978-0077861063 Chapter 7 Lecture Note

Type

Quiz

Book Title

A Preface to Marketing Management 14th Edition

ISBN 13

978-0077861063

April 8, 2019

Chapter 07 - New Product Planning and Development

Chapter 7

New Product Planning and Development

High-Level Chapter Outline

I. New Product Strategy

II. New Product Planning and Development Process

A. Idea Generation

B. Idea Screening

C. Project Planning

D. Product Development

E. Test Marketing

F. Commercialization

G. The Importance of Time

III. Some Important New Product Decisions

A. Quality Level

B. Product Features

C. Product Design

D. Product Safety

IV. Causes of New Product Failure

A. Need for Research

Detailed Chapter Outline

I. New Product Strategy

Authors C. Merle Crawford and Anthony DiBenedetto have developed a useful definition

of new products based on the following categories.

oNew-to-the-world-products—products that are inventions and create a whole new

market.

oNew-to-the-firm products—products that take the firm into a category new to it but

not to the world.

oAdditions to existing product lines—these are products that extend existing product

lines to current markets such as Bud Light, Apple’s iMac and Tide’s liquid detergent.

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Chapter 07 - New Product Planning and Development

oImprovements and revisions of existing products—these are current products that are

made better. Virtually every product on the market has been improved, often many

times.

oRepositionings—products that are retargeted for a new use or application.

oCost reductions—these are new products that simply replace existing products in a

line, providing the customer similar performance but at a lower cost.



The best strategy is the one that will maximize company goals.

A second approach to the new product question is the one developed by H. Igor Ansoff in

the form of growth vectors (Figure 7.1).

Market penetration denotes a growth direction through the increase in market share for

present product markets.

Product development refers to creating new products to replace existing ones.

Market development refers to finding new customers for existing products.

Diversification refers to developing new products and cultivating new markets.

Market penetration and market development strategies use present products. A goal of

these types of strategies is to either increase frequency of consumption or increase the

number of customers using the firm’s product.



Product development and diversification can be characterized as product mix strategies.



Policy-making criteria on new products should specify:

oA working definition of the profit concept acceptable to top management

oA minimum level or floor of profits

oThe availability and cost of capital to develop a new product

oA specified time period in which the new product must recoup its operating costs and

begin contributing to profits

It is critical that firms do not become solely preoccupied with a short-term focus on

earnings associated with new products.

II. New Product Planning and Development Process

Ideally, products that generate a maximum dollar profit with a minimum amount of risk

should be developed and marketed.

Refer figure 7.2 for the new product development process.

A. Idea Generation

Every product starts as an idea. Some estimates indicate that as many as 60 or 70 ideas

are necessary to yield one successful product.

The problem at this stage is to ensure that all new product ideas available to the

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Chapter 07 - New Product Planning and Development

company at least have a chance to be heard and evaluated.

Since idea generation is the least costly stage in the new product development process,

it makes sense that the emphasis be placed first on recognizing available sources of

new product ideas and then on funneling theses ideas to appropriate decision makers

for screening.

Top-management support is critical to providing an atmosphere that stimulates new

product activity.

Both technology push and market pull research activities play an important role in new

product ideas and development.

By taking a broad view of customer needs and wants, basic and applied research

(technology push) can lead to ideas that will yield high profits to the firm.

Marketing, on the other hand, is more responsible for gathering and disseminating

information gained from customers and other contacts.

B. Idea Screening

The primary function of the idea screening process is twofold:

oTo eliminate ideas for new products that could not be profitably marketed by the

firm

oTo expand viable ideas into full product concepts

The organization has to consider three categories of risk (and its associated risk

tolerance) in the idea screening phase prior to reaching a decision:

oStrategic risk: It involves the risk of not matching the role or purpose of a new

product with a specific strategic need or issue of the organization.

oMarket risk: It is the risk that a new product will not meet a market need in a

value-added, differentiated way.

oInternal risk: It is the risk that a new product will not be developed within the

desired time and budget.

In evaluating these risks, firms should not act too hastily in discounting new product

ideas solely because of a lack of resources or expertise.

Instead, firms should consider forming joint or strategic alliances with other firms.

A strategic alliance is a long-term partnership between two organizations designed to

accomplish the strategic goals of both parties.

Potential benefits to be gained from alliances include:

oIncreased access to technology, funding, and information

oMarket expansion and greater penetration of current markets

oDe-escalated competitive rivalries

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Chapter 07 - New Product Planning and Development

C. Project Planning

This stage involves several steps.

Various alternatives exist for creating and managing the project teams.

Two of the better-known methods are the establishment of a skunkworks, whereby a

project team can work in relative privacy away from the rest of the organization, and a

rugby or relay approach, whereby groups in different areas of the company are

simultaneously working on the project.

The common tie that binds these and other successful approaches together is the

degree of interaction that develops among the marketing, engineering, production, and

other critical staff.

A key component contributing to the success of many companies’ product

development efforts relates to the emphasis placed on creating cross-functional teams

early in the development process. (Marketing Insight 7-6 explains why

cross-functional product development teams can work.)

D. Product Development

At this juncture, the product idea has been evaluated from the standpoint of

engineering, manufacturing, finance, and marketing.

If it has met all expectations, it is considered a candidate for further research and

testing.

In the laboratory, the product is converted into a finished good and tested.

A development report to management is prepared that spells out in fine detail:

oResults of the studies by the engineering department

oRequired plan design

oProduction facilities design

oTooling requirements

oMarketing test plan

oFinancial program survey

oEstimated release date

E. Test Marketing

Test-market programs are conducted in line with the general plans for launching the

product.

Test marketing is a controlled experiment in a limited geographical area to test the new

product or in some cases certain aspects of the marketing strategy, such as packaging

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Chapter 07 - New Product Planning and Development

or advertising.

The main goal of a test market is to evaluate and adjust, as necessary, the general

marketing strategy to be used and the appropriate marketing mix.

Throughout the test market process, findings are being analyzed and forecasts of

volume developed.

In summary, a well-done test market procedure can reduce the risks that include not

only lost marketing and sales dollars but also capital—the expense of installing

production lines or building a new factory.

Upon completion of a successful test market phase, the marketing plan can be

finalized and the product prepared for launch.

F. Commercialization

This is the launching step in which the firm commits to introducing the product into

the marketplace.

During this stage, heavy emphasis is placed on the organization structure and

management talent needed to implement the marketing strategy.

Procedures and responsibility for evaluating the success of the new product by

comparison with projections are also finalized.

G. The Importance of Time

Time to market can be defined as the elapsed time between product definition and

product availability.

Successful time-based innovations can be attributed to the use of short production

runs.

Several U.S. companies, including Procter & Gamble, have taken steps to speed up the

new product development cycle by giving managers, at the product class and brand

family level, more decision-making powers.

III. Some Important New Product Decisions

In the development of new products, marketers have several important decisions to make

about the characteristics of the product itself.

These include quality level, product features, product design, and product safety levels.

A. Quality Level



Both consumers and organizational buyers consider the level of product quality when

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Chapter 07 - New Product Planning and Development

making purchase decisions for both new and existing products.



In designing new products, marketers must consider what criteria potential customers

use to determine their perceptions of quality.

An important indicator of a number of the criteria listed in Figure 7.3 is the presence

and extent of a new product warranty.



A warranty is the producer’s statement of what it will do to compensate the buyer if

the product is defective or does not work properly.

A guarantee is an assurance that the product is as represented and will perform

properly.

Figure 7.3 presents some criteria for determining perceptions of quality.

B. Product Features

A product feature is a fact or particular specification about a product.

Marketers may identify a need for new features that target markets have not yet

thought of and may not even understand.

C. Product Design

Designing new products with both ease of use and aesthetic appeal can be difficult, but

it can clearly differentiate a new product from competitors.

Good design can add great value to a new product.

D. Product Safety

New products must have a reasonable level of safety.

Safety is both an ethical and a practical issue.

Ethically, customers should not be harmed by using a product as intended.

Some products are inherently dangerous and can result in injury to users.

Other products such as patented medicines can harm a small portion of users.

Hopefully, the benefits such products offer outweigh their risks.

IV. Causes of New Product Failure



Many new products with satisfactory potential have failed to make the grade for reasons

related to execution and control problems. Some of the more important marketing causes

of new product failures are as follows:

oNo competitive point of difference, unexpected reactions from competitors, or both

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Chapter 07 - New Product Planning and Development

oPoor positioning

oPoor quality or product

oNondelivery of promised benefits or products

oToo little marketing support

oPoor perceived price/quality (value) relationship

oFaulty estimates of market potential and other marketing research mistakes

oFaulty estimates of production and marketing costs

oImproper channels of distribution selected

oRapid change in the market (economy) after the product was introduced

A. Need for Research



Top management has a responsibility to ask certain questions, and the new product

planning team has an obligation to generate answers to these questions based on

research that provides, marketing, economic, engineering, and production information.



Some of the specific questions commonly raised in evaluating product ideas are:

oWhat is the anticipated market demand over time? Are the potential applications

for the product restricted?

oCan the item be patented? Are there any antitrust problems?

oCan the product be sold through present channels and the current sales force?

What number of new salespersons will be needed? What additional sales training

will be required?

oAt different volume levels, what will be the unit manufacturing costs?

oWhat is the most appropriate package to use in terms of color, material, design,

and so forth?

oWhat is the estimated return on investment?

oWhat is the appropriate pricing strategy?

KEY TERMS

Commercialization: Stage of the new product development process that involves the actual

launch of the product and the implementation of the marketing strategy.

Cross-functional teams: Members from many different departments come together to jointly

establish new product development goals and priorities and to develop schedules.

Diversification: A strategy that seeks to develop new products and cultivate new customers. It

often leads the organization into new businesses, sometimes through acquisition.

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Chapter 07 - New Product Planning and Development

Guarantee: An assurance by the producer that the product is as represented and will perform

properly. If not, the organization making the guarantee replaces the product or refunds the

customer’s money.

Idea generation: Stage of the new product development process at which the goal is to ensure

that all new product ideas considered by the organization have the opportunity to be heard and

evaluated because the success of the process will depend greatly on the quality of the ideas

generated.

Idea screening: Evaluation of an idea based on strategic risk, market risk, and internal risk for

the purpose of eliminating ideas that could not be profitably marketed and expanding viable

ideas into full product concepts.

Market development: A strategy that seeks to find new customers for existing products. An

organization pursuing this strategy seeks to establish footholds in new markets or preempt

competition in emerging market segments.

Market penetration: A strategy that denotes a growth direction through the increase in market

share of present products in present markets. An organization pursuing this strategy hopes to

capitalize on existing markets and combat competitive entry or incursions.

New product development process: Stages include idea generation, idea screening, project

planning, product development, test marketing, commercialization.

Product development: A strategy that seeks to create new products to replace existing ones. An

organization pursuing this strategy hopes to capitalize on existing markets and combat

competitive entry or incursions.

Product development stage: Stage of the new product development process at which the

product idea has met all expectations and is considered a candidate for further research and

testing. In the laboratory, the product is converted into a finished good and tested.

Project planning: Stage of the new product development process at which the idea is evaluated

further and responsibility for the project is assigned to a project team. The idea is evaluated in

terms of production, marketing, financial, and competitive factors. A development budget is

established, and preliminary marketing and technical research is undertaken.

Rugby or relay: An approach to creating and managing product development teams that

involves groups in different areas of the organization working simultaneously on the project.

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Chapter 07 - New Product Planning and Development

Skunkworks: An approach to creating and managing product development teams that involves

team members working in relative privacy, away from the rest of the organization.

Test marketing: Stage of new product development process at which the product is no longer a

company secret. Test marketing is a controlled experiment in a limited geographical area to test

the new product as well as elements of the marketing mix.

Time to market: The elapsed time between product definition and product availability. It is

important because history has shown that organizations that are first in bringing their product to

market often gain a competitive advantage in terms of profits and market share.

Warranty: The statement of the producer of what it will do to compensate the buyer if the

product is defective or does not perform properly.

ADDITIONAL RESOURCES

Adamson, Allen P. The Edge: Fifty Tips from Brands That Lead. New York: Palgrave Macmillan,

2013.

Bender, Michael. A Manager’s Guide to Project Management. Upper Saddle River, NJ: FT Press,

2010.

Biyalogorsky, EyaI, William Boulding, and Richard Staelin. “Stuck In The Past: Why Managers

Persist in New Product Failures.” Journal of Marketing, April 2006, pp. 108-122.

Estrin, Judy. Closing The Innovation Gap. NY: McGraw-Hill, 2009.

Knight, Joe, Roger Thomas, and Brad Angus. Project Management for Profit. Boston: Harvard

Business Review Press, 2012.

Macintosh, Julie. Dethroning the King. NY: John Wiley and Sons, 2011.

Mack, Ben. Think Two Products Ahead. NY: John Wiley, 2007.

Siegel, Eric. Predictive Analytics. Hoboken, NJ: John Wiley and Sons, 2013.

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