Chp 8: Developing New Producs Flashcards
define product
anything that is of value to a consumer and can be offered through a marketing exchange
what are products
Products may be places, ideas, organizations, people, communities
how to think of degree of newness
on the continuum from new to the world to slightly repositioned
define innovation
process by which ideas are transformed into new products + services that will help firms grow
what happens without innovation
firms can only continue to market current products to current customers or take same product to another market with similar customers
5 reasons firms create new products
1) changing consumer needs
2) market saturation
3) managing risk through diversity
4) fashion cycles
5) improving business relationships
explain reason 1 why firm creates new products: changing consumer needs
1) When firms add new products, they create and deliver value more effectively by satisfying changing needs of current and new customers or by keeping customers from getting bored with current product or service offering
2) Companies can identify problems and develop products customers never knew they needed
3) Or firms can take a well known offering and innovate it to make it more interesting
explain reason why firm creates new products: market saturation
1) Without new products, value of firm will decline. Firms sustain growth by getting consumers excited by new looks/features
2) Saturated markets also offer opportunities for firms willing to adopt new process or mentality (gluten free foods)
explain reason why firm creates new products: managing risk through diversity
1) Broader portfolio of products diversifies risk and enhances firm value
2) If some products doing poorly, others may do well
3) With multiple products, firms can withstand external shocks including changing consumer preferences or competitive activity better
explain reason why firm creates new products: fashion cycles
In industries that rely on fashion trends and rely on short product life cycles, most sales come from new products (books, video games)
explain reason why firm creates new products: improving business relationships
1) Sometimes new products do not target end consumer but function to improve relationship with suppliers
2) Ex. allowing retail stockers to reach whichever flavour was needed easily
define diffusion of innovation
process by which the use of an innovation, whether a product or service, spread throughout a market group over time and over various categories of adopters
what does diffusion of innovation help
Helps marketers understand rate at which consumers are likely to adopt a new product/service and can help identify potential markets for new product and predict potential sales
define 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 (like Apple Ipod, created new industry and changed way people listened to music)
what do pioneers have advantage of
Have advantage of being first movers
define first movers
product pioneers that are the first to create a market or product category, making them readily recognizable to consumers and thus establishing a commanding and early market share lead
market share of market pioneers
Market pioneers can command a greater market share over longer time period than later entrants
uphill battle of market pioneers
These products face uphill task of establishing market alone, pave way for followers (who can spend less marketing effort creating demand for product category and instead focus on specific brand), less sophisticated design, priced higher (can leave room for better and lower-priced competitive products)
define disruptive innovations
new product introductions that are simpler, less sophisticated and usually less expensive than existing products/services (like netflix disrupted movie rental industry)
main reason of failure of new products
1) failure to assess market property by neglecting to do appropriate product testing, targeting wrong segment, poor positioning
2) Many offer consumers too few benefits, too complex, require substantial learning + effort, bad timing (product introduced at time consumer wasn’t ready for them), venturing into products inconsistent with brand image or value proposition)
explain consumer adoption cycle
Number of users of an innovative product spreads through population over time and generally follows bell shaped curve
5 categories of CAC & %
Innovators - 2.5% Early adopters - 13.5% Early majority - 34% Late majority - 34% Laggards - 16%
define innovators
those buyers who want to be the first to have the new product/service
3 points to innovators
1) Enjoy taking risks, are highly knowledgeable (may subscribe to trade magazines, talk to experts, search internet, attend product related forums), not price sensitive
2) Firms that invest in latest tech, either in product or to make firm more efficient, are also considered innovators
3) Crucial - help product gain market acceptance through talking and spreading positive word of mouth and bring in early adopters
define early adopters
second group of consumers to use a product or service innovation. Generally don’t like to take as much risk as innovators
3 points to early adopters
1) Wait and purchase product after careful review, enjoy novelty, regarded as opinion leaders for particular product categories so spreads word
2) If early adopter group is small, # of people who ultimately adopt innovation will likely also be small
3) Crucial - bring in other 3 buyer categories to market
define early majority
members don’t like to take much risk and wait until bugs are worked out
2 points to early majority
1) Crucial - few new products/services can be profitable until this large group buys them
2) When they enter the market, # of competitors in marketplace usually also reached its peak, so buyers have many different price + quality choices
define late majority
last group of buyers to enter new product market
3 points to late majority
1) When they enter, product has achieved full market potential
2) Use product long after other consumers interested have used it
3) Sales tend to level off or may be in decline when they enter
define laggards
consumers who like to avoid change and rely on traditional products until they are no longer available
1 point to laggard
In some cases, may never adopt product/service
explain using CAC
Firms can predict which types of consumers will buy their product immediately after intro and later - firms can develop effective promotion, pricing, other marketing strategies to push acceptance within each customer group
4 factors affecting product diffusion speed
1) compatability
2) observability
3) complexity + trailability
4) relative advatage
factor affecting product diffusion speed: 2 points to compatability
1) Process may be quick or slow depending on various consumer features, including international cultural differences
2) Example: in canada we drink coffee, in japan they drink tea
factor affecting product diffusion speed: 2 points to observability
1) When products are easily observed, their benefits/uses are easily communicated to others, which increases diffusion process
2) Product may diffuse slowly if people feel uncomfortable talking about what they perceive to be involved in their personal care
factor affecting product diffusion speed: 2 points to complexity + trialability
1) Products less complex are easy to try, will diffuse more quickly
2) In response: firms may offer trial period for complex products like vacuum that it isn’t so easy to pick up and try at home
factor affecting product diffusion speed: 1 point to relative advantage
If product perceived to be better than substitutes, diffusion will be quick
product development process function
not linear, it consist of number of feedback loops
roles that are involved in product development process
Marketing, design, engineering, manufacturing, procurement, finance
how does marketing play role in product development process
communicating customer needs/wants, marketplace preferences and attitudes to R&D and engineering group
how product development process varies for products
New products will follow process fairly closely, products imitating successful ones from competitors, having low development cost or involving incremental changes may skip 1+ steps
6 steps in product development process
1) idea generation
2) concept testing
3) product development
4) market testing
5) product launch
6) evaluation of results
PDP: explain idea generation
Development of viable new product ideas
PDP: 6 things in idea generation step
1) internal R&D
2) licensing
3) brainstorming
4) outsourcing
5) competitors products
6) customer input
PDP: step 1: 3 points to internal R&D
1) Scientists work to solve complex problems and develop new ideas
2) Reverse innovation
3) Some products may fail, others will generate profits
define reverse innovation
turn to subsidiaries in less developed markets for new product ideas
PDP: step 1: 2 points to licensing
1) Firms buy rights to use tech or ideas from other research-intensive firms through licensing agreement
2) Saves cost of in house R&D but firm is banking on solution that already exists but has not been marketed
PDP: step 1: 3 points to brainstorming
1) Group works together to generate ideas
2) No idea can be immediately accepted or rejected
3) At end of session, members vote on best ideas and ideas are carried forward to next stage
PDP: step 1: 2 points to outsourcing
1) If firm cannot move through steps alone, turn to outside firms
2) Outside firms can help foster creativity + innovation
PDP: step 1: 3 points to competitiors products
1) New product entry by competitor can create market opportunity for firm.
2) Firm can use reverse engineering.
3) This approach is widespread
PDP: step 1: define reverse engineering
involves taking apart a competitor’s product, analyzing it, and creating an improved product that does not infringe on competitor’s patents, if any exist
PDP: step 1: 5 points to customer input
1) Because customer for B2B products are few, firms can follow their use of product closely and survey them for suggestions + ideas to improve products
2) Joint effort between selling firm and customer increases probability customer will eventually buy new product
3) Customer input in B2C comes from many sources, including social media, online reviews,
4) Consumers may not expressly demand a new product, but behaviour demonstrates need for it. Example: can realize women have trouble lifting heavy gardening equipment
5) Can also analyze lead users for input, Example: how customers modify clothes
define lead users
innovative product users who modify existing products according to own ideas to suit their specific needs
PDP: step 2: define concept testing
process in which concept statement that describes product/service is presented to potential buyers/users to obtain reactions
PDP: step 2: define concepts
brief written descriptions of product/service, its tech, working principles, forms, and what customer needs it would satisfy
PDP: step 2: what ideas get here
Ideas with potential are developed into concepts
PDP: step 2: what can reactions help
Reactions can help firms estimate sales value of product concept, make changes to enhance sales value, determine if idea is worth further development, avoids cost of unnecessary product development if customers don’t like it
PDP: step 2: what does firm do first and then next
Firm starts with qualitative research to test concepts like interviews. Then quantitative research through internet surveys
PDP: step 2: important questions asked
Important questions are customers purchase intentions if the product were to be made available, whether product satisfies need other products not meeting, expected frequency of purchase, how much customers would buy, if they would buy it for themselves or as gift, when they would buy, whether price info indicates good value, and collect demographic info to analyze customer segments that would be most interested in product
PDP: step 3: define product development
entails process of balancing various engineering, manufacturing, marketing, economic considerations to develop product
PDP: step 3: general overview
Development of prototypes and/or product
PDP: step 3: what moves here
Concepts receiving high evaluations from potential customers move to this step
PDP: step 3: define prototype
first physical form or service description of 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
PDP: step 3: how are prototypes tested
alpha and beta testing
PDP: step 3: alpha testing definition
an attempt by firm to determine whether product will perform according to its design and whether it satisfies the need for which it was intended, occurs in firm’s R&D department
PDP: step 3: beta testing definition
having potential customers examine product prototype in real-use setting to determine its functionality, performing, potential problems, and other issues specific to its use
PDP: step 3: what has made beta testing easy?
internet
PDP: step 4: overview of this step
Testing the actual products in a few test markets
PDP: step 4: why do firms skip this step sometimes
because of competitive, timing or cost pressures
PDP: step 4: 2 forms
premarket testing, test marketing
PDP: step 4: define premarket tests
conducted before product or service is brought to market to determine how many customers will try and then continue to use it
PDP: step 4: 2 points to premarket tests
1) Uses small group of potential consumers over multiple times
2) Potential customers can also see advertising of various currently available products and advertising for new product to get feedback on effectiveness of advertising
PDP: step 4: define test marketing
introduces new product/service to limited geographical area (usually few cities) prior to national launch
PDP: step 4: 4 points to test marketing
1) Uses all elements of marketing mix
2) From these results, can estimate demand for entire market
3) Costs more and takes longer than pre market tests, so can provide advantage to competitors who could get similar or better product to market first
4) Advantage: firm can study actual consumer behaviour, more reliable than simulated test
PDP: step 5: overview
Full scale commercialization of product
PDP: most critical step and why
product launch - requires lots of financial resources and extensive coordination of all aspects of marketing mix; If new product launch is failure, it may be difficult for product/firm to recover
PDP: step 5: what happens
First, firm confirms its target market, decides how product will be positioned (using research gathered on consumer perceptions, tests conducted + competitive considerations), finalizes remaining marketing mix for new product including marketing budget for first year
PDP: step 6: explain overview
Analysis of the performance of the new product and making appropriate modifications (like to marketing mix or additional resources needed)
PDP: step 6: 3 interrelated ways firms measure success of new product
1) satisfaction of technical requirements like performance
2) customer acceptance
3) satisfaction of firm’s financial requirements, like sales + profits
define product life cycle
defines the stages that new products move through as they enter, get established in, and leave the marketplace and thereby offers marketers a starting point for strategy planning
4 stages of product life cycle
introduction, growth, maturity, decline
explain product life cycle for varied products
Not every product follows same life cycle curve, many products (like home appliances) stay in maturity period for long time and can add features and is unlikely to enter decline stage unless innovative, superior solution replaces it
PLC: define introduction stage
stage of product life cycle when innovators start buying product
PLC: intro, sales, profits, typical consumers, competitors
Sales: low
Profits: negative or low
Typical consumers: innovators
Competitors: one or few
PLC: intro: 5 points
1) Usually starts with single firm
2) Example: ipad in 2010
3) Sensing viability and commercialization possibilities, other firms soon enter market with similar or improved products at lower prices
4) High start up costs and low sales revenue
5) May see profit in positives at end of stage if product is successful
PLC: growth stage define
product gains acceptance, demand and sales increase, competitors emerge in product category
PLC: growth: sales, profits, typical consumers, competitors
Sales: rising
Profits: rapidly rising
Typical consumer; early adopters + early majority
Competitors: few but increasing
PLC: growth stage; 5 points
1) Market becomes more segmented, consumer preferences more varied, which increases potential for new markets or new uses of product/service
2) Firms attempt to reach new consumers by studying preferences and producing different product variations (colour)
3) Goal: establish firm’s brand so not to be outdone by competitors
4) Profits rise due to economies of scale associated with marketing and manufacturing costs
5) Firms that have not established strong hold in market, may decide to exist as industry shakeout
PLC: maturity stage define
industry sales reach peak, so firms try to rejuvenate products by adding new features or repositioning them, If these efforts succeed, product achieves new life otherwise goes into decline stage.
PLC: maturity: sales, profits, typical consumers, competitors
Sales: peak
Profits: peak to declining
Typical consumer: late majority
Competitors: high number of competitors + competitive products
PLC: maturity: 4 points
1) Marketing costs rise as firms defence market share against competitors
2) They face competition on price as avg price of product falls
3) Lower prices + increased marketing costs erode profit margins for many firms
4) Strategies to increase customer base or defend market share
PLC: decline define
sales decline and product eventually exits market
PLC: decline: sales, profits, typical consumers, competitors
Sales: decline
Profit: decline
Typical consumers: laggards
Competitors: low # of competitors + products
PLC: decline: 1 point
Firms with products in this stage either position themselves for a niche segment of diehard consumers or those with special needs, or completely exit the market
2 points to shape of PLC curve
1) Assumed to be bell shaped wrt profits + sales
2) In reality, each product/service has own individual shape, some move more quickly through product life cycle than others, depending on how different product is from products currently in market and how valuable it is to consumer
3) New products that consumers accept quickly have higher consumer adoption rates very early in product life cycle and move faster through the stages
shape PLC: high learning product
longer time in introduction stage
Shape PLc: low learning product
about equal time in each as curve
shape PLC: fashion product
cyclical
shape PLC: fad product
move through stages quickly and may not reach 3rd stage
2 caveats to strategies based on PLC
1) Managers do not know exactly what shape each product’s life cycle will take, no way to know precisely what stage product is in
2) If declining sales is due to poor strategy or increased competition (things that could be addressed with marketing support) and manager thinks product is in decline stage and stops promoting product, sales decline further and product life cycle becomes self-fulfilling prophecy and growth product goes to decline when it doesn’t need to
PLC: stage 3: strategies to increase customer base or defend market share
develop new uses for product, modify product (change quality, boost performance, alter appearance), increase frequency of use, increase # of users, find new users, reposition product, tweak marketing strategy, enter new products, develop new products/promotions)
PDP: step 5: 4 points to promotion
1) Promotion for new product required at each link in supply chain - if products not sold and stocked by retailer, no amount of promotion to consumers will sell product
2) Trade promotions - promotions to wholesalers, retailers to get them to purchase new products often combine price promotions, special events, personal selling
3) Can promote new products in advance of product launch to create excitement with potential customers and to measure likely demand so they have supply ready
4) For new or complex products, firms may need to provide education about product benefits
PDP: step 5: point to place
Coordinate delivery, storage of new product with retailers to ensure product is available to meet consumer demand
PDP: step 5: 3 points to price
1) Selling prices is supply chain wide decision
2) Encourage retailers to sell at MSRP, if firms don’t comply, can withhold benefits or refuse to deliver merchandise
3) Easier to start with high price and offer promotions and try to lower it than to start with low price and try to raise it
PDP: step 5: 1 point to timing
Timing may be important depending on product (ie new movies during summer when kids aren’t in school)
PDP: step 5: 4 things important to consider
place, price, timing, promotion
