Chapter 11 Developing and Managing Products 11 1 The Importance of New Products New products are important to sustain growth increase revenues and profits and replace obsolete items New product a product new to the world the market the producer the seller or some combination of these 6 categories of new products o New to the world products discontinuous innovations create entirely new market smallest category of new products o New product lines o Additions to existing product lines different flavors of doritos o Improving revisions of existing products o Repositioned products o Lower priced products 11 2 The New Product Development Process Companies most likely to succeed in developing and introducing new products are those that take the following actions o Make the long term commitment needed to support innovation and new product development o Use a company specific approach driven by corporate objectives and strategies with a well defined new product strategy as its core o Capitalize on experience to achieve and maintain competitive advantage o Establish an environment conducive to achieving company specific new product and corporate objectives 7 step process for developing new products o 1 New product strategy a plan that links the new product development process with the objectives of the marketing department the business unit and the corporation Sharpens the focus and provides general guidelines for generating screening and evaluating new product ideas o 2 Idea generation New ideas come from customers employees distributors vendors competitors research development consultants R D Product development a marketing strategy that entails the creation of marketable new products the process of converting applications for new technologies into marketable products Product modification makes cosmetic or functional changes in existing products Brainstorming the process of getting a group to think of unlimited ways to vary a product or solve a problem Focus groups o Idea screening Screening the first filter in the product development process which eliminates ideas that are inconsistent with the organization s new product strategy or are obviously inappropriate for some other reason Concept test a test to evaluate a new product idea usually before any prototype has been created Considered good predictors of success for line extensions Good predictors of success for new products that are not copycat items are not easily classified into existing product categories and do not require major changes in consumer behavior Bad predictors of success for new products that create new consumption patterns and require major changes in consumer behavior o Business analysis Business analysis the 2nd stage of the screening process where preliminary figures for demand cost sales and profitability are calculated How new the product is the size of the market nature of the competition affect the accuracy of revenue projections o Development the stage in the product development process in which a prototype is developed and a marketing strategy is outlined Can last a long time and be very expensive Simultaneous product development a team oriented approach to new product development can shorten development process and reduce costs internet is a useful tool o Testing marketing the limited introduction of a product and a marketing program to determine the reactions of potential customers in a market situation Expensive Competitors find out about product and marketing mix before it is released to the nation Alternatives Scanner based research expensive still Simulated laboratory market testing the presentation of advertising and other promotional materials for several products including a test product to members of the product s target market Internet o Commercialization the decision to market a product Good match between the product and the market needs success 11 3 Global Issues in New Product Development Start with a global strategy 11 4 The Spread of New Products Innovation a product perceived as new by a potential adopter Diffusion the process by which the adoption of an innovation spreads 5 categories of adopters o Innovators worldly active outside of local community rely less on group norms self confident o Early adopters rely more on group norms and values more likely than innovators to be opinion leaders local community o Early majority collect more info before adopting deliberate o Late majority most of their friends already have it pressure to conform skepticism o Laggards do not rely on group norms past heavily influences their decisions lowest socioeconomic status tradition Product characteristics rate of adoption o Complexity degree of difficulty more complex slower diffusion o Compatibility degree to which the new product is consistent with existing values past experiences incompatible slower diffusion o Relative advantage degree to which a product is perceived as superior to existing substitutes o Observability degree to which the benefits can be observed by others o Trialability the degree to which a product can be tried on a limited basis Word of mouth communication speeds diffusion of a product Communication from marketer to potential adopters messages should differ depending on if they are towards innovators early adopters early majority late majority or laggards 11 5 Product Life Cycles Product life cycle PLC a concept that provides a way to trace the stages of a product s acceptance from its introduction birth to its decline death o Useful marketing management diagnostic tool o General guide for marketing planning in various life cycle stages o Four major stages introduction growth maturity decline o Product categories have the longest life cycles o Product category all brands that satisfy a particular type of need shaving products cars soft drinks o Introductory stage the full scale launch of a new product into the marketplace High failure rate little competition frequent product modification limited distribution high marketing and production costs Sales increase slowly negative sales bc of fixed costs length depends on product advantages Promotion focuses on developing product awareness and benefits o Growth stage the second stage of the product life cycle Sales grow at increasing rate many competitors enter aggressive brand advertising communication of differences between brands profits healthy large companies may start to acquire small pioneering firms Distributing important o Maturity
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