MKT 3013/IBC Exam 3 – Chapter 12: Developing New Products – Flashcards
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Why do firms create new products
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- new market offerings provide *value* to both firms and customers depending on how new they are - "new to the market" products represent fewer than 10% of all new products each year - innovate - 3% of new products actually succeed
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Innovation
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process by which *ideas* are transformed into new offerings, including products, services, processes, and branding concepts that will *help firms grow. * without innovation, firms would either have to continue to market current products to current customers or take same product to another market with similar customers
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Changing Customer Needs
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-firms adding products/services/processes to offerings can create and deliver value more effectively by satisfying changing needs of their current & new customers or by keeping customers from getting bored w/ current product or service -companies identify problems and create products/services that customers never thought they needed -customers enter new stages in their lives that intensify demand for innovations (like technology)
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Market Saturation
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-the longer a product exists in the marketplace, the more likely it is that the market will become saturated -w/o new products/services, value of firm will decline -people want variety in their lives (ex. cars & new features) -saturated markets offer opportunities for a company that is willing to adopt a new process or mentality (ex. general mills & glutenfree) (saturated - thoroughly soaked?)
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Managing Risk Through Diversity
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-through innovation, firms create broader portfolio of products which help them diversity their risk and enhance firm value better than one product can (some products do poorly, others do well) -firms w/ multiple products can withstand external shocks(changes in consumer preference or competition) -firms demand specific % of their sales each year must come from new products introduced within previous few years (ex. keebler cookies)
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Fashion Cycles
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-in industries with short product life cycles (fashion trends), most sales come from new products (movie generates revenue within year of release) (ex. video games)
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Improving Business Relationships
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-new targets do not always target end consumers, *sometimes they function to improve relationships with suppliers* (ex. reaching capri sun pouches easily at the store.. kraft fixed prob, sales went up 162%) -new to the world products are not adopted by everyone at same time -> diffuse or spread thru population (diffusion of innovation)
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Diffusion of Innovation
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-process by which use of an innovation (product/service/process) spreads throughout a market group over time and across categories of adopters -helps marketers understand rate at which consumers are likely to adopt new product/service -gives them means to identify potential markets for new products and predict potential sales before innovation is introducted
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Pioneers or Break-Throughs
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new product introductions that establish a completely new market or radically change both rules of competition and consumer preferences in a market (Ex. Apple iPod, created entire new industry) add tremendous value to firms not all pioneers succeed. imitators capitalize on weakness of pioneers and gain advantage in market. pioneers pave way for followers who then spend less marketing effort and only focus on creating demand for their brand pioneer has less sophisticated design since they're first in market and priced higher.. leaving room for better and lower priced competition
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First Movers
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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 market pioneers can command a greater market share over a longer time period than later entrants can
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Why is failure rate for new products so high?
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neglecting to do appropriate product testing, targeting wrong segment, and/or poor positioning; venturing into products/services that are inconsistent with brand image or value proposition
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Diffusion of Innovation Curve
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numbers of users of an innovative product or service spread thru population over a period of time follows bell-shaped curve (few people buy first, then more buy, then fewer buy as diffusion slows) *image of a bell curve, divided into 5 segments: innovators - 2.5%, early adopters 13.5%, early majority 34%, late majority 34%, laggards 16% these groups of people divided into 5 groups
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Innovators
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those buyers who want to be the *first* to have the new product or service (*2.5%*) -take risks, highly knowledgable, stands in line overnight for 1st midnight show, has 3D printer, firms that invest in latest technology, well informed, does research -crucial to success of new product bc they help it gain market acceptance(by word of mouth)
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Early Adopters
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*second* group of consumers in the diffusion of innovation model to use a product/service innovation; generally dont like to take as much risks as innovators but instead wait and purchase the product after careful review (*13.5%*) waits to buy new shit, tend to enjoy novelty and regarded as opinion leaders for particular product categories, spreads the word, crucial for bringing other 3 groups to the market if early adopters is small, # of people who ultimately adopt innovation likely will also be small
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Early Majority
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*34%*; members dont 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... if group never becomes large enough, product fails rents hunger games on dvd, experiences little risk cuz all reviews are in, costs lower cause they cheap af and they rent, number of competitors in marketplace reached peak by the time these mofos come in, these buyers have lots of price and quality choices
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Late Majority
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*34%*; last group of buyers to enter a new product market; when they do, the product has achieved its full market potential they do redbox or netflix fam, sales declining by the time these mofos get here
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Laggards
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*16%*; consumers who like to avoid change and rely on traditional products until they are no longer available they nevaa adopt a certain product/service. They watch hunger games on tv networks lol they lagginnnnn
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Using the Diffusion of Innovation Theory
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using these theory helps firm predict which type of customers will buy their shit after its introduced and even later than that with the knowledge, firms develop promotion, pricing, and other marketing shit to push acceptance among each customer group erry1 uses cleaning supplies.. people(innovators) who buy new cleaning supplies r obsessed with cleaning. so the firm research how they clean. some bitches spend 20hrs/wk cleaning wtfff and some only 2.5hrs/wk. dyson vacuum vs some lil shit that sucks dirt of your rug
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Relative Advantage
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If a product or service is perceived better than its substitutes, then diffusion will be relatively quick the swiffer bruhh is so handy.. kids who cant clean use it, old people use it, people with one arm use it. holy grail
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Compatibility
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Diffusion process may be faster or slower depending on various consumer features including international cultural differences electrolux vacuum cleans americans carpets, and for asian homes they got a smaller version of that and its quiet 2
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Observability
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when products observed, its easily communicated to others which enhances diffusion process. $400 blender and youtube challenge "will it blend????" humorous lol haha goes viral. some cleaning supplies barely observable bc no one go around talking about cleaning supplies cause its a personal nature product.. like what they use to clean toilets.. no one wanna talk about this shit with each other
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Complexity and Trialability
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products that are relatively less complex are relatively easy to try. they diffuse more quickly and lead to greater/faster adoption than those that are not so easy to try so much easier to try a spray from the store instead of a hugeass vacuum cleaner.. but some stores let people try the vacuums out. so b4 introduction, firms must develop these things
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The Product Development Process
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Idea Generation -> concept testing -> product development -> market testing -> product launch -> evaluation of results
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Idea Generation
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development of viable new products ideas
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Concept Testing
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testing the new product idea among a set of potential customers
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Product Development
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development of prototype and/or the product
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Market Testing
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testing the actual products in a few test markets
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Product Launch
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full-scale commercialization of the product
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Evaluation of Results
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Analysis of the performance of the new product and making appropriate modifications
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How Firms Develop New Products
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beings with generation of new product ideas and culminates in launch of a new product and evaluation of its success *internal R&D -> R&D Consortia -> Licensing -> Brainstorming -> Outsourcing -> Competitors' products -> Customer input.. you got source of ideas in the middle of this wheel*
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Idea Generation
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if you want a new product, look at the damn wheel for sources of ideas. if u wanna pioneer, u gotta rely on R&D efforts (research and development), but if u a follower then u jus scan the market for ideas
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Internal Research and Development
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firms got R&D depts where scientists solve probs and make ideas. IBM, etc relied on R&D for new products. music, software, movies come from internal ideas and R&D financial investments. general motors leverages consumer data R&D expensive but worth it tho cause it has a good chance of being a breakthuu. R&D investments are continuous investments cause few new products flop. Extremely successful new products (Blockbusters) can cover those loses.
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Reverse Innovation
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turn to subsidiaries in less developed markets for new product ideas (colocola develops minute maid in shengai, and levis started in china and india)
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R&D Consortia
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consortia - group of other firms and institutions (even govt of edu) more and more firms joining consortia for new ideas. R&D investments come from group as a whole and participating firms/institutions share the results medical researching costs millions so National Institutes of Health (NIH) sponsors research for treatments.. research disseminated to medical community, making development of drugs cheaper and faster
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Licensing
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firms buy rights to use technology or ideas from other research-intensive firms thru licensing agreement. saves high costs of in-house R&D. firm is banking on solution that already exists but not marketed
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Brainstorming
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group works together to generate ideas. no idea can be immediately accepted or rejected. moderator channel participants' attentions. at end of session, members vote for best
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Outsourcing
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some people have trouble thinking of shit so they hire other firms to think for them (IDEO). Pilates reformers too intimidating so IDEO improved it in 8 weeks
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Competitors' Products
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new product entry by competition may trigger market opportunity for firm soo use reverse engineering to understand competitor's product and then bring an improved version to market
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Reverse Engineering
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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 copycat approach - widespread and used by research intensive firms
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Consumer Input
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Listen to both B2B and B2C customers customers in B2B relatively few, firms follow products closely and solicit suggestions and ideas to improve using formal approach (focus group, interview, survey). joint effort between selling firm and customer increases probability that customer eventually will buy the new product. in B2C, customer input come from social media, so better idea about products (general mills and chips survey online). consumer may not expressly demand even tho behavior desires it. (home depot made a new bucket after observing women garden)
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Lead Users
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innovative product users who modify existing products according to their own ideas to suit their specific needs. helps firm understand general market trends. (jeans w/ holes, or paint, or whiskers)
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Concept
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brief written description of a product or service; its technology, working principles, and forms; and what customer needs it would satisfy (ex. visual images)
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Concept Testing
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process in which a concept statement that describes a product or a service is presented to potential buyers or users to obtain their reactions reactions help developer estimate sales value, service concept, enhance, worth for further development. If fails to meet customer's expectations, probs wont do well in the market. Helps firm avoid costs of unnecessary product development. they start with qualitative research, and then quantitative ish on the internet and then get feedback. Most important is to know respondent's purchase intentions if product made available. and also know if product satisfying a need other products not meeting, also ask frequency of purchase, for themselves or gift, when they buy, price info, etc. also take info about customers some stuff never make it past this stage if people uninterested
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Product Development or Product Design
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entails a process of balancing various engineering, manufacturing, marketing, and economic considerations to develop a product's form and features or a service's features
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Prototype
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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
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Alpha Testing
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an attempt by the firm to determine whether a product will perform according to its design and whether it satisfies the need for which it was intended; occurs in the firm's R&D dept. (ex. own employees tasted new icecream flavors) -animal testing is an issue
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Beta Testing
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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 (survey and identify probs) -internet recruiting beta testers, webcams, saves $$
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Market Testing
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Premarket Testing and Test Marketing
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Premarket Tests
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conducted before a product or service is brought to market to determine how many customers will try and then continue to use it (surveys, estimating probability for repurchase, sales estimate, and then they decide what they gonna do)- saves costs of nationwide launch if product fails (mock web pages, mock purchases, tests effectiveness of advertising)
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Test Marketing
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introduces a new product or service to a limited geographic area (few cities) prior to national launch -strong predictor of product success cause firm can study purchase behavior (more reliable than simulated test) -uses all elements of marketing mix (promos, retail outlets, pricing) -can estimate demand for entire market -costs more and takes longer than premarket tests, advantage for competitors that can make better product w/o test marketing.. thats why some firms launch new products w/o all this testing nonsense and rely on guts cause they dont want no1 to steal their ideas
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Product Launch
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positive results from marketing testing -> Product launch! -financial resources, extensive coordination of marketing mix -if product fails, difficult for product and firm to recover (3D movie tickets decline cause too pricy not worth) -product launch involves confirming target market(s) and decides how product will be positioned, and finalizes marketing mix variable (like budget) -time when launched important (pg movies released in summer)
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Evaluation of Results
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-firms use panel data to improve probability of success during test marketing phase of new product introduction -consumer panel data collected by panelists scanning in their receipts using home scanning device. info used to measure individual household first time trials and repeat purchases. market demand estimated measure success of new product by interrelated factors: 1) its satisfaction of technical requirements, such as performance 2) customer acceptance 3) its satisfaction of firm's financial requirements (sales and profits) if product not performing well -> poor customer acceptance -> poor financial performance ^ new product development process helps avoid failure
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Product Life Cycle
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defines the states 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 stages of life cycle reflect marketplace trends, like healthy lifestyle, organic, green, etc *Introduction -> Growth -> Maturity -> Decline* Not all products follow same life cycle curve. Ex. Home appliances stay in maturity for long time. Features may be added to washing machines. useful too for managers to analyze types of strategies that may be required over life of their products. Even marketing mix (4 Ps) can be adapted from insights about characteristic of each stage cycle
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Introduction Stage
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Stage of the product life cycle when innovators start buying the product starts with single firm, *innovators* are one to try new offering New to the world products services: telephone, transistor semiconductor, walkman portable cassette player, internet, personal digital assistant, itunes, facebook, blueray, ipad, smartwatches other firms enter market with similar or improved products at lower prices (appear, music, drinks). *One or few competitors* *initial losses* to firm due to *high start-up costs* and *low levels of sales revenue* as product beings to take off. If product successful, profits happen by end of stage
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Growth Stage
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product gains acceptance, demand, and sales increase, and competitors emerge in the product category *growing number of product adopters*, *rapid growth in industry sales*, *increases in number of competitors and # of available product versions*, *market becomes segmented*, consumer preferences *varied*, increases potential for *new market* or new uses of product or service forms attempt to reach new customers by studying their preferences and producing new variations (colors, styles, features), which enable them to segment market more precisely. goal of segmentation: ride rising sales trend, firmly establish firm's brand so not outdone by competitors (Del Monte's new entrant in market for organic products) *profits rise* cause economies of scale (manufacturing and marketing costs, promos, ads). Firms that have not established stronghold in market, may exist -> *industry shakeout*
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Maturity Stage
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industry sales reach their peak, so firms try to rejuvenate their products by adding new features or repositioning them if efforts succeed, product achieves new life mature product category remains same and seems unlikely to enter decline stage unless some innovative, superior solution takes over adoption of product by *late majority* and *intense competition* for market share among firms soo *market costs increase* and *intense competition on price* as average price of product falls compared to last 2 stages soo starts to erode profit margins for many market is saturated, all potential customers already bought it. In US, most consumer packaged goods in grocery and discount stores already in maturity stage like haircare product, so they go beyond wash, rinse, repeat (anti aging shampoo lolool) use various strategies to increase customer base/or defend market share
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Entry into New Markets of Market Segments
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bc market is saturated, firms wanna go to other places thats less saturated (pharamaceutical companies) u can find new market segments in mature markets (like Apple with new iphones) but device exhaustion tho they less likely to upgrade like me. smartphones mature in 2015. too expensive so apple dont get rid of their old shit for poor people. it just reduce the price of the old shit that are cheaper to make
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Development of New Products
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firms make new products with improved features or fine new uses for existing shit bc they need constant innovation and product *proliferation* to defend market share from intense competition. to retain or grow respective market share (hallmark doing all kinds of new stuff like customization)
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Decline Stage
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sale decline and the product eventually exists the market either position themselves for a niche segment of diehard consumers or those w/ special needs or leave market. *laggards* come thru by now. Vinyl records lol
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The Shape of the Product Life Cycle Curve
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bell shaped with regard to sales and profits. each product/service has its own individual shape, some move more rapidly thru cycles than others depending on offering and how valuable it is. those accepted quickly have higher consumer adoption rates very early in life and move faster across various stages (bluray faster than dvd)
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Strategies Based on Product Life Cycle: Some Caveats
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most challenging part of product life cycle concept is that managers do not exactly know what shape each each product's life cycle will take.. no way to know precisely what stage a product is in (several seasons of declining, stops promos, more declining, but it could have been declining cause poor strategy or increased competition?? -> product life cycle decision is self-fulfilling prophecy and growth product doomed to unnecessary decline lol that suckss) but now we got new analytical tools for detecting key turning points in cycle yeeeee
