Ch 11 Notes Flashcards
11-1 The Importance of New Products
Why are new products important?
To sustain growth, increase revenue and profits, and replace obsolete items
11-1a Introduction of New Products
*Some companies spend a considerable amount of money each year developing new products
*Sometimes it is difficult to decide when to replace a successful product
**The introduction of a new product is a monumental undertakeing with a lot of open-ended questions
11-1b Categories of New Products
Six Categories of New Products?
- New-to the World Products
- New-Product Lines
- Additions to existing product lines
- Improvements or revisions of exisiting products
- Repositioned products
- Cost Reductions
11-1b Categories of New Products
(discontinuous innovations)
-Create an entirely new market
-Represent the smallest category of new products
*On average, consumer packaged goods companies introduce a total of about 30,000 new products every year
New-to-the-World Products
11-1b Categories of New Products
-Products that the firm has not previously offered and allow it to enter an established market
Ex: Brooklinen is known for pillows and sheets. They recently expanded to include bath robes and laundry detergent
New Product Lines
11-1b Categories of New Products
-Includes new products that supplement a firm’s established line
Ex: McDonald’s adding the McPlant, plant based burger. Teamed up with snapchat to inform, bringing awareness
Additions to Existing Products
11-1b Categories of New Products
-The new and improved product may be significantly or only slightly changed.
Ex: Capri Sun revised the recipe for a few drinks, decreasing the amount of sugar in them
Improvements of Existing Products
11-1b Categories of New Products
Existing Products targeted at new markets or market segments or products that are repositioned to change the current market’s perception of the product or company which may be done to boost declining sales
Ex: Gucci primarily targeted older customers, they then grew their social media presence and increased their spending on influencer marketing, allowing for millenials to increase sales
Repositioned Products
11-1b Categories of New Products
Refers to products that provide performance similar to competing brands at a reduced price
Ex: HP Color LaserJet Pro MFP is a scanner, copier, printer, and fax machine combined
*This new product is priced lower than many conventional color copiers and much lower than the combined price of the four items purchased seperately.
Cost Reductions
11-2 New Product Development Process
What is the new product development process?
- New product strategy
- Idea generation
- Idea Screening
- Business Analysis
- Development
- Test Marketing
- Commercialization
**New Product
**Funnel shaped to highlight the fact that each stage acts as a screen to filer out unworkable ideas
11-1b Categories of New Products
Companies most likely to succeed in developing and introducing new products are those that take these four actions:
- Making long term commitment needed to support innovation and new-product development
- Use a company-specific approach, driven by corporate objectives and strategies, with a well defined new product strategy at its core
- Capitalize on experience to acheive and maintain competitive advantage
- Establish an environment–a management style, organizationl structure, and degree of top management support– conducive to acheiving a company-specific new-product and corporate objectives
11-2a New Product Strategy
Must be compatible with objectives, and in turn all three of the objectives must be consistent with one another
Part of the organization’s overall marketing strategy
Sharpens focus and provides general guidelines for generating, screening, and evaluating ideas.
Specifies roles that must play in the organizations overall plan and describes the characteristics of products that organization wants to offer and the markets it wants to serve
New Product Strategy
11-2b Idea Generation
Suggests that wants and needs should be the springboard for developing new products
-Monitoring social media and customer reviews
-Customer innovation centers; provides a forum for meeting with customers and directly involving them in the innovation process
Customers
11-2b Idea Generation
Sometimes know a companies products and processes better than anyone else
Firms have formal and informal processes in place for employees to propose new product ideas; run contests, hold votes, set up idea kiosks
Companies allow them time at work to try and produce new ideas
Some firms reward them for producing creative new ideas
Employees
11-2b Idea Generation
Well trained sales force used to ask them about needs that are not being met
Closer to end users, more aware of customers needs than manufacturers
Distributors
11-2b Idea Generation
No firms rely solely on internally generated ideas for new products
One purpose is to determine which, if any, of the competitors products should be copied
Competitors
11-2b Idea Generation
Carried out in 4 distinct ways: Basic Research, Applied Research, Product Development, Product Modification
Research and Development
11-2b Idea Generation
These people are always available to examine a business and recommend product ideas
Determine whether a company has a balanced portfolio of products and, if not, what new product ideas are needed to offset the imbalance
Consultants
11-2b Idea Generation
Crowdsourcing; general information regarding ideas being sought is provided to a wide range of potential sources such as industry experts, independent researchers, and academics.
2 considered most useful for generating new product ideas: brainstorming and focus group exercises
Brainstorming: group members avoid criticism of an idea, objective evaluation is postponed, the sheer quantity of ideas is what matters.
Other Experts
11-2c Idea Screening
First stage
Concept Test
Relatively precise predictors of success for new products that are not copycat items, not easily classified into existing product categories, and do not require major changes in consumer behavior
Concept tests are usally inaccurate in predicting the success of new products that create new consumption patterns and require major changes in consumer behavior
Screening
11-2d Business Analysis
Costs and revenues are estimated and compared; may be simple or complex
Newness of product, size of market, and nature of competition all affect the accuracy of revenue projections
Analyzing overall economic trends and their impact on estimated sales is important in product categories that are sensitive to fluctuations in the business cycle
Business Analysis
11-2e Development
Understanding market potential is important because costs increase dramatically once a product idea enters this stage
During this stage, firms should start sketching a marketing strategy; should decide on the products packaging, branding, labeling, and so forth. It should also map out preliminary promotion, price and distribution strategies
Can last a long time and be very expensive
Development
11-2e Development
The development process works best when all the involved areas (R&D, marketing, engineering, production, and even suppliers) work together rather than sequentially
Involving key suppliers early in the process capitalizes on their knowledge and enables them to develop critical component parts.
Simaltaneous Product Development
11-2e Development
The internet is a useful tool for implementing simultaneous product development.
On the web, multiple partners from a variety of locations can meet regularly to assess new-product ideas, analyze markets and demographics, and review cost information
The best-managed global firms leverage their global networks by sharing best practices, knowledge, and technology
Innovative firms are also gathering a variety of R&D input from customers online.
Laboratory tests are often conducted on prototype models during the development stage. User safety is an important aspect of laboratory testing, which actually subjects products to much more severe treatment than that expected by end users
Requires manufacturers to conduct a “reasonable testing program” to ensure that their products conform to established safety standards.
Consumer Product Safety Act of 1972
11-2f Test Marketing
Allows management to evaluate alternative strategies and to assess how well the various aspects of the marketing mix fit together
Cities chosen as test sites should reflect market conditions in the new product’s projected market area.
When selecting test market cities, researchers should therefore find locations where the demographics and purchasing habits mirror the overall market. The company should also have good distribution in test cities
Columbus, Ohio. Because the city has a nearly perfect cross section of America’s demographic breakdown, it is the perfect testing ground for new products
Test locations should be isolated from the media. If the television stations in a particular market reach a very large area outside that market, the advertising used for the test product may pull in many consumers from outside the market. The product may then appear more successful than it really is.
Test Marketing
11-2f Test Marketing
Test marketing frequently takes one year or longer, and costs can exceed $1 million
One unavoidable problem is that test marketing exposes the new product and its marketing mix to competitors before its introduction. Thus, the element of surprise is lost
High Costs of Test Marketing
11-2f Test Marketing
Scanner Based Research
Simulated Labratory Market Testing
The internet offers a fast, cost-effective way to conduct test marketing
Most firms still consider test marketing essential for most new products.
The high price of failure simply prohibits the more-expensive widespread introduction of most new products without testing.
Alternatives to Test Marketing
11-2g Commercialization
Sets several tasks in motion:
1. ordering production materials and equipment
2. starting production
3. building inventories
4. shipping the product to field distribution points
5. training the sales force
6. announcing the new product to the trade
7. advertising to potential customers
Commercialization
11-3 Why some products succeed and others fail
Why do products fail?
- simply do not offer any discernible benefit as compared with existing products
- poor match between product features and customer desires
Others: overestimation of market size, incorrect targeting or positioning, a price too high or too low, inadequate distribution, poor promotion, or simply an inferior product.
Many estimates range as high as 75 to 95 percent.
11-3 Why some products succeed and others fail
Occurs when a company cannot recoup its development, marketing, and production costs—the product actually loses money for the company
Absolute failures
11-3 Why some products succeed and others fail
When the product returns a profit but fails to achieve sales, profit, or market share goals
Relative Product Fail
11-3 Why some products succeed and others fail
The most important factor in successful new-product introduction is a good match between the product and market needs—as the marketing concept would predict.
Successful new products deliver a meaningful and perceivable benefit to a sizable number of people or organizations and are different in some meaningful way from their intended substitutes.
11-4 Global Issues in New Product Development
A firm that starts with a global strategy is better able to develop products that are marketable worldwide.
In many multinational corporations, every product is developed for potential worldwide distribution, and unique market requirements are satisfied during development whenever possible.
Some global marketers design their products to meet regulations in their major markets and then, if necessary, meet smaller markets’ requirements country by country.
Succeeding in some countries often requires companies to develop products that meet the unique needs of these populations.
In other cases, companies cannot sell their products at affordable prices and still make a profit in many countries.
Global issues in new-product development
11-5 Spread of New Products
Managers have a better chance of successfully marketing products if they understand how consumers learn about and adopt products.
Spread of New Products
11-5a Diffusion of Innovation
-Innovation
-Diffusion
Diffusion of Innovation
11-5a Diffusion of Innovation
The first 2.5 percent of all those who adopt the product
Eager to try new ideas and products; it is almost an obsession
In addition to having higher incomes, they are more worldly and more active outside their community
They rely less on group norms and are more self-confident.
Because they are well educated and are more likely to get their information from scientific sources and experts; characterized as being venturesome
Innovators
11-5a Diffusion of Innovation
Next 13.5 percent to adopt the product
They rely much more on group norms and values. They are also more oriented to the local community
More likely to be opinion leaders because of their closer affiliation with groups.
New product’s best friends.
Marketers focus a lot of attention identifying the group that begins the viral marketing chain—the influencers.
Influencers come from all age, gender, and income groups, and they do not use media any differently than the users who are considered followers.
The characteristic influencers share is their desire to talk to others about their experiences with goods and services. A desire to earn the respect of others is a dominant characteristic
Early Adopters
11-5a Diffusion of Innovation
The next 34 percent to adopt
Members of this group weigh the pros and cons before adopting a new product.
They are likely to collect more information and evaluate more brands, thereby extending the adoption process
They rely on the group for information but are unlikely to be opinion leaders themselves. Instead, they tend to be opinion leaders’ friends and neighbors
Members are positioned between earlier and later adopters. A dominant characteristic is deliberateness.
Early Majority
11-5a Diffusion of Innovation
Seven Characteristics of Successful Product Introductions
A history of listening carefully to customers
An obsession with producing the best product possible
A vision of what the market will be like in the future
Strong leadership
A commitment to new-product development
A project-based team approach to new-product development
Getting every aspect of the product development process right
11-5a Diffusion of Innovation
The late majority is the next 34 percent to adopt
Adopts a new product because most of their friends have already adopted it.
Because they also rely on group norms, their adoption stems from pressure to conform.
This group tends to be older and below average socioeconomic status
They depend mainly on WOM communication rather than on the mass media.
The dominant characteristic is skepticism.
Late Majority
11-5a Diffusion of Innovation
The final 16 percent to adopt
Do not rely on group norms. Their independence is rooted in their ties to tradition. Thus, the past heavily influences their decisions
Have the longest adoption time and the lowest socioeconomic status.
They tend to be suspicious of new products and alienated from a rapidly advancing society.
The dominant value is tradition.
Marketers typically ignore, not motivated by advertising or personal selling and are virtually impossible to reach online.
Laggards
11-5b Product Characteristics and the Rate of Adoption
Five product characteristics
- Complexity
- Compatibility
- Relative Advantage
- Observability
- Trialability
11-5b Product Characteristics and the Rate of Adoption
The degree of difficulty involved in understanding and using a new product. The more ____ the product, the slower is its diffusion
Complexity
11-5b Product Characteristics and the Rate of Adoption
The degree to which the new product is consistent with existing values and product knowledge, past experiences, and current needs.
Incompatible products diffuse more slowly than compatible products.
Compatibility
11-5b Product Characteristics and the Rate of Adoption
The degree to which a product is perceived as superior to existing substitutes
Relative advantage
11-5b Product Characteristics and the Rate of Adoption
The degree to which the benefits or other results of using the product can be observed by others and communicated to target customers
Observability
11-5b Product Characteristics and the Rate of Adoption
The degree to which a product can be tried on a limited basis
Trialability
11-5c Marketing Implications of the Adoption Process
Two types of communication aid the diffusion process:
- WOM communication among consumers
- Communication from marketers to consumers.
Marketing Implications of the Adoption Process
11-5c Marketing Implications of the Adoption Process
Within and across groups, including social media and viral communication, speeds diffusion
Opinion leaders discuss new products with their followers and with other opinion leaders. Marketers must therefore ensure that the types of information they want to convey is available to opinion leaders in the media that they use.
Suppliers of some products, such as professional and healthcare services, rely
WOM communication among consumers
11-5c Marketing Implications of the Adoption Process
Messages directed toward early adopters should normally use different appeals from messages directed toward the early majority, the late majority, or the laggards.
Early adopters are more important than innovators because they make up a larger group, are more socially active, and are usually opinion leaders.
As the focus of a promotional campaign shifts from the early adopters to the early majority and the late majority, marketers should study the dominant characteristics, buying behavior, and media characteristics of these target markets. Then they should revise messages and the media strategy to fit.
Communication from marketers to consumers.
11-6 Product Life Cycles
Product Life Cycle
- Introductory Stage
- Growth Stage
- Maturity Stage
- Decline Stage
Biological metaphor that traces the stages of a product’s acceptance, from its introduction (birth) to its decline (death)
The PLC concept can be used to analyze a brand, a product form, or a product category.
Product categories have the longest life cycles
Some products, such as fad items, move through the entire cycle in weeks. Fads are typically characterized by a sudden and unpredictable spike in sales followed by a rather abrupt decline.
The PLC concept does not tell managers the length of a product’s life cycle or its duration in any stage. It does not dictate marketing strategy. It is simply a tool to help marketers forecast future events and suggest appropriate strategies.
11-6a Introductory Stage
*A high failure rate, little competition, frequent product modification, and limited distribution typify
*Marketing costs are normally high:
-High dealer margins are often needed to obtain adequate distribution, and incentives are needed to get consumers to try the new product
-Advertising expenses are high because of the need to educate consumers about the new product’s benefits.
-Production costs are also often high in this stage, as product and manufacturing flaws are identified and corrected, and efforts are undertaken to develop mass production economies.
Sales normally increase slowly, Profits are usually negative because of R&D costs, factory tooling, and high introduction costs.
The length is largely determined by product characteristics, such as the product’s advantages over substitute products, the educational effort required to make the product known, and management’s commitment of resources to the new item.
*A short period is usually preferred to help reduce the impact of negative earnings and cash flows. Helps dispel some of the uncertainty about whether the new product will be successful.
*Promotional strategy focuses on developing product awareness and informing consumers about the product category’s potential benefit
Introductory Stage
11-6b Growth Stage
Sales typically grow at an increasing rate, many competitors enter the market, and large companies may start to acquire small pioneering firms.
Profits rise rapidly in the growth stage, reach their peak, and begin declining as competition intensifies.
Emphasis switches from primary demand promotion to aggressive brand advertising and communication of the differences between brands
Distribution becomes a major key to success
Without adequate distribution, it is impossible to establish a strong market position.
Growth Stage
11-6c Maturity Stage
New users cannot be added indefinitely, and sooner or later, the market approaches saturation.
Normally, this stage is the longest stage of the PLC
Product lines are lengthened to appeal to additional market segments.
Service and repair assume more important roles as manufacturers strive to distinguish their products from others.
Product design changes tend to become stylistic rather than functional
As prices and profits continue to fall, marginal competitors start dropping out of the market. Dealer margins also shrink, resulting in less shelf space for mature items, lower dealer inventories, and a general reluctance to promote the product.
Heavy consumer promotion by the manufacturer is also required to maintain market share.
Cutthroat competition during this stage can lead to price wars
Emergence of “niche marketers” that target narrow, well-defined, underserved segments of a market
Maturity Stage
11-6d Decline Stage
The rate of decline is governed by how rapidly consumer tastes change or substitute products are adopted
Eliminate all nonessential marketing expenses and let sales decline as more and more customers discontinue purchasing the products.
Eventually, the product is withdrawn from the market.
Decline Stage
11-6e Implications for Marketing Management
The funnel shape indicates that many new-product ideas are necessary to produce one successful new product.
The new-product development process is sometimes illustrated as a decay curve, with roughly half of the ideas approved at one stage and rejected at the next.This reinforces the notion that an organized effort to generate many ideas from various sources is important for any firm that wishes to produce a continuing flow of new products.
The major implication of the diffusion process for marketing managers is that the message may need to change over time
Implications for Marketing Management
