven stages: (1) new-product strategy development, (2) idea generation, (3) idea screening, (4) business analysis, (5) product development, (6) test marketing, and (7) product launch.

2 of 5 Types of Adopters : Early Adopters Early adopters comprise roughly another 13.5 percent of adopters. purchase a product soon after it has been introduced, but not as quickly as innovators. They tend to conform to group norms and values more closely than innovators and have closer ties to social groups and their communities.

Though they adopt products earlier than the remaining categories, early adopters, unlike innovators, wait for product reviews and further information concerning new products before purchasing them. Early adopters are typically well respected by their peers and tend to be opinion leaders. Marketers seek to gain their acceptance, in the hope that they will share their purchase experiences with others. Early adopters are therefore important to the diffusion of a new product.

Estimating the Length of a Product's Life Once firms understand the stages of the PLC, they can appropriately tailor the marketing mix for their new products at each stage. As a first step, marketers should estimate the length of the product's life.

To do so, they will take into account marketing research and analysis of any similar competitive products. Product life cycles can be of varying lengths, depending on the type of product. Technology-driven products like computers tend to have a short PLC because of rapid changes in computing power and features. Other products may remain viable in the marketplace for decades. For example, the Vaseline Intensive Care line of products has been around since the 1960s. Wells Fargo, founded in 1852, continues to be one of the largest suppliers of mortgage financing and banking services in the second decade of the twenty-first century. However, in general, product life cycles are getting shorter. We've noted that changes in technology make products obsolete more quickly. In addition, firms now introduce new products at a faster rate, pushing existing products into the mature and decline stages faster.

Faster and more economical transportation

Today, most cargo travels vast distances with only a modest increase in price and in a dramatically shorter period of time. As late as the nineteenth century, a traveler never saw information, goods, or people travel faster than the speed of a horse. Today, it can take as few as 11 days for a product to cross the Pacific Ocean by ship, hours by aircraft, and almost no time at all if it can be digitized.

Tom Payne Director of Access Planning PEG Bandwidth

What has been the most important thing in making you successful at your job? A positive attitude. Again and again I have seen very talented people reviewed poorly and passed over for raises because of their attitude. What advice would you give soon-to-be graduates? The first is flexibility. When your manager comes to you with a problem no one has solved, that is opportunity knocking. Use your personal network. Dozens of companies are begging your university for good candidates—use these resources. What is the step in the product development process that companies get wrong more than any other? I would say test marketing, for a couple of reasons. First, test marketing is expensive, so companies try to pinch pennies and reduce test-marketing times or locations, which is usually a big mistake. The other reason surrounds processes. It is the responsibility of product managers to make sure the processes are in place for the product during the test-marketing stage. They should have clear guidelines for how the product is packaged, billed, priced, and serviced.

Misti Mitchell Membership Marketing Specialist Girl Scouts of Arkansas, Oklahoma and Texas

What has been the most important thing in making you successful at your job? I would definitely say the most important aspect of my success is great people skills. A positive attitude provides the basis for developing good people skills. What advice would you give soon-to-be graduates? An internship in your field of study is very beneficial to your future. What do you consider your personal brand to be? My personal brand is lending a helping hand for the betterment of our youth. My personal experience makes me who I am!

3 of 5 New-product characteristics : Observability

When people can see others using a product and perceive value in its use, the product will diffuse quickly. Some products are naturally more visible than others. For example, people who do not have ATM cards or smartphones can easily see the convenience that other people experience using them. Personal products such as suntan lotions, on the other hand, are not as easily observed, so how well they work can be difficult to confirm.

A product has been adopted when

a consumer purchases and uses it.

Ideas

are also intangible and represent formulated thoughts or opinions. The perfect vacation that the state of Michigan promotes through its "Pure Michigan" marketing campaign is an example of an idea.

Services

are intangible products, such as a tune-up on the car; they cannot be touched, weighed, or measured.

Goods

are tangible products with physical dimensions, like a car.

A fashion product is one that

comes in and out of favor with consumers. Men's hats were fashionable for decades but lost their appeal in the 1960s, only to Page 211recently start becoming fashionable again. Fashion life cycles typically last longer than fad products, but they are short compared with high-learning and low-learning product curves. Some companies, like athletic clothes manufacturer Lululemon Athletica, manage their new items with a short life cycle in mind. Lululemon Athletica comes out with new colors and seasonal items that have 3-, 6-, or 12-week life cycles, to make its stores seem very up-to-date and fresh.

Another ethical issue related to new-product development is planned obsolescence. Planned obsolescence occurs when

companies frequently launch new models of a product that make existing models obsolete. However, there can be a difference between planned obsolescence and products that change frequently due to changes in technology. People want the latest and greatest technology.

Organizations can combat shortening life cycles by developing a product mix that consists of various products at different stages of the PLC. A firm's product mix comprises

comprises all of the products that it sells. A company's product mix is characterized by width, depth, and consistency: Product width is determined by the extent to which a company offers different product categories. For example, General Motors offers four categories: Chevrolet, GMC, Buick, and Cadillac. Product width helps companies with the ever-shortening product life cycles: Product depth refers to the number of products a company offers within each category. The Chevrolet line, for example, has the Camaro, Corvette, Volt, Bolt, Malibu, Impala, Cruz, Spark, and SS models. Product depth also works to combat the trend of shorter PLCs. It makes sure that within product categories there is a variety of products, some of which will have longer PLCs than others. Product-mix consistency pertains to how closely related product lines are to one another—in terms of use, production, and distribution. The Buick and GMC brands are closely related in terms of distribution since they are often sold at the same dealership. Product-mix consistency could work against a company if the products are closely related and exhibit similar, short PLCs. When this occurs, companies would need to develop new products at a high rate, in order to offset the effects of having many products in the mature and decline stages of the PLC.

The process by which a product is adopted and spreads across various types of adopters is called

diffusion. Marketers who understand diffusion—how their new products are likely to be adopted, the rate at which they will be adopted, and the process by which they will spread into markets—will have a better chance of successfully launching and sustaining new products. Understanding diffusion enables marketers to figure out who will likely buy their product over a period of time. With that knowledge, they can plan an appropriate marketing mix and forecast potential sales.

A new product is : new-to-the-market products : disruptive technology

one that displaces an established technology and shakes up the industry, or a ground-breaking product that creates a completely new industry. New-to-the-market products can be so disruptive and offer so much value to customers that they often render existing products obsolete.

A new product is

one that is new to a company in any way. It may be functionally different from existing products in the market. Or it may be considered new because the company has not marketed it in its current form or manner. We categorize new products in four ways: 1. New-to-the-market products 2. New-category entries 3. Product-line extensions 4. Revamped products

fad product

one that is very popular for a relatively short amount of time. Pokemon cards and Beanie Babies are examples of fad products that quickly gained then lost their appeal to the market. Fad products will have a steep up-and-down curve, as consumers rapidly adopt and then abandon the product.

Categorizing Risks in New-Product Development The highest level of risk occurs when

products fail to generate sales or prove to be dangerous, defective, or deceptive. These risks can be devastating to a company if they permanently damage the firm's image or create legal liabilities. Beyond legal issues, new products can fail to capture the public's imagination or prove to be poor sales performers. Such problems are costly because of significant amounts spent in development, production, advertising, and distribution. Marketing new products internationally comes with significant risk. Issues with product quality, supply, or marketing mix can lead to missed launch dates, dissatisfied customers, excessive returns, and lost profits.

2 of 5 New-product characteristics : Compatibility

refers to how well a new product fits into potential customers' needs, values, product knowledge, and past behaviors. For example, a new beer will not be a compatible product in countries that forbid alcoholic beverages due to religious taboos.

5 of 5 New-product characteristics : Trialability

refers to the extent to which a potential customer can examine the merits of a new product without having to spend a lot of money or time doing so. Most of the time, products that consumers can try without significant expense will diffuse more quickly than others. Similarly, consumers may adopt a product they are first exposed to through trial sizes, free-sampling programs, and in-store trials (e.g., taste testing food).

Companies whose strategy is to develop new-to-the-market products must have

strong R&D and marketing departments. Not only must the product or service be completely new; the company must also be able to convince consumers that they need to own the product or use the service.

A product is

the specific combination of goods, services, or ideas that a firm offers to consumers. Specifically, • Goods • Services • Ideas Products enrich the lives of consumers by providing designs, features, and functions that people need and want.

Most important, companies have an implied obligation to provide safe products. This obligation requires that companies:

• Design and produce a new product with due care, to ensure that the product will not injure a customer because it is defective in some way. • Test prototypes of the product before production begins. • Regularly test samples of the finished products for possible defects, once production starts. • Quickly notify the public and recall the product if there is a possibility of injury or death from a product.

5 of 7 new-product development (NPD) process. Product Development (continued) If the firm is developing a new service rather than a good, it may use this stage to:

• Establish protocols for training employees. • Identify the types of equipment needed. • Determine the staffing required to provide the service. Regardless of whether the product is a good or service, the product development stage of the NPD process can be long and costly. Only a small number of ideas make it through this process.

For thousands of years people lived their entire lives and only rarely saw a new product. In modern times it seems we hear about a new product every day. Several factors led to this change:

• Faster and more economical transportation • Mass production • The advent of electronic communication

1 of 7 new-product development (NPD) process. New-Product Strategy Development In the first stage of the NPD process, the firm establishes a new-product strategy to align its product development with its overall marketing strategy. involves determining the direction a company will take when (not if) it develops a new product. A new-product strategy accomplishes the following:

• Provides general guidelines for the NPD process. • Specifies how new products will fit into the company's marketing plan. • Outlines the general characteristics of the types of products the firm will develop. • Specifies the target markets to be served by new products. some companies use a SWOT analysis and environmental scanning to determine where new products might help strengthen the firm's marketing position. companies do marketing research of one sort or another. In that research, companies seek to discover what customers want and what products and services are already serving those customers. These efforts seek to identify gaps—and opportunities—that might exist between what customers want and existing products and services. A new-product strategy also should include financial estimates; these detail when the firm can expect the product to be profitable and the profit the company hopes to make from the product.

7 of 7 new-product development (NPD) process. Product Launch When the firm feels the product is ready for the market, it enters the final stage of the NPD process. The product launch involves completing all the final preparations for making the fully tested product available to the market. At this stage, the firm may undertake any or all of the following activities:

• Purchasing the materials to make and package the good. • Hiring employees, such as bank tellers, to provide the service. • Manufacturing enough of a good to fill the distribution pipelines and to store as inventory for continuing distribution. • Building enough capacity to provide a service for the expected level of sales. • Strategically placing the good in warehouses in preparation for customer orders. • Preparing internal systems for taking service orders. • Training new employees on how best to deliver the service.

Sustainability Issues Sustainable product development is built upon the concept of sustainable design which is the philosophy of building products and services in a way that eliminates negative environmental impacts. Sustainable design can take various forms. A product designed for sustainability might:

• Use less energy to operate (or for a service, use less energy to perform). • Have less packaging that must be discarded when opened. • Be able to be recycled when the consumer is finished using the product. • Be able to be reused or refurbished.

Ethical Issues The primary ethical consideration is the duty of a company to provide a product that lives up to the expectations of its customers. The goal should be to design and produce a new product that:

• is safe (if used as directed). • has a reasonable service life. • can be expected to perform in a reliable manner. • can be maintained without excessive costs