Chapter 8 - Developing New Products Flashcards
Product
anything that is of value to a consumer and can be offered through a marketing exchange
Why do firms create new products?
- innovation
Reasons for innovation
- Changing customer needs
- market saturation
- managing risk through adversity
- fashion cycles
- improving business relationships
Innovation
is the process by which ideas are transformed into new products and services that will help firms grow
Changing customer needs -
satisfying the changing needs of their current and new customers, prevent customers from getting bored identify problems customers are having
Market saturation -
the longer a product exists in the marketplace, the more likely it is that the market will become saturated - without new products/ services the value of the firm will decline
Managing risk through adversity -
through innovation firms can offer a broader portfolio of products, which can help them diversify their risk and enhance firm value better than a single product can
Fashion cycles
in industries that rely on fashion trends and experience short product life cycles (apparel, books, art, software) most sales come from new products
Improving business relationships
new products do not always target end consumers sometimes they function to improve relationships with suppliers
Adoption of Innovation
- diffusion of innovation/ adoption of innovation
- pioneers
- disruptive innovation
Diffusion of innovation/ adoption of innovation
helps marketers understand the rate at which consumers are likely to adopt a new product or service - it also gives them a means to identify potential markets for their new products/ services and predict their potential sales, even before they introduce the innovations
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 a breakthrough
Disruptive innovations -
new product introductions that are simpler, less sophisticated, and usually less expensive than existing products or services
Ex - netflix and blockbuster
Consumer adoption cycle
- innovators
- early adopters
- early majority
- late majority
- laggards
Innovators
are those buyers who want to be first on the block to have the new product or service - enjoy taking risk, are regarded as highly knowledgeable, and are not price sensitive
Early adopters
the second subgroup that begins to use a product or service - do not like to take as much risk as innovators but instead wait and purchase the product after careful review
- Enjoy novelty and often are regarded as the opinion leaders for particular product categories
Early majority
group of consumers in the diffusion of innovation model that represents approx 34% of the population, members do not take much risk and therefore tend to wait until all the bugs are worked out
Late majority -
the last group of buyers to enter a new product market - the product has achieved its full market potential
Laggards
16% of the market, like to avoid change and rely on traditional products until they are no longer available
Factors Affecting Product Diffusion Speed
- Relative advantage
- compatibility
- observability
- complexity and trialability
Relative advantage
if a product is perceived to be better than substitutes, the the diffusion will be relatively quick
Compatibility
diffusion process may be faster or slower, depending on various consumer features, including international cultural differences
Observability
when products are easily observed, their benefits or uses are easily communicated to others, which enhances the diffusion process
Complexity and trialability
products that are relatively less complex are also relatively easy to try - generally these products will diffuse more quickly than those that are not
Product Development Process
- idea generation
- concept testing
- product development
- market testing
- product launch
- evaluation of results
Idea generation
- to generate ideas for new products a firm can use its own
- Internal R&D efforts, collaborate with other firms and institutions,
- License technology from research intensive firms
- Brainstorm
- Research competitors products and services
- conduct customer research
Reverse engineering
involves taking apart a competitors product, analyzing it, and creating an improved product that does not infringe on the competitors patents
Concept testing
- refers to the process in which a concept statement is presented to potential buyers representative of the target market or users to obtain their reactions
Purpose of concept testing
estimate the sales value of the product or service concept, possibly make changes to enhance its sales value, and determine whether the ides is worth further development - respondents purchase intentions, would it satisfy needs
Product development
or product design, entails a process of balancing various engineering, manufacturing, marketing, and economic considerations to develop a products form and features or a services features
Prototype
- is the 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
Alpha testing
the firm attempts to determine whether the product will perform according to its design and whether it satisfies the need for which it was intended
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 its use
Market Testing
Must test the market for the new product with a trial batch of products - sometimes this step is skipped because of competitive timing, or cost pressures, tests can take two forms: premarket testing or test marketing
Premarket tests -
firms conduct these before they actually bring a product or service to market to determine how many customers will try and then continue to use their product or service according to a small group of potential customers
Test marketing
introduces the offering to a limited geographical area (usually a few cities) prior to a national launch - strong predictor of product success, uses all elements of the marketing mix
Product Launch
If the market testing returns with positive results, the firm is ready to introduce the product to the entire market
- This is the most critical step and requires a lot of financial resources and extensive coordination of all aspects of the marketing mix
Evaluation of Results
Marketers must undertake a critical post launch review to determine whether the produce and its launch was a success or failure and what additional resources or changes to the marketing mix are needed
How firms measure success
- Its satisfaction of technical requirements, such as performance
- Customer acceptance
- Its satisfaction of the firms financial requirements, such as sales and profits
Product life cycle - stages
- introduction stage
- growth stage
- maturity stage
- decline stage
Product life cycle -
- defines the stages that the new products move through as they enter, get established in, and ultimately leave the marketplace
Introduction stage
stage of the product life cycle where innovators start buying the product
- Usually starts with a single firm, and innovators are the ones to try the new offering
- Sales are low, profits are negative or low
Growth stage
the product gains acceptance, demand and sales increase, and competitors emerge in the product category
- The market becomes more segmented and consumer preferences more varied which increases the potential for new markets or new uses of the product or service
- Sales/ profits rise, competition is few but increasing, consumers are early adopters/ early majority, prince is the same or drops slightly, new product variations, more outlets for places, increase in awareness in broader market
Maturity stage
industry sales reach their peak, so firms try to rejuvenate their products by adding new features or repositioning them - if efforts succeed, the product achieves new life
- Price competition as the avg price falls, saturated markets - firms may enter new geographical markets, firms may find new market segments, new products with improved features, sales peak, profits decline, competition intensifies, consumers are late majority
Decline stage
- product exists the market
- Position themselves for a niche segment of die-hard consumers or those with special needs, or they completely exit the market
- Consumers are laggards, competition is limited
- Low competitors
