Marketing Management 3 assigment 750-900 words each assigment

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New Products

8. 1

Marketing Framework

Why Improve Products?

• For corporate pride

• To be consistent with innovative image

• To better attract/satisfy customers

• To stave off competition

• Because the macroenvironment changes • Consumer tastes, natural resources,

demographics, cultural changes, etc.

Approaches to Developing New Products

• Top Down (inside-out) 1. Idea generation

2. Design and development

3. Commercialization

• Customer feedback is sought later in the process; marketing supports product launch

• Works well in industries where internal R&D teams have expertise end-customers lack

• Bottom Up (outside-in or co-creation) • Customer & company co-create products

New Product Development Process

• The NPD process is not entirely linear • It is important to continually revisit prior

decisions and change when necessary • e.g., A “good” decision in stage 2 may not be

a “good” decision in later stages

• Marketing is involved throughout process • Idea generation, refinement, marketing mix

decisions, etc.

Idea Creation

Idea Creation; Market Potential

1. Idea generation • “No idea’s a bad idea; let’s get everything up

on the white board”

• Firms may allocate time for employees to work on pet projects

• e.g., The idea is to drink your vitamins instead of taking a pill

Idea Creation; Market Potential

2. In-house winnowing & refinement • Screen ideas for plausibility using

• Internal experts’ knowledge

• Marketers’ target knowledge

• Management’s firm knowledge

• Feasibility assessments & business analyses are somewhat fuzzy at this stage

Idea Creation; Market Potential

• In-house winnowing & refinement, cont. • Consider the following:

• Who is the target segment & what is size?

• Who are competitors?

• Which of our products might we cannibalize?

• Do we have channels already in place?

• Does the product fit the firm? – e.g., Vitamin drinks could be targeted to

mothers with kids (Ovaltine) or health conscious adults (Ensure)

Concept Testing, Design & Development

3. Obtain feedback on plausible ideas • Use marketing research to

• Save a company from a bad idea

• Yield information to tweak idea

• Encourage pursuit of good idea

• Research may include focus groups, online surveys, etc.

• Conjoint analysis may also be used to determine trade-offs

Concept Testing, Design & Development

• Focus groups • 2-3 groups (per segment) of 8-10 customers

• Usually last 1.5 - 2 hours

• Participants give feedback on product concepts (verbal descriptions & visual cues)

• e.g., – How do you feel about kids drinking vitamins?

– How do you feel about flavored drinks?

– What do you think of this aluminum can design? Plastic bottle design?

Concept Testing, Design & Development

4. The results of the research is utilized to develop a prototype

• Usually only one prototype is developed at a time-not multiple

• If the prototype is not successful, another prototype is developed

Testing

• Try product in market on a small scale before an expensive full-scale roll-out

• Area test markets: • Product is made available and ads are run in

a few randomly selected metropolitan areas • Sales are observed and compared to sales in

control markets

• Not as commonly used any more because – They are expensive, tip-off competition and

sampled areas may have own “flavors”

Launch

• Forecast sales • If not promising, abort launch

• If promising, launch

• Forecasts are important to • Accounting and finance for budgeting

• Sales for setting sales goals

• Product and logistics for planning equipment, storage, transportation, etc.

Launch

• Forecasting • Goal is to estimate sales potential ($SP) not

sales

1. Determine market potential (MP) • How many units might be sold

– Start with secondary data » e.g., census, sales for similar products, etc.

Launch

• Forecasting, cont. 2. Estimate the purchase intention (PI)

• Likelihood target will buy the product

• Use recent marketing research – e.g., Assume research suggests PI = 0.7

• Note: Customers usually overstate PI; estimate ¾ downward P = ¾ (.7)= .525

Launch

• Forecasting, cont. 3. Determine the price (Pr)

• Remember economics; PI may increase as Pr decreases

• Forecasting equation: $SP = MP x PI x Pr • Remember this number is not profit; it is

maximum sales

Launch

• Timing • Process of developing new products can be

relatively quick or slow • e.g., New pharmaceuticals take years

• Causes of delay • Internal

• External – e.g., Patents, copyrights, regulatory

approvals, etc.

Product Life Cycle

• Describes the evolution/ duration of a product in the marketplace

• Phases have predictable sales & profits as well as optimal marketing actions

Product Lifecycle

• Market introduction • Low sales

– e.g., 3-D printers

• Heavy promotional spending on awareness

• Pricing strategies – Penetration: low price; discourages future

competition

– Skimming: high price; encourages future competition; recoup R&D costs

• Limited distribution

Product Lifecycle

• Market growth • Sales & profits increase and competitors

enter and kill each other off or specialize – e.g., Smartphones

• Product needs competitive advantage

• Promotion focuses on product’s superiority

• Distribution coverage is greater

• Price may be increased

Product Lifecycle

• Market maturity • Industry sales are strong but begin to level

off; competition is fierce with weaker firms leaving; profits decline

– e.g., Refrigerators

• Promotion focuses on product’s superiority and as a reminder to buy

• Product line may be extended and new benefits may be added

• Price usually falls due to competition

Product Lifecycle

• Market decline • Sales and profit decline; new products

replace older generations – e.g., Correction fluid

• Product may be – Divested: sell - do early to get best price

– Harvested: reduce support

– Rejuvenate: refurbish with new benefits

Diffusion of Innovation

• A normal curve is utilized to partition customers into groups to show how new products spread through the marketplace

Diffusion of Innovation

• Innovators: first 3-5% • Like to try new products; willing to take risks

• Early adopters: next 10-15% • Even more influential as opinion leaders • Not considered zealots

• Early majority: next 34% • More risk averse • Waiting to hear about favorable experiences

Diffusion of Innovation

• Late majority next 34% • Even more cautious • Often older and more conservative • Rely on consistent messages received via

word of mouth

• Laggards or non-adopters next 5-15% • Most risk averse • Skeptical of new products • Stereotypically lower in income

New Product Acceptance

• Acceptance of new products tends to be higher when:

• New product’s relative advantage is clear

• New product is compatible with customers’ lifestyles

• New product is not overly complex

• New product is easily tried or sampled

New Product Willingness

• Companies vary in their willingness to pursue new products

• From Innovator to reactors

• Market pioneers have difficulty with “really new” products but may have advantages in “incrementally new” products because there is less risk

• Early followers have approximately the same survival risks

Growth Strategies

• Market penetration • Sell same products to current markets • New ways to use, better pricing, etc.

• e.g., Convince your salad dressing users to start putting salad dressing on sandwiches

• Market development • Sell existing products to new markets • Move global, pursue older segment, etc. • May need to change image, channels, etc.

• e.g., Begin selling iPods in Nigeria

Growth Strategies

• Product development • Sell new products to current markets • Introduce extensions or new variations

• e.g., Begin selling pens to the market that is currently buying paper from you

• Diversification • Pursue new markets with new products • More difficult to pursue due to lack of

experience in product and market • e.g., A faucet manufacturer begins pursuing

the golf ball market

Trends to Watch

• Aging of population • Hispanic population growth • Growth in affluence • Concern for environment and social

responsibility • Internet usage • Role of China in global economy as well

as other growing economies

Managerial Recap

• New products are crucial to growth

• New product development process • Idea generation to market potential, to

concept testing, design and development, then beta-testing, and ultimately the launch

Managerial Recap

• Products evolve through a life cycle • Introduction, growth, maturity, and decline

• Each stage is recognizable by its sales & profitability and carries 4P recommendations

• Models can be used to forecast sales

• Marketers should study important trends