Chapter 8: Developing New Products Introduction ⢠Product strategies ...
Chapter 8: Developing New Products
Introduction
Product strategies are central to creation of value for the consumer Product: anything of value to a consumer that can be offered through a marketing exchange
Why Do Firms Create New Products?
Innovation- process by which ideas are transformed into new products and services that will help firms grow If no innovation -> companies only have 2 choices -> continue to market current products to current customers or take the same product to another market with similar customers
Changing Customer Needs
Allows attracting new customers and satisfying the changing needs of current customers by preventing boredom with current products
Market Saturation
Prices of the product will go down after a while in the marketplace and value of firm will decline Innovating and making new products available brings variety into consumers lives and gets them excited while providing company sustainability
Managing Risk Through Diversity
Innovation- firms often create a broader portfolio of products, which helps diversify their risk and enhance firm value If some products in portfolio doing poorly, others may do well May understand markets and consumers with more products in the marketplace
Fashion Cycles
Many industries have short product life cycles, so most sales come from new products
Innovation and Value
Pioneers: new product introductions that establish a completely new market or radically change both the rules of competition and consumer preferences in a market.. also called breakthroughs Pioneer products require higher level of learning from consumers but offer more benefits They are first movers: first to create market or product category, making them readily recognizable to consumers and established a commanding early market share lead Pioneers may be very successful, but not in all cases. Imitators capitalize on their weaknesses. They can be pricey and less sophisticated as well so consumers may purchase better and lower priced products later
Imitators capitalize on the pioneer’s weaknesses + gain advantage in market 95% of all consumer goods fail, and 50-80 is the failure rate across markets and industries: Three Reasons: (1) Offer consumers too few benefits compared with existing products. (2) they are too complex or require substantial learning and effort before consumers can use them. (3) bad timing- introduced at a time when consumers not ready for new products slash services Products are not adopted by everyone at once, it is diffused é spread throughout a population process known as diffusion or adoption of innovation
Adoption of Innovation 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 There are 5 types of consumers: Innovators, Early Adopters, Early Majority, Late Majority, and Laggards
Innovators: buyers who want to be the first to have new product.. are not price sensitive, are knowledgeable, enjoy taking risks. Companies who invest in new technology first, or customers who wait in line to be the first to see a movie are innovators. Crucial to the success of new products by word of mouth. Early Adopters: Do not like to take much risk, wait until the product has a careful review. Are regarded as the opinion leaders that spread the word to next big groups: early majority + late majority Early Majority: Few products and services can be profitable until this group buys them. Donèt like risk and wait for the bugs to be fixed. Example: customer buys DVD of movie when reviews are in instead of going to the theatre. # of Competitors in the marketplace usually also has reached peak, customers have many different price & quality choices Late Majority: This group comes in when product has achieved full market potential. Sales levelled or may be in decline.
Laggards: Like to avoid change until traditional products no longer available. May never adopt certain product or service. Very few companies try to actively pursue these customers. Example: People who only watch Harry Potter when it is on cable for free.
Using the Adoption Cycle
Firms can predict which types of customers will buy their product immediately after intro with diffusion of innovation theory or adoption cycle, as well as when the product gets more and more accepted by the market With this knowledge, firm can develop promotion, pricing, and other marketing strategies to push acceptance among each customer group Marketers must know what the diffusion curve for the new product looks like, and characteristics of target customers in each stage 4 Factors Affecting Product Diffusion Speed Are:
Relative Advantage: If product perceived to be better than substitutes, the diffusion will be relatively quick Compatibility: Executives have to make decisions in a timely fashion and be able to communicate decisions in a timely fashion (need real-time info to do this) Observability: Logos are used because they are easily seen and it easily communicates to others, enhancing the diffusion process.. Botox to reduce wrinkles is not easily observed so the diffusion is slower Complexity and Trialability: Products that are less complex are easier to try, they diffuse more quickly than those that are not. Example: easier to by a tall nonfat latte than purchasing a new car with a GPS system
How Firms Develop New Products
The stages of new product development is depicted as linear and sequential stages, but it consists of number of feedback loops at many stages Team effort: new product team: members have various functions: marketing, design, engineering, manufacturing, procurement, and finance Marketing plays a crucial role by communicating customer needs and wants, marketplace preferences & attitudes to the R&D and engineering group
New products will follow the process closely, but products imitating a successful product with low development cost may skip one or more steps.. this is risky but reduces costs or launches products quickly
Idea Generation
to generate ideas for new products firm can: use own internal R&D efforts, collaborate with firms and institutions, license technology from research-intensive firms, braindstorm, research competitor’s products, and or conduct consumer research. Also use reverse engineering, or dig through competitor’s garbage If want to be pioneers, rely on R and D efforts, if they tend to adopt a follower strategy they scan market for ideas
Internal Research and Development*- Many firms have their own R&D departments where scientsits work to solve complex problems and develop new ideas. -With lots of money spent on R and D efforts, companies expect to have a good chance of a product being a technological or market breakthrough. R&D investments are considered continuous investments, firms may lose money on a few new products but hope blockbusters can generate enough revenue to cover losses. Blockbusters are extremely successful new products. Licensing*- many firms buy rights to use technology or ideas from research-intensive firms through licensing -saves high costs in R&D, provides a solution that exists but has not been marketed Brainstorming*- Group works together to generate ideas, no idea immediately accepted or rejected -Moderator brings attention product features, performance expectations, or packaging and members vote at the end for best ideas or combination of ideas. 4 to 8 ideas that receive most votes move to the next stage of the PDP Competitors’ Products- Competing firm introduces a market opportunity with intro of new product, firm can use reverse engineering to understand product + bring improved version to marget -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. Customer Input- Listening to customer is essential for successful idea generation. 85% of all B2B product ideas come from customers. Firms follow use of their products closely and survey for suggestions and ideas to improve products. Design and development team then works with these suggestions, increases chances of a customer eventually buying a new product -Starbucks uses MyStarbucksIdea.com to hear customer ideas to innovate and provide better service -Successful customer input approach: lead users- innovative product users who modify existing products according to their own ideas to suit their specific needs -studying these users help firm understand general market trends just on the horizon
Concept Testing (Next Stage)
Ideas with potential developed into concepts- brief written descriptions of a product or service; its technology, working principles, and forms; and what customer needs it would satisfy. Might also include visual images of what the product would look like 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 These reactions enable developer to estimate sales value of product or service concept, make changes to enhance sales value, and determine whether the idea is worth further development Helps firm avoid unnecessary costs of product development
Product Development (Also known as 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 Engineering team develops product prototype based on research findings from concept testing step, also use their own knowledge Prototype: 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 Prototype tested through: alpha and beta testing Alpha testing: 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 R and D department Ethical Dilemma: many people, consumer groups, and governmental agencies concerned about when alpha testing involves tests on animals, esp pharmaceuticals 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 Survey people who have used the product in beta and identify any issues that need resolution
Market Testing
Test the market for the new product, companies sometimes skip this step because of competitive, timing, or cost pressures Two forms: Premarket testing or test marketing
Premarket Tests: Conducted before a product or service is brought to market to determine how many customers will try and then continue to sue it (according to small group of potential consumers) Survey the customers whether the will buy or use the product again, estimates the prob of consumer’s repeat purchase. Firm generates sales estimates and decides whether to produce it, abandon, or redesign, or revice marketing plan Test Marketing: Introduces the offering to a limited geographical area (few cities) prior to national launch -Uses all elements of marketing mix + includes promotions, and appears in targeted retail outlets, with appropriate pricing
-Costs more than premarket tests, and provide more of an advantage to competitors that could get a similar or better product first -Key advantage: firm can study actual consumer behaviour, more reliable than a test -Many firms use Behavior Scan: improves probability of success during test marketing phase of a new product.. utilizes consumer panel data collected passively at the point of sale in stores through home scanning to measure individual household first-time trial and repeat purchases -When market demand estimated, product is released nationally.. sometimes test marketing allows competitors to launch before you and become the leading brand Product Launch -Market testing first has to return with positive results -Most critical step in new product introduction, requires financial resources, extensive coordination of all aspects of marketing mix Promotion: When products are conceptually new or complex, marketers may need to provide consumer education about its benefits
-Must have technical support staff trained to answer customer questions for technical products
Place:
Must have enough quantity of products available to ship and keep enough stock in stores Must also have cartridges available for product, example: new printer introduced
Price: Need to have the price right, hard to put a low price and rise it instead of putting a high price and lowering it Timing: Timing is important, depending on the product. Example : PG and G movies usually come out in the summer when children are out of school Evaluation of Results
Need to measure the successes and weaknesses of the product after launch and what changes to marketing mix needed Measure success with three interrelated factors: 1) satisfaction of technical requirements, 2) customer acceptance, 3) satisfaction of the firm’s financial requirements The Product development process helps avoid domino-type failures
The Product Life Cycle
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 marketer a starting point for their strategy planning
Introduction Stage: stage of the product life cycle when innovators start buying the product Growth Stage: Stage of the product life cycle when the product gains acceptance, demand and sales increase, and competitors emerge in the product category Maturity Stage: Stage of the product life cycle when industry sales reach their peak, so firms try to rejuvenate their products by adding new features or repositioning them Decline Stage: Stage of the product life cycle when sales decline and the product eventually exits the market **Not every product follows the same life cycle shape, many products stay in the maturity period for a very long time (sometimes until superior products come along) **More info on pages 274 to 280
Introduction
Product strategies are central to creation of value for the consumer Product: anything of value to a consumer that can be offered through a marketing exchange
Why Do Firms Create New Products?
Innovation- process by which ideas are transformed into new products and services that will help firms grow If no innovation -> companies only have 2 choices -> continue to market current products to current customers or take the same product to another market with similar customers
Changing Customer Needs
Allows attracting new customers and satisfying the changing needs of current customers by preventing boredom with current products
Market Saturation
Prices of the product will go down after a while in the marketplace and value of firm will decline Innovating and making new products available brings variety into consumers lives and gets them excited while providing company sustainability
Managing Risk Through Diversity
Innovation- firms often create a broader portfolio of products, which helps diversify their risk and enhance firm value If some products in portfolio doing poorly, others may do well May understand markets and consumers with more products in the marketplace
Fashion Cycles
Many industries have short product life cycles, so most sales come from new products
Innovation and Value
Pioneers: new product introductions that establish a completely new market or radically change both the rules of competition and consumer preferences in a market.. also called breakthroughs Pioneer products require higher level of learning from consumers but offer more benefits They are first movers: first to create market or product category, making them readily recognizable to consumers and established a commanding early market share lead Pioneers may be very successful, but not in all cases. Imitators capitalize on their weaknesses. They can be pricey and less sophisticated as well so consumers may purchase better and lower priced products later
Imitators capitalize on the pioneer’s weaknesses + gain advantage in market 95% of all consumer goods fail, and 50-80 is the failure rate across markets and industries: Three Reasons: (1) Offer consumers too few benefits compared with existing products. (2) they are too complex or require substantial learning and effort before consumers can use them. (3) bad timing- introduced at a time when consumers not ready for new products slash services Products are not adopted by everyone at once, it is diffused é spread throughout a population process known as diffusion or adoption of innovation
Adoption of Innovation 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 There are 5 types of consumers: Innovators, Early Adopters, Early Majority, Late Majority, and Laggards
Innovators: buyers who want to be the first to have new product.. are not price sensitive, are knowledgeable, enjoy taking risks. Companies who invest in new technology first, or customers who wait in line to be the first to see a movie are innovators. Crucial to the success of new products by word of mouth. Early Adopters: Do not like to take much risk, wait until the product has a careful review. Are regarded as the opinion leaders that spread the word to next big groups: early majority + late majority Early Majority: Few products and services can be profitable until this group buys them. Donèt like risk and wait for the bugs to be fixed. Example: customer buys DVD of movie when reviews are in instead of going to the theatre. # of Competitors in the marketplace usually also has reached peak, customers have many different price & quality choices Late Majority: This group comes in when product has achieved full market potential. Sales levelled or may be in decline.
Laggards: Like to avoid change until traditional products no longer available. May never adopt certain product or service. Very few companies try to actively pursue these customers. Example: People who only watch Harry Potter when it is on cable for free.
Using the Adoption Cycle
Firms can predict which types of customers will buy their product immediately after intro with diffusion of innovation theory or adoption cycle, as well as when the product gets more and more accepted by the market With this knowledge, firm can develop promotion, pricing, and other marketing strategies to push acceptance among each customer group Marketers must know what the diffusion curve for the new product looks like, and characteristics of target customers in each stage 4 Factors Affecting Product Diffusion Speed Are:
Relative Advantage: If product perceived to be better than substitutes, the diffusion will be relatively quick Compatibility: Executives have to make decisions in a timely fashion and be able to communicate decisions in a timely fashion (need real-time info to do this) Observability: Logos are used because they are easily seen and it easily communicates to others, enhancing the diffusion process.. Botox to reduce wrinkles is not easily observed so the diffusion is slower Complexity and Trialability: Products that are less complex are easier to try, they diffuse more quickly than those that are not. Example: easier to by a tall nonfat latte than purchasing a new car with a GPS system
How Firms Develop New Products
The stages of new product development is depicted as linear and sequential stages, but it consists of number of feedback loops at many stages Team effort: new product team: members have various functions: marketing, design, engineering, manufacturing, procurement, and finance Marketing plays a crucial role by communicating customer needs and wants, marketplace preferences & attitudes to the R&D and engineering group
New products will follow the process closely, but products imitating a successful product with low development cost may skip one or more steps.. this is risky but reduces costs or launches products quickly
Idea Generation
to generate ideas for new products firm can: use own internal R&D efforts, collaborate with firms and institutions, license technology from research-intensive firms, braindstorm, research competitor’s products, and or conduct consumer research. Also use reverse engineering, or dig through competitor’s garbage If want to be pioneers, rely on R and D efforts, if they tend to adopt a follower strategy they scan market for ideas
Internal Research and Development*- Many firms have their own R&D departments where scientsits work to solve complex problems and develop new ideas. -With lots of money spent on R and D efforts, companies expect to have a good chance of a product being a technological or market breakthrough. R&D investments are considered continuous investments, firms may lose money on a few new products but hope blockbusters can generate enough revenue to cover losses. Blockbusters are extremely successful new products. Licensing*- many firms buy rights to use technology or ideas from research-intensive firms through licensing -saves high costs in R&D, provides a solution that exists but has not been marketed Brainstorming*- Group works together to generate ideas, no idea immediately accepted or rejected -Moderator brings attention product features, performance expectations, or packaging and members vote at the end for best ideas or combination of ideas. 4 to 8 ideas that receive most votes move to the next stage of the PDP Competitors’ Products- Competing firm introduces a market opportunity with intro of new product, firm can use reverse engineering to understand product + bring improved version to marget -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. Customer Input- Listening to customer is essential for successful idea generation. 85% of all B2B product ideas come from customers. Firms follow use of their products closely and survey for suggestions and ideas to improve products. Design and development team then works with these suggestions, increases chances of a customer eventually buying a new product -Starbucks uses MyStarbucksIdea.com to hear customer ideas to innovate and provide better service -Successful customer input approach: lead users- innovative product users who modify existing products according to their own ideas to suit their specific needs -studying these users help firm understand general market trends just on the horizon
Concept Testing (Next Stage)
Ideas with potential developed into concepts- brief written descriptions of a product or service; its technology, working principles, and forms; and what customer needs it would satisfy. Might also include visual images of what the product would look like 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 These reactions enable developer to estimate sales value of product or service concept, make changes to enhance sales value, and determine whether the idea is worth further development Helps firm avoid unnecessary costs of product development
Product Development (Also known as 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 Engineering team develops product prototype based on research findings from concept testing step, also use their own knowledge Prototype: 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 Prototype tested through: alpha and beta testing Alpha testing: 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 R and D department Ethical Dilemma: many people, consumer groups, and governmental agencies concerned about when alpha testing involves tests on animals, esp pharmaceuticals 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 Survey people who have used the product in beta and identify any issues that need resolution
Market Testing
Test the market for the new product, companies sometimes skip this step because of competitive, timing, or cost pressures Two forms: Premarket testing or test marketing
Premarket Tests: Conducted before a product or service is brought to market to determine how many customers will try and then continue to sue it (according to small group of potential consumers) Survey the customers whether the will buy or use the product again, estimates the prob of consumer’s repeat purchase. Firm generates sales estimates and decides whether to produce it, abandon, or redesign, or revice marketing plan Test Marketing: Introduces the offering to a limited geographical area (few cities) prior to national launch -Uses all elements of marketing mix + includes promotions, and appears in targeted retail outlets, with appropriate pricing
-Costs more than premarket tests, and provide more of an advantage to competitors that could get a similar or better product first -Key advantage: firm can study actual consumer behaviour, more reliable than a test -Many firms use Behavior Scan: improves probability of success during test marketing phase of a new product.. utilizes consumer panel data collected passively at the point of sale in stores through home scanning to measure individual household first-time trial and repeat purchases -When market demand estimated, product is released nationally.. sometimes test marketing allows competitors to launch before you and become the leading brand Product Launch -Market testing first has to return with positive results -Most critical step in new product introduction, requires financial resources, extensive coordination of all aspects of marketing mix Promotion: When products are conceptually new or complex, marketers may need to provide consumer education about its benefits
-Must have technical support staff trained to answer customer questions for technical products
Place:
Must have enough quantity of products available to ship and keep enough stock in stores Must also have cartridges available for product, example: new printer introduced
Price: Need to have the price right, hard to put a low price and rise it instead of putting a high price and lowering it Timing: Timing is important, depending on the product. Example : PG and G movies usually come out in the summer when children are out of school Evaluation of Results
Need to measure the successes and weaknesses of the product after launch and what changes to marketing mix needed Measure success with three interrelated factors: 1) satisfaction of technical requirements, 2) customer acceptance, 3) satisfaction of the firm’s financial requirements The Product development process helps avoid domino-type failures
The Product Life Cycle
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 marketer a starting point for their strategy planning
Introduction Stage: stage of the product life cycle when innovators start buying the product Growth Stage: Stage of the product life cycle when the product gains acceptance, demand and sales increase, and competitors emerge in the product category Maturity Stage: Stage of the product life cycle when industry sales reach their peak, so firms try to rejuvenate their products by adding new features or repositioning them Decline Stage: Stage of the product life cycle when sales decline and the product eventually exits the market **Not every product follows the same life cycle shape, many products stay in the maturity period for a very long time (sometimes until superior products come along) **More info on pages 274 to 280
