Chapter 12

Question 1

What are the 5 reasons why firms develop new products

Answer 1

Changing customer needs
Market saturation (everyone who can buy our product has already done so)
Managing risk through diversity (don’t put all your eggs in one basket)
Fashion cycles
Improving business relationships

Question 2

Explain the diffusion of innovation curve

Answer 2

Innovators
Those buyers, representing approximately 2.5 percent of the population, who want to be the first to have the new product or service.

Early adopters
The second group of consumers in the diffusion of innovation model, after innovators, to use a product or service innovation represent about 13.5 percent of the population. They generally don’t like to take as much risk as innovators but instead wait and purchase the product after careful review.

Early majority
A group of consumers in the diffusion of innovation model that represents approximately 34 percent of the population; members don’t like to take much risk and therefore tend to wait until bugs are worked out of a particular product or service; few new products and services can be profitable until this large group buys them.

Late majority
The last group of buyers to enter a new product market, representing approximately 34% of the population; when they do, the product has achieved its full market potential.

Laggards
Consumers, representing approximately 16 percent of the population, who like to avoid change and rely on traditional products until they are no longer available. Sometimes laggards never adopt a product or service.

Question 3

What are the 4 factors that affect the diffusion of a new product (or innovation)

Answer 3

1. Relative advantage
   Viewed as better than alternatives
2. Compatibility
   Fits with consumers lifestyle and/or culture
3. Observability
   Customers can see it work
4. Complexity and trialability
   Customers can try it

Question 4

What are the steps of the product development process

Answer 4

1. idea generation
2. concept testing
3. product development
4. market testing
5. product launch
6. evaluation of results

Question 5

What is the difference between premarket testing and testing marketing

Answer 5

Premarket testing
Test all 4 elements of marketing mix
Customers surveyed
Firm makes decision
simulation

Testing markets
Product launch in small area
More expensive market demand estimated
Reveals to your competitors what your hand is
Real world

Question 6

What are the stages of the standard product life cycle

Answer 6

Product development
Sales are 0 and investment costs mount

Introduction
Slow sales growth and profits nonexistent

Growth
Rapid market acceptance and increasing profits

Maturity
Slow down in sales growth and profit levels off or starts to decline

Decline
Sales fall off and profits drop