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DEVELOPING NEW
PRODUCTS AND SERVICES
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AFTER READING THIS CHAPTER YOU SHOULD
BE ABLE TO:
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PP11-AA 3M and Industrial Adhesives: New Product
Marketing Task
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PP11-BB Definition of a Product
A
A Product is .. .. .. ..
Product is
isis aa good,
good, service,
service, or
or idea
idea consisting
consisting of of aa
bundle
bundle of of tangible
tangible and
and intangible
intangible attributes
attributes
that
that satisfies
satisfies consumers
consumers andand isis received
received inin
exchange
exchange for for money
money oror some
some other
other unit
unit of
of
value.
value. Products
Products include
include both
both tangible
tangible and
and
intangible
intangible attributes.
attributes.
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PP11-CC Product Line and Product Mix
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PP11-EE Bases of Classifying Consumer Goods
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PP11-1b Classification of consumer goods (final part)
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PP11-FF Industrial Goods
A major characteristic of industrial goods is that
their sales are often the result of derived demand;
that is, sales of industrial products frequently result
(or are derived) from the sale of consumer goods.
Industrial goods are classified not only on the
attributes the consumer uses but also on how the
item is to be used.
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PP11-GG Production Goods
Items used in the manufacturing process that
become part of the final product are production
goods. Production goods include:
1. raw materials, and
2. component parts
Irwin/McGraw-Hill
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PP11-HH Support Goods
Support goods are items used to
assist in producing other goods and
services. Support goods include:
-- installations
-- accessory equipment
-- supplies
-- services
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PP11-II Concept Check
1. Explain the difference between product mix and product line.
2. What are the four main types of consumer goods?
3. To which type of good (industrial or commercial) does the term
derived demand generally apply?
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PP11-JJ Ways of Viewing the Newness of a Product
Examples Sensor and New Electric toothbrush, VCR, Jet Stream Oven,
Improved Tide compact disk player, and home computer
and automatic flash
for cameras
Marketing Generate awareness Advertise benefits to Educate consumers
emphasis among consumers and consumers, stressing through product trial &
obtain widespread point of differentiation personal selling
distribution and consumer advantage
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PP11-3 What It Takes to Launch One “Commercially Successful”
New Product
3,000 3,000
300
300 Time
200
125
100
9 4 1.7
0 1
“Raw” Ideas
submitted “Small” “Significant” “Major” Commercial “Commercially
unwritten
re b mu N
Irwin/McGraw-Hill
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PP11-KK Marketing Reasons for New Product Failures
Irwin/McGraw-Hill
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PP11-MM The New Product Process
The new product process is the sequence of activities
a firm uses to identify business opportunities and
convert them to a saleable good or service.
This sequence starts with new-product strategy
development, which involves defining the role for a
new product in terms of the firm’s overall corporate
objectives.
The process ends with commercialization, which is
the introductory stage of the product/service life
cycle.
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PP11–5 Stages in the new product process
New
Newproduct
productstrategy
strategy
development
development
Idea
Ideageneration
generation
Screening
Screeningand
andevaluation
evaluation
Business
Businessanalysis
analysis
Development
Development
Market
Markettesting
testing
Commercialization
Commercialization
Commercialized products
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PP11-NN Cross-Functional Teams
Cross-functional teams consist of a small number of
people from different departments in an
organization, who are mutually accountable to a
common set of performance goals.
Cross-functional teams are especially important in
new-product development, as individuals from
R&D, marketing, manufacturing, finance, and so
forth can simultaneously search together in a
constructive environment for new product and
market opportunities.
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PP11–A The cross-functional new product team
A Cross-Functional Approach to Product Development
Process
Processdesign/
design/
Product
Productdesign
design Manufacturing
Manufacturing
engineering
engineering
Product
ProductDevelopment
DevelopmentTeam
Team
Other
Otherrelated
relatedfunctions,
functions, Sales
Salesand
anddistribution
distribution Marketing
Marketing
suppliers, customers
suppliers, customers
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PP11-6 Strategic Roles of Most Successful New Products
Percentage of responses
Strategic Role
0 10% 20% 30% 40% 50%
Defend market
share position
Externally
driven Establish foothold
in new market
Preempt market
segment
Maintain position as
product innovator
Exploit technology
in new way
Internally Capitalize on
driven
distribution strengths
Provide a cash
generator
Use excess or
off-season capacity
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PP11-OO Idea Generation
Idea generation consists of developing concepts
as candidates for products/services. New
product ideas can be generated by:
a. customer suggestions
b. employee and co-worker suggestions
c. R&D breakthroughs
d. competitor’s products
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PP11-PP Screening and Evaluation
Screening and evaluation involve internal and
external evaluations of the new product ideas,
so as to eliminate those that warrant no
further effort.
The process can be formal, consisting of
criteria developed from internal and external
sources. Ideas with the highest scores are
considered in the next step of development.
Irwin/McGraw-Hill
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PP11–Ca A weighted point system Medtronic uses to try to spot a
winning new medical product (first part)
General Total
Factor Specific Factor Scale Points
Incidence of Undefinable 10,000s 1,000,000s 100,000,000s
malady 0 5 10
✔ 15 20
12
Size of Product usage One per many patients One per patient
✔ 5
target 0 5
Cost effective for No Yes
market health care system ✔ 7
0 5 10
Other Spine Brain Heart
Application of Brain/heart
product 0
✔
5 10 15 20
3
Similar to existing Better than existing approaches Clearly superior to existing
Significant Treatment approach approaches
10
evaluation ✔
point of 0
Questioned or
5 10
Direct cause and
difference Clearness of uncertain effect 8
function 0 5 ✔ 10
Restore natural Partial Total
physiology 0 5
✔ 10 15 20
6
Restore Partial Full
viability 0 5 10
✔
15 20
13
Product Characteristic of Capital equipment External Permanently worn Implantable Total implanted
20
product ✔
Quality 0 5 10 15 20
Mode of Chemical Mechanical Electrical mechanical Electrical
operation 0 5
✔ 10 15 20
7
Engineer only Physician & engineer Physician w/engineer
Product Physician only
development team 0 5
✔
10
training
6
Irwin/McGraw-Hill
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PP11–Cb A weighted point system Medtronic uses to try to spot a
winning new medical product (final part)
General Total
Factor Specific Factor Scale Points
Physician users No Some (50%) Yes (all)
Access know Medtronic ✔ 10
name? 0 5 10
to
Inventor’s ability, Not well Known Well known
Market Not willing to promote Willing to promote
willingness to be ✔ 8
champion 0 5 10 15 20
Good Highly
Gut feel about Uncertain chance Positive
Miscellaneous success ✔
positive
12
0 5 10 15 20
Total 145
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PP11-QQ Concept Check
1. What step in the new-product process has been added
in recent years?
2. What are four sources of new-product ideas?
3. What is the difference between internal and external
screening and evaluation approaches used by a firm in
the new-product process?
Irwin/McGraw-Hill
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PP11-RR Business Analysis
Business analysis involves specifying the
features of the product and the marketing
strategy needed to commercialize it, and
making necessary financial (forecasts of costs
and revenues) projections.
This is the last checkpoint before significant
capital is invested in creating a prototype of
the product.
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PP11-SS Development
Development involves turning the idea on paper into
a prototype. This results in a demonstrable,
producible product in hand.
In the development stage, the prototype is subjected
to rigorous technical/laboratory and consumer
testing. The appropriate modifications in quality
and features are made. At this point the prototype
becomes an actual product or service that is ready
for either market testing or even full-scale
commercialization.
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PP11-TT Market Testing
The market testing stage involves exposing actual
products to prospective consumers under realistic
purchase conditions to see if they will buy.
Such testing can take place in purchase laboratories
and/or in test markets.
The market testing process is useful for testing
various marketing mixes, getting consumer
reactions, making necessary production and/or
marketing modifications, and often forecasting sales.
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PP11-7 The Most Popular Test Markets
Kalamazoo, MI
Des Moines, IA Akron, OH
Rockford, IL
Colorado Springs, CO Lansing, MI
Syracuse, NY
Harrisburg, PA
Pittsfield, MA
Providence, RI
Dayton, OH
Roanoke, VA
Asheville, NC
Kansas City, KS
Charleston, SC
Macon, GA
Memphis, TN
Jacksonville, FL
Tulsa, OK
Austin, TX
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PP11-UU When Test Markets Don’t Work
Test marketing is a valuable step in the new
product process, but not all products can use it.
a. testing a service beyond the concept is very
difficult because the service is intangible and
consumer’s can’t see what they are buying;
and
b. test markets for expensive consumer
products, such as cars or costly industrial
products is impractical.
Irwin/McGraw-Hill
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PP11-VV Commercialization
Commercialization is positioning
and launching the new product or
service full scale, regarding
production and marketing. This is
the most expensive stage for most
products, especially consumer
products.
Irwin/McGraw-Hill
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PP11–8 Marketing Information and Methods Used in the New-
Product Process
STAGE OF PROCESS PURPOSE OF STAGE MARKETING INFO AND METHODS USED
New-product strategy Identify new-product niches to Company objectives; assessment of firm’s current
development reach in light of company objectives strengths and weaknesses in terms of market and
product
Idea generation Develop concepts for possible products. Ideas from employees and co-workers, consumers,
R & D, and competitors; methods of brainstorming
and focus groups.
Screening and evaluation Separates good product ideas Screening criteria, concept tests, and weighted
from bad ones inexpensively. point systems.
Business analysis Identify the product’s features and its Product’s key features, anticipated marketing mix
marketing strategy, and strategy; economic, marketing, production, legal,
make financial projections. and profitability analyses.
Development Create the prototype product and test it Laboratory and consumer tests on product
in the lab and on consumers. prototypes.
Market testing Test product and marketing strategy Test markets, simulated test markets (STMs)
in the market on a limited scale.
Commercialization Position and offer product in the Perceptual maps, product positioning, regional
market. rollouts.
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PP11-WW Concept Check
1. How does the development stage of the new-
product process involve testing the product
inside and outside the firm?
2. What is a test market?
3. What is commercialization of a new product?
Irwin/McGraw-Hill
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PP11-MNNa What Separates New Product Winners and Losers
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PP11-D Who is the Target Market and What is the Point of
Difference for This Olympus Camera Ad?
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MARKETING, 6/e BERKOWITZ KERIN HARTLEY RUDELIUS Courtesy Olympus
© The McGraw-Hill America Inc., 20
Companies,
PP11-E Who is the Target Market and What is the Point of
Difference for This York Peppermint Pattie Ad?
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MARKETING, 6/e ©Used
The with permissionCompanies,
of Hershey Foods.
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PP11-F Who is the Target Market and What is the Point of
Difference for This Apple PowerBook G3 Ad?
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PP11-G Who Is the Target Market and What is the Point of
Difference for this Quaker Oats Oatmeal Ad?
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McGraw-Hill Oats Company
Companies, Inc., 20
T11–H Why new product development can
be a dice roll: some forecasts
• “I think there is a world market for maybe
five computers.”
Thomas Watson
chairman of IBM, 1943
• “The radio craze will die out in time.”
Thomas Edison, 1922
• “There is no reason anyone would want
a computer in their home.”
Ken Olson
chairman and founder
of Digital Equipment Corp., 1977
• “Video won’t be around more than six months;
people will soon get tired of staring at a
plywood box.”
Daryl F. Zanuck
president of 20th Century Fox, 1946
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T11–I Five alternative structures for
product development projects
Functional
Functional Balanced
Balanced Matrix
Matrix Project
Project Team
Team
Project
Projectisisdivided
dividedinto
into AAproject
projectmanager
manager AAproject
projectmanager
managerleads
leadsaa
segments
segments and assignedto
and assigned to oversees
overseesthe
theproject
projectand
and project
projectteam
teamcomposed
composedofof
relevant functional areas;
relevant functional areas; shares responsibility and
shares responsibility and core people from several
core people from several
coordinated
coordinatedby byfunctional
functional authority
authorityfor
forcompletion
completion functional
functionalareas,
areas,assigned
assigned
and upper management
and upper management with
with functionalmangers
functional mangers full-time; no formal
full-time; no formal
levels
levels involvement
involvementby byfunctional
functional
managers
managers
Little Much
control control
by one by one
person Functional
Functional Matrix
Matrix Project
Project Matrix
Matrix person
AAproject
projectmanager
managerwith
with AAproject
projectmanager
manageroversees
oversees
limited
limited authoritycoordinates
authority coordinates the
the projectwith
project withprimary
primary
the
theproject
projectacross
acrossvarious
various responsibility
responsibilityand
andauthority
authority
functional areas; functional
functional areas; functional for completion; functional
for completion; functional
managers
managersretain
retainresponsibility
responsibility managers
managersassign
assignneeded
needed
and
and authority fortheir
authority for theirproject
project people and provide technical
people and provide technical
segments
segments expertise
expertise
Source: Adapted from Erik W. Larson and David H. Gobeli, “Organizing For Product Development Projects,”
Journal of Product Innovation Management (September, 1988), pp. 180-190
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T11–J Overall performance of five
structures for product development projects
ource: Adapted from Erik W. Larson and David H. Gobeli, “Organizing for Product Development Projects,”
Journal of Product Innovation Management, September 1988, pp. 180–90.
Irwin/McGraw-Hill
MARKETING, 6/e BERKOWITZ KERIN HARTLEY RUDELIUS
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