LEARNING OBJECTIVES
In this chapter we will address the following questions:
1. How can new products be categorized?
2. What challenges does a company face in developing new products and services?
3. What organizational structures and processes do managers use to oversee new-product
development?
4. What are the main stages in developing new products and services?
5. What is the best way to manage the generation of new ideas?
6. What is the best way to manage concept and strategy development?
7. What is the best way to manage the commercialization of new products?
8. What factors affect the rate of diffusion and consumer adoption of newly launched
products and services?
SUMMARY
1. Once a company has segmented the market, chosen its target customer groups and
identified their needs, and determined its desired market positioning, it is ready to
develop and launch appropriate new products and services. Marketing should
participate with other departments in every stage of new-product development.
2. Successful new-product development requires the company to establish an effective
organization for managing the development process. Companies can choose to use
product managers, new-product managers, new-product committees, new-product
departments, or new-product venture teams. Increasingly, companies are adopting
cross-functional teams, connecting to individuals and organizations outside the
company, and developing multiple product concepts.
3. Eight stages take place in the new-product development process: idea generation,
screening, concept development and testing, marketing strategy development, business
analysis, product development, market testing, and commercialization. At each stage,
the company must determine whether the idea should be dropped or moved to the next
stage.
4. The consumer-adoption process is the process by which customers learn about new
products, try them, and adopt or reject them. Today many marketers are targeting
heavy users and early adopters of new products because both groups can be reached
by specific media and tend to be opinion leaders. The consumer-adoption process is
influenced by many factors beyond the marketer’s control, including consumers’ and
organizations’ willingness to try new products, personal influences, and the
characteristics of the new product or innovation.
C H A P T E
R 1
5
INTRODUCING NEW
MARKET OFFERINGS
OPENING THOUGHT
Students will be challenged in understanding the new-product process if they are new to
the science of marketing. Students, like the general population, believe that new products
are just “thought-up” and created! Therefore, the first barrier to effective learning in this
chapter is to outline and detail the new-product process. An instructor can use examples
from his/her experience in the creation of new products or he/she can set up as an in-class
or outside of class experiment, the “creation” of a new product by the class or in groups.
Secondly, the consumer-adoption process may be new to some students who have not had
any consumer buying behavior classes. This section of the chapter allows for the most
discussion: Are you a heavy user? Or do you know someone who is an “early adopter”—
someone who must have the latest gimmick? When involving the students in the
examination(s) of their own lives or the lives of family/friends, the stages of the adoption
process can begin to play a more meaningful role.
Finally, personal influence—the effect that another person has on our willingness to try
products should be a concept familiar to the students. The instructor’s challenge here is to
show the students (or make them aware if they have not been aware) that personal
influence is a powerful determinant of behavior. The marketer must be cognizant of
personal influence in designing a marketing campaign. At this point, class discussion can
focus on the ethics of designing marketing campaigns to reach influential opinion-makers
to promote products and/or services.
TEACHING STRATEGY AND CLASS ORGANIZATION
PROJECTS
1. At this point in the semester-long Marketing Plan project, there should be a brief
write-up by the students as to the consumer-adoption process for their new product.
How will the consumer learn about their new product and how quickly will they
adopt it? Will the product be targeted to the heavy users and early adopters first, then
early and late majorities? What is their estimated time for full adoption?
2. Identify three new products (introduced to the consumer and/or business markets
within the last year) and classify them as either: a new-to-the-world product, a new
product line, an addition to the existing product line, an improvement and/or revision
of existing product(s), or a repositioning of an existing item. For each product
selected, identify what challenges you think the developing company faced in
marketing this product. What rate of diffusion and consumer adoption do you foresee
for these new products?
3. Sonic PDA Marketing Plan: Product strategy is based on the choices companies make
as they select target segments and create a distinctive positioning for their brand and
products. With this foundation, a marketer is ready to plan for new product
development and management. Now that you have developed the marketing plan for
Sonic 1000, you are considering new product options for the Sonic 2000. Answers to
the following questions will help you narrow the options for the second Sonic PDA
product:
What specific needs of the targeted customer segments should Sonic seek to
satisfy with a second PDA product?
Working with other students, generate at least four new ideas for new PDA
products, and indicate the criteria Sonic should use to screen these ideas.
Develop the most promising idea into a product concept and explain how Sonic
can test this concept.
Assuming the most promising idea tested well, develop a marketing strategy for
introducing the new product, including: (1) description of the target market(s), (2)
product positioning, (3) objectives for sales, profit, and market share for first year,
(4) channel strategy, and (5) marketing budget for first year.
Into which of the six categories of new products identified by Booz, Allen, and
Hamilton does Sonic’s first PDA product fit? Into which of these categories does
the suggested second PDA product fit? What are the implications of the answers
to this question for Sonic’s marketing plan for the second PDA?
Summarize your answers to these questions in a written marketing plan or enter the
answers into the Marketing Mix, Marketing Research, Break-Even, Sales Forecast,
Budget Analysis, and Milestone sections of Marketing Plan Pro.
ASSIGNMENTS
Use the class and conduct a brainstorming session using the tips from the Marketing
Memo entitled “How to Run a Successful Brainstorming Session.” Use the students as
the “group” and appoint one as a moderator.
Using the suggestions in the Marketing Memo entitled “Eight Ways to Draw New Ideas
from Your Customers,” set up a project in which students (individually or in groups)
observe consumers using products such as automobiles, use of the Internet, use of the
“mall,” etc. to see if they can come up with some ideas from their observations.
New products fail at a disturbing rate. Recent studies put the rate at 95 percent in the
United States and 90 percent in Europe. In small groups (five students suggested as the
maximum), find three products that have “failed” (been introduced then withdrawn from
the market by the company) and suggest the cause or causes of these product failures. A
listing of some of the reasons why new products fail can be found in the chapter.
In the opening vignette of the chapter, Johnson & Johnson is noted for being one of the
most innovative U.S. companies. Other innovative companies exist as well. In a small
group, find at least three U.S. companies that have introduced numerous new products
into the marketplace over the last two years. What characteristics do all of these
companies share? What has been their success rate?
Apple’s iPod® and iPhone® has been a successful new product introduction for the
company. It has been suggested that the introduction of iPhone and iPod was targeted at
the “innovators”—technology enthusiasts and “early adopters.” Question: Can the iPhone
and iPod continue its rate of diffusion throughout the adoption curve and reach the early
majorities and late majorities users? Or will it become stuck appealing to just those two
first segments? In your answer, carefully review the sales, pricing, and products recently
introduced by competitors of Apple.
The consumer-adoption process is similar to the product life cycle in its stages of
introduction, growth, expansion, and decline. For example, by the time a product reaches
the late majority, the product is also entering the latter stages of the product life cycle and
price and promotion become increasingly important to maintaining sales. Overlaying
these two graphs, comment on what their similarity means for marketers. Why do you
think that the length of the adoption process and the product life cycle stages are similar?
What does this similarity say about consumer buying practices? What lessons must
marketers understand, in terms of new product launches, about these two?
In the section entitled, Creativity Techniques, the chapter defines some techniques for
stimulating creativity in individuals and groups. In small groups, and using the techniques
described, create at least three “new ideas” for products and services. Your group can use
“lateral marketing” techniques as well. Share these new ideas with others in the class and
conduct an informal poll of which ideas have the most merit for future development.
Companies find good ideas by researching competitors’ products and services. For this
exercise, select a consumer product category (shampoos, soft drinks, snack foods, etc.),
purchasing many of the available items in this category. Suggest some incremental
innovations that you would like to see for the products/category chosen. For example,
would you prefer a different form of bottling for shampoos? A different flavor for soft
drinks—beer flavored cola, for example. Do any of the items in your research have
glaring weaknesses as in its cleaning properties, smell, or taste that a company can
improve upon? Why is competitive research so important for companies to undertake?
DETAILED CHAPTER OUTLINE
New-product development shapes the company’s future. Improved or replacement products
and services can maintain or build sales; new-to-the-world products and services can
transform industries and companies and change lives. However, the low success rate of new
products and services points to the many challenges they face. Marketers play a key role in
new-product development by identifying and evaluating ideas and working with R&D and
other areas in every stage of development.
I. New Product Options
A. Make or Buy: a company can add new products through acquisition or development.
a. When acquiring, the company can buy other companies, buy patents from
other companies, or buy a license or franchise from another company.
b. Organic growth is the development of new products from within.
B. Types of New Products
a. Range from new-to-the-world items that create an entirely new market to
minor improvements or revisions of existing products.
b. Fewer than 10 percent of all new products are truly innovative and new to the
world (radical innovations)
c. Companies typically must create a strong R&D and marketing partnership to
pull off a radical innovation
d. The right corporate culture is another crucial determinant; the firm must
prepare to cannibalize existing products, tolerate risk, and maintain a future
market orientation
e. A keen understanding of customers is also paramount.
f. Few reliable techniques exist for estimating demand for radical innovations
i. Focus groups can provide perspective on customer interest and need,
ii. Marketers may need a probe-and-learn approach based on observation
and feedback of early users’ experiences and other means such as
online chats or product-focused blogs.
II. Challenges in New Product Development
A. Continuous innovation is a necessity.
i. Companies that fail to develop new products leave themselves
vulnerable to changing customer needs and tastes, shortened product
life cycles, increased domestic and foreign competition, and especially
new technologies.
ii. Highly innovative firms are able to repeatedly identify and quickly
seize new market opportunities.
iii. Innovation is about “creating new choices” the competition doesn’t
have access to
B. New-Product Success
i. Most established companies focus on incremental innovation, entering
new markets by tweaking products for new customers, using variations
on a core product to stay one step
ii. Newer companies create disruptive technologies that are cheaper and
more likely to alter the competitive space.
iii. The number-one success factor is a unique, superior product.
iv. Technological and marketing synergy, quality of execution in all
stages, market attractiveness, and products designed with other
countries and a global perspective in mind fared better
C. New-Product Failure
i. New products continue to fail at rates estimated as high as 50 percent
or even 95 percent in the United States and 90 percent in Europe
ii. Reasons for failure:
1. Ignored or misinterpreted market research
2. Overestimates of market size
3. High development costs
4. Poor design or ineffectual performance
5. Incorrect positioning, advertising, or price
6. Insufficient distribution support
7. Competitors who fight back hard
8. Inadequate ROI or payback.
iii. Some additional drawbacks new-product launches face are:
1. Fragmented markets
2. Social, economic, and governmental constraints
3. Cost of development
4. Capital shortages
5. Shorter required development time
6. Poor launch timing
7. Shorter product life cycles
8. Lack of organizational support
III. Organizational Arrangements
A. Many companies use customer-driven engineering to develop new products,
incorporating customer preferences in the final design.
B. Budgeting for New Product Development
i. R&D outcomes are so uncertain that it is difficult to use normal
investment criteria when budgeting for new-product development.
ii. Some companies simply finance as many projects as possible, hoping
to achieve a few winners.
iii. Others apply a conventional percentage-of-sales figure or spend what
the competition spends.
iv. Others decide how many successful new products they need and work
backward to estimate the required investment.
C. Organizing New-Product Development
i. Many companies assign responsibility to product managers.
ii. Cross-functional groups can be charged with developing a specific
product or business.
iii. Skunkworks are informal workplaces, sometimes garages, where
intrapreneurial teams work to develop new products.
iv. Communities of practice are often housed on internal Web sites where
employees from different departments are encouraged to share
knowledge and skills with other
v. Crowdsourcing can provide ideas or feedback from consumers on a
task or project that might otherwise be overlooked.
vi. Many top companies use the stage-gate system to divide the
innovation process into stages, with a gate or checkpoint at the end of
each before moving forward
IV. Managing the Development Process: Ideas
A. The new-product development process starts with the search for ideas.
i. Some marketing experts believe we find the greatest opportunities and
highest leverage for new products by uncovering the best possible set
of unmet customer needs or technological innovation
ii. New-product ideas can in fact come from interacting with various
groups and using creativity-generating techniques
iii. Employees can be a source of ideas for improving production,
products, and services
iv. Encouraged by the open innovation movement, many firms are going
outside their bounds to tap external sources of new ideas, including
customers, scientists, engineers, patent attorneys, university and
commercial laboratories, industrial consultants and publications,
channel members, marketing and advertising agencies, and even
competitors
v. Cocreation can help customers feel closer to the company and create
favorable word of mouth.
vi. Lead users can be a good source of input, even when they innovate
products without the consent or knowledge of the companies that
produce them.
vii. Companies can find good ideas by researching the products and
services of competitors and other companies. They can find out what
customers like and dislike about competitors’ products.
viii. Internal brainstorming sessions also can be quite effective—if
conducted correctly.
B. Here is a sampling of techniques for stimulating creativity in individuals and
groups.
i. Attribute listing
ii. Forced relationships
iii. Morphological analysis
iv. Reverse assumption analysis
v. New contacts
vi. Mind mapping, etc.
C. New-product ideas can arise from lateral marketing that combines two product
concepts or ideas to create a new offering,
D. Concept Testing means presenting the product concept to target consumers,
physically or symbolically, and getting their reactions.
i. Rapid prototyping is used to design products on a computer and then
produce rough models to show potential consumers for their reactions.
ii. Companies are also using virtual reality to test product concepts.
iii. Ask consumers about Communicability and believability, Need level,
Gap level, Perceived value, Purchase intention, User targets, purchase
occasions, purchasing frequency
E. The stronger the need, the higher the expected consumer interest.
F. Consumer preferences for alternative product concepts can be measured with
conjoint analysis a method for deriving the utility values that consumers
G. Marketing Strategy Development
i. Following a successful concept test, the new-product manager will
develop a preliminary three-part strategy plan for introducing the new
product into the market.
ii. The first part describes the target market’s size, structure, and
behavior; the planned brand positioning; and the sales, market share,
and profit goals sought in the first few years:
iii. The second part outlines the planned price, distribution strategy, and
marketing budget for the first year.
iv. The third part of the marketing strategy plan describes the long-run
sales and profit goals and marketing-mix strategy over time
H. Business Analysis
i. Management can evaluate the proposal’s business attractiveness.
ii. Management needs to prepare sales, cost, and profit projections to
determine whether they satisfy company objectives.
iii. If they do, the concept can move to the development stage. As new
information comes in, the business analysis will undergo revision and
expansion.
iv. Total estimated sales are the sum of estimated first-time sales,
replacement sales, and repeat sales.
1. In estimating sales, the manager’s first task is to estimate
first-time purchases of the new product in each period.
2. To estimate replacement sales, management researches the
product’s survival-age distribution
3. Because replacement sales are difficult to estimate before the
product is in use, some manufacturers base the decision to
launch a new product on their estimate of first-time sales alone.
v. Costs are estimated by the R&D, manufacturing, marketing, and
finance department
vi. Dragalong income is additional income to them, and cannibalized
income is reduced income
V. Managing the Development Process: Development to Commercialization
A. Products are developed into prototypes
B. The job of translating target customer requirements into a working prototype
is helped by a set of methods known as quality function deployment (QFD).
C. The methodology takes the list of desired customer attributes (CAs) generated
by market research and turns them into a list of engineering attributes (EAs)
that engineers can use.
D. The goal of the R&D department is to find a prototype that embodies the key
attributes in the product-concept statement, performs safely under normal use
and conditions, and can be produced within budgeted manufacturing costs.
Sophisticated virtual reality technology and the Internet now permit rapid
prototyping and flexible development processes.
E. Customer Tests: when the prototypes are ready, they must be put through
rigorous functional and customer tests before they enter the marketplace.
i. Alpha testing tests the product within the firm to see how it performs
in different applications.
ii. After refining the prototype further, the company moves to beta testing
with customers.
F. Market Testing: the amount of testing is influenced by the investment cost and
risk on the one hand and time pressure and research cost on the other
G. Consumer-products tests seek to estimate four variables: trial, first repeat,
adoption, and purchase frequency.
H. Four major methods of consumer-goods market testing, from least to most
costly.
i. Sales-Wave Research
ii. Simulated Test Marketing
iii. Controlled Test Marketing
iv. Test Markets
I. Business-Goods Market Testing: Business goods can also benefit from market
testing.
J. During beta testing, the company’s technical people observe how customers
use the product, a practice that often exposes unanticipated problems of safety
and servicing and alerts the company to customer training and servicing
requirements.
K. Commercialization incurs the company’s highest costs to date
i. First entry—The first firm entering a market usually enjoys the “first
mover advantages” of locking up key distributors and customers and
gaining leadership. But if rushed to market before it has been
thoroughly debugged, the first entry can backfire.
ii. Parallel entry—The firm might time its entry to coincide with the
competitor’s entry. The market may pay more attention when two
companies are advertising the new product.
iii. Late entry—The firm might delay its launch until after the competitor
has borne the cost of educating the market, and its product may reveal
flaws the late entrant can avoid. The late entrant can also learn the size
of the market.
iv. Where (Geographic Strategy)
v. To Whom (Target-Market Prospects)
vi. How (Introductory Market Strategy)
vii. To coordinate the many tasks in launching a new product, management
can use network-planning techniques such as critical path scheduling
(CPS), which develops a master chart showing the simultaneous and
sequential activities that must take place
VI. The Consumer-Adoption Process
A. Adoption individual’s decision to become a regular user of a product and is
followed by the consumer-loyalty process.
B. New-product marketers typically aim at early adopters and use the theory of
innovation diffusion and consumer adoption to identify them
C. An innovation is any good, service, or idea that someone perceives as new, no
matter how long its history.
i. The innovation diffusion process is “the spread of a new idea from its
source of invention or creation to its ultimate users or adopters
ii. The consumer-adoption process is the mental steps through which an
individual passes from first hearing about an innovation to final
adoption
1. Awareness—The consumer becomes aware of the innovation
but lacks information about it.
2. Interest—The consumer is stimulated to seek information
about the innovation.
3. Evaluation—The consumer considers whether to try the
innovation.
4. Trial—The consumer tries the innovation to improve his or her
estimate of its value.
5. Adoption—The consumer decides to make full and regular use
of the innovation.
iii. The new-product marketer should facilitate movement through these
stages.
D. Factors Influencing the Adoption Process: differences in individual readiness
to try new products, the effect of personal influence, differing rates of
adoption, and differences in organizations’ readiness to try new products.
Some researchers are focusing on use-diffusion processes as a complement to
adoption process models to see how consumers actually use new products.
i. Readiness to Try New Products and Personal Influence
1. Innovators are technology enthusiasts
2. Early adopters are opinion leaders who carefully search for
new technologies
3. Early majority are deliberate pragmatists who adopt the new
technology when its benefits have been proven and a lot of
adoption has already taken place.
4. Late majority are skeptical conservatives who are risk averse,
technology shy, and price sensitive.
5. Laggards are tradition-bound and resist the innovation until the
status quo is no longer defensible.
ii. Personal influence, the effect one person has on another’s attitude or
purchase probability, has greater significance in some situations and
for some individuals than others, and it is more important in evaluation
than in the other stages.
iii. Characteristics of the Innovation
1. Relative advantage
2. Compatibility
3. Complexity
4. Divisibility
5. Communicability