Articles synopsis paper
elizabethchie
MKTG10_IE_Ch11_PPT.ppt*
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MKTG10
Lamb, Hair, and McDaniel
Chapter 11
Developing and Managing Products
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Chapter 11 Developing and Managing Products
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Explain the importance of developing new products and describe the six categories of new products
The Importance of
New Products
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Chapter 11 Developing and Managing Products
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Categories of New Products
New-to-the-World
New Product Lines
Product Line Additions
Improvements or Revisions
Repositioned Products
Lower-Priced Products
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Notes:
- The introduction of a new product is a monumental undertaking with a lot of open-ended questions—even for an established, multi-billion dollar company.
- The meaning of the term “new product” varies widely. The term actually has several correct definitions. There are six categories of new products:
• New-to-the-world products (or discontinuous innovations) create an entirely new market and are the smallest category of new products.
• New product lines allow a firm to enter an established market.
• Additions to existing product lines include new products that supplement a firm’s established product line.
• Improvements or revisions of existing products may be significantly or only slightly changed.
• Repositioned products are targeted at new markets or market segments.
• Lower-priced products provide performance similar to competing brands at a lower price.
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Categories of New Products
The meaning of the term “new product” varies widely. The term actually has several correct definitions. There are six categories of new products:
New-to-the-world products (or discontinuous innovations) create an entirely new market and are the smallest category of new products. Cirque De Solei
New product lines allow a firm to enter an established market. TGIFridays goes into frozen foods
Additions to existing product lines include new products that supplement a firm’s established product line. New flavor of chips
Improvements or revisions of existing products may be significantly or only slightly changed. “New and improved”
Repositioned products are targeted at new markets or market segments. Ford Mustang
Lower-priced products provide performance similar to competing brands at a lower price.
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Chapter 11 Developing and Managing Products
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Explain the steps in
the new-product
development process
The New-Product
Development Process
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Chapter 11 Developing and Managing Products
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New Product Success Factors
Long-term commitment
Company-specific approach
Capitalize on experience
Establish an environment
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Needed to support innovation and new-product development
Driven by corporate strategy and objectives, with a well-defined new-product strategy at its core.
To achieve and maintain competitive advantage.
Conducive to achieving company-specific new-product and corporate objectives.
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A plan that links the new-product development process with the objectives of the marketing department, the business unit, and the corporation.
A new-product strategy is part of the organization’s overall marketing strategy. It sharpens the focus and provides general guidelines for generating, screening, and evaluating new-product ideas.
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New-Product Strategy
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Chapter 11 Developing and Managing Products
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11.1
New-Product Development Process
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Chapter 11 Developing and Managing Products
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Notes:
- Most companies follow formal new-product development process, consisting of the seven steps shown here and in Exhibit 11.1.
- The funnel-shaped graphic highlights the fact that each stage acts as a screen to filter out unworkable ideas as the new-product development process evolves.
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Idea Generation
Customers
Employees
Distributors
Competitors
R&D
Consultants
Other Experts
Sources of
New-Product
Ideas
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Idea Generation
New product ideas come from different sources
Customers – Their wants and needs should be considered for new products
Employees – They sometimes know the company’s products and processes better than anyone else and many firms have formal processes for employees to submit ideas
Distributors – Well-trained sales force routinely asks distributors about needs not being met and because they are closer to the user they may have great insight.
Competitors – Competitive monitoring is important to determine if any of the competitors products can be copied.
Research and Development – This is done through basic research, applied research, product development, and product modifications
Consultants – Always available to examine a business and recommend product ideas
Other Experts – Crowdsourcing or ideas for multiple experts in different fields
Chapter 11 Developing and Managing Products
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Approaches for New Product Development
Brainstorming
Focus Group
The process of getting a group to think of unlimited ways to vary a product or solve a problem.
The objective of focus group interviews is to stimulate insightful comments through group interaction.
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The first filter in the product development process, which eliminates ideas that are inconsistent with the organization’s new-product strategy or are inappropriate for some other reason.
A test to evaluate a new-product idea, usually before any prototype has been created. Often successful for line extensions.
Screening
Concept Test
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Business Analysis
Considerations in
Business Analysis Stage
Demand
Cost
Sales
Profitability
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Chapter 11 Developing and Managing Products
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Notes:
- In the business analysis stage, the preliminary figures for demand, cost, sales, and profitability are calculated.
- In an established market, the accuracy of revenue projections can be made using industry estimates of total market size. However, forecasting market share for a new, fragmented, or relatively small niche entry is a bigger challenge.
- The following questions are asked during the business analysis stage:
• What is the likely demand for the product?
• What impact would the new product have on total sales, profits, market share, and return on investment?
• How would the introduction of a new product affect existing products? Would the new product cannibalize existing products?
• Would current customers benefit from the product?
• Would the product enhance the image of the company’s overall product mix?
• Would the new product affect current employees, such as hiring more people or reducing the size of the workforce?
• What new facilities would be needed?
• How might competitors respond?
• What is the risk of failure? Is the company willing to take the risk?
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Business Analysis
In the business analysis stage, the preliminary figures for demand, cost, sales, and profitability are calculated.
In an established market, the accuracy of revenue projections can be made using industry estimates of total market size. However, forecasting market share for a new, fragmented, or relatively small niche entry is a bigger challenge.
Chapter 11 Developing and Managing Products
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Business Analysis
The following questions are asked during the business analysis stage:
• What is the likely demand for the product?
• What impact would the new product have on total sales, profits, market share, and return on investment?
• How would the introduction of a new product affect existing products? Would the new product cannibalize existing products?
• Would current customers benefit from the product?
• Would the product enhance the image of the company’s overall product mix?
• Would the new product affect current employees, such as hiring more people or reducing the size of the workforce?
• What new facilities would be needed?
• How might competitors respond?
• What is the risk of failure? Is the company willing to take the risk?
Chapter 11 Developing and Managing Products
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Development
Create of a prototype
Sketch a marketing strategy
Decide on packaging, branding, and labeling
Map out promotion, price, and distribution strategy
Examine manufacturing feasibility
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The development stage can last a long time and thus be very expensive. It took ten years to develop Crest toothpaste, fifteen years to develop the Polaroid Colorpack camera and the Xerox copy machine, eighteen years to develop Minute Rice, and fifty-one years to develop the television.
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Simultaneous Product Development
A team-oriented approach to new-product development where all relevant functional areas and outside suppliers participate in the development process.
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Simultaneous Product Development
The development process works best when all the involved areas (marketing, R&D, engineering, production, and suppliers) work together rather than sequentially. This product is known as simultaneous product development.
This approach allows firms to shorten the development process and reduce costs.
The Internet is a useful tool for implementing simultaneous product development, particularly for global efforts. Global R&D is important because large companies have become global and focus on multiple markets. Also, companies want to tap into the world’s best talent.
Chapter 11 Developing and Managing Products
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Test Marketing
The limited introduction of a product and a marketing program to determine the reactions of potential customers in a market situation.
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Notes:
- Test marketing allows management to evaluate alternative strategies and to assess how well the various aspects of the marketing mix fit together.
- Cities chosen for test sites should reflect market conditions in the new product’s projected market area. Since no place is a “magic city,” researchers should find locations where the demographics and purchasing habits mirror the overall market.
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Costs of Test Marketing
- Often takes one year or more
- Can cost over $1 million
- Exposes new product to competitors
- Competitors can “jam” testing programs with their own promotions
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Notes:
Despite the cost, many firms believe it is better to fail in a test market than in a national introduction.
Chapter 11 Developing and Managing Products
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Alternatives to
Test Marketing
Single-source research using scanner data
Simulated (laboratory) market testing
Online test marketing
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Notes:
Alternatives to traditional test marketing include:
- Single source research using supermarket scanner data. Information Resources Inc. pioneered this technology in the early 1980s.
- Simulated (laboratory) market testing. Advertising and other promotional materials for several products are shown to members of the product’s target market. These people are taken to a mock or real store where their purchases are recorded.
- The Internet provides a fast, cost-effective way to conduct test marketing.
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Commercialization
Production
Inventory Buildup
Distribution Shipments
Sales Force Training
Trade Announcements
Customer Advertising
Ordering Materials
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Notes:
- The decision to market a product sets several tasks in motion, as shown on this slide.
- The time between the initial commercialization decision and the actual introduction may range from a few weeks to several years, depending on the complexity of the product.
Understand why some products succeed and others fail
Why Some Products
Succeed and Others Fail
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Product Failure
Despite the amount of time and money spent on developing and testing new products, a large proportion of new product introductions fail.
The most important factor in successful new-product introduction is a good match between the product and market needs.
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Product Failure
Products fail for a number of reasons.
• One common reason is that they simply do not offer any discernible benefit compared to existing products.
• Another commonly cited factor in new product failures is a poor match between product features and customer desires.
• Other reasons for failure include overestimation of market size, incorrect targeting or positioning, a price too high or too low, inadequate distribution, poor promotion, or simply, an inferior product.
Absolute failure occurs when a company cannot recoup its development, marketing, and production costs—the product actually loses money for the company. A relative product failure results when the product returns a profit but fails to achieve sales, profit, or market share goals.
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New-Product
Success Factors
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Listening to customers
Producing the best product
Vision of future market
Strong leadership
Commitment to new-product development
Project-based team approach
Getting every aspect right
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Discuss global issues in new-product development
Global Issues in
New-Product Development
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Global Marketing Questions
Increasing globalization of markets and of competition provides a reason for multinational firms to consider new-product development from a worldwide perspective.
Succeeding in some countries (such as China) often requires companies to develop products that meet the unique needs of these populations.
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Chapter 11 Developing and Managing Products
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Notes:
Explain the diffusion process through
which new products are adopted
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The Spread of
New Products
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Diffusion
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An innovation is a product perceived as new by a potential adopter. It really doesn’t matter whether the product is “new to the world” or some other category of new product.
By understanding how consumers learn about and adopt products, marketing managers have a better chance of successfully marketing products.
The process by which the adoption of an innovation spreads.
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Categories of Adopters
Categories of Adopters
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Laggards
Late Majority
Early Majority
Early Adopters
Innovators
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Chapter 11 Developing and Managing Products
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Notes:
- An innovation is a product perceived as new by a potential adopter.
- The diffusion process is the process by which the adoption of an innovation spreads.
- Five categories of adopters participate in the diffusion process:
- Innovators: The first 2.5 percent who adopt the product. Many are obsessive about trying new ideas and products.
- Early adopters: The next 13.5 percent to adopt the product. They are oriented to the community and rely on group norms and values.
- Early majority: The next 34 percent to adopt. They weigh the pros and cons before adopting a new product and rely on group information.
- Late majority: The next 34 percent to adopt. They adopt a new product because most of their friends have already adopted it.
- Laggards: The final 16 percent to adopt. By the time laggards adopt an innovation, it has probably been outmoded. Marketers typically ignore laggards, who do not seem to be motivated by promotion and personal selling.
Categories of Adopters
An innovation is a product perceived as new by a potential adopter.
The diffusion process is the process by which the adoption of an innovation spreads.
Five categories of adopters participate in the diffusion process:
Innovators: The first 2.5 percent who adopt the product. Many are obsessive about trying new ideas and products.
Early adopters: The next 13.5 percent to adopt the product. They are oriented to the community and rely on group norms and values.
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Chapter 11 Developing and Managing Products
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Categories of Adopters
Early majority: The next 34 percent to adopt. They weigh the pros and cons before adopting a new product and rely on group information.
Late majority: The next 34 percent to adopt. They adopt a new product because most of their friends have already adopted it.
Laggards: The final 16 percent to adopt. By the time laggards adopt an innovation, it has probably been outmoded. Marketers typically ignore laggards, who do not seem to be motivated by promotion and personal selling.
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Product Characteristics and
the Rate of Adoption
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Trialability
Observability
Relative Advantage
Compatibility
Complexity
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Product Characteristics and the Rate of Adoption
Five product characteristics can be used to predict and explain the rate of acceptance and diffusion of a new product:
Complexity: The more complex the product, the slower is its diffusion.
Compatibility: Incompatible products diffuse more slowly than compatible products.
Relative advantage: The degree to which a product is perceived as superior to existing substitutes.
Observability: The degree to which the benefits or other results of using the products can be observed by others and communicated to target customers.
Trialability: The degree to which a product can be tried on a limited basis.
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Marketing Implications of the Adoption Process
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Opinion leaders discuss new products. Suppliers of some products, such as professional and health care services, rely almost solely on word-of-mouth communication for new business.
Messages directed toward early adopters should use different appeals than messages directed toward the early and late majority, or the laggards.
Direct from
Marketer
Word of Mouth
Communication
Aids the
Diffusion Process
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Explain the concept of product life cycles
Product Life Cycles
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A concept that provides a way to trace the stages of a product’s acceptance, from its introduction (birth) to its decline (death).
Product Life Cycle
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Notes:
- The product life cycle (PLC) is a widely familiar concept in marketing and is considered a useful marketing management tool. However, some critics have challenged the theoretical basis and managerial value of the PLC.
- The product life cycle traces the stages of a product’s acceptance from its introduction to its decline.
- The PLC concept can be used to analyze a brand, a product form, or a product category.
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11.2
Four Stages of the Product Life Cycle
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Notes:
- Exhibit 11.2 illustrates the four major stages of the PLC for a consumer durable good: introduction, growth, maturity, and decline.
- The time a product spends in any one stage of the PLC may vary.
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11.3
Product Life Cycles for Styles, Fashions, and Fads
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Notes:
- Exhibit 11.3 illustrates typical life cycles for styles (such as formal, business, or casual clothing), fashions (such as miniskirts), and fads (such as leopard-print clothing).
- Changes in a product, its use, its image, or its positioning can extend the product’s life cycle.
- The PLC concept does not tell managers the length of a product’s life cycle or its duration at any stage. It is a tool to help marketers forecast future events and suggest appropriate strategies.
Exhibit 11.3
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Changes in a product, its use, its image, or its positioning can extend the product’s life cycle.
The PLC concept does not tell managers the length of a product’s life cycle or its duration at any stage. It is a tool to help marketers forecast future events and suggest appropriate strategies.
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Introductory Stage
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High failure rates
Little competition
Frequent product modification
Limited distribution
High marketing and production costs
Negative profits with slow sales increases
Promotion focuses on awareness and information
Communication challenge is to stimulate primary demand
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Notes:
- The introductory stage represents the full-scale launch of a new product. During the introductory stage, sales normally increase slowly. Marketing costs are high due to higher dealer margins required to obtain adequate distribution and the cost of consumer incentives to try a product.
- Production costs are high.
- Advertising expenses are high because consumers must be educated about the product’s benefits.
- Promotion strategy focuses on developing product awareness and informing consumers about the product’s potential benefits. Intensive personal selling is often required.
- Promotion of convenience products often requires heavy consumer sampling and couponing. Shopping and specialty products demand educational advertising and personal selling to the final consumer.
Introductory Stage
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The introductory stage represents the full-scale launch of a new product. During the introductory stage, sales normally increase slowly. Marketing costs are high due to higher dealer margins required to obtain adequate distribution and the cost of consumer incentives to try a product.
Production costs are high.
Advertising expenses are high because consumers must be educated about the product’s benefits.
Promotion strategy focuses on developing product awareness and informing consumers about the product’s potential benefits. Intensive personal selling is often required.
Promotion of convenience products often requires heavy consumer sampling and couponing. Shopping and specialty products demand educational advertising and personal selling to the final consumer.
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Growth Stage
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Increasing rate of sales
Entrance of competitors
Market consolidation
Initial healthy profits
Aggressive advertising of the differences between brands
Wider distribution
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Chapter 11 Developing and Managing Products
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Notes:
- In the growth stage, sales grow at an increasing rate, many competitors enter the market, and larger companies may acquire small pioneering firms.
- Profits rise rapidly, peak, and begin declining as competition increases.
- Aggressive brand advertising and communication of the differences between brands is the preferred promotion strategy.
- Adequate distribution is a major key to establish a strong market position and product success.
Maturity Stage
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Sales increase at a decreasing rate
Saturated markets
Annual models appear
Lengthened product lines
Service and repair assume important roles
Heavy promotions to consumers and dealers
Marginal competitors drop out
Niche marketers emerge
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Notes:
- The maturity stage begins when sales increase at a decreasing rate, and the market approaches saturation. This is normally the longest stage of the PLC.
- Annual models may appear during the maturity stage for shopping and specialty products. Product lines are lengthened to appeal to additional market segments.
- Service and repair help manufacturers distinguish their products from others.
- As prices and profits continue to fall, marginal competitors drop out of the market.
- Heavy promotion is required to maintain market share.
- Niche marketers that target narrow, well-defined segments of a market emerge.
Decline Stage
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Long-run drop in sales
Large inventories of
unsold items
Elimination of all nonessential
marketing expenses
“Organized abandonment”
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Notes:
- The rate of decline depends on how rapidly consumer tastes change or substitute products are adopted. Many convenience products and fad items lose their market overnight.
- Some firms eliminate all nonessential marketing expenses and let sales decline as more and more customers discontinue purchasing the products.
- Other firms practice “organized abandonment,” which is based upon a periodic audit of all goods and services that a firm markets.
Chapter 11 Video
GaGa’s Inc.
Jim King and his wife discuss how they decided to create the company GaGa’s Inc. using the product Sherbetter. The line expanded from just Lemon to several other flavors as well as Sherbetter bars, the struggles of branding, line extension, and other aspects of the frozen dessert market.
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