Innovation and Diffusion of Innovation

Need for Innovation

• Firms create new products due to changing customer needs, market saturation, managing risk through diversity, fashion cycles, and improving business relationships.
• When products saturate the market, firms create new products to avoid decreased value.
• Product innovation helps firms create a broader portfolio of products to manage risk and offset failures.

What is Innovation?

• Innovation transforms ideas into new products/services, helping firms grow.

Diffusion of Innovation

• Diffusion is how an innovation spreads across a market over time.
• Pioneers establish new markets and change competition/consumer preferences.
• First movers create a product category, become easily recognized, and gain market share.
• Innovators represent 2.5% of the population, are buyers who want to be the first to gain a new product or service.
• Early adopters represent 13.5% of the population, and take less risk than innovators; they wait and review.
• Early majority represents 34% of the population, tend not to take risks, wait for issue resolution and need this group to buy for profitability.
• Late majority represents 34% of the population, and represents the last group of buyers to buy, by the time they buy, the product has reached it's full market potential.
• Laggards represent 16% of the population: They avoid change and only use traditional products when others become obsolete.

Product Development Process

• The process involves an 6 step process: Idea generation, concept testing, product development, market testing, product launch, and evaluation of results.
• Idea generation creates viable ideas from customer input, competitors' products, internal R&D, outsourcing, brainstorming, R&D consortia and licensing.
• Concept testing presents a product idea to potential buyers for feedback.
• A concept is a description of a product/service's technology, operations, and form.
• Product development balances engineering, manufacturing, marketing, and economic factors.
• Prototypes are the first tentative physical form, sharing properties with production models but made through a different process.
• Alpha testing evaluates if the prototype meets the design specifications and fulfills its purpose.
• Beta testing involves potential consumers examining the prototype and providing feedback on its performance.
• Market testing assesses how well a product will do with a trial batch.
• Premarket tests determine how many customers will try and continue using the product.
• Test marketing introduces the offering to a limited geographic area before a national launch.
• A product launch depends on test results is when a firm decides which markets to target and product positioning.
• Finalizing the marketing mix is essential, and the timing of the launch is important.
• Evaluations happen when once the product is released a review determines success/failure.
• Results from this review help adjust future marketing but some products never get beyond the launch stage.

Product Life Cycle

• A product progresses through stages as it enters, establishes itself, and exits the marketplace.
• The life cycle helps markets determine their strategy planning.
• Introduction stage involves innovators beginning to buy and often define the product's own category and industry.
• Introduction stage is characterized by high start-up costs and low sales revenue.
• Growth involves demand, sales increase, and more competitors.
• During this stage, firms study consumer preferences and produce variations.
• Rapid profit increases are achieved during growth but product improvement spending impacts profit.
• Maturity stage happens when sales reach their peak and so firms employ strategies to rejuvenate their products.
• Reaching maturity will then increase marketing costs as competitor market share becomes a concern.
• Keeping prices low and maintaining marketing results in profits eroding
• Markets reach saturation, firms seek new markets or products.
• During decline, sales fall and the product exits the market.