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10-21
1. Internal Approach.
a. Internally, the firm’s employees:
• Evaluate the technical difficulty of a proposed new-product idea.
• Determine whether it meets the objectives defined in the new-product
strategy development step.
b. When screening new-service ideas, service-dominated organizations need to:
• Ensure that employees have the commitment and skills to…
• Meet customer expectations and…
• Sustain customer loyalty—an important criterion in screening a new-
service idea.
c. This is the essence of customer experience management (CEM), which is
the process of managing the entire customer experience within the company.
d. Marketers must consider employees’ interactions with customers so that the
new services are:
• Consistently delivered and experienced.
2. External Approach.
a. Concept tests are external evaluations with consumers that consist of
preliminary testing of a new-product idea rather than an actual product.
b. These tests are more useful with:
• Minor modifications of existing products…
• Than with really new, innovative products.
c. Concept tests rely on written descriptions of the product but may be
augmented with sketches, mockups, or promotional literature.
d. Questions asked during concept testing are:
• How does the customer perceive the product?
• Who would use it?
• How would it be used?
Chapter 10 - Developing New Products and Services
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MARKETING MATTERS
Technology: Was the Google Glass Half Full or Half Empty?
How did the Google Glass morph from being one of Time Magazine’s best inventions of
2012 to an embarrassing flop in 2015?
• Google Glass resembled a pair of eyeglasses with a small screen visible to the wearer.
Notable features included a touchpad that allowed the wearer to see current and past
events such as phone calls, photos, and updates, with a camera to take pictures and
record video.
Chapter 10 - Developing New Products and Services
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LEARNING REVIEW
10-6. What is the new-product strategy development stage in the new-product
development process?
10-7. What are the main sources of new-product ideas?
10-8. How do internal and external screening and evaluation approaches differ?
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D. Stage 4: Business Analysis
• Business analysis is the stage of the new-product process that specifies the
features of the product and the marketing strategy needed to bring it to market and
make financial projections.
• This is the last checkpoint before significant resources are invested to create a
prototype—a full-scale operating model of the product.
• The business analysis stage assesses the total “business fit” of the proposed new
product with the company’s mission and objectives:
a. From whether the product can be economically developed and
manufactured…
b. To the marketing strategy needed to have it succeed in the marketplace.
• This process requires:
a. Assessments of the marketing and product synergies related to the company’s
existing operations.
b. Detailed financial projections with respect to:
• Expected profits, price per unit, and units sold.
• Expected costs, such as R&D, production, and marketing.
c. Must answer the following questions:
• Will the new product require a lot of new machinery to produce it or can it
be produced using the unused capacity of existing machines?
• Will the new product cannibalize sales of existing products or will it
increase revenues by reaching new market segments?
• Can the new product be protected with a patent or copyright?
E. Stage 5: Development
• Development is the stage of the new-product development process that turns the
idea on paper into a prototype.
• This results in a demonstrable, producible product that:
a. Is actually manufactured.
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a. This is an extreme example of the complexity of the Stage 5 development
process for a durable consumer good.
b. The Google team consists of 15 engineers and has a fleet of 10 vehicles as the
test models.
c. In early 2017, the Google team announced its cars had completed over 1
million miles of autonomous driving.
• For services, developing customer service delivery expectations is critical.
a. This involves:
• Analyzing the sequence of steps or “service encounters” of the service.
• Working to improve the interactions between consumers and the service
provider.
b. High-contact services such as hotels, educational institutions, and car rental
agencies use this approach to enhance customer relationships.
F. Stage 6: Market Testing
• Market testing is the stage of the new-product process that exposes actual
products to prospective consumers under realistic purchase conditions to see if
they will buy.
• Test Marketing:
a. Involves offering a product for sale on a limited basis in a defined area.
1. Standard Test Markets.
a. A company develops a product and then attempts to sell it through normal
distribution channels in a number of test markets.
b. Test market cities must:
Chapter 10 - Developing New Products and Services
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• Be demographically representative of the product’s target market.
• Have cable TV systems that can deliver different ads to different homes.
• Have retailers with checkout counter scanners to measure sales results.
c. The producer sells the product to distributors, wholesalers, and retailers, just
as it would do for other products.
2. Controlled Test Markets.
a. A controlled test market involves contracting the entire test program to an
outside service. It:
• Arranges for shelf space on retailers’ shelves.
• Guarantees a specified percentage of the test product’s potential
distribution volume.
b. IRI Group:
• Is a leader in supplying controlled test markets.
3. Simulated Test Markets.
a. Simulated (or laboratory) test markets (STM) are a technique that simulates a
full-scale test market but in a limited fashion.
b. Simulated test markets are often run in shopping malls, where:
• Consumers are questioned to identify those who use the product class.
• Willing participants are questioned to identify:
– Usage of the product class.
c. Qualified persons are then shown TV or print ads for the test product along
with competitors’ advertising.
d. Finally, they are given money to make a decision whether to buy the firm’s
product—or a competitor’s product—from simulated store environment.
4. When Test Markets Don’t Work.
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a. Testing a service beyond the concept level is very difficult because the service
is intangible—consumers can’t see what they are buying.
b. Test markets for expensive consumer products are impractical; only reactions
to mockups or one-of-a-kind prototypes are feasible.
G. Stage 7: Commercialization
• Commercialization is the stage of the new-product process that positions and
launches a new product in full-scale production and sales.
• Is the most expensive stage for most new products.
• A firm may permanently halt the new-product launch:
1. The Boeing 787 Dreamliner Experience.
a. In 2004, Boeing announced the Boeing 787 Dreamliner, which would:
• Burn 20 percent less fuel and cost 30 percent less to maintain than present
airliners.
• Cost billions to develop.
b. By 2013, Boeing had orders for almost 850 Dreamliners.
c. With all the new technology in the Dreamliner, technical nightmares
appeared—even after extensive testing.
• Its wings, now made with plastic-reinforced carbon fiber instead of
aluminum, proved difficult to produce and attach to the fuselage.
d. The Wall Street Journal gave the best new-product lesson from the Boeing
787 Dreamliner example: “Innovation—for all its value—doesn’t come as
easily as a catchphrase. It can get messy.”
2. Burger King’s French Fries: The Complexity of Commercialization.
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a. McDonald’s French fries are the gold standard against which all other fries in
the fast-food industry are measured.
b. Burger King decided to take on McDonald’s fries.
• It spent millions of R&D dollars developing a whey/starch-coated fry
designed to retain heat longer and add crispiness.
d. In late 2013, Burger King responded with its “Satisfries” as the fries in kids
meals.
• Intended to help address concerns about nutritious for and obesity in
children.
3. The Special Risks in Commercializing Grocery Products.
a. New grocery products pose special commercialization problems.
b. Many supermarkets require a slotting fee for new products:
• Is a payment a manufacturer pays to place a new item on a retailer’s shelf
because the space is so limited.
• Can run to several million dollars for a single product.
c. Some retailers require a failure fee, which:
d. Large companies use regional rollouts, which introduces the product
sequentially into geographical areas of the U.S. to:
• Allow production levels and marketing activities to build up gradually.
• Minimize the risk of new-product failure.
4. Speed as a Factor in New-Product Success.
Chapter 10 - Developing New Products and Services
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a. Companies have discovered that speed or time to market (TtM) is often vital
when introducing a new product.
b. Recent studies have shown that high-tech products coming to market on time
are far more profitable than those arriving late.
c. Parallel development.
d. Fast prototyping.
• Uses a “do it, try it, fix it” approach in software development.
e. To speed up time to market many large companies insulate their new product
teams to keep them from getting bogged down in red tape.
Chapter 10 - Developing New Products and Services
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LEARNING REVIEW
10-9. How does the development stage of the new-product development process involve
testing the product inside and outside the firm?
10-10. What is a test market, and what are the kinds?
10-11. What is the commercialization of a new product?
Chapter 10 - Developing New Products and Services
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APPLYING MARKETING KNOWLEDGE
1. Products can be classified as either consumer or business products. How would you
classify the following products? (a) Johnson’s baby shampoo, (b) a Black & Decker
two-speed drill, and (c) an arc welder?
Answers:
2. Are Nature Valley Granola bars and Eddie Bauer hiking boots convenience,
shopping, specialty, or unsought products?
Answers:
3. Based on your answer to question 2, how would the marketing actions differ for each
product and the classification to which you assigned it?
Answers:
4. In terms of the behavioral effect on consumers, how would a computer, such as an
Apple iMac, be classified? In light of this classification, what actions would you
suggest to the manufacturers of these products to increase their sales in the market?
Answers:
Chapter 10 - Developing New Products and Services
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5. What methods would you suggest to assess the potential commercial success for the
following new products? (a) a new, improved ketchup, (b) a three-dimensional
television system that took the company 10 years to develop, and (c) a new children’s
toy on which the company holds a patent.
Answers:
instance, field-testing is not a problem.
6. Concept testing is an important step in the new-product process. Outline the concept
tests for (a) an electrically powered car and (b) a new loan payment system for
automobiles that is based on a variable interest rate. What are the differences in
developing concept tests for products as opposed to services?
Answers:
Chapter 10 - Developing New Products and Services
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BUILDING YOUR MARKETING PLAN
In fine-tuning the product strategy for your marketing plan, do these two things:
1. Develop a simple three-column table in which (a) market segments are in the first
column and (b) the one or two key points of differences of the product to satisfy the
segment’s needs are in the second column.
2. In the third column of your table, write ideas for specific new products for your
business in each of the rows in your table.
Answers:
(a) MARKET SEGMENTS
(b) POINTS OF DIFFERENCE
(c) NEW PRODUCT IDEAS
Question #1 revisits the first Building Your Marketing Plan activity for Chapter 9.
Helping with Common Student Problems
Chapter 10 - Developing New Products and Services
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TEACHING NOTE FOR VIDEO CASE VC-10
GoPro: Making All of Us Heroes With Exciting New Products
Synopsis
This case describes the new product development process at GoPro, Inc., a producer of
action cameras and video-editing software. The company’s product line includes a variety of
cameras, mounts, apparel, a drone, and a 360 degree six-camera array which are sold through
retailers such as REI, Best Buy, Target, and on the GoPro website. The company founder, Nick
Woodman, was inspired by his passion for surfing and an interest in capturing quality photos of
his surfing experiences. As Nick explains, “enabling you to share your life through incredible
photos and videos is what we do.”
The case provides students with an opportunity to understand how each stage of the new
product development process—strategy development, idea generation, screening, business
analysis, development, market testing, and commercialization—is executed at GoPro. Students
also learn about the comprehensive and integrated marketing activities that contribute to GoPro’s
success.
Teaching Suggestions
A useful way to begin this case is to discuss the various situations where students take
photos or a video—at sporting events, during a party, with friends, to capture ceremonies, etc.
Some students will also mention that they take “selfies.” Use that example to ask:
1. “What are important attributes of cameras that you use to take photos or videos?” Should
they be portable? Waterproof? High definition capable? Inexpensive?
These questions then lead to the questions posed in the case.
Answers to Questions
1. What are the points of difference, or unique attributes, for GoPro products?
Answer:
10-35
2. What are GoPro’s primary target markets? How does content marketing influence
these markets?
Answer:
3. Describe the new product development process used at GoPro. What are the
similarities and differences to the process described in Figure 10-4?
Answer:
Chapter 10 - Developing New Products and Services
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4. Which of the eight reasons for new product failure did GoPro avoid to ensure the
success of GoPro’s products?
Answer:
5. Identify one new product idea you would suggest that GoPro evaluate.
Answer:
Chapter 10 - Developing New Products and Services
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Epilogue
Recently, GoPro’s growth has slowed as competitors such as Sony, Garmin, and Polaroid
entered the action-camera market with lower-priced alternatives. In response GoPro reduced the
price of its Session camera and had to lay off some of its employees. Woodman acknowledges
that the company has made a few errors and industry experts observe that hardware companies
such as GoPro often have difficulty maintaining growth when they face large tech manufactures
or very large retailers.
GoPro, however, has a plan to renew its growth. First, Woodman has committed to
developing a new software package that will make it much easier to move video from a GoPro
camera to a computer or phone, edit it, and then share it through a social media platform. In fact,
GoPro recently received a patent for a “credential transfer management camera system” which
will allow its cameras to detect and communicate with other devices including cameras, phones,
and computers. Another new product related to consumer convenience is GoPro’s Legend
Backpack which is designed with compartments for cameras, battery packs, SD cards, phones,
and laptops, and has built-in front and back camera mounts. Several other indications of
Chapter 10 - Developing New Products and Services
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TEACHING NOTE FOR APPENDIX D CASE D-10
Medtronic in China: Where “Simpler” Serves Patients Better
Synopsis
The heart pacemaker that Medtronic—the world leader in pacing devices—sells in the
West is too expensive for Chinese heart patients and those in many parts of today’s world.
Medtronic’s Bobby Griffin interviewed Chinese physicians and found they sought a lower-
priced device and considered many of the high-technology features on Medtronic’s pacemaker
less important than reliability, simplicity, and low price. So Medtronic designed its Champion
heart pacemaker to meet these criteria, built a plant in Shanghai, and developed a salesforce in
China. The case has new product, social responsibility, and global marketing dimensions.
Teaching Suggestions
Prior to teaching the case, instructors may wish to:
1. Have students read the Medtronic mission statement in Chapter 2 and keep it in mind as
they discuss the case and questions #4 and #5 at the end.
2. Ask students what broader implications the Medtronic decision to design a new
pacemaker for Chinese patients and build a manufacturing plant in Shanghai has
for: (a) world understanding and peace, (b) world trade, (c) China, and (d) the U.S.
Some brief comments on these issues:
a. World understanding and peace. In a 1987 Journal of Marketing article, Richard
Farmer describes a benefit of global trade: “People doing business at a rapidly growing
rate do not fight. One really big surprise of the postwar era has been that historic
enemies, such as Germany and France, or Japan and the U.S., have not had the remotest
threat of war since 1945. Why should they? Anything Japan has that we want we can
buy. In short, if you trade a lot with someone, why fight? The logical answer, ‘you
don’t,’ is perhaps the best news mankind has had in millennia.” [NOTE: See pages
114-115 of his article, “Would You Want Your Granddaughter to Marry a Taiwanese
Marketing Man?”]
b. World trade. There are complementary flows of trade (see the trade feedback effect in
Chapter 7). U.S exports stimulate output and income here, which increases demand for
c. China. Chinese physicians get advanced training from Medtronic sales and service
d. The U.S. Higher revenues help fund the medical device industry’s efforts to develop
Chapter 10 - Developing New Products and Services
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Answers to Questions
1. Assess Medtronic’s decision to develop and market the new Champion heart
pacemaker in terms of the following reasons for new-product success: (a) points of
difference, (b) market attractiveness, (c) bad timing, and (d) economic access to
doctors and patients.
Answers:
2. Discuss the steps of the new-product process as they relate to the Champion
pacemaker.
Answers:
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3. New-product development is important to a company like Medtronic, but it is hard
work, and often leads to failure. How can a company encourage its employees to take
initiative, make a profit, and be ethically and socially responsible?
Answers: The following quotations can be used in class to illustrate how Medtronic does it:
