Marketing Chapter 11 Innovation the process by which ideas are transformed into new products and services that will help firms grow Completely new to the market products represent fewer than 10 percent of all new product introductions each year Changing Customer Needs When they ad products services and processes to their offerings firms can create and deliver value more effectively by satisfying the changing needs of their current and new customers or simply by keeping customers form getting bored with the current product or service offering Market Saturation The longer a product exists in the marketplace the more likely it is that the market will become saturated Without new products or services the value of the firm will ultimately decline Managing Risk Through Diversity Through innovation firms often create a broader portfolio of products which help them diversify their risk and enhance firm value better than a single product can Diffusion of Innovation the process by which the use of an innovation whether a product or service spreads throughout a market group over time and over various categories of adopters Pioneers new product introductions that establish a completely new market or radically change both the rules of competition and consumer preferences in a market also called breakthroughs First Movers product pioneers that are the first to create a market or product category making them readily recognizable to consumers and thus establishing a commanding and early market share lead Innovators those buyers who want to be the first to have the new product or service Early Adopter the second group of consumers in the diffusion of innovation model after innovators to use a product or service innovation generally don t like to take as much risk as innovators but instead wait and purchase the product after careful review Early Majority a group of consumers in the diffusion of innovation model that represents approximately 34 percent of the population members don t like to take much risk and therefore tend to wait until bugs are worked out of a particular product or service few new products and services can be profitable until this large group buys them Late Majority the last group of buyers to enter a new product market when they do the product has achieved its full market potential Laggards consumers who like to avoid change and rely on traditional products until they are no longer available The product Development Process Idea generation development of viable new product ideas 1 2 Concept testing testing the new product idea among a set of potential customers 3 Product development development of prototypes and or the product 4 Market testing testing the actual products in a few test markets 5 Product launch full scale commercialization of the product 6 Evaluation of results analysis of the performance of the new product and making appropriate modifications R D Consortia In recent years more and more firms have been joining consortia or groups of other firms and institutions possible including government and educational institutions to explore new ideas or obtain solutions for developing new products Sources of Ideas Internal R D R D Consortia Licensing Brainstorming Outsourcing Competitors Products Customer Input Clinical trial a medical study that tests the safety and effectiveness of a drug or treatment with human subjects Reverse engineering involves taking apart a competitor s product analyzing it and creating an improved product that does not infringe on the competitor s patents if any exist Lead User innovative product users who modify existing products according to their own ideas to suit their specific needs Concepts brief written descriptions of a product or service its technology working principles and forms and what customer needs it would satisfy Concept Testing the process in which a concept statement hat describes a product or service is presented to potential buyers or users to obtain their reactions Product Development also called product design entails a process of balancing various engineering manufacturing marketing and economic considerations to develop a product s form and features of a service s features Prototype the first physical form or service description of a new product still in rough or tentative form that has the same properties as a new product but is produced through different manufacturing processes sometimes even crafted individually Alpha testing an attempt by the firm to determine whether a product will perform according to its design and whether it satisfied the need for which it was intended occurs in the firm s research and development department Beta Testing having potential consumers examine a product prototype in a real use setting to determine its functionality performance potential problems and other issues specific to its use Premarket Tests conducted before a product or service is brought to market to determine how many customers will try and then continue to use it Test Marketing introduces a new product or service to a limited geographical area usually a few cities prior to a national launch Trade Promotions promotions to wholesalers or retailers to get them to purchase the new products Introductory Price Promotions short term price discounts designed to encourage trial Trade show major events attended by buyers who choose to be exposed to products and services offered by potential suppliers in an industry Product Life Cycle defines the stages that new products move through as they enter get established in and ultimately leave the marketplace and thereby offers marketers a starting point for their strategy planning Introduction Stage stage of the product life cycle when innovators start buying the product Growth Stage stage of the product life cycle when the product gains acceptance demand and sales increase and competitors emerge in the product category Maturity Stage stage of the product life cycle when industry sales reach their peak so firms try to rejuvenate their products by adding new features or repositioning them Decline Stage the stage of the product life cycle when sales decline and the product eventually exits the market