MK9 10 2 2013 Why do Firms Create New Products Innovation the process by which ideas get transformed into new offerings including products services processes and branding concepts that will help firms grow Changing Customer Needs Keep up with changing needs even needs they don t know they have Market Saturation Longer a product exists in marketplace more likely it is that the market will become saturated Sustain growth by getting customers excited with new products Saturated markets can offer opportunities for a company that is willing to adopt a new process or mentality Managing Risk through Diversity Innovation allows firms to create broader portfolio of products and diversify risk and enhance firm value Fashion Cycles Industries that rely on fashion trends experience short product life cycles so most sales come from new products Improving Business Relationships New products can improve relationships with suppliers Diffusion of innovation new products spread through a population not all adopted at same time Diffusion of Innovation Diffusion of innovation the process by which the use of an innovation whether a product a service or a process spreads throughout a market group over time and across various categories of adopters Pioneers breakthroughs truly new product introductions that create new markets or radically change both the rules of competition and consumer preferences in a market First movers readily recognizable to consumers and thus establish a commanding and early market share lead Some pioneers fail because imitators capitalize on weaknesses of pioneers So many products fail because of failure to assess market properly by neglecting to do appropriate product testing targeting the wrong segment and or poor positioning Also if firms venture into products or services that are inconsistent with their brand image or value proposition Types of purchasers o Innovators 2 5 Those buyers who want to be the first on the block to have the new product or service risk takers knowledgeable o Early adopters 13 5 o Early majority 34 Not as much risk as innovators but wait and purchase after review enjoy novelty so often purchase regardless of reviews spread the word Crucial because few new products and services can be profitable unless this large group buys them not as risky wait for bugs to be fixed competitors at this point so these buyers have different price and quality choices o Late majority 34 o Laggards 16 Last group of buyers to enter a new product market product already at full market potential sales are level or in decline Like to avoid change and rely on traditional products until they aren t available Using the Diffusion of Innovation Theory Firms can predict which types of customers will buy their new product or service immediately after its introduction o Helps with marketing strategies Relative advantage quick Compatibility cultural differences Observability o Quicker when products are easily observed Complexity and trialability o If product or service is perceived to be better than substitutes diffusion will be relatively o May be faster or slower depending on various consumer features such as international o Less complex products will diffuse more quickly and lead to greater faster adoption How Firms Develop New Products 1 Idea generation a Internal Research and development i Pricier ii Reverse innovation turn to subsidiaries in less developed markets for new product ideas b R D Consortia i Firms joining consortia groups of other firms and institutions possibly including government and institutions to explore new ideas or obtain solutions for developing new products i Firms buy the rights to use the technology or ideas from other research intensive firms though a licensing agreement c Licensing d Brainstorming i Group works together to generate ideas ii Ideas can t be immediately rejected or accepted there is a vote at the end of the session e Outsourcing i Can outsource to design firms f Competitors products i Reverse engineering taking apart a product analyzing it and creating an improved product that does not infringe on the competitor s patents g Customer input i Need to listen to customers in B2B and B2C ii B2C social media iii Lead users innovative product users who modify existing products according to their own ideas to suit their specific needs a Concepts brief written descriptions of the product its technology working principles and forms and what it would satisfy b Concept testing process in which a concept statement is presented to potential buyers 2 Concept testing or users to obtain their reactions 3 Product development a Product development product design a process of balancing various engineering manufacturing marketing and economic considerations to develop a product s form and features or a service s features b Prototype developed 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 process c Alpha testing first attempts to determine whether product will perform according to its design and whether it satisfies the need for which it was intended i Done in R D d Beta testing uses potential consumers who examine the product prototype in a real use setting to determine its functionality performance potential problems and other issues specific to its use 4 Market Testing a Premarket tests i Done before product is brought to market to determine how many customers will try and then continue to use product or service according to a small group of potential consumers ii BASES potential customers are exposed to marketing mix variables such as advertising surveyed and given a sample of the product to try then asked whether they d use the product again Introduces the offering to a limited geographical area prior to national launch b Test marketing i 5 Product launch a Expensive b Promotion c Place d Price i Trade promotions promotions to wholesalers or retailers to get them to ii purchase the new products Introductory price promotions limited duration lower than normal prices designed to provide retailers with an incentive to try the products iii Trade show temporary concentration of manufacturers that provides retailers the opportunity to view what is available and new in the marketplace i Manufacturer coordinates delivery and storage of the new products with its retailers to assure that it is available for sale when the