Chapter 8 Developing New Products PDF

Chapter 8 Developing New Products © 2023 McGraw Hill Limited 8-1  Chapter 8: Developing New Products LEARNING OBJECTIVES LO1 Identify the reasons firms create new products LO2 Describe the diffusion of innovation theory and how managers...

Chapter 8 Developing New Products © 2023 McGraw Hill Limited 8-1  Chapter 8: Developing New Products LEARNING OBJECTIVES LO1 Identify the reasons firms create new products LO2 Describe the diffusion of innovation theory and how managers can use it to make product line decisions LO3 List the stages involved in developing new products and services LO4 Describe the product life cycle and summarize how it is used to make product line decisions © 2023 McGraw Hill Limited 8-2  Bartesian ⚫ Develop a Keurig-like machine that would make cocktails ⚫ Prototype development was critical to its success (seven in total) ⚫ Segmentation was revised ⚫ Drink pods had to be created ⚫ The unit is currently selling through Amazon and Costco © 2023 McGraw Hill Limited 8-3  Product: The First ‘P’ in the Marketing Mix The first ‘P’ in the market mix: new products Central to the creation of value for the consumer What is a product? - Anything that is of value to a consumer & can be offered through a marketing exchange - Goods, services, places, ideas, organizations, people, communities - Innovation adds value © 2023 McGraw Hill Limited 8-4  Why Do Firms Create New Products? New market offerings provide value to both firms & customers Firms MUST innovate in order to stay in business & current Innovation – transformation of ideas into new products and The Amazon Echo (left) was truly a new-to-the-world innovation. The clear boats with LED lights services and Bluetooth speakers from Toronto Kayaks (right) represent innovative design. © 2023 McGraw Hill Limited 8-5  Changing Customer Needs Adding new products allows firms to create & deliver value by satisfying changing needs of current & new customers Sometimes firms take a well-known product, such as a vacuum, & make it much more interesting such as Dyson Dyson added value by taking a well-known product, the vacuum cleaner, and redesigning it so that it won’t lose suction. © 2023 McGraw Hill Limited 8-6  Market Saturation The longer a product exists in the marketplace, the more likely the market will become saturated Without new products or services, the value of the firm declines Saturated markets also offer opportunities General Mills has created more than 600 gluten-free products in response to the growing market. © 2023 McGraw Hill Limited 8-7  Managing Risk Through Diversity Innovation allows firms to create a broader portfolio of products This leads to diversification of risk A portfolio of products is better than having just a single product “don’t put all your eggs in one basket” © 2023 McGraw Hill Limited 8-8  Fashion Cycles Fashion industry relies on trends & experiences short product life cycles Most sales come from new products To generate sales, apparel fashion designers produce entirely new product selections a few times a year. © 2023 McGraw Hill Limited 8-9  Fashion Cycles Consumers want to be challenged by another game or experience the most recent version Video games like Call of Duty Infinite Warfare are “fashionable” because consumers demand new versions. Once they “beat” the game, they want to be challenged with a new experience. © 2023 McGraw Hill Limited 8-10 Improving Business Relationships New products do not always target end consumers; sometimes they function to improve relationships with suppliers. i.e. - Walmart © 2023 McGraw Hill Limited 8-11 Adoption of Innovation Diffusion of Innovation the process by which the use of an innovation, whether a product or as service, spreads throughout a market group over time and over various categories of adopters. © 2023 McGraw Hill Limited 8-12  Adoption of Innovation Pioneers New product introductions that establish a completely new market or radically change both the rules of competition and consumer preferences in a Apple has released several pioneer products in recent years, including the Apple Watch. market…aka breakthroughs. © 2023 McGraw Hill Limited 8-13  Adoption of Innovation First Movers 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. Google Glass failed because of privacy concerns, system bugs, and being banned from public spaces. © 2023 McGraw Hill Limited 8-14 Adoption of Innovation © 2023 McGraw Hill Limited 8-15 Using the Adoption Cycle © 2023 McGraw Hill Limited 8-16  Relative Advantage If a product is perceived to be better than substitutes, then the diffusion will be relatively quick. Products like the Swiffer have a relative advantage over the competition because they make cleaning faster, easier, and more efficient, especially for seniors and other consumers with mobility issues. © 2023 McGraw Hill Limited 8-17  Compatibility To make the product more compatible with the needs of people in different cultures, it is made in various sizes. © 2023 McGraw Hill Limited 8-18  Observability When products are easily observed, their benefits or uses are easily communicated to others, which enhances the diffusion process. © 2023 McGraw Hill Limited 8-19  Complexity & Trialability ⚫ The more complex the product the longer it takes to diffuse. ⚫ Products that can be sampled will diffuse faster. © 2023 McGraw Hill Limited 8-20 How Firms Develop New Products © 2023 McGraw Hill Limited 8-21  Idea Generation Internal R&D Customer Licensing Input Source of Ideas Competitors’ Brainstorming Products © 2023 McGraw Hill Limited 8-22  Idea Generation Where do you think the idea for a waterproof tablet from Fujitsu came from? Internal R&D, licensing, brainstorming, outsourcing, competitors’ products, customer input, or a combination? © 2023 McGraw Hill Limited 8-23  Internal Research & Development (R&D) High product development costs Often the source of technological products Often the source of breakthrough products General Motors uses its OnStar system for remote communication with customers and diagnoses of problems. It analyzes the data it collects from its OnStar database to support the development of new cars. © 2023 McGraw Hill Limited 8-24  Licensing Firms purchase the rights to technology or ideas from other research-intensive firms University research centers also often provide such licenses © 2023 McGraw Hill Limited 8-25  Brainstorming Groups work together to generate ideas No idea can be immediately dismissed Three brothers brainstormed ideas to transition their machine shop making aerospace parts to a new venture, Henson Shaving, which makes precision safety razors. © 2023 McGraw Hill Limited 8-26  Outsourcing When companies have trouble moving through these steps alone, which prompts them to turn to outside firms SimpliSafe hired IDEO to help it develop its video-enabled doorbell. © 2023 McGraw Hill Limited 8-27  Competitors’ Products Reverse engineering “Me Too” or copycat products © 2023 McGraw Hill Limited 8-28  Customer Input As much as 85% of new business to business (B2B) products come from customers Lead users modify existing products according to their own specific needs Innovative customers called “lead users” are especially influential in the fashion industry because designers frequently change their designs based on trends they see on the street. © 2023 McGraw Hill Limited 8-29  Concept Testing Concept a brief written description of the product. ⚫ Customers’ reactions determine whether or not it goes forward ⚫ Triggers the marketing research process © 2023 McGraw Hill Limited 8-30  Product Development Prototype Alpha Testing Beta Ben & Jerry’s uses alpha testing with its own employees to make sure its products have the right taste and feel. Testing © 2023 McGraw Hill Limited 8-31  Product Development Prototype Alpha Testing Beta Testing Bartesian prototypes. Many prototypes were developed before Bartesian was finalized. P1, P2, P4, and P5 prototypes are shown here from top to bottom. © 2023 McGraw Hill Limited 8-32 Market Testing Premarket Test tests marketing Customers Mini product exposed launch More expensive Customers than premarket surveyed tests Firm makes Market demand decision is estimated © 2023 McGraw Hill Limited 8-33  Product Launch Promotion New Timing Place Product Price © 2023 McGraw Hill Limited 8-34  Evaluation of Results Satisfaction of technical requirements Customer acceptance Satisfaction of the firm’s financial requirements © 2023 McGraw Hill Limited 8-35 The Product Life Cycle © 2023 McGraw Hill Limited 8-36  Stages & Characteristics of the Product Life Cycle Introduction Growth Maturity Decline Sales Low Rising Peak Declining Profits Negative or Rapidly rising Peak to declining Declining low Typical Innovators Early adopters Late majority Laggards consumers and early majority Competitors One or few Few but High number of Low number of (number of increasing competitors and competitors firms and competitive and products products) products © 2023 McGraw Hill Limited 8-37  Strategies for Extending the Product Life Cycle Develop new uses Modify product Increase frequency of use Increase # of users Find new users Reposition product Tweak marketing strategy To reach new market segments, Apple reduces the price of older versions of its products when new ones are released. © 2023 McGraw Hill Limited 8-38 Variations on the Product Life Cycle Curve © 2023 McGraw Hill Limited 8-39 Strategies Based on Product Life Cycle: Some Caveats Theoretically the curves are bell shaped but in reality they can take many shapes Managers do not know exactly what the shape each product’s life cycle will take, so there is no way to know precisely what stage they are in. © 2023 McGraw Hill Limited 8-40