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LEARNING OBJECTIVES
After reading this chapter, students should:
Know what are the main stages in developing new products Know what is the best way to set up the new product development process
Know what factors affect the rate of diffusion and consumer adoption of newly launched products
CHAPTER SUMMARY
Once a company has segmented the market, chosen its target customer groups, identified their needs, and determined its desired market positioning, it is ready to develop and launch appropriate new products. Marketing should participate with other departments in every stage of new-product development. Successful new-product development requires the company to establish an effective organization for managing the development process. Companies can choose to use a product manager, new-product managers, new-product committees, new-product departments, or new-product venture teams. Increasingly, companies are adopting cross-functional teams and developing multiple product concepts. Eight stages are involved in the new-product development process: idea generation, screening, concept development and testing, marketing-strategy development, business analysis, product development, market testing, and commercialization. At each stage, the company must determine whether the ideas should be dropped or moved to the next stage. The consumer-adoption process is the process by which customers learn about new products, try them, and adopt or reject them. Today many marketers are targeting heavy users and early adopters of new products, because both groups can be reached by specific media and tend to be opinion leaders. The consumer-adoption process is influenced by many factors beyond the marketers control, including consumers and organizations willingness to try new products, personal influences, and the characteristics of the new product or innovation.
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OPENING THOUGHT
Students will be challenged in understanding the new-product process if they are new to the science of marketing. Students, like the general population believe that new products are just thought-up and created! Therefore, the first barrier to effective learning in this chapter is to outline and detail the new-product process. An instructor can use examples from his/her experience in the creation of new products or he/she can set up as an in-class or outside class experiment, the creation of a new product by the class or in groups. Second, the consumer-adoption process may be new to some of the students who have not had any consumer buying behavior classes. This section of the chapter allows for the most discussion: Are you a heavy user? Or do you know someone who is an early adopterhe/she who must have the latest gimmick? When involving the students in the examination(s) of their own lives or the lives of family/friends, the stages of the adoption process can begin to play a more meaningful role. Finally, personal influencethe effect that another person has on our willingness to try products should be a concept familiar to the students. The instructors challenge here is to show the students (or make them aware if they have not been aware) that personal influence is a powerful determinant of behavior. The marketer must be cognizant of personal influence in designing a marketing campaign. At this point, class discussion can focus on the ethics of designing marketing campaigns to reach influential opinion-makers to promote products and/or services.
the following questions will help you narrow the options for the second Sonic PDA product: What specific needs of the targeted customer segments should Sonic seek to satisfy with a second PDA product? Working with other students, generate at least four new ideas for new PDA products, and indicate the criteria Sonic should use to screen these ideas. Develop the most promising idea into a product concept and explain how Sonic can test this concept. Assuming the most promising idea tested well, develop a marketing strategy for introducing the new product, including: (1) description of the target market(s), (2) product positioning, (3) objectives for sales, profit, and market share for first year, (4) channel strategy, and (5) marketing budget for first year. Into which of the six categories of new products identified by Booz, Allen, and Hamilton does Sonics first PDA product fit? Into which of these categories does the suggested second PDA product fit? What are the implications of the answers to this question for Sonics marketing plan for the second PDA?
Summarize your answers to these questions in a written marketing plan or enter the answers into the Marketing Mix, Marketing Research, Break-Even, Sales Forecast, Budget Analysis, and Milestone sections of Marketing Plan Pro.
ASSIGNMENTS
Small Group Assignments 1. New products fail at a disturbing rate. Recent studies put the rate at 95 percent in the United States and 90 percent in Europe. In small groups (five students suggested as the maximum), find three products that have failed (been introduced then withdrawn from the market by the company) and suggest the cause or causes of these product failures. A listing of some of the reasons why new products fail can be found in the chapter. 2. In the opening vignette of the chapter, 3M is noted for being one of the most innovative U.S. companies. Other innovative companies exist as well. In a small group, find at least three U.S. companies that have introduced numerous new products into the marketplace over the last two years. What characteristics do all of these companies share? What has been their success rate? Individual Assignments 1. Apples iPod has been a successful new product introduction for the company. It has been suggested that the introduction of iPod was targeted at the innovators technology enthusiasts and early adopters. Question: Can the iPod continue its rate of diffusion throughout the adoption curve and reach the early majorities and late major users? Or will it become stuck appealing to just those two first segments? In your answer, carefully review the sales, pricing, and products recently introduced by
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competitors to Apple and the Marketing Insight entitled, Developing Successful High-Tech Product. 2. The consumer-adoption process is similar to the product life cycle in its stages of introduction, growth, expansion, and decline. For example, by the time a product reaches the late majority, the product is also entering the latter stages of the product life cycle and price and promotion become increasingly important to maintaining sales. Overlaying these two graphs, comment on what their similarity means for marketers. Why do you think that the length of the adoption process and the product life cycle stages are similar? What does this similarity say about consumer buying practices? What lessons must marketers understand, in terms of new product launches, about these two? Think-Pair-Share 1. In the section entitled, Creativity Techniques, the chapter defines some techniques for stimulating creativity in individuals and groups. In small groups, and using the techniques described, create at least three new ideas for products and services. Your group can use lateral marketing techniques as well. Share these new ideas with others in the class and conduct an informal poll of which ideas have the most merit for future development. 2. Companies find good ideas by researching competitors products and services. For this exercise, select a consumer product category (shampoos, soft drinks, snack foods, etc.) purchasing many of the available items in this category. Suggest some incremental innovations that you would like to see for the products/category chosen. For example, would you prefer a different form of bottling for shampoos? A different flavor for soft drinksbeer flavored cola, for example. Do any of the items in your research have glaring weakness as in its cleaning properties, smell, or taste that a company can improve upon? Why is competitive research so important for companies to undertake?
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END-OF-CHAPTER SUPPORT
MARKETING DEBATEWhom Should You Target With New Products? Many firms target lead users or innovators with their new products, with the assumption that their adoption will trickle down to influence the broader market. Others disagree with this approach and contend that the most efficient and quickest route is to target the broader or even mass-market directly. Take a position: New products should always target new adopters versus new products should target the broadest market possible. Pro: Marketers should always target their new products to early adopters and heavy users simply because the investment is or can be great and the chances of success run very low. The heavy users or early adopters of a particular product tend to be consumer-influencers, opinionleaders, or a combination of both. These persons have or demonstrate considerable influence in others by their assumed position or power in peoples lives. Personal influence is a considerable determinant of consumer purchasing decisions and as such cannot be ignored or left to chance in the marketing process. The heavy user and innovator clientele can also exhibit strong brand loyalty characteristics. Appealing to the family brand loyalties with the new product, can deepen or strengthen the family brand connection. Finally, due to more and more niche markets and target-market research techniques, identifying these heavy users and early adopters becomes economically feasible. As a result, the firm can affect their products broad market appeal quicker and more economically than other campaigns. The ultimate answer, of course, depends upon what is being marketed! Con: Product creation and marketing is expensive. The odds of success are very low, even for the best-marketed companies. Considering these two factors, a company is wise to market the new product to the widest possible audience in the shortest possible time. Targeting the mass-market via heavy TV advertisement and heavy promotional spending with channel partners will ensure that the product reaches all the adopter categories simultaneously. Todays world is fast paced and becoming even faster as the speed of communication increases. The time lag between awareness, interest, evaluation, trial, and adoption normally measured in weeks, months, and years may suddenly find itself compressed into weeks due to the speed of diffusion caused by the speed of communication. A marketer must consider this speed for his/her new product and use mass-market techniques in the product role out. MARKETING DISCUSSION Think about the last new product you bought. How do you think its success will be affected by the five characteristics of an innovation: relative advantage, compatibility, complexity, divisibility, and communicability? Student answers will differ depending upon their last new product chosen but all answers should address each of these five characteristics.
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MARKETING SPOTLIGHTNokia Discussion Questions: 1) What have been the key success factors for Nokia? a. b. c. d. e. f. g. New products that are or have relative advantage (personalization). Low degree of complexity. Divisibility. Compatibility. Communicability. A corporate culture that encourages new innovations and new products. Use of cross-functional new-product teams or skunkworks. 2) Where is Nokia vulnerable? a. Overexposure of their trademarked name. b. Being the market leader or market innovator invites competition to challenge their dominance. c. Use of internal associates to create new productsthese people are not the target market for their products and as a result may not fully understand the market. 3) What should Nokia watch out for? a. b. c. Consumer shifts in usage of their products. New and/or cutting edge technology developing around them. Quality and functionality of their products versus key competitors.
4) What recommendations would you make to senior marketing executives going forward? a. Do not rest on past successescontinue your strategic direction of investing in new products and in the process of creating new products. b. Look at the potential of products in the far future develop a decade vision and not a year vision. 5) What should the company be sure to do with their marketing? a. Continue to capitalize on their name and develop marketing programs that cements the name Nokia in the minds of its consumers with the concept of innovation. b. Target innovators and heavy users in product launches for diffusion and adoption across to the whole market.
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1) Existing products are vulnerable to: a. Changing customer needs and tastes. b. New technologies. c. Shortened product life cycles. d. Increased domestic and foreign competition. J) K) Most established companies focus on incremental innovation. Newer companies create disruptive technologies.
L) Established companies can be slow to react or invest in these disruptive technologies because they threaten their investment. M) Incumbent firms must carefully monitor the preferences of both customers and non-customers over time and uncover evolving, difficult-to-articulate customer needs. N) New-product development can be quite risky. O) New products continue to fail at a disturbing rate: Around 95 percent in the United States. Around 90 percent in Europe. New products can fail for many reasons: Ignoring or misinterpreting market research. Overestimating market size. High development costs. Poor design. Incorrect positioning. Ineffective advertising. Wrong price. Insufficient distribution support. Competitors who fight back. Q) Several factors also tend to hinder new product development: Shortage of important ideas in certain areas. Fragmented markets. Social and governmental constraints. Cost of development. Capital shortage. Faster required development time.
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Shorter product life cycles. R) What can companies do to develop successful new products? The number one success factor is a unique, superior product. Another key factor is a well-defined product concept. 3) Other factors are: a. Technology and marketing synergy. b. Quality of execution in all stages. c. Market attractiveness.
ORGANIZATIONAL ARRANGEMENTS
Once a company has carefully segmented the market, chosen its target customers, identified their needs, and determined its market positioning, it is better able to develop new products. Many companies today use customer-driven engineering to design new products. A) Customer-driven engineering attaches incorporating customer preferences in the final design. high importance to
B) New product development requires senior management to define business domain, product categories, and specific criteria Review Key Definitions here: new-to-the-world, new product lines, additions to existing product lines, improvements and revisions of existing products, repositionings, cost reductions, incremental innovation, disruptive technologies, and customer-driven engineering
Table 20.1 shows how a company might calculate the cost of new product development. One successful idea cost the company $5,721,000 to develop. The total cost for the successful product was $13,984,000
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B) New-product manager. C) High-level management committee. D) New-product department. E) Venture teams. 1) A venture team is a cross-functional group charged with developing a specific product or business. These skunkworks are informal places where intrapreneurial teams attempt to develop new products. F) Cross-functional teams can collaborate and use concurrent new-product development to push new products to market. G) Cross-functional teams help to ensure that engineers are not just driven to create a better mousetrap when potential customers do not really need or want one. H) Some possible criteria for staffing cross-functional new-product venture teams include: Desired team leadership style and level of expertise. Team member skills and expertise. Level of interest in the particular new-product concept. Potential for personal reward. Diversity of team members. I) Some companies use the stage-gate system to manage the innovation process. 1) The gatekeepers make one of four decisions at each stage of the process: a. Go. b. Kill. c. Hold. d. Recycle. The stages in the new-product development process are shown in Figure 20.1 J) Many firms have multiple parallel sets of projects working through the process. K) The process can be depicted as a funnel. L) Many firms use a spiral development process that recognizes the value of returning to an earlier stage to make improvements before moving forward. Review Key Definitions here: product mangers, new-product managers, high-level management committee, new-product department, venture teams, skunkworks, stage-gate system, funnel, and spiral development process
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Idea Generation
New product ideas can come from interacting with various groups and from using creativity-generating techniques
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I) Although ideas can flow from a variety of sources, receiving these ideas often depends upon someone in the organization taking the role of product champion.
Creativity Techniques
Here is a sampling of techniques for stimulating creativity in individuals and groups. A) Attribute listing. B) Forced relationships. C) Morphological analysis. D) Reverse assumption analysis. E) New contexts. F) Mind-mapping. G) Increasingly, new product ideas arise from lateral marketing that combines two product concepts or ideas to create a new offering. Review Key Definitions here: attribute listing, forced relationships, morphological analysis, reverse assumption analysis, new contexts, mind-mapping, and lateral marketing
Idea Screening
A company should motivate its employees to submit new ideas to an idea manager. Ideas should be written down and reviewed each week by an idea committee A) The company then sorts the proposed ideas into three groups: 1) 2) 3) Promising ideas. Marginal ideas. Rejects.
B) A DROP-error occurs when the company dismisses an otherwise good idea. 1) It is extremely easy to find fault with other peoples ideas. Figure 20.2 shows the Forces Fighting New Ideas C) A GO-error occurs when the company permits a poor idea to move into development and commercialization. D) An absolute product failure loses money, because its sales do not cover variable costs. E) A partial product failure loses money, but its sales cover all its variable costs and some of its fixed costs. F) A relative product failure yields a profit that is less than the companys target rate of return. G) The purpose of screening is to drop poor ideas as early as possible.
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1) The rationale is that product-development costs rise substantially with each successive development stage. H) Most companies require new-product ideas to be described on a standard form that can be reviewed by a new-product committee. I) The executive committee then reviews each idea against a set of criteria. J) The surviving ideas can be rated using a weighted-index method. Table 20.2 shows the forces fighting new ideas. K) As the idea moves through development, the company will constantly need to revise its estimate of the products overall probability of success using the following formula: Overall Probability Probability of Probability of Probability = of technical X commercialization X economic of Success completion given technical success given completion commercialization Review Key Definitions here: DROP-error, GO-error, absolute product failure, partial product failure, and relative product failure
C) Each concept represents a category concept that defines the products competition. Figure 20.3(a) shows a product positioning map.
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D) Next, the product concept has to be turned into a brand concept. Figure 20.3(b) shows a product positioning map and brand positioning.
Concept Testing
Concept testing involves presenting the product concept to target consumers and getting their reactions. The concepts can be presented symbolically or physically. A) In the past, creating physical prototypes was costly and time-consuming. B) Today firms can use rapid prototyping to design products. C) Companies are also using virtual reality to test product concepts. D) Concept testing entails presenting consumers with an elaborated version of the concept. E) After receiving information, researchers measure product dimensions by having consumers respond to the following: 1) Communicability and believability. 2) Need level. 3) Gap level. 4) Perceived value. 5) Purchase intention. 6) User targets, purchase occasions, purchasing frequency. F) The respondents answers indicate whether the concept has: A broad consumer appeal. What products this new product competes against. Which consumers are the best targets.
Conjoint Analysis
Consumers preferences for alternative product concepts can be measured through conjoint analysis, a method for deriving the utility values that consumers attach to varying levels of a products attributes. A) Respondents are shown different hypothetical offers formed by combining varying levels of the attributes, then asked to rank the various offers. B) Management can identify the most appealing offer and the estimated market share and profit the company might realize. Figure 20.4 shows samples for a new spot-removing cleaner. C) The marketer now uses a statistical program to derive the consumers utility functions for each of the five attributes. 1) The higher the utility, the stronger the consumers preference for that level of attribute. 36
2) Clearly, this consumer sees price and package design as the most important attributes. D) When preference data are collected from a sufficient sample of target consumers, the data can be used to estimate the market share any specific offer is likely to achieve, given any assumptions about competitive response. E) The most customer-appealing offer is not always the most profitable offer to make. F) Conjoint analysis has become one of the most popular concept-development and testing tools. Review Key Definitions here: category concept, positioning map, and rapid prototyping Figure 20.5 shows utility functions based on conjoint analysis.
Marketing Strategy
Following a successful concept test, the new-product manager will develop a preliminary strategy plan for introducing the new product into the market. A) The plan consists of three parts: 1) The first part describes the: a. Target markets size. b. Structure. c. Behavior. d. Planned products positioning. e. Sales. f. Market share. g. Profit goals in the first few years. 2) The second part outlines: a. Planned price. b. Distribution strategy. c. Marketing budget for the first year. 3) The third part describes the: a. Long-run sales and profit goals. b. Marketing-mix strategy over time.
Business Analysis
After management develops the product concept and marketing strategy, it can evaluate the proposals business attractiveness. Management needs to prepare
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sales, cost, and profit projections to determine whether they satisfy company objectives. If it does, then the concept can move into the development stage.
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Product Development
The job of translating target customer requirements into a working prototype is helped by a set of methods known as quality function deployment (QFD). A) This methodology takes the list of desired customer attributes (CAs) and turns them into: 1) A list of engineering attributes (EAs). 2) A major contribution of QFD is that it improves communication between marketers, engineers, and the manufacturing people.
Physical Prototypes
The R&D department will develop one or more physical versions of the product concept. A) Its goal is to find a prototype that: 1) statement. 2) 3) Embodies the key attributes described in the product-concept Performs safely under normal use and conditions. Can be produced within the budgeted manufacturing costs.
B) With the emergence of the Web, there is a need for more rapid prototyping and more flexible development processes. C) Lab scientists must also communicate the products psychological aspects through physical cues. 1) Marketers need to supply lab people with information on what attributes consumers seek and how consumers judge whether these attributes are present.
Customer Tests
When the prototypes are ready, they must be put through rigorous functional tests and consumer tests. A) Alpha testing is a name given to testing the product within the company. )B Beta testing is testing the product with customers. Table 20.4 shows some of the functional tests products go through C) Consumer testing can take several forms: 1) Bringing consumers into the laboratory.
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2) Give them samples to use in their homes. D) Consumer preferences can be measured in several ways: 1) The rank-order method. 2) The paired-comparison method. 3) The monadic-rating method. Review Key Definitions here: alpha testing, beta testing, rank-order, pairedcomparison, and monadic-method
Market Testing
The new product is ready to be introduced into an authentic setting with a brand name and packaging, to learn how large the market is, and how consumers and dealers react to handling, using, and repurchasing the product. A) Not all companies undertake market testing. B) Many companies believe that market testing can yield valuable information about buyers, dealers, marketing program effectiveness, and market potential. C) The amount of market testing is influenced by the investment cost, risk on the one hand, and time pressure and research on the other. D) High investmenthigh-risk products, where the chance of failure is high, must be market tested. High-risk products, those that create new-product categories or have novel features warrant more market testing than modified products.
1) Sales-Wave Research
In sales-wave research, consumers who initially try the product at no cost are reoffered the product, or a competitors product, at slightly reduced prices. A) They might be offered the product as many as five times (sales wave) with the company noting how many customers selected the product again and their reported levels of satisfaction. 40
B) Sales-wave research can also expose consumers to one or more advertising concepts to see the impact of that advertising on repeat purchase. C) Sales-wave research can be: 1) 2) 3) Implemented quickly. Conducted with a fair amount of security. Carried out without final packaging and advertising. D) It does not indicate what trial rates would be achieved with different sales-promotion incentives. E) Nor does it indicate the brands power to gain distribution and favorable shelf positioning.
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D) The controlled test market gives no information on how to sell the trade on carrying the new product. E) This method also exposes the product to competition.
4) Test Markets
The ultimate way to test a new consumer product is to put it into full-blown test markets. A) The company chooses the cities, the sales force tries to sell the trade on carrying the product and giving it good shelf exposure. B) The company puts on a full advertising and promotion campaign. C) The company can also test alternative marketing plans by varying the marketing program in different cities. D) Management faces several decisions: 1) How many test cities. 2) Which cities. 3) Length of test. 4) What information. 5) What action to take. E) In spite of its benefits, many companies today skip test marketing and rely on faster and more economical testing methods.
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Commercialization
If the company goes ahead with commercialization, it will face its biggest costs to date. A) The company will have to contract for manufacturers or build or rent a full-scale manufacturing facility. B) Another major cost is marketing.
When (Timing)
In commercializing a new product, market-entry timing is critical. The company faces three choices: A) First entry. B) Parallel entry. C) Late entry. D) The timing decision involves additional considerations: 1) 2) 3) If the new product replaces an older product. If the product is seasonal. Waiting for a killer application to occur. E) Complicating new product launches, many companies are encountering competitive design-aroundsrivals are imitating inventions but making their own versions just different enough to avoid patent infringement and the need to pay royalties.
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3) 4) 5) 6)
Cost of filling the pipeline. Cost of communications media. Influence of area on other areas. Competitive penetration. G) The presence of strong competitors will influence rollout strategy. H) With the Web connecting far-flung parts of the globe, competition is more likely to cross national borders.
b. It involved many wasted exposures. C) New-product marketers now aim at consumers who are early adopters.
1) Its significance is greater in some situations and for some individuals than for others. 2) Personal influence is more important in the evaluation stage of the adoption process than in the other stages. 3) It has more influence on late adopters than early adopters. 4) It also is more important in risky situations. D) Companies often target innovators and early adopters with product rollouts. Review Key Definitions here: pioneers, innovators, early adopters, early majority, late majority, laggards, and personal influence
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