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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.
6.
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
Copyright © 2018 Pearson Education, Inc.
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.
4.
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.
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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
Copyright © 2018 Pearson Education, Inc.
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.
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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
Copyright © 2018 Pearson Education, Inc.
Part 3: Develop the Value Proposition for the Customer
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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)
Copyright © 2018 Pearson Education, Inc.
Chapter 8: Product I: Innovation and New Product Development
p. 240
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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.
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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
Copyright © 2018 Pearson Education, Inc.
Part 3: Develop the Value Proposition for the Customer
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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.
Copyright © 2018 Pearson Education, Inc.
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
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
Copyright © 2018 Pearson Education, Inc.
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
Copyright © 2018 Pearson Education, Inc.
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.
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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
Copyright © 2018 Pearson Education, Inc.
Part 3: Develop the Value Proposition for the Customer
p. 252
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.
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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
Copyright © 2018 Pearson Education, Inc.
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.
Copyright © 2018 Pearson Education, Inc.
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?
Copyright © 2018 Pearson Education, Inc.
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?
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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.
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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.
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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?
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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.
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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.
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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.
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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?
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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.
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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.
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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.
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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
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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?
.
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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.
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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
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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
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