Ch 8 Flashcards
Adoption of innovation
the process by which the use of an innovation whether a product or service, spreads throughout a market group, over time & over various categories of adopters.
helps marketers to understand the rate at which consumers are likely to adopt a new product or service
Innovation
process by which ideas are transformed into new products and services that will help firms grow
Firms MUST innovate in order to stay in business & current
Firms innovate for a number of reasons
Changing customer needs
Market saturation
Managing risk through diversity
Fashion cycles
Improve business relationships
Diffusion/adoption of innovation
process by which innovation spreads throughout a market group, over time and over various categories of adopters
pioneers/breakthroughs
establishes a completely new market or radically changing both the rules of competition and consumer preferences in a market
Disruptive innovations
new but are generally simpler, less sophisticated, and may be less expensive than existing products
Consumer adoption cycle
2.5% - innovators
13.5% - early adopters
34% - early majority
34% late majority
16% - laggards
Innovators
buyers who want to be the first to have the new product - Crucial to success of new products because they help the product gain market acceptance through positive word of mouth
Enjoy taking risks, are highly knowledgeable, not price sensitive, keep themselves well informed
Early adopters
second subgroup to use the product/service
Don’t take as many risks as innovators, wait and purchase product after careful review
Early majority
few products can be profitable until this group buys them
Has different price and quality choices because by the time these customers enter the market, the number of competitors has reached its peak
Late majority
last group of buyers to enter new product market
Entered when the product has achieved full potential, by the time they enter, sales tend to level off or decline
Laggards
like to avoid change and rely on traditional products until they are no longer available
Also may never adopt the product
Factors Affecting Product Diffusion
Firms can predict which types of customers will buy their product and when using the diffusion of innovation theory to develop effective promotion and pricing strategies but there are 4 factors that affect the diffusion speed
relative advantage
compatibility
observability
complexity and triability
Relative advantage
if product is perceived to be better than substitutes then diffusion will be relatively quick
Compatibility
depends on various consumer features like international cultural differences
Observability
if products are easily observed, their benefits or uses are easily communicated to others which enhances diffusion process
Complexity and trialability
products that are relatively less complex are also relatively easy to try and will diffuse more quickly
How firms develop new products
Idea generation -> concept testing -> product development -> market testing -> product launch -> evaluation of results
idea generation
The development of viable new production ideas
How?
- Internal research and development
- Licensing
- Brainstorming
- Outsourcing
- Customer input
- competitors products
Concept Testing
testing the new product idea among a set of potential customers
Reactions enable developer to estimate the sales value of the product and make changes to enhance its sales value and determine if it is worth developing further
Product Development
Development of prototypes and the product
Alpha testing; firm attempts to determine whether the product will perform according to its design and if it satisfies the need for which it was intended ; test on a small scale
Beta testing; uses potential consumers who examine the product prototype in a “real use” setting to determine its functionality, performance, potential problems, and other issues specific to those users;
Market Testing
Testing the actual products in a few test markets
Two forms: premarket testing or test marketing
Premarket Tests
Premarket tests are used before actually bringing a product or service to market
- Potential customers are exposed to the marketing mix variables, such as advertising, and then surveyed and given a sample of the product to try
Test Marketing
A method of determining the success potential of a new product
Test marketing introduces the offering to a limited geographical area (usually a few cities) prior to national launch
-> uses all the elements of the marketing mix
Product Launch
full scale commercialization of the product
What a product launch involves:
- The firm confirms its target market and decides how the product will be positioned
- Done using research it has gathered on consumer perceptions and tests it has conducted and competitive considerations
- The firm finalizes the marketing mix variables for the new product
Evaluation of Results
Analysis of the performance of the new product and making appropriate modifications
Firms measure the success of a new product by three interrelated factors
1. Its satisfaction of technical requirements, such as performance
2. Customer acceptance
3. Satisfaction of the firm’s financial requirements, such as sales and profits
Product Life Cycle
The product life cycle (PLC) defines the stages that new products move through as they enter, get established in, and ultimately leave the marketplace
Four stages: introduction, growth, maturity, and decline
Introduction Stage Characteristics
Sales: low
Profit: negative or low
Typical Customers: innovators
Competitors: one of few
Growth Stage Characteristics
Sales: rising
Profit: rapidly rising
Typical Customers: early adopters and early majority
Competitors: few but increasing
Maturity Stage Characteristics
Sales: peak
Profit: peak to declining
Typical Customers: late majority
Competitors: high number of competitors and competitive products
Decline stage characteristics
Sales: declining
Profit: declining
Typical Customers: laggards
Competitors: low number of competitors and products
