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Chapter 9 NEW-PRODUCT DEVELOPMENT AND PRODUCT LIFE-CYCLE STRATEGIES

MARKETING STARTER: CHAPTER 9


Samsung: Enriching Customers Lives through New-Product Innovation
Synopsis
Samsung is the worlds leading consumer electronics maker and one of the worlds most innovative companies. Over the past two decades, Samsung has transformed itself by creating a culture of customer-focused innovation and a seemingly endless flow of inspired new products that feature stunning design, innovative technology, and lifeenriching features. But less than 20 years ago, Samsung was a little-known Korean copycat brand. However, in 1993 Samsung made an inspired decision. It turned its back on cheap knock-offs and set out to overtake rival Sony. To dethrone the consumer electronics giant, however, Samsung first had to change its entire culture, from copycat to leading-edge. With its fresh customer-centered new-product focus, Samsung overtook Sony in less than 10 years. Despites its success, Samsung isnt resting on its innovation laurels. Whatevers next in consumer electronics, Samsung wants to be the first company that finds and develops it. Further, Samsungs market intelligence and product innovation teams around the globe continually research product usage, purchase behavior, and lifestyle trends, looking for consumer insights and innovative new ways to meet consumer needs. Twenty years ago, few would have predicted that Samsung could have transformed itself so quickly and completely from a low-cost copycat manufacturer into a world-leading innovator of stylish, high-performing, premium products. But through a dedication to customer-focused new-product innovation, thats exactly what Samsung has done.

Discussion Objective
A well-focused discussion of innovation at Samsung will open students eyes to how prolific a company can be in developing customer-centered new products, and it will show the foundations underlying such imaginative newproduct productivity. The goal is to help students appreciate the essence of Samsungs relentless customer-focused innovation process, and how it managed to overtake mega-rival Sony in just 20 years.

Starting the Discussion


Start by chronicling the seemingly endless portfolio of highly innovative Sony products and servicespast, present, and future. Using the discussion questions below, link to www.samsung.com to expose students to the wide-ranging scope of Samsungs innovations. You can supplement this with a visit to http://en.wikipedia.org/wiki/Samsung and video clips from www.youtube.com to highlight various Samsung products, learn why users love them so much, and how users drive the innovation process. Once youve run through a few of Samsungs top innovations, discuss the companys innovation process. Keep in mind that the purpose of the discussion isnt to discuss every Samsung product. Rather, its to show the scope of the companys innovations and the process behind their development.

Discussion Questions
1. Name some Samsung products. Which Samsung products do you use? (Develop a quick starting list. Initial responses will probably include more common products such as laptop computers, phones, flat-screen TVs, and DVRs. But digging deeper shows the mind-boggling scope and innovativeness of Samsungs portfolio. Pull up the Wikipedia listing referenced above. Click quickly through it page by page, briefly discussing an occasional product. Students will recognize many of the products on the Wikipedia page but many others will be new to them. Again, the goal is not to discuss specific products but to convey the sheer magnitude of innovative products from Samsung.) Sue Shim, Samsungs chief marketing officer, says, Put simply, our differentiation is centered on producing innovative technology that brings genuine change to peoples lives. We do this by bringing a relentless focus on consumer experience and product innovation in everything we do. In terms of new Copyright2014 Pearson Education

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product development, what does this quote mean to you? (Beyond cutting-edge technology and stylish designs, Samsung puts the customer at the core of its innovation movement. As a class, recall that Samsungs dramatic shift began with a top -down mandate for reform. Samsung set out to become a premier brand and a trailblazing product leader. The company hired a crop of fresh, young designers and managers, who unleashed sleek, bold, and beautiful products targeted to high-end users. Samsung called them lifestyle works of art. Every new product had to pass the Wow! test: If it didnt get a Wow! reaction during market testing, it went straight back to the design studio.) 3. How does the chapter-opening Samsung story relate to the concepts in Chapter 9? (Use the Samsung story to transition into chapter concepts such as the eight-step process for developing new products. But more important than the steps in any process is the idea that new-product development must be systematic, teambased, andmost importantcustomer centered. Explore Samsungs corporate philosophy at http://www.samsung.com/us/aboutsamsung/corporateprofile/valuesphilosophy.html)

CHAPTER OVERVIEW
Use Power Point Slide 9-1 Here In this chapter, well look into two product topics: 1. Developing new products 2. Managing products through their life cycles. New-product development is risky, and many new products fail. The first part of this chapter lays out a process for finding and growing successful new products. In the second part of the chapter, we see that every product passes through several life-cycle stages and that each stage poses new challenges requiring different marketing strategies and tactics. Finally, we look at two additional considerations, social responsibility in product decisions and international product and services marketing.

CHAPTER OBJECTIVES
Use Power Point Slide 9-2 Here 1. Explain how companies find and develop new-product ideas. 2. List and define the steps in the new-product development process and the major considerations in managing this process. 3. Describe the stages of the product life cycle and how marketing strategies change during the product life cycle. 5. Discuss two additional product issues: socially responsible product decisions and international product and services marketing.

CHAPTER OUTLINE
p. 260 INTRODUCTION Samsung is the worlds leading consumer electronics maker
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and one of the worlds most innovative companies. Over the past two decades, Samsung has transformed itself by creating a culture of customer-focused innovation and a seemingly endless flow of inspired new products that feature stunning design, innovative technology, and life-enriching features. But less than 20 years ago, Samsung was a little-known Korean copycat brand. However, in 1993 Samsung made an inspired decision. It turned its back on cheap knock-offs and set out to overtake rival Sony. To dethrone the consumer electronics giant, however, Samsung first had to change its entire culture, from copycat to leading-edge. With its fresh customer-centered new-product focus, Samsung overtook Sony in less than 10 years. Whatevers next in consumer electronics, Samsung wants to be the first company that finds and develops it. Assignments, Resources Use Web Resource 1 and 2 here Opening Vignette Questions 1. Describe Samsungs secret to innovation. What exactly does it do better than its competitors? 2. How did Samsung manage to overtake mega-rival Sony in less than 20 years? 3. Recall the quote from Sue Shim, Samsungs chief marketing officer: Put simply, our differentiation is centered on producing innovative technology that brings genuine change to peoples lives. Do you agree with this business approach? Explain. Chapter Objective 1 NEW-PRODUCT DEVELOPMENT STRATEGY A firm can obtain new products in two ways. p. 262 1. Acquisitionby buying a whole company, a patent, Key Term: NewProduct or a license to produce someone elses product. Development 2. New-product development efforts. There are a number of reasons new products may fail. THE NEW-PRODUCT DEVELOPMENT PROCESS PPT 9-4 Chapter Objective 2

p. 261 Photo: Samsung

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Figure 9.1 shows the eight major steps in the new-product p. 263 development process. Key Term: Idea Generation Idea Generation
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Idea generation is the systematic search for new product p. 263 Figure 9.1: Major ideas. Stages in NewProduct Internal Idea Sources Development Using internal sources, the company can find new ideas through formal research and development. Or it can pick the p. 263 brains of employeesfrom executives to scientists, Photo: Twitter engineers, and manufacturing staff to salespeople. External Idea Sources Companies can also obtain good new product ideas from any of a number of external sources, such as distributors and suppliers, or even competitors. Perhaps the most important source of new product ideas is customers themselves. p. 263 Photo: LEGO

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Crowdsourcing p. 265 Crowdsourcing throws the innovation doors wide open, Key Term: inviting broad communities of people into the new product Crowdsourcing innovation process. When it comes to helping to improve products and services, many heads are better than one. Crowdsourcing can produce a flood of innovative ideas.

p. 266 Ad: P&G

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Idea Screening

p. 265 Key Term: Idea The first idea-reducing stage is idea screening, which Screening helps spot good ideas and drop poor ones as soon as possible.

Concept Development and Testing PPT 9-9 p. 267 A product idea is an idea for a possible product that the Key Term: Product Concept company can see itself offering to the market. A product concept is a detailed version of the idea stated in meaningful consumer terms. p. 267 A product image is the way consumers perceive an actual or Ad: Tesla Electric Car potential product.
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Concept Development p. 267 In concept development, several descriptions of the product are generated to find out how attractive each concept is to customers. From these concepts, the best one is chosen. p. 268 Concept Testing Concept testing calls for testing new-product concepts with groups of target consumers. Marketing Strategy Development PPT 9-11 Marketing strategy development is designing an initial p. 268 Key Terms: marketing strategy for introducing a product to the market. Concept Testing, Marketing Strategy The marketing strategy statement consists of three parts. Development 1. A description of the target market; the planned value proposition; and the sales, market share, and profit goals for the first few years. 2. Outline of the products planned price, distribution, p. 268 Table 9.1: and marketing budget for the first year. 3. Description of the planned long-run sales, profit Questions for the All-Electric Car goals, and marketing mix strategy. Concept Test Business Analysis Business analysis involves a review of the sales, costs, and profit projections for a new product to find out whether they satisfy the companys objectives. Product Development p. 269 In product development, R&D or engineering develops Key Terms: Business Analysis, the product concept into a physical product. Product The product development step calls for a large jump in Development investment. The new product must have the required functional features and also convey the intended p. 266 psychological characteristics. Photo: New Balance Test Marketing Test marketing is the stage at which the product and
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marketing program are introduced into realistic market settings. PPT 9-15 The amount of test marketing needed varies with each new product. Test marketing costs can be high, and it takes time that may allow competitors to gain advantages. When the costs of developing and introducing the product are low, or when management is already confident about the new product, the company may do little or no test marketing. In fact, test marketing by consumer-goods firms has been declining in recent years. Companies often do not testmarket simple line extensions or copies of competitors successful products. However, when introducing a new product requires a big investment, when the risks are high, or when management is not sure of the product or its marketing program, a company may do a lot of test marketing. Standard test markets are small representative markets where the firm conducts a full marketing campaign and uses store audits, consumer and distributor surveys, and other measures to gauge product performance. Results are used to forecast national sales and profits, discover product problems, and fine-tune the marketing program. In controlled test markets new products and tactics are tested among controlled groups of customers and stores. Within test stores, such factors as shelf placement, price, and in-store promotions for the products being tested can be controlled. In simulated test markets researchers measure consumer responses to new products and marketing tactics in laboratory stores or simulated shopping environments. Many marketers are now using new online simulated marketing technologies to reduce the costs of test marketing and speed up the process are basically simulated shopping environments. Commercialization p. 271 PPT 9-18 Commercialization means introducing the new product p. 271 Key Term: into the market. Commercialization Decisions must be made concerning: Timing Where to launch the new product Market rollout
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p. 270 Key Term: Test Marketing p. 270 Photo: Starbucks

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Assignments, Resources Use Discussion Questions 1 and 2 here Use Critical Thinking Exercise 1 here Use Additional Projects 1 and 2 here Use Small Group Assignment 1 here Use Outside Example 1 here Use Web Resource 3 here Troubleshooting Tip Understanding the systematic nature of the new product development process will cause problems for some students. They will have some difficulty understanding why a process is needed at all, and they will also not realize how development costs rise at each and every stage. Finally, the amount of analysis that goes into the screening phases might be a surprise to them. To overcome these barriers, come up with a new product idea in class and review how you might develop it into a viable product. MANAGING NEW-PRODUCT DEVELOPMENT Customer-Centered New-Product Development Above all else, new-product development must be customer p. 271 centered. Key Term: Customer-centered new-product development focuses Customer-Centered on finding new ways to solve customer problems and create New-Product Development more customer-satisfying experiences. Team-Based New-Product Development p. 272 Under the sequential product development approach, one Key Term: Teamcompany department works individually to complete its Based New-Product stage of the process before passing the new product along to Development the next department and stage. This orderly, step-by-step process can help bring control to complex and risky projects. But it also can be dangerously slow. In order to get their new products to market more quickly, many companies use a team-based new-product development approach. Under this approach, company departments work closely together in cross-functional teams, overlapping the steps in
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the product development process to save time and increase effectiveness. Instead of passing the new product from department to department, the company assembles a team of people from various departments that stay with the new product from start to finish. Systematic New-Product Development PPT 9-22 An innovation management system can be used to collect, review, evaluate, and manage new-product ideas. p. 273 The innovation management system approach yields two Photo: Google favorable outcomes: 1. It helps create an innovation-oriented company culture. 2. It will yield a larger number of new-product ideas, among which will be found some especially good ones. Assignments, Resources Use Real Marketing 9.1 here Use Discussion Question 3 here Use Web Resource 4 here Use Video Case here New-Product Development in Turbulent Times Tough times might call for even greater new product development, as the company struggles to better align its market offerings with changing consumer needs and tastes. In difficult times, innovation more often helps than hurts in making the company more competitive and positioning better it for the future.

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PRODUCT LIFE-CYCLE STRATEGIES Figure 9.2 shows a typical product life cycle (PLC), the course that a products sales and profits take over its lifetime. The product life cycle has five distinct stages:

Chapter Objective 3

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1. Product development begins when the company finds


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and develops a new-product idea. During product p. 273 development, sales are zero and the companys Key Term: Product investment costs mount. Life Cycle (PLC) 2. Introduction is a period of slow sales growth as the product is introduced in the market. Profits are p. 274 nonexistent in this stage because of the heavy expenses Figure 9.2: Sales and Profits over the of product introduction. Products Life from 3. Growth is a period of rapid market acceptance and Inception to Decline increasing profits. 4. Maturity is a period of slowdown in sales growth because p. 274 the product has achieved acceptance by most potential Ad: Life Savers buyers. Profits level off or decline because of increased marketing outlays to defend the product against competition. 1. Decline is the period when sales fall off and profits drop. The PLC concept can describe a product class (gasolinepowered automobiles), a product form (SUVs), or a brand (the Ford Escape). Product classes have the longest life cycles. Product forms, in contrast, have the standard PLC shape. A product brands PLC can change quickly because of changing competitive attacks and responses. PPT 9-25 The PLC also can be applied to styles, fashions, and fads (Figure 9.3). A style is a basic and distinctive mode of expression. A fashion is a currently accepted or popular style in a given field. Fads are temporary periods of unusually high sales driven by consumer enthusiasm and immediate p. 274 product or brand popularity. Key Terms: Style, Fashion, Fad Strategies for each of the other life-cycle stages: p. 275 Introduction Stage Figure 9.3: Styles, Fashions and Fads The introduction stage starts when the new product is first p. 275 launched. Key Term: In this stage, profits are negative or low, promotion spending Introduction Stage
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is relatively high, only basic versions of the product are produced. p. 276 PPT 9-27 Growth Stage The growth stage is where sales begin to climb quickly. New competitors will enter the market. They will introduce new product features, and the market will expand. The increase in competitors leads to an increase in the number of distribution outlets. Prices remain stable or decrease slightly. Profits also may increase during the growth stage. Maturity Stage p. 276 PPT 9-28 The maturity stage is characterized by slowing product growth. The slowdown in sales growth results in many producers with many products to sell. Competitors begin marking down prices, increasing their advertising and sales promotions, and upping their productdevelopment budgets to find better versions of the product. These steps lead to a drop in profit. Product managers should consider modifying the market, product, and marketing mix. PPT 9-29 In modifying the market, the company tries to increase the consumption of the current product. In modifying the product, the company tries changing characteristics such as quality, features, style, or packaging to attract new users and to inspire more usage. In modifying the marketing mix, the company tries changing p. 278 one or more marketing mix elements. Key Term: Modifying the Decline Stage Market The sales of most product forms and brands eventually dip.
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p. 276 Key Terms: Growth Stage, Maturity Stage

p. 277 Ad: Hot Wheels

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This is the decline stage. PPT 9-30 p. 277 p. 277 Management may decide to maintain its brand without Key Term: Decline Stage change in the hope that competitors will leave the industry. Management may decide to harvest a product, which means reducing various costs (plant and equipment, maintenance, R&D, advertising, sales force) and hoping that sales hold up. p. 280 Table 9.2: Summary of Product LifeManagement may decide to drop the product from the line. Cycle Characteristics, Objectives, and Strategies Assignments, Resources Use Real Marketing 9.2 here Use Discussion Question 4 here Use Critical Thinking Exercises 2 and 3 here Use Marketing Technology here Use Marketing Ethics here Use Marketing by the Numbers here Use Additional Project 3, 4, and 5 here Use Small Group Assignment 2 here Use Individual Assignment 1 and 2 here Use Outside Example 2 here Use Web Resource 5 here Troubleshooting Tips 1) The phases of the product life cycle, and the fact that it can apply to product classes, forms, and brands, can be difficult to understand at first. Discussing brands that are in each stage helps tremendously, as does discussing products that have successfully moved back from decline into maturity or growth (e.g., Arm & Hammer baking soda). 2) The differences among fads, fashions, and styles can be explained by asking the students to discuss clothing in those terms. Because these items are routinely discussed regarding fashions and styles, students can easily internalize the differences in meaning of these terms. Chapter Objective 4 ADDITIONAL PRODUCT AND SERVICE CONSIDERATIONS Product Decisions and Social Responsibility
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Marketers should consider public policy issues and regulations regarding acquiring or dropping products, patent protection, product quality and safety, and product warranties. Regarding new products, the government may prevent companies from adding products through acquisitions if the effect threatens to lessen competition. Manufacturers must comply with specific laws regarding product quality and safety. Congress passed the Magnuson-Moss Warranty Act in 1975. The act requires that full warranties meet certain minimum standards, including repair within a reasonable time and without charge, or a replacement, or full refund if the product does not work after a reasonable number of attempts at repair. p. 281 PPT 9-32 International Product and Services Marketing International product and service marketers face special p. 281 challenges. Ad: KFC They must figure out what products and services to introduce and in which countries. They must decide how much to standardize or adapt their products and services for world markets. Packaging presents new challenges for international marketers.

The trend toward growth of global service companies will continue, especially in banking, airlines, telecommunications, and professional services. Assignments, Resources Use Web Resource 6 here

END OF CHAPTER MATERIAL


Discussion Questions 1. Name and describe the major steps in the new-product development process. (AACSB: Communication)
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Answer: Figure 9.1 shows the eight major steps in this process: Idea generationthe systematic search for new-product ideas. Major sources of new-product ideas include internal sources and external sources. The purpose of idea generation is to create a large number of ideas. The purpose of the succeeding stages is to reduce that number. Idea screeninghelps spot good ideas and drop poor ones as soon as possible. Product concepta detailed version of the idea stated in meaningful consumer terms. Concept testingtesting with groups of target consumers. The concepts may be presented to consumers symbolically or physically. Marketing strategy developmentdesigning an initial marketing strategy for introducing the product to the market. The marketing strategy statement describes the target market, the planned value proposition, and the sales, market share, and profit goals for the first few years. Business analysisa review of the sales, costs, and profit projections for a new product to find out whether they satisfy the companys objectives. If they do, the product can move to the product development stage. Product developmentR&D or engineering develops the product concept into a physical product Test marketingthe stage at which the product and marketing program are introduced into realistic market settings. Commercializationintroducing the new product into the market. 2. What is test marketing? Explain why companies may or may not test market products and discuss alternatives to full test markets. (AACSB: Communication) Answer: Test marketing is the stage at which the product and its proposed marketing program are introduced into realistic market settings. Test marketing gives the marketer experience with marketing a product before going to the great expense of full introduction. It lets the company test the product and its entire marketing programtargeting and positioning strategy, advertising, distribution, pricing, branding and packaging, and budget levels. The amount of test marketing needed varies with each new product. Test marketing costs can be high, and it takes time that may allow competitors to gain advantages. When the costs of developing and introducing the product are low, or when management is already confident about the new product, the company may do little or no test marketing. However, a company may do a lot of test marketing when introducing a new product requires a big investment, when the risks are high, or when management is not sure of the product or its marketing program. As an alternative to extensive and costly standard test markets, companies can use controlled test markets or simulated test markets. In controlled test markets, such as SymphonyIRIs
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BehaviorScan, new products and tactics are tested among controlled panels of shoppers and stores. By combining information on each test consumers purchases with consumer demographic and TV viewing information, BehaviorScan can provide store-by-store, weekby-week reports on the sales of tested products and the impact of in-store and in-home marketing efforts. Using simulated test markets, researchers measure consumer responses to new products and marketing tactics in laboratory stores or simulated online shopping environments. Both controlled test markets and simulated test markets reduce the costs of test marketing and speed up the process. 3. What are the benefits of an innovation management system and how can a company install such a system? (AACSB: Communication) Answer: The new-product development process should be holistic and systematic rather than compartmentalized and haphazard. Otherwise, few new ideas will surface, and many good ideas will sputter and die. To avoid these problems, a company can install an innovation management system to collect, review, evaluate, and manage new-product ideas. The company can appoint a respected senior person to be its innovation manager. It can set up Web-based idea management software and encourage all company stakeholders employees, suppliers, distributors, dealersto become involved in finding and developing new products. It can assign a cross-functional innovation management committee to evaluate proposed new-product ideas and help bring good ideas to market. It can also create recognition programs to reward those who contribute the best ideas. The innovation management system approach yields two favorable outcomes. First, it helps create an innovation-oriented company culture. It shows that top management supports, encourages, and rewards innovation. Second, it will yield a larger number of new-product ideas, among which will be found some especially good ones. The good new ideas will be more systematically developed, producing more new-product successes. No longer will good ideas wither for the lack of a sounding board or a senior product advocate. 4. Discuss the three strategies available for products in the mature stage of the product life cycle. For each strategy, describe an example other than the ones in the chapter of a company using that strategy. (AACSB: Communication; Reflective Thinking) Answer: Product managers should do more than simply ride along with or defend their mature productsa good offense is the best defense. Companies should consider three strategies: modifying the market, product, and marketing mix. In modifying the market, the company tries to increase consumption by finding new users and new market segments for its brands. Examples in the chapter describe how brands such as Harley-Davidson and Axe fragrances, which have typically targeted male buyers, are introducing products and marketing programs aimed at women. P&Gs Swiffer household cleaning brand has developed special promotions for pet owners. The company may also look for ways to increase usage among present
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customers. For example, the Glad Products Company helps customers find new uses for its Pressn Seal wrap, the handy plastic wrap that creates a Tupperware-like seal. The company might also try modifying the productchanging characteristics such as quality, features, style, packaging, or technology platforms to retain current users or attract new ones. Toy makers are souping up their products to meet the tastes of the new generation. Finally, the company can try modifying the marketing miximproving sales by changing one or more marketing mix elements. The company can offer new or improved services to buyers. It can cut prices to attract new users and competitors customers. It can launch a better advertising campaign or use aggressive sales promotionstrade deals, cents-off, premiums, and contests. In addition to pricing and promotion, the company can also move into new marketing channels to help serve new users. Kellogg used all of these approaches to keep its 50+-year-old Special K brand from sinking into decline. To reinvigorate the brand, Kellogg first extended the cereal line to include a variety of cereal flavors. Then, it stretched Special K beyond cereals, turning it into a healthful, slimming lifestyle brand. The expanded line now includes meal and snack bars, protein waters and shakes, crackers and chips, and fruit crisps. To attract new users and more usage, Kellogg promotes the Special K Challenge, a weight management plan built around Special K products Critical Thinking Exercises 1. Visit creatingminds.org/tools/tools_ideation.htm to learn about idea generation techniques. Form a small group and apply one or more of the techniques to generate at least four new product ideas for a company of your choice. Apply the R-W-W screening framework to assess the idea for that company. (AACSB: Communication; Use of IT; Reflective Thinking) Answer: Students responses will vary and are limited only by their imaginations. The R-W-W (real, win, worth doing) new-product screening framework that asks three questions. First, Is it real? Is there a real need and desire for the product and will customers buy it? Is there a clear product concept and will such a product satisfy the market? Second, Can we win? Does the product offer a sustainable competitive advantage? Does the company have the resources to make such a product a success? Finally, Is it worth doing? Does the product fit the companys overall growth strategy? Does it offer sufficient profit potential? The company should be able to answer yes to all three R-W-W questions before developing the newproduct idea further. 2. Find an example of a company that launched a new consumer product within the last five years. Develop a presentation showing how the company implemented the 4 Ps in launching the product and report on the products success since the launch. (AACSB: Communication; Reflective Thinking) Answer:
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Students examples will vary. Searching New Products 2012 brings several results students can select for this activity. For example USA Today has a photo gallery at http://mediagallery.usatoday.com/Hot+products+and+marketing+trends+for+2012/G3190?lo c=interstitialskip showing 10 hot products and marketing trends for 2012. P&Gs Tide Pods show up on several new product lists. P&G launched the new product in early 2012, selecting the Academy Awards as the broadcast vehicle because of the timing and audience fit for the product. The launch was not without problems, however. First it was delayed due to manufacturing problems, which opened the window for competitors such as Arm & Hammer to offer their own single-use detergent packets. Due to increasing commodities prices, P&G had to raise the price of the new product in the face of economic conditions that have consumers trading down to store brands. Then P&G had to modify the packaging and change advertising after hundreds of calls to poison control due to children eating the product because they thought it was candy. 3. Visit the Product Development and Management Associations Web site (www.pdma.org) to learn about this organization. Click on OCI Award in the About PDMA dropdown menu. Describe this award and the criteria used when granting this award and discuss one company receiving the award. (AACSB: Communication; Use of IT) Answer: This organization advocates best practices in product development and provides several resources for members. The OCI stands for Outstanding Corporate Innovator and there are four basic requirements for receiving this award: 1. 2. 3. 4. A sustained record of successful new product launches over a five-year period. New product success that leads to significant company growth. The company has a defined new product development process. An innovative culture within the organization.

Companies receiving this award each year are highlighted on the site. Recent recipients include Xerox, Bank of America, Nextel, Air Force Laboratory, and Harley-Davidson. Students can click on each organization to learn why it was granted this distinction. Instructors might want to assign students specific companies so that a variety of award winning companies can be discussed in class. Marketing Technology: Fiat Mio Companies use crowdsourcing to solve problems, generate new product ideas, and develop promotional campaigns. In August 2009, Brazils largest carmaker, Fiat, launched Project Mio to develop the worlds first fully crowdsourced concept car. The project Web site asked the question, "In the future we're building, what should a car have that makes it mine, while still working for others?" The Web sites 300,000 unique visitors from more than 160 countries generated over 10,000 suggestions. The site had 17,000 people officially registered as potential collaborators. Thousands of comments were posted on Facebook and Twitter. Fiats staff mulled over the suggestions and the concept car was presented at the 2010 Sao Paulo auto show.
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Fiat was transparent during the entire process and the cars final specifications are open to anyoneeven other car companies. Though the new product development process has not progressed to the commercialization stageand perhaps never willFiat and other carmakers can use these ideas in future car models. 1. Form a small group and research the Fiat Mio. What are some of the suggestions offered by consumers that influenced the design of the car? Ask your friends and family the same question Fiat asked consumers and compile the responses from your group members. Would the car developed from these responses be similar to Fiats Mio? Explain. (AACS B: Communication; Reflective Thinking; Use of IT) Answer: Fiats Mio is a very small careven smaller than a SMART car. It looks like a 4-wheeler with doors and a roof. Most likely, U.S. consumers will not perceive such a car as practical for this market. However, urban-dwellers might suggest such a vehicle. Some of the suggestions might translate well in the United States, such as mirrors that rotate to enable easier parallel parking or not having mirrors at all and installing cameras instead. Doors dont have to be hinged in the traditional way, and both doors dont have to be hinged the same way. For example, the passenger door might be hinged in the back to give the passenger more room when entering and exiting the vehicle. Consumers in any country are probably concerned about fuel mileage and environmental impact, so alternative fuel sources, such all-electric vehicles, are likely to be commonly suggested. 2. Several crowdsourcing activities were described in the chapter. Describe an example of a different company using crowdsourcing to develop or modify products. (AACSB: Communication; Reflective Thinking; Use of IT) Answer: Students can find examples by searching Google for crowdsourcing and new product development. One result provides links to several examples of companies using crowdsourcing (see www.openinnovators.net/list-open-innovation-crowdsourcingexamples/). For example, Kraft Foods Innovative Kitchen (www.kfcollaborationkitchen.com/EN/Pages/Home.aspx) encourages consumers to submit product ideas and has a page with specific needs they need addressed (www.kfcollaborationkitchen.com/EN/What/Pages/home.aspx). Unlike Kraft, where the submitted ideas are not public, Starbucks asks for ideas on products, dcor, processes, and so on and allows consumers to comment or simply vote on whether they like or dislike an idea (http://mystarbucksidea.force.com/). Other crowdsourcing initiatives can be found at http://en.wikipedia.org/wiki/List_of_crowdsourcing_projects.

Marketing Ethics: I Can Find Out Who You Are


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Facial recognition technology is not new, but the way it is being used is. If you have a criminal record, police can find that out just by looking at youthrough their iPhones, that is. Using a device known as Moris, which stands for Mobile Offender Recognition and Information System, a police officer can snap a picture of a persons face or scan a persons iris and obtain immediate information if there is a match in a criminal database. No more going down to the station and getting inky fingertipsthe gadget can collect fingerprints right on the spot. Whereas an iris scan must be conducted with the persons knowledge because of the close-range necessary, a picture can be snapped from several feet away without the person knowing it. Facebook uses facial recognition to allow users to identify friends in pictures, and several mobile phone apps allow users to identify Facebook friends with a mere snap of a picture. Google considered a project that would enable mobile phone users to snap a picture of someone and then conduct an image search but rejected the idea because of ethical concerns. 1. Discuss other commercial applications of facial recognition technology. Come up with two new-product concepts that employ this technology. (AACSB: Communication; Reflective Thinking) Answer: Students answers will vary. Facial recognition technology is used in some hi-tech companies for security access. Middle Eastern and European countries use iris scans to recognize travelers at security checkpoints. The U.S. military has used it to identify possible insurgents in Iraq or Afghanistan. Other applications might include users being able to take a picture of someone they are interested in and getting a background check instantly to find out if he or she is married or has a criminal background, potential employers using it to conduct background checks on the spot, schools or potential employers requiring a picture be submitted with an application to check for any matches with those Facebook pictures you shouldnt have posted, or stores using cameras at the entrance to alert employees when special customers enter the store. These are just a few examples, and students are likely to have much better ones. 2. Discuss the ethics of incorporating facial recognition technology in products. (AACSB: Communication; Ethical Reasoning) Answer: The key issue is privacy and unlawful searches, especially using the devices such as Moris. Some may argue that a picture can be taken of people out in public, so it is not a violating anyones rights. However, this is uncharted territory in law enforcement. Consumer applications are limited because its the database thats the golden nugget. Facial recognition can only match a picture of someone with similar facial features. Its the information about the person that is the real value of this technology.

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Marketing by the Numbers: Beauty Balm Cannibalization The newest product in the cosmetic beauty market is BB cream, which combines multiple skincare benefits into one product. BB stands for beauty balm, and it is heralded as a world -wide phenomenon and a multitasking miracle by companies in the industry. But rather than creating new demand, this all-in-one product could cannibalize sales of existing products such as moisturizers, sun-screens, anti-aging creams, primers, and foundations offered by cosmetic manufacturers. With BB cream sales reaching $9 million in the United State in less than a year and promising to go much higher, skin-care and cosmetic products maker Clinique does not want to miss out on this opportunity. It is introducing a new BB cream product under the Clinique brand name. Although the new BB cream will garner a higher price for the manufacturer ($10.00 per ounce for the BB cream versus $8.00 per ounce for the moisturizer product), it also comes with higher variable costs ($6.00 per ounce for the BB cream versus $3.00 per ounce for the moisturizer product). 1. What brand development strategy is Clinique undertaking? (AACSB: Communication; Reflective Thinking) Answer: Clinique is using a line extension strategy, which occurs when a company extends existing brand names to new forms, colors, sizes, ingredients, or flavors of an existing product category. The existing product category is skin-care products. 2. Assume Clinique expects to sell 3 million ounces of BB cream within the first year after introduction but expects that half of those sales will come from buyers who would otherwise purchase Cliniques moisturizer (that is, cannibalized sales). Assuming that Clinique normally sells 10 million ounces of moisturizer per year and that the company will incur an increase in fixed costs of $2 million during the first year of production for the BB cream, will the new product be profitable for the company? Refer to the discussion of cannibalization in Appendix 2: Marketing by the Numbers for an explanation of how to conduct this analysis. (AACSB: Communication; Analytical Reasoning) Answer: This is a cannibalization problem. To analyze this problem, we need to determine unit contributions: Unit contribution = price unit variable costs Unit contribution for the original moisturizer product = $8.00 $3.00 = $5.00 per ounce Unit contribution for the new BB cream = $10.00 $6.00 = $4.00 per ounce Clinique will lose $1.00 for every ounce cannibalized from the original product. One way to analyze this is to assess the incremental contribution gained (or lost) by adding the new product. The company estimates that the first years sales of the new BB cream would be 3 million ounces, but 1.5 million ounces (half of 3 million) will be cannibalized
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from the original moisturizer product. Thus, if the company loses $1.00 in contribution for every ounce cannibalized: Contribution lost due to cannibalization = 1,500,000 oz. ($1.00) = $1,500,000 However, it is estimated that the new premium product will generate an additional 1.5 million ounces in sales (3 million ounces 1.5 million ounces cannibalized units), which generate an additional $4.00 per ounce in contribution. Thus, Contribution due to net new volume = 1,500,000 oz. $4.00 per unit = $6,000,000 The net effect is that the company will gain $4,500,000 in contribution by introducing the BB cream product (incremental contribution = $6 million $1.5 million = $4.5 million). This increase in total contribution is greater than the $2 million increase in fixed costs to introduce this product, so the new product will enhance the companys profitability ($4.5 million increase in contribution - $2 million increase in fixed cost = $2.5 million increase in profit) . Another way to see this is to compare total contribution with and without the introduction of the new product: Moisturizer only
Moisturizer contribution BB cream contribution Total Contribution 0 $50,000,000 3 million oz. $4.00 = $12,000,000 $54,500,000 10 million oz. $5.00 = $50,000,000

Moisturizer and BB cream


8.5 million oz. $5.00 = $42,500,000

Notice that the difference in the total contribution is a net gain of $4,500,000 ($54,500,000 $50,000,000 = $4,500,000), which we found using the incremental method. Again, because the increase in total contribution is greater than the $2 million increase in fixed cost, introducing the new product should be profitable.

Company Case Notes


Google: New-Product Innovation at the Speed of Light Synopsis

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Google is most peoples go to search engine, capturing 84 percent of all online search. But more important, Google is one of the worlds most innovative companies, constantly developing an almost endless flow of wildly imaginative new technologies and services. Google not only innovates, it does it fast, implementing major new services in less time than it takes competitors to refine and approve an initial idea. Googles innovation pace would boggle the minds of product developers at most other companies. But fast innovation is part of Googles DNA. Google has no two-year plans for developing new products, only a four- to five-month strategic windows. Google makes ideas available to users at Googlelabs.com, then develops them through an iterative process that involves users. The thing that keeps Google employees passionate about innovation is the deeply held belief that their work can change the world. Google is different, and that difference can be felt in the spirit of the company and its innovation. Teaching Objectives The teaching objectives for this case are to: 1. 2. 3. 4. Evaluate the evolution of a new-product expert. To understand the different approaches to new product development. Apply the product life cycle to the Googles products. Determine whether Google is likely to retain its innovative dominance.

Discussion Questions 1. Based on information in this chapter, identify major similarities and differences between the new-product development process at Google versus that found at most other companies. This case in some respects represents the antithesis of traditional new product development. The chapter outlines the new-product development process as per the eight steps identified in Figure 9.1. However, the case points out that this process can take years in most companies. For Googles fast-changing world, that is far too long. Thats why Google green-lights ideas quickly, even if they stand a big chance of failing. They cut out many if not most of the phases of the new-product development process. They release products that most would still consider to be full of flaws. Then, they let the users toy with them and iron out the bugs. At that point, it is pretty apparent whether or not the product is one that has the potential to be a Google winner. Google has one big benefit that makes this process work. Its cost of development is far lower than it is for most as all its products are digital and already have a location for instant distribution. If something fails, they havent lost much and they move on. 2. Is Googles product-development process customer centered? Team based? Systematic? The case uses words like wild and chaotic to describe the innovation process at Google. It would seem that few companies could survive built on a system like this. But somehow, it doesnt just work at Google. It thrives. So, it can hardly be said that Googles process is systematic. Rather, it has elements of customer -centered and teambased new product development. The case talks about the Solve For X conference an
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invitation-only conference for 50 of the smartest people in the world. The focus is on solving some of the worlds biggest problems. The focus is also on thinking outside the box as radical was the key word at the conference. As the text points out, customer centered new-product development focuses on finding new ways to solve customer problems. Team-base new-product development is an alternative to the sequential, linear progression through the eight steps. For this approach, teams from different areas and departments tackle different aspects of the process, skipping, jumping, and overlapping phases. Google employs 20,000 of the worlds smartest people, then goes even further by heading outside the company for ideas and the development of such. 3. Considering the product life cycle, what challenges does Google face in managing its product portfolio? Google needs to make sure that it always has new products at virtually every phase of the product life cycle. Some (like search) have already had a long life and will likely continue to have such in the future. But others come and go quickly based on rapid and dynamic change in the marketplace. Google has got to maintain a certain number of mature products in order to keep people coming in to its ecosystem. And because products will always be phasing out, there must be a substantial set of products rising up through the introduction and growth phases. One of the biggest challenges in managing this everfluctuating mass is that Google cant be sure how long a products life will be. Also, it relies on such a big portfolio of products that are interrelated. To some extent different Google products play off of and feed each other. So as different products are introduced, grow, succeed, and fade away, the very nature of that progression alters the dynamics of Googles overall portfolio. 4. Is there a limit to how big Googles product portfolio can grow? Explain. There must be a limit. But Google has not likely not even come close to identifying what that limit is. As you visit the Google home page, look at the tabs across the top of the page. There are nine or ten at any given time. Click on more and youll find dozens. Given this structure, there are only so many active products that Google can have at any one time. If it adds pages and pages worth of products, most will not get all that much attention as we humans have a pretty limited scope. However, if Google were to create products that integrate into other aspects of the Internet world, functioning seamlessly and transparently as we engage in every day activities, the sky is the limit. Googles search bar that is imbedded onto just about every Web site is the perfect example. No one needs to go looking for it. Its just there. Google needs to not only find ways to get its existing products to be more integrated, it needs to use this perspective to invent new products that have not yet been thought of. 5. Will Google be successful in markets where it does not dominate, such as social networks and app/entertainment stores? Why or why not? Google has certainly proven that the answer to this is yes. Mapquest was once the biggie. Now, Google Maps dominates. Google Video? No problem, just buy the market
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leader YouTube. Even its search engine is an example of this as it was far from the first search engine developed. But the case also points out that Google doesnt necessarily need to dominate every category. As with Google +, it only needed to reach a certain level of success in order to feed that data the Google was looking for into its developmental brain. Teaching Suggestions Start by chronicling the seemingly endless portfolio of highly innovative Google products and servicespast, present, and future. Using the discussion questions below, link to the following sites to expose students to the mind-blowing scope of Googles innovations. Quickly scan and discuss the list of Google products at en.wikipedia.org/wiki/List_of_Google_products. The list just keeps going and going. You can supplement this with a brief video clip that highlights various Google products (www.metacafe.com/watch/3479365/mdmn_group_google_latest_products_september_2009/). Once youve draw out the almost overwhelming list of Google innovations, discuss the Google innovation process. Keep in mind that the purpose of the discussion isnt to discuss every Google product. Rather, its to show the scope of Googles innovations and the process behind their development. This case could also be used with the marketing strategy chapter (Chapter 2), the products and services chapter (Chapter 8), and the online marketing chapter (Chapter 17).

ADDITIONAL PROJECTS, ASSIGNMENTS, AND EXAMPLES


Projects
1. Go to Research in Motions (the makers of the Blackberry phone) Web site (www.rim.com) and read about one of their newest offerings. Imagine if you had been assigned the job of developing questions for the concept test of this product. Develop a series of five questions that you would have included. (Objective 2) 2. Why is test marketing so important for marketers? Why is not more often used? (Objective 2) 3. Find two products that you believe are in the introduction stage of the product life cycle. Justify your beliefs. (Objective 3) 4. What is the difference between fads, styles, and fashions? (Objective 3) 5. In what ways do the growth and maturity stages of the product life cycle differ? (Objective 3)

Small Group Assignments


1. Form students into groups of three to five. Each group should read Real Marketing 9.1: Crowdsourcing: P&Gs Connect+Development. Each group should then answer the following questions and share their answers with the class. (Objective 2)

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a. Describe Procter & Gambles crowdsourcing program. How does it extend the research capabilities of this corporate giant? b. Choose two of the most interesting new products that Procter & Gamble has developed through crowdsourcing. How does it leverage company assets in new ways? c. Beyond major innovations and product sales, what strategic long-term benefits has the crowdsourcing program produced for Procter & Gamble? 2. Form students into groups of three to five. Each group should read the opening chapter vignette on Samsung. Each group should then answer the following questions and share their answers with the class. (Objective 3) a. Describe Samsungs secret to innovation. What exactly does it do better than its competitors? b. How did Samsung manage to overtake mega-rival Sony in less than 10 years? c. Recall the quote from Sue Shim, Samsungs chief marketing officer: Put simply, our differentiation is centered on producing innovative technology that brings genuine change to peoples lives. Do you agree with this business approach? Explain.

Individual Assignments
1. Read Real Marketing 9.2: Converse: An Old Brand Story with a New Beginning. Answer the following questions. (Objective 3) a. Discuss the Converse product life cycle from the shoes inception in 1923 to the present day. b. Which insights from the companys new management team proved to be most accurate and profitable in the long term? Explain. c. If you were to envision the next chapter in the evolving Converse story, what might it be? Where could this products life cycle spin off to in upcoming decades? 2. Review the stages of the product life cycle contained in Table 9.2 (p. 280). Answer the following questions. (Objective 3) a. What are two products you consider to be in the decline stage of the PLC? Justify your answer. b. HDTV seems to be all the rage today. In which stage of the PLC would you place HDTV? Why? c. How do you know when a product has moved from the growth stage to the maturity stage of the PLC?

Think-Pair-Share
Consider the following questions, formulate an answer, pair with the student on your right, share your thoughts with one another, and respond to questions from the instructor. 1. 2. 3. 4. How do companies find new products? (Objective 2) Define the stages of the new product development process. (Objective 2) How are competitors a source of new product ideas? (Objective 2) What are the advantages of team-based new product development? (Objective 2)
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5. What stage of the PLC do you believe currently holds Apples iPhone? Why? (Objective 3)

Outside Examples
1. Take a look at the Tesla electric car (www.teslamotors.com/). How is this company striving to build excitement and demand for its all-electric sports car? (Objective 2) Possible Solution: Their Web site is set up to provide the browser with great quantities of information from well-designed tabs and submenus. Tesla Motors realizes their potential customers are most likely younger, well-educated with a relatively high level of discretionary income. Although considered risk takers, these consumers require lots of information with which to make an informed decision. All the information is designed to provide excitement concerning this new product. Additionally, they go to great efforts to point out how cutting edge this product is it is the first true high-performance production electric car, it is environmentally sensitive and correct, it is economically reasonable. 2. Research the bottled water market. Check out the Web sites for Evian (www.evian.com/us), Aqua Pacific (www.aquapacific.com), Mountain Valley Spring Water (www.mountainvalleyspring.com), and Perrier (www.usa.perrier.com). What stage of the PLC would you say bottled water occupies? How is each of these companies attempting to maintain or grow sales of their products? (Objective 3) Possible Solution: From a review of the information available, it is probably safe to say bottled water is in the growth phase of the product life cycle. Sales continue to increase at a healthy pace year-to-year (www.bottledwater.org/public/marketin.htm will give you sales statistics). Evian is attempting to position itself as the bottled water for the younger, active group. The music played on their Web site, as well as the new product forms they are introducing, reinforce this idea. Aqua Pacific is promoted as more exotic and unique than the traditional bottled water. It reaches out to the consumer interested in the finest water available. Mountain Valley Spring Water has positioned itself as Americas Spring Water. Mountain Valley appeals to the traditionalist. Everything about their Web site is homespun and local.

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Perrier, long viewed as the grandfather of all bottled water, is remaking itself. A review of materials on its Web site shows the company is positioning its water as young, hip, and sophisticated. They even provide information for party planning.

Web Resources
1. http://247.prenhall.com This is the link to the Prentice Hall support link. 2. www.samsung.com Most consumers know about Samsung. Heres your chance to learn something new about the company. 3. www.lego.com Go here to see how this old-fashioned toy company has reinvented itself in the 21 st century. 4. www.teslamotors.com/ Learn more about Teslas electric car. 5. www.petsdo.com/blog/pet-rock-made-man-multi-millionaire-6-months-lives Read about one of the greatest fads of all time. 6. www.converse.com/ These days, Converse shoes have taken on an edgy new feel. Check it out here.

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