Firms need to innovate to respond to changing customer needs, prevent declines in sales from
market saturation, diversify their risk, and respond to short product life cycles, especially in
industries such as fashion, apparel, arts, books, and software markets, where most sales come
from new products. Finally, innovations can help firms improve their business relationships with
LO2 Describe the different groups of adopters articulated by the diffusion of innovation
The diffusion of innovation theory can help firms predict which types of customers will buy their
products or services immediately upon introduction, as well as later as they gain more
acceptance in the market. Innovators are those buyers who want to be the first to have the new
product or service. Early adopters do not take as much risk as innovators but instead wait and
purchase the product after careful review. The members of the early majority really don’t like to
take risk and therefore tend to wait until “the bugs” have been worked out of a particular product
or service. The late majority are buyers who purchase the product after it has achieved its full
market potential. Finally, laggards like to avoid change and rely on traditional products until they
are no longer available. Laggards may never adopt a certain product or service.
LO3 Describe the various stages involved in developing a new product or service.
When firms develop new products, they go through several steps. First, they generate ideas for
the product or service using several alternative techniques, such as internal research and
development, R&D consortia, licensing, brainstorming, tracking competitors’ products or
services, or working with customers. Second, firms test their concepts by either describing the
idea of the new product or service to potential customers or showing them images of what the
product would look like. Third, the design process entails determining what the product or
service will actually include and provide. Fourth, firms test market their designs. Fifth, if
everything goes well in the test market, the product is launched. Sixth, firms must evaluate the
new product or service to determine its success.
LO4 Explain the product life cycle.
The product life cycle helps firms make marketing mix decisions on the basis of the product’s
stage in its life cycle. In the introduction stage, companies attempt to gain a strong foothold in
the market quickly by appealing to innovators. During the growth stage, the objective is to
establish the brand firmly. When the product reaches the maturity stage, firms compete in-tensely
for market share, and many potential customers already own the product or use the service.
Eventually, most products enter the decline phase, during which firms withdraw marketing
support and eventually phase out the product. Knowing where a product or service is in its life
cycle helps managers determine its specific strategy at any given point in time.
Extended Chapter Outline With Teaching Tips
Why Do Firms Create New Products? (PPT slide 12-4)