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Part 3: Develop the Value Proposition for the Customer

Chapter 8

Product I: Innovation and New Product Development

I. CHAPTER OVERVIEW

Is the best product a well-made product, one that works better than all others do and the one that will succeed?

The answer “yes” seems obvious, but in reality, the correct answer is often “no.” To succeed, products must

provide benefits that people seek. Products must satisfy consumer needs and wants better than competitors’

products.

In this chapter, students learn how products are classified, the layers of a product, the importance of new

products, and how firms develop new products. In addition, students learn how products are adopted and how

innovations are diffused throughout society. After thorough study, students will be much more inclined to

answer “no” to the opening question.

II. CHAPTER OBJECTIVES

1. Explain how value is derived through different product layers.

2. Describe how marketers classify products.

3. Understand the importance and types of product innovations.

4. Show how firms develop new products.

5. Explain the process of product adoption and the diffusion of innovations.

III. CHAPTER OUTLINE

►MARKETING MOMENT INTRODUCTION

Suppose you’re the marketing manager in charge of increasing the sales of iPads to people aged 65 or

older. What are some of the challenges you would face when trying get elderly people to buy iPads? This

could lead to a discussion on adoption, diffusion, and types of new products.

p. 233 REAL PEOPLE, REAL CHOICES—HERE’S MY PROBLEM AT

UNDER ARMOUR

In 1996, Kevin Plank, a football player at the University of Maryland,

had the thought that there must be a better solution to the 100 percent

cotton T-shirt he and his fellow teammates were wearing under their

pads. Their shirts were quickly soaked with sweat within minutes of

practice. In the spring of 2011, Under Armour started to see a gradual

decline in sales and for the first time, the brand faced severe

competition from other brands. One major threat was Nike, which had

just launched a new product campaign called Pro Combat. If Under

Armour had created the story of compression apparel, Nike’s Pro

Combat was aiming to write the next chapter. The challenge we

faced was twofold: product and marketing. When business began to dip,

the reality of the situation was that any product line overhaul might be

too little too soon. Any product adjustment can send ripple effects

through the supply chain, which in turn can affect delivery times, sales,

and profit. On the other hand, the longer Under Armour waited to enact

a new plan, the more we would see a dip in sales.

Exhibit: Neal

Goldman photo

Part 3: Develop the Value Proposition for the Customer

p. 234

Neal considered his options:

1. Approach the decision as a product problem. Build new product

offerings to get into retail ASAP.

2. Approach the decision as a marketing problem. Stay the course

with the current product line and invest time, money, and

resources immediately.

3. Start over with a new business plan. Rebuild the Base layer

product from the ground up.

The vignette ends by asking the student which option he/she would

choose.

Neal chose option #3.

Use website here: Under Armour: www.underarmour.com

p. 234

p. 235

1. BUILD A BETTER MOUSETRAP—AND ADD VALUE

The truth is that just because a product is better is no guarantee it will

succeed. The marketer’s task is twofold: first, to create a better value

than what’s out there already and second to convince customers that this

is true.

A product is a tangible good, service, idea, or some combination of

these that satisfies consumer or business customer needs through the

exchange process; it is a bundle of attributes including features,

functions, benefits, and uses. Products can be physical goods, services,

ideas, people, or places. A good is a tangible product, something that

we can see, touch, smell, hear, taste, or possess. In contrast, intangible

products—services, ideas, people, places—are products that we cannot

always see, touch, taste, smell, or possess.

Marketers think of the products as more than the thing that comes in a

package. They view a product as a bundle of attributes that includes

the packaging, brand name, benefits, and supporting features in addition

to a physical good.

The key word here is create. A large part of the marketer’s role in

creating the value proposition is to develop and market products

appropriately.

p. 235

1.1 Layers of the Product Concept

A product is everything that a customer receives in an exchange. A

product is made up of the core product, the actual product, and the

augmented product. Marketers need to consider how to satisfy

customers’ wants and needs at each of these three levels – that is, how

they can create value.

1.1.1 The Core Product

The core product consists of all the benefits the product will provide

Chapter 8: Product I: Innovation and New Product Development

p. 236

p. 237

for consumers or business customers. A benefit is an outcome that the

customer receives from owning or using a product. Marketing is about

supplying benefits, not attributes. Many products actually provide

multiple benefits.

1.1.2 The Actual Product

The actual product is the physical good or the delivered service that

supplies the desired benefit. The actual product also includes the unique

features of the product, such as its appearance or styling, the package,

and the brand name.

1.1.3 The Augmented Product

The augmented product is the actual product plus other supporting

features such as warranty, credit, delivery, installation, and repair

service after the sale. Adding these supporting features to a product is an

effective way for a company to stand out from the crowd.

Figure 8.1

Snapshot:

Layers of the

Product

Exhibit: Skinny

Cow

p. 237 2. HOW MARKETERS CLASSIFY PRODUCTS

Marketers classify products into categories because the categories

represent differences in how consumers and business customers feel

about products and how they purchase different products. Such an

understanding helps marketers develop new products and a marketing

mix that satisfies customer needs.

Generally, products are either consumer products or

business-to-business products. However, sometimes consumers and

businesses buy the same products. Some examples include toilet paper,

vacuum cleaners, and light bulbs.

p. 237 2.1 How Long Do Products Last?

Marketers classify consumer goods as durable or nondurable depending

on how long the product lasts. Durable goods are consumer products

that provide benefits over a period of months, years, or even decades,

such as cars, furniture, and appliances. Nondurable goods, such as

newspapers and food, are consumed in the short term.

We are more likely to purchase durable goods under conditions of high

involvement (as we saw in Chapter 5), while nondurable goods are more

likely to be low involvement decisions.

p. 238

2.2 How Do Consumers Buy Products?

Marketers also classify products based on where and how consumers

buy the product. We think of both goods and services as convenience

products, shopping products, specialty products, or unsought products.

Consumer decisions differ in terms of effort they put into habitual

decision making to limited problem solving to extended problem

solving. We can use this idea when we want to understand why it is

important to classify products.

A convenience product typically is a nondurable good or service that

consumers purchase frequently with a minimum of comparison and

effort. Consumers expect these products to be handy and will buy

whatever brands are easy to obtain. In general, convenience products

Figure 8.2

Snapshot:

Classification of

Products

Part 3: Develop the Value Proposition for the Customer

p. 239

p. 240

are low priced and widely available. Consumers generally already know

all they need or want to know about a convenience product, devote little

effort to purchases, and willingly accept alternative brands if their

preferred brand is not available in a convenient location. Most

convenience product purchases are the results of habitual consumer

decision-making. What is the most important thing for marketers of

convenience products? You guessed it—make sure the product is easily

obtainable in all the places where consumers are likely to look for it.

Staples such as milk, bread, and gasoline are basic or necessary items

that are available almost everywhere. Most consumers do not perceive

big differences among brands. Marketers must offer staples that

consistently meet consumer’s expectations for quality and make sure it

is available at a price comparable to the competition’s price. A

consumer packaged good (CPG) or fast-moving consumer good

(FMCG) is a low-cost good that we consume quickly and replace

frequently.

An impulse product is something people buy on the spur of the

moment.

Emergency products are those products we purchase when we are in

dire need. Bandages, umbrellas, and something to unclog the bathroom

sink are examples of emergency products. Because we need the product

badly and immediately, price and sometimes product quality may be

irrelevant to our decision to purchase.

Shopping products are goods or services for which consumers will

spend time and effort to gather information on price, product attributes,

and product quality. For these products, consumers are likely to

compare alternatives before they buy.

Specialty products have unique characteristics that are important to

buyers at almost any price. Consumers usually know a good deal about

specialty products, and they tend to be loyal to specific brands.

Generally, a specialty product is an extended problem-solving purchase

that requires a lot of effort to choose. That means firms that sell these

kinds of products need to create marketing strategies that make their

product stand apart from the rest.

Unsought products are goods or services (other than

convenience products) for which a consumer has little awareness or

interest until a need arises. It requires a good deal of advertising or

personal selling to interest people in these kinds of products—just ask

any life insurance salesperson. It is a challenge to find convincing ways

to interest consumers in unsought products.

Use website here: www.geico.com. Example of insurance company (Geico)

Use website here: www.redcross.org. Example of an unsought product (Red Cross)

Chapter 8: Product I: Innovation and New Product Development

p. 240

p. 241

2.3 How do Businesses Buy Products?

Marketers classify business-to-business products based on how

organizational customers use them.

Equipment refers to the products an organization uses in its daily

operations. Heavy equipment, sometimes called installations or capital

equipment, includes items such as buildings and robotics used to

assemble automobiles. Installations are big-ticket items and last for a

number of years. Computers and photocopy machines are examples of

light or accessory equipment; they are portable, cost less, and have a

shorter life span than capital equipment.

Maintenance, repair, and operating (MRO products) are goods that a

business customer consumes in a relatively short time. Maintenance

products include light bulbs, mops, and cleaning supplies. Repair

products are such items as nuts and bolts. Operating supplies include

computer paper and oil to keep machinery running.

Raw materials are products of the fishing, lumber, agricultural, and

mining industries that organizational customers purchase to use in their

finished products.

Processed materials are produced when firms transform raw materials

from their original state. Organizations purchase processed materials

that become a part of the products they make.

Some business customers purchase specialized services from outside

suppliers. Specialized services may be equipment-based, such as

repairing a copy machine or fixing an assembly line malfunction, or

non-equipment-based, such as market research and legal services.

Component parts are manufactured goods or subassemblies of finished

items that organizations need to complete their own products. As with

processed materials, marketing strategies for component parts usually

involve nurturing relationships with customer firms and on-time

delivery of a product that meets the buyer’s specifications.

p. 241

3. “NEW AND IMPROVED!” THE PROCESS OF INNOVATION

The Federal Trade Commission says that (1) a product must be entirely

new or changed significantly to be called new and (2) a product may be

called new for only six months.

From a marketing perspective, a new product or innovation is anything

that customers perceive as new and different. An innovation may be a

completely new product that provides benefits never available before, or

it may simply be an existing product with a new style, in a different

color, or with some new feature. Creativity describes a process that

results in something new. Creative outcomes can take on many forms,

but most often we experience them as something we can see, hear,

smell, touch, or taste.

Exhibit: Even

minor innovations

can add value to a

product

Part 3: Develop the Value Proposition for the Customer

p. 242

p. 243

3.1 Types of Innovations

Marketers classify innovations into three categories based on their

degree of newness: continuous innovations, dynamically continuous

innovations, and discontinuous innovations. These categories are based

on the amount of disruption or change they bring to people’s lives.

3.1.1 Continuous Innovations

A continuous innovation is a modification to an existing product. This

type of modification can set one brand apart from its competitors. The

consumer does not have to learn anything new to use a continuous

innovation. From a marketing perspective, this means that it is far easier

to convince consumers to adopt this kind of new product.

A knockoff is a new product that copies, with slight modification, the

design of an original product.

3.1.2 Dynamically Continuous Innovations

A dynamically continuous innovation is a pronounced modification to

an existing product that requires a modest amount of learning or change

in behavior to use it. From radio to smartphone—an amazing journey in

dynamically continuous innovation!

3.1.3 Discontinuous Innovations

To qualify as a discontinuous innovation, the product

must create major changes in the way we live. Consumers must learn

a great deal to use a discontinuous innovation because no similar

product has ever been on the market. Major inventions such as the

airplane, the car, and the television radically changed modern lifestyles.

Figure 8.3

Snapshot: Types of

Innovations

Exhibit: Kesh2

Apple iPhone (product that changed the way we communicate): www.apple.com/iphone

Nintendo Wii (product that changed how we play): www.us.wii.com

Blackberry Phone (product that changed how we work): www.blackberry.com

►Marketing Moment In-Class Activity

Ask students to give examples of each different type of product. Have students explain why they classified

the product as they did.

Activity: Divide the class into groups of three to five. Have each group list five innovations. Label each

innovation as continuous, dynamically continuous, or discontinuous. Defend your selection of type of

innovation.

►METRIC MOMENT

How do marketers measure innovation? A short list of measures provides an “Innovation Score Card”:

firm strategy, firm culture, and outcomes of innovation.

Chapter 8: Product I: Innovation and New Product Development

Apply the Metrics

Select a firm that you are particularly interested in and that you believe is pretty innovative.

Do a little research on its website and elsewhere to get a sense for the evidence about how it

performs on the above criteria for innovativeness.

Summarize your findings—how does the firm score on the Innovation Score Card?

In general, do you find that the firm is more or less innovative than you expected?

p. 244 4. NEW-PRODUCT DEVELOPMENT

Research and development (R&D) is a well-defined and systematic

approach to how a firm innovates. There are seven phases in the process

of new product development (or NPD)

Figure 8.4

Process: Phases in

New Product

Development

p. 244

4.1 Phase 1: Idea Generation (Ideation)

In the initial idea generation phase of product development,

marketers use a variety of sources to come up with great new product

ideas that provide customer benefits and that are compatible with the

company mission. Sometimes ideas come from customers. Ideas also

come from salespeople, service providers, and others who have direct

customer contact.

Value co-creation refers to the process by which an organization

creates worth through collaborative participation by customers and

other stakeholders in the new product development process. Often firms

use marketing research activities, such as the focus groups we discussed

in Chapter 4.

p. 245 4.2. Phase 2: Product Concept Development and Screening

The second phase in developing new products is product concept

development and screening. Although ideas for products

initially come from a variety of sources, it is up to marketers to expand

these ideas into more-complete product concepts. Product concepts

describe what features the product should have and the benefits those

features will provide for consumers.

When screening, marketers and researchers examine the chances that a

new product concept might be successful, while they weed out concepts

that have little chance to make it in the market. They estimate technical

success when they decide whether the new product is technologically

feasible—is it possible to actually build this product? Then they

estimate commercial success when they decide whether anyone is likely

to buy the product.

p. 245 4.3 Phase 3: Marketing Strategy Development

The third phase in new product development is to develop a marketing

strategy to introduce the product to the marketplace, a process we began

to talk about back in Chapter 2. This means that marketers must identify

the target market, estimate its size, and determine how they can

effectively position the product to address the target market’s needs. In

addition, of course, marketing strategy development includes planning

for pricing, distribution, and promotion expenditures both for the

introduction of the new product and for the long run.

p. 246 4.4 Phase 4: Business Analysis Exhibit: Snack

Part 3: Develop the Value Proposition for the Customer

Even though marketers have evidence that there is a market for the

product, they still must find out if the product can make a profitable

contribution to the organization’s product mix. How much potential

demand is there for the product? Does the firm have the resources it will

need to successfully develop and introduce the product? The business

analysis for a new product begins with assessing how the new product

will fit into the firm’s total product mix.

Wrap photo

p. 246 4.5 Phase 5: Technical Development

In technical development, a firm’s engineers work with marketers in

refining the design and production processes. The better a firm

understands how customers will react to a new product, the better its

chances of commercial success. For this reason typically, a company’s

research-and-development (R&D) department usually develops one or

more physical versions or prototypes of the product. Prospective

customers may evaluate these mockups in focus groups or in field trials

at home. Technical development sometimes requires the company to

apply for a patent.

Exhibit:

V8 Fusion

p. 246

p. 247

Ethics Check

Find out what other students taking this course would do and why at

www.mymktlab.com

Do you believe marketers are doing enough to develop sustainable

products?

4.6 Phase 6: Test Marketing

In test marketing, the firm tries out the complete marketing plan—the

distribution, advertising, and sales promotion—but in small geographic

areas that are similar to the larger market it hopes to enter.

There are both pluses and minuses to test marketing. On the negative

side, test marketing is extremely expensive. A test market also gives the

competition a free look at the new product, its introductory price, and

the intended promotional strategy—and an opportunity to get to the

market first with a competing product. On the positive side, when they

offer a new product in a limited area marketers can evaluate and

improve the marketing program.

Because of the potential problems and expense of test marketing,

marketers instead may use special computer software to conduct

simulated tests that imitate the introduction of a product into the

marketplace. These simulations allow the company to see the likely

impact of price cuts and new packaging—or even to determine where in

the store it should try to place the product.

Ripped from the

Headlines:

Ethical/Sustainable

Decisions in the

Real World

Exhibit: Pepsi’s

Kola House

p. 248 4.7 Phase 7: Commercialization

Commercialization means the launching of a new product, and it

requires full-scale production, distribution, advertising, and sales

promotion. A launch requires planning and careful preparation.

There is an explosive growth of crowdfunding, where innovative

websites have raised more than $5 billion for entrepreneurs and small

Chapter 8: Product I: Innovation and New Product Development

companies

Activity: Divide the class into groups of three to five students. Have

each group develop (in theory) a new product. Create a plan for test

marketing the product. Develop the marketing plan and pick a

geographic location.

p. 249 5. ADOPTION AND DIFFUSION OF NEW PRODUCTS

Product adoption is the process by which a consumer or business

customer begins to buy and use a new good, service, or idea. Diffusion

describes how the use of a product spreads throughout a population. At

first, only a small number of people buy it, but change happens in a

hurry when the process reaches the moment of critical mass. This

decisive moment is called the tipping point. After months or years

spent developing a new product, the challenge to firms is getting

consumers to buy and use the product and to do so quickly to recover

the costs of product development and launch.

p. 249

p. 250

p. 251

5.1 Stages in Consumers’ Adoption of a New Product

Individuals and organizations pass through six stages in the adoption

process. At every stage, people drop out of the process, so the

proportion of consumers who wind up using the innovation on a

consistent basis is a fraction of those who are exposed to it.

5.1.1 Awareness

To educate consumers about a new product, marketers may conduct a

massive advertising campaign: a media blitz. This strategy works

for new products when consumers see a new product as something they

want, need and, cannot live without.

5.1.2 Interest

Interest means that a prospective adopter begins to see how a new

product might satisfy an existing or newly realized need. Interest also

means that consumers look for and are open to information about the

innovation. Marketers often design teaser advertisements that give

prospective customers just enough information about the new product to

make them curious and to stimulate their interest. Some consumers drop

out of the process at this point.

5.1.3 Evaluation

Sometimes little evaluation may occur before someone decides to buy a

good or service. A person may do very little thinking before she makes

an impulse purchase.

Again, some potential adopters will drop out at this stage.

5.1.4 Trial

Trial is the stage in the adoption process when potential buyers will

actually experience or use the product for the first time. Often marketers

stimulate trial when they provide opportunities for consumers to sample

the product. Even if the trial is satisfactory, however, some prospective

buyers still will not actually adopt the new product because it costs too

Figure 8.5

Process: Adoption

Pyramid

Exhibit:

Slyde Handboards

Exhibit:

Mountain Dew’s

Kickstart

Part 3: Develop the Value Proposition for the Customer

p. 252

much.

5.1.5 Adoption

In the adoption stage, a prospect actually buys a product. This does not

mean that all organizations or individuals who first choose an

innovation are permanent customers. Marketers need to provide

follow-up contacts and communications with adopters to ensure they are

satisfied and remain loyal to the new product over time.

5.1.6 Confirmation

Favorable experiences make it more likely that she will become a loyal

adopter as her initially positive opinions result in confirmation. Some

marketers feel that reselling the customer in the confirmation stage is

important.

p. 252

p. 253

5.2 Adopter Categories

Diffusion describes how the use of a product spreads throughout a

population. Based on adopters’ roles in the diffusion process, experts

have classified them into five categories.

5.2.1 Innovators

Innovators are roughly the first 2.5 percent of adopters. This segment is

extremely adventurous and willing to take risks with new products.

Innovators are typically well educated, younger, better off financially

than others in the population, and worldly. Innovators pride themselves

on trying new products.

5.2.2 Early Adopters

Early adopters, approximately 13.5 percent of adopters, buy product

innovations early in the diffusion process but not as early as innovators.

Unlike innovators, early adopters are very concerned about social

acceptance so they tend to gravitate toward products they believe will

make others think they are cutting-edge or fashionable. Typically, they

are heavy media users and often are heavy users of the product category.

Others in the population often look to early adopters for their opinions

on various topics, making early adopters key to a new product’s success.

For this reason, marketers often target them in their advertising and

other communications efforts.

5.2.3 Early Majority

The early majority, roughly 34 percent of adopters, avoids being either

first or last to try an innovation. They are typically middle-class

consumers and are deliberate and cautious. Early majority consumers

have slightly above-average education and income levels. When the

early majority adopts a product, it is no longer considered new or

different—it is, in essence already established.

5.2.4 Late Majority

Late majority adopters, about 34 percent of the population, are older,

more conservative, and typically have lower-than-average levels of

Figure 8.6 Process:

Categories of

Adopters

Chapter 8: Product I: Innovation and New Product Development

p. 254

education and income. The late majority adopters avoid trying a new

product until it is no longer risky. By that time, the product has become

an economic necessity or there is pressure from peer groups to adopt.

5.2.5 Laggards

Laggards, about 16 percent of adopters, are the last in a population to

adopt a new product. Laggards are typically lower in social class than

other adopter categories and are bound by tradition. By the time

laggards adopt a product, it may already be superseded by other

innovations.

By understanding these adopter categories, marketers are able to better

develop strategies that will speed the diffusion or widespread use of

their products.

►Marketing Moment In-Class Activity

Ask students to think about innovations such as MP3 players, digital cameras etc. Have them identify

friends, family, and acquaintances that might fit the adopter categories for this product. What type of

promotion would be needed to get these people to purchase a new product?

p. 254

p. 255

5.3 Product Factors That Affect the Rate of Adoption

The reason for most product failures is simple—consumers did not

perceive that the products satisfied a need better than competitive

products already on the market.

Researchers have identified five characteristics of innovations that

affect the rate of adoption. Following is a discussion.

Relative advantage describes the degree to which a consumer

perceives that a new product provides superior benefits.

Compatibility is the extent to which a new product is consistent with

existing cultural values, customs, and practices.

Complexity is the degree to which consumers find a new product or its

use difficult to understand.

Trialability is the ease of sampling a new product and its benefits.

Observability is how visible a new product and its benefits are to

others who might adopt it.

►Marketing Moment In-Class Activity

Suppose you are in charge of marketing a new meat such as rabbit meat. Rabbit meat is lower in fat and

cholesterol than beef, it is less expensive than chicken, and it tastes like veal. Ask students to design

advertisements that demonstrate each of the five characteristics of innovation (e.g., to demonstrate

compatibility, the advertisement might show a mother cooking rabbit meat like hamburger).

RReal People, Real Choices: Here’s My Choice at Under

Armour:

Neal chose option #3.

Part 3: Develop the Value Proposition for the Customer

IV. END-OF-CHAPTER ANSWER GUIDE

Chapter Questions and Activities

 CONCEPTS: TEST YOUR KNOWLEDGE

8-1 What is a good? What are the differences between tangible and intangible products?

A good is a tangible product, something that we can see, touch, smell, hear, taste, or possess. It may

take the form of a pack of yummy cookies, a shiny new iPad, a house, a part used in production of

that Tesla electric sports car you’d like to buy, or a chic but pricey Coach handbag. In contrast,

intangible products—services, ideas, people, and places—are products that we can’t always see,

touch, taste, smell, or possess.

8-2 What is the difference between the core product, the actual product, and the augmented product?

The core product consists of the basic product category benefits and customized benefit(s) the product

provides. The actual product is the physical good or delivered service, including the packaging and

brand name. The augmented product includes both the actual product and any supplementary

services such as warranty, credit, delivery, installation, and so on.

8-3 What is the difference between a durable good and a nondurable good? What are the main differences

among convenience, shopping, and specialty products?

Durable goods are consumer products that provide benefits over a period of months, years, or even

decades, such as cars, furniture, and appliances. In contrast, nondurable goods, such as newspapers

and food, are consumed in the short term. Durable goods are more likely to be purchased under

conditions of high involvement, while purchases of nondurable goods are more likely to be

low-involvement decisions.

Convenience products are low-prices, widely available, and frequently purchased with a minimum of

comparison and effort. Convenience products include staples such as milk, impulse products such as

a magazine, and emergency products such as drain opener. Consumers spend considerable time and

effort gathering information and comparing alternatives before purchasing a shopping product.

Shopping products may be attribute based or price based. Specialty products have unique

characteristics and are important to the buyer. The buyer will devote significant effort to acquire a

specialty product.

8-4 What is an unsought product? How do marketers make such products attractive to

consumers?

Chapter 8: Product I: Innovation and New Product Development

Unsought products are goods or services (other than convenience products) for which a consumer has

little awareness or interest until a need arises. Marketers are challenged to find convincing ways to

interest consumers in unsought products. Pricing needs to be attractive and the products require a

good deal of advertising or personal selling to interest people.

8-5 What types of products are bought and sold in B2B markets?

Organizational customers purchase products to use in the production of other goods and services or

to facilitate the organizations’ operation. Specific categories of products, which are bought and sold

in business-to-business markets include:

Equipment

Maintenance, repair, and operating (MRO) products

Raw materials

Processed materials

Specialized materials

Component parts

8-6 What is a new product? Why is understanding new products so important to marketers? What are the

types of innovations?

The FTC says that a company can call its products new if:

The product is entirely new or changed significantly from the past.

The product can only be called new for six months.

In reality, new products are anything that consumers perceive as being new. They may be classified,

as to their degree of newness. Understanding new products is important to companies because of the

fast pace of technological advancement, the high cost to companies for developing new products, and

the contributions to society that new products can make.

A continuous innovation is a modification of an existing product. A dynamically continuous innovation

provides greater change in a product. A discontinuous innovation is a very new product that creates

major changes in people’s lives.

8-7 What it R&D, and what is its importance to marketers and the product development process?

Part 3: Develop the Value Proposition for the Customer

Research and development (R&D) is a well-defined and systematic approach to how it innovates.

Investors and financial markets closely scrutinize R&D investments because these expenditures tend

to predict how robust the firm’s oncoming new product stream will be. In fact, R&D investment in

and of itself is often a central metric for organizational commitment to innovation. Higher levels of

R&D activity are inherently more competitively important in some industries versus others (high

tech and pharmaceuticals are examples on the high side), but, as in the case of Under Armour at the

beginning of the chapter, in any firm new product development is fueled by investment in R&D.

List and explain the steps marketers undergo to develop new products.

New product development has seven steps.

Idea Generation—where marketers use a variety of sources to come up with great new-product

ideas that will provide customer benefits and that are compatible with the company mission.

Product Concept Development and Screening—marketers must expand ideas into more complete

concepts; product concepts describe what features the product should have and the benefits

those features will provide for consumers.

Marketing Strategy Development—marketing strategies that can be used to introduce the

product into the marketplace.

Business Analysis—finding out if the product can make a profitable contribution to the

organization’s product mix.

Technical Development—where a firm’s engineers work with marketers in refining the design

and production process.

Test Marketing—the firm tries out the marketing plan in a limited area.

Commercialization—this means a full-scale launch of the new product and all of the marketing

mix components.

8-9 What is a test market? What are some pros and cons of test markets?

In test marketing, the firm tries out the marketing plan in a limited area.

Chapter 8: Product I: Innovation and New Product Development

Test marketing can be very expensive, gives competition a look at the product and marketing

plan, and gives an indication of pricing strategy.

However, test marketing can also give marketers a chance to see if the product or plan needs to

be improved before full-scale introduction takes place.

A test market can also indicate that the firm should abandon the project.

To save money, marketers can also run a simulated test market.

8-10 Explain the stages a consumer goes through in the adoption of a new product.

Awareness that the innovation exists

Interest in which the adopter begins to see how a new product might satisfy an existing or newly realized

need.

Evaluation in which a prospect weight the costs and benefits of the new product

Trial when potential buyers will actually experience or use the product for the first time.

Adoption when a prospect actually buys the product

Confirmation comes after adoption when a customer weighs expected versus actual benefits and costs.

8-11 List and explain the categories of adopters.

The categories of adopters are:

Innovator—the first consumer to know about and to try an innovation.

Early adopters—the consumers that influence many other consumers’ adoption.

Early majority—a “follower” group that is neither first nor last to adopt.

Late majority—only adopt due to social or economic pressure.

Laggards—may not adopt until all other customers have moved on to an even newer product.

8-12 What product factors affect the rate of adoption of innovations?

Relative advantage is the degree to which a consumer perceives that a new product provides superior

benefits.

Part 3: Develop the Value Proposition for the Customer

Compatibility is the extent to which a new product is consistent with existing cultural values, customs

and practices,

Complexity is the degree to which consumer find a new product or its use difficult to understand.

Trialability is the ease of sampling a new product and its benefits.

 ACTIVITIES: APPLY WHAT YOU’VE LEARNED

8-13 Creative Homework/Short Project Assume that you are employed in the marketing department of a

firm that is producing an electric scooter. In developing this product, you realize that it is important

to provide a core product, an actual product, and an augmented product that meets the needs of

customers. Develop an outline of how your firm might provide these three product layers in the

electric scooter.

MyMarketingLab for answers to Assisted Graded Questions

8-14 In Class, 10–25 Minutes for Teams Firms go to great lengths to develop new product ideas.

Sometimes new ideas come from brainstorming, in which groups of individuals get together and try

to think of as many different, novel, creative, and, it is hoped, profitable ideas for a new product as

possible. With a group of other students, participate in brainstorming for new product ideas for one

of the following (or some other product of your choice):

An exercise machine with some desirable new features

A combination shampoo and body wash

A new type of university

Then, with your class, screen one or more of the ideas for possible further product development.

One of the hardest things for a student to do is to be creative on demand. However, this is exactly

what marketers have to do on a daily basis. The easiest way to encourage creativity is to remind

students that there are no silly ideas. Each idea is a step toward the really good idea. One way to

begin the project is to have students work by themselves first. Each student should write down ten

(10) ideas for one of the products—there are no bad ideas. Next, students should then compare

notes; weed out the bad ideas, and bridge from the good ideas to the best idea. The best idea

should be defensible from a marketing and consumer standpoint. All student teams should discuss

ideas in class. Award a prize for the best idea based on student votes.

8-15 In Class, 10–25 Minutes for Teams As an entrepreneur, you know that innovation will play a huge role

in your new business. With your team, brainstorm briefly to define what your new business will be

—let the sky be your limit. Then create a short outline that defines the various types of innovations

—continuous, dynamically continuous, and discontinuous—and give examples of each. Which

innovation type would be the easiest when starting out? Which innovation type brings the greatest

reward? Which innovation type ultimately makes the most sense for your new business?

Chapter 8: Product I: Innovation and New Product Development

After reading the material in the chapter about innovation, students should begin to devise a plan

of various types of innovations—continuous, dynamically continuous, and discontinuous. They

should offer examples of each type of innovation. They can discuss which types of innovation

would be suitable for a new business and which would generate the most revenue.

8-16 Creative Homework/Short Project As a member of a new product team with your company, you are

working to develop an electric car jack that would make changing car tires easier. You are considering

conducting a test market for this new product. Outline the pros and cons for test marketing this product.

What are your recommendations?

MyMarketingLab for answers to Assisted Graded Questions

8-17 For Further Research (Individual) Every year, marketers come out with many new or new and

improved products. Using the web, research a new or new and improved product and summarize

either how marketers developed and tested that product before taking it to market or how they

created awareness about that new product once they developed it.

Using the web, students can research a new or new and improved product and summarize how

marketers developed and tested that product.

8-18 Creative Homework/Short Project Select a company and identify an existing product sold by that

company that could potentially be further developed to meet new consumer needs. Using the

selected product, develop an approach to engage consumers in the process of value co-creation

with the objective of developing a new version of the selected product.

This is an opportunity to review the concept of value co-creation, the process by which an

organization creates worth through collaborative participation by customers and other

stakeholders in the new product development process. Often firms use marketing research

activities, such as the focus groups This question would be suitable for a team of students and

could be used in place of a term paper. Teams could present their projects to the class.

8-19 For Further Research (Individual) Select a recently successful product that you believe is innovative

and do some research on how the product was introduced. Using the adopter categories in the

chapter, identify adopters of the product that you consider to be innovators and provide

evidence of specific behaviors and characteristics that support the placement of these

consumers within that adopter category.

Part 3: Develop the Value Proposition for the Customer

Using Figure 8.6 Process: Categories of Adopters, students can select a successful product and

research how it was introduced and adopted.

8-20 For Further Research (Individual) Identify an innovative product that was just recently introduced

into the market and using the five characteristics that affect the rate of adoption (relative

advantage, compatibility, complexity, trialability, and observability) evaluate the product on

each respective characteristic. Based on your evaluation state whether you believe the

innovation will be quickly adopted, slowly adopted, or adopted at a rate somewhere in between.

Use your best judgment in making this determination.

Using Figure 8.6 Process: Categories of Adopters, students can evaluate which category of adopters,

this innovation would attract and why.

8-21 For Further Research (Individual) Sometimes products are massively successful because consumers

find a use for them separate from what the developing company initially envisioned. Find two

products online that fit this description and identify their initial intended use(s), then

what other use(s) consumers found for them, and nally whether

companies adjusted their marketing effort around the products after

becoming aware of how consumers were actually using the products.

Using the web, students can research a new or new and improved product and summarize how

marketers developed the new use for an existing product.

 APPLYING MARKETING METRICS

In the chapter, we define creativity and discuss how it relates to innovation. Innovation can be measured

in terms of number of successful new products as well as a variety of secondary measures

related to those products (e.g., new product launches per year, per employee, and success rate

versus failure rate—cast on the basis of how the firm defines product success and failure).

Innovation is fueled by R&D expenditures, as the chapter notes.

But what about measuring creativity itself? Some experts have argued that an overfocus on metrics can

kill creativity. They might argue that the phrase “creativity metric” is an oxymoron. There’s

always been a right-brain/left-brain argument that marketing, to be optimally successful, has to

nurture both the creative and the analytical. Has the obsession with marketing metrics over the

past decade squelched essential creativity emanating from the right brain?

8-22 What is your viewpoint about measuring creativity? Do you believe it is more constructive or damaging to

organizational innovation? Support your opinions.

Chapter 8: Product I: Innovation and New Product Development

Creativity describes a process that results in something new. Creative outcomes can take on many forms,

but most often we experience them as something we can see, hear, smell, touch, or taste. The outcome

can be most anything—an idea, a joke, an artistic or literary work, a painting or musical composition, a

novel solution to a problem, an invention, and, of course, a new product. Scientific research into

creativity provides strong evidence of the importance of creative processes in the production of novel,

useful products.

Do students think that the “Innovation Score Card” might be used to measure creativity? Creativity

could be damaging to innovation because it makes products obsolete. Consider the digital camera which

made the traditional camera obsolete. There was no point in innovating better film for a camera because

consumers typically use digital cameras that do not require rolls of film.

8-23 Point out a few well-known organizations that you believe are quite creative. How do you know that they

are creative—that is, what specific evidence can you cite that indicates that a high level of creativity is

practiced?

This question asks students to review what they have learned about creativity, the types of creativity and

their impact on society, and consider how new products are introduced and adopted into

mainstream society. Students should discuss the iPhone and the iPad first since Apple is such a

creative company. Many creative companies have developed Aps such as Square. These

products are interesting to any technophile that has to have the latest gadget; however, students

should see that devices that combine technologies are not always immediately successful.

Students can be broken into small teams to find creative companies and develop marketing

strategies for them. Teams can then report results. Award kudos to the team with the best

strategy.

 CHOICES: WHAT DO YOU THINK?

8-24 Critical Thinking Technology is moving at an ever-increasing speed, and this means that new products

enter and leave the market faster than ever. What are some products you think technology might be

able to develop in the future that you would like? Do you think these products could add to a

company’s profits?

Innovations affected our living standards and patterns in the Twentieth Century. This question works

very well in an open discussion format. Ideas seem to build on one another. Remind students that ideas

do not just have to be technology-oriented. Some of our greatest inventions were very simple. Zippers,

Velcro, a match, and a can opener have all helped us in our daily lives.

Part 3: Develop the Value Proposition for the Customer

8-25 Critical Thinking In this chapter, we talked about the core product, the actual product, and the

augmented product. Does this mean that marketers are simply trying to make products that are really

the same seem different? When marketers understand these three layers of the product and develop

products with this concept in mind, what are the benefits to consumers? What are the hazards of this

type of thinking?

Marketers have known for some time that consumers see products differently and purchase for different

reasons and to fulfill different needs. When marketers look at the three different dimensions of

the product as described above, they are attempting to find sets of needs that to which

consumers will respond. To some consumers, the core product is a sufficient reason to purchase

(fulfill the hunger drive by eating a steak). To others, it is the actual product (a steak bought at

their favorite steakhouse is what they really want). Still others want the “sizzle” or the

augmented product (they not only want the steak but they want the entertainment and the

atmosphere that might be present at their favorite steakhouse, or the guarantee of satisfaction).

The marketer is generally trying to find mechanisms to satisfy all of customers’ needs when this

approach is used. However, if the marketer does not concentrate on the proper need level, the

consumer may not respond. For example (using the analogy above) if the marketer talks about

the quality of the meat in a steak, but the consumer is looking for a romantic setting, the

consumer may make their purchase elsewhere.

8-26 Critical Thinking Discontinuous innovations are totally new products—something seldom seen in the

marketplace. What are some examples of discontinuous innovations introduced in the past 50 years?

Why are there so few discontinuous innovations? What products have companies recently introduced

that you believe will end up being regarded as discontinuous innovations?

MyMarketingLab for answers to Assisted Graded Questions

8-27 Ethics For several decades, consumer products—everything from vaccines to cosmetics—have been

tested on animals. Do you think product testing on animals should be legal or

illegal? Does your position change depending on what kind of animal the product is tested on (e.g.,

a mouse versus dog)? What are some instances of when it would be acceptable or unacceptable to test

products on animals (e.g., medical necessity versus enhancing one’s looks)?

MyMarketingLab for answers to Assisted Graded Questions

8-28 Ethics. Should a company opt to manufacture a product with a cheaper component if it knows that its

inclusion will moderately increase the physical safety risk of the product for consumers? What if it is

known that the increase in cost of using the more expensive and safer component will lead to about a 50

percent lower adoption rate for the product by consumers, does it become more justifiable to do so

then?

Chapter 8: Product I: Innovation and New Product Development

Students can divide into teams and discuss the pros and cons of this question—a safer component that

results in a price increase and lower adoption rate.

8-29 Critical Thinking Consider the differences in marketing to consumer markets versus business markets.

Which aspects of the processes of product adoption and diffusion apply to both markets? Which aspects

are unique to one or the other? Provide evidence of your findings.

Have the students review the differences in marketing to consumers and business markets. Product

adoption is the process by which an individual begins to buy and use a new product, whereas, the

diffusion of innovations is how a new product spreads throughout a population. The stages of the

adoption process are awareness, interest, trail, adoption and confirmation. To understand the

diffusion process, marketers classify consumers according to their readiness to adopt new products as

innovations, early adopters, early majority, late majority and laggards.

Allow the students to engage in discussion on which they feel consumers are similar or different to

business markets and support their positions with the chapter materials.

8-30 Ethics In this chapter, we explained that knockoffs are slightly modified copies of original product designs.

Should knockoffs be illegal? Who is hurt by knockoffs? Is the marketing of knockoffs good or bad for

consumers in the short run? Or in the long run?

Answers to the question regarding knockoffs will probably vary. If you are a designer, whether it is

apparel or trucks, you do not want your designs knocked-off and would probably think that such an

activity is illegal. Others would say that copying is the highest form of flattery. However, knockoffs

not only hurt designers by taking away their sales and damaging their brand equity, but this form of

product may also hurt consumers. In the short run it might seem like consumers and society benefit,

however, if the product is inferior in quality, consumers will ultimately pay more money for products.

8-31 Critical Thinking It is not necessarily true that all new products benefit consumers or society. What are

some new products that have made our lives better? What are some new products that have actually

been harmful to consumers or to society? Should there be a way to monitor or “police” new products that

are introduced to the marketplace?

Discuss with students new products introduced during their lifetime and made their lives better. Most

of the discussion will probably center on technology equipment and entertainment (i.e., CDs,

DVDs, MP3, smart phones, HDTV, and so on). Another area of new products to explore would

be a safety feature on products (e.g., side impact air bags). Some new products, like

medications, have actually been harmful to some consumers. The FDA carefully monitors the

introduction of new pharmaceuticals, however, with the growth of alternative medicines (e.g.,

herbal remedies), many problems occur. Today, many non-regulated products are purchased at

the consumer’s own risk.

Part 3: Develop the Value Proposition for the Customer

Firms, which develop and introduce new products, do have the responsibility of testing products to

ensure that they are safe. These firms should also be quick to recall or remove from store

shelves defective and/or dangerous products.

Students may also discuss the potential harm of electronic games like PlayStation that are violent in

content and may encourage violent behavior in children while preventing children from getting

exercise.

8-32 Critical Thinking Patent trolling is the practice of acquiring patents with the sole purpose of making money

off of them either by suing those who infringe on the patent or by licensing the patent. What do you think

of the practice of patent trolling? What effect does patent trolling have on product innovation?

Students can research patent trolling and find examples of companies which have made money by suing

those who infringe of the patent or by licensing the patent. They can debate the ethics of patent

trolling and show the its negative effect on product innovation.

8-33 Critical Thinking Are there potential risks to involving consumers in the development of new

products through processes associated with value co-creation as discussed in the chapter? What

factors might make a value co-creation approach more or less suitable for the development of a

new product?

This is an opportunity to review the concept of value co-creation, the process by which an

organization creates worth through collaborative participation by customers and other stakeholders in

the new product development. Students can discuss potential risks in new product

development—-unforeseen problems with toys, for example. How could value co-creation reduce the

risk?

8-34 Critical Thinking Products such as video games produced for traditional gaming consoles used

console (such as Xbox one or PlayStation 4). For a video game that is exclusively sold as a

download, how do you think the new product development process might vary compared to the

process involved in producing a video game sold exclusively as a physical product?

This question can stimulate a lively discussion among students because many are users of video

games and would have opinions on the new product development process for downloads versus

physical products.

Chapter 8: Product I: Innovation and New Product Development

 MINI-PROJECT: LEARN BY DOING

What product characteristics do consumers think are important in a new product? What types of service

components do they demand? Most important, how do marketers know how to develop

successful new products? This miniproject is designed to let you make some of these decisions as

you walk through several steps of the new product development process.

8-35 Develop a presentation that summarizes your efforts for each of the following phases of new product

development:

a. Phase 1: Idea generation: Create (in your mind) a new product item that might be of interest to

college students such as yourself. Develop a written description and possibly a drawing of this new

product. Describe the benefits of the product.

b. Phase 2: Product concept development and screening: Describe what features the product should

have and the benefits those features will provide for consumers. Estimate both the technical success

and the commercial success of the product.

c. Phase 3: Marketing strategy development: Develop a simple marketing plan that identifies the

target market and how you can position the product to meet that market’s needs.

Assume now that you have undergone a thorough business analysis (Phase 4) and have built

a prototype of the product (Phase 5).

d. Phase 6: Test marketing: Describe your product to five other college students, as if you had an

actual prototype of the product. What is their overall opinion of the new product? Would they try the

product? How could you influence them to buy the product?

e. Phase 7: Commercialization: Based on the information you have collected determine whether you

are ready to launch the product. If not, describe the reasons why.

The purpose of the mini-project listed in the chapter is to allow students to experience the new

product development process from the standpoint of an initiator. Students will examine new product

characteristics, service components, and how marketers determine successful new products as they

travel through the new product development process.

Individuals (or teams) are asked to review the new-product decision process. Students must make

some of these decisions as they walk through several steps of the new product development process.

They can write a report that summarizes not only what they have found but also what they have

learned about the new-product development process. This action-oriented exercise is an excellent

springboard to discussion on new products.

Choose the best ideas from among the class and have the “inventors” present the ideas to this “tough

audience.” Award prizes for success; provide improvement feedback for those that still have work to

do.

Part 3: Develop the Value Proposition for the Customer

Instructors may wish to extend the deadline for this assignment or make the assignment early enough

so that students will have many opportunities to think, create, write their report, and discuss the

outcomes with peers

V. MARKETING IN ACTION CASE: REAL CHOICES AT

FACEBOOK

Summary of Case

Facebook has big plans for its virtual reality offering, the Oculus Rift, which is designed to transform

how people play games, view videos, and share the experiences of their social lives. The Rift is

one of three premium virtual reality headsets new to the market, and it’s no small market with

estimated value at more than $16 billion. In 2016, the Rift sold for $599, supported by dozens of

games. Other uses include viewing conventional movies and videos, 360° 3D videos, and “virtual

reality movies. But problems plagued the early stages of the product’s introduction. The first

shipments were delayed by a component shortage. Some people complained of motion sickness

when using the Rift.

Other companies are rushing to join the virtual reality marketplace. Two major players are HTC and

Sony. HTC, introduced the Vive, a $799 headset designed to use while standing and walking

around. Sony introduced the $399 PlayStation VR headset to compete as a lower priced option.

Sony created a new PlayStation 4 with better performance to effectively run the virtual reality

options.

Facebook understands that the Rift represents a new technology and will initially appeal to a limited

market, although the growth potential is high. Video is presently the most popular mode of

sharing but that virtual reality will be in second place. Some professional reviewers suggest that

this may be the biggest tech product since the iPhone. Success for the product and the

technology is not guaranteed. Facebook has to find ways to convince customers to adopt the

new technology.

Suggestions for Presentation

This case could be assigned for various out-of-class or in-class discussion activities.

Out-of-Class

Chapter 8: Product I: Innovation and New Product Development

Group assignment could include each group investigate other social media sites that are similar in scope

to Facebook.

Research the perceived benefits that Facebook provides its customers.

In-Class

Discuss the process of product adoption and the diffusion of innovations for new technology.

As a class project, conduct a SWOT analysis focusing on the marketing aspects of Facebook

Discuss the impression that students have of Facebook. Address both the positive and negative aspects.

You Make the Call

8-36 What is the decision facing Facebook?

How Facebook can find ways to convince customers to adopt the new technology.

8-37 What factors are important in understanding this decision situation?

The following factors are important in understand this decision situation:

What features of the Rift differentiate it from the Sony and HTC products?

What attributes of the Rift add value?

Who is the target market for the rift?

What marketing mix should Facebook use for the Rift?

How can Facebook reach potential customers?

How can Facebook avoid the component problem and subsequent delays that plagued competitors?

How can Facebook use its brand celebrity to market Rift?

Part 3: Develop the Value Proposition for the Customer

8-38 What are the alternatives?

Students might recommend a variety of different alternatives. Some possibilities include:

Conduct research such as focus groups to find out how to develop the market for the Rift using value

co-creation?

Develop a marketing mix strategy for the Rift.

Using Figure 8.6, develop a plan for Facebook to get consumers to adopt this innovation

8-39 What decision(s) do you recommend?

Students may focus on several of the alternatives developed. They should be encouraged to discuss which

alternative actions are more critical.

8-40 What are some ways to implement your recommendation?

Students may make a variety of suggestions for implementation depending on their

recommendations. These may include specific promotion activities, specific pricing, research

activities and many others.

 MYMARKETINGLAB

Go to mymktlab.com for Auto-graded writing questions as well as the following assisted-graded writing

questions:

8-41 Creative Homework/Short Project Assume that you are the director of marketing for the company that

has developed a smart phone to outdo the iPhone. How would you go about convincing the late majority

to go ahead and adopt it—especially since they still haven’t quite caught onto the iPhone yet?

8-42 Creative Homework/Short Project You work for a large retailer and have been asked by a professor at

the local university to give a presentation on how your business classifies products. Prepare a slide show

that defines the various product categories, including any subcategories, and give at least three examples

of each. Include photos of the products where possible.

Chapter 8: Product I: Innovation and New Product Development

WEB RESOURCES

Pearson Education, Inc.: www.mymktlab.com

Example of insurance company (Geico): www.geico.com

Example of an unsought product (Red Cross): www.redcross.org

iRobot Corporation (Committed to building robots for the real world and the emerging commercial

robotics market.): www.irobot.com

Honda FCX (hydrogen full cell car): www.honda.com

Skype VoIP telephony over the Internet: www.skype.com

Nintendo Wii (product that changed how we play): www.nintendo.com

Blackberry Phone (product that changed how we work): www.blackberry.com

Crest Whitestrips (product that changed our health and grooming):

www.whitestrips.com/whitestrips-home.jsp

Microsoft Home Server—controls all media outlets in a home, accessible anywhere online (product that

changed our homes):

www.microsoft.com/windows/products/winfamily/windowshomeserver/default.mspx

Apple iPhone (product that changed the way we communicate): www.apple.com/iphone

Part 3: Develop the Value Proposition for the Customer

Under Armour micro-fiber sportswear (product that changed our clothing):

www.underarmour.com

Facebook: www.facebook.com