Chapter 10 – Developing New Products and Services
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CHAPTER CONTENTS
PAGE
POWERPOINT RESOURCES TO USE WITH LECTURES …………………………………… 10-2
LEARNING OBJECTIVES (LO) ……………………………………………………………………………. 10-4
KEY TERMS ………………………………………………………………………………………………………….. 10-4
LECTURE NOTES
• Chapter Opener: Apple: The World-Class New-Product Machine ……………………….. 10-5
• What Are Products and Services? (LO 10-1; LO 10-2) ………………………………………. 10-6
• New Products and Why They Succeed or Fail (LO 10-3; LO 10-4) ……………………. 10-10
• The New-Product Process (LO 10-5) ………………………………………………………………. 10-16
APPLYING MARKETING KNOWLEDGE …………………………………………………………… 10-31
BUILDING YOUR MARKETING PLAN ………………………………………………………………. 10-33
VIDEO CASE (VC)
• VC-10: GoPro: Making All of Us Heroes with Exciting New Products ……………….. 10-34
APPENDIX D CASE (D)
• D-10: Medtronic in China: Where “Simpler” Serves Patients Better ……………………. 10-38
IN-CLASS ACTIVITIES (ICA)
• ICA 10-1: Focus Group for a Smartwatch ………………………………………………………… 10-42
• ICA 10-2: What Were They Thinking? Analyzing New Product Disasters ………….. 10-46
• ICA 10-3: Using Method 6-3-5 to Find New-Product Ideas for Magnetic Poetry ….. 10-52
CONNECT APPLICATION EXERCISES ………………………………………………10-57
• New-Product Development Process Click and Drag*
• Classifying Consumer Products Click and Drag*
• Why Products and Services Succeed or Fail Case Analysis
• iSeeit! Video Case: New Product Development Video Case
• Defining “New” Click and Drag*
• GoPro: Making All of Us Heroes with Exciting New Products Video Case
• Marketing Analytics: New Products Analytics Exercise
*Note: An alternate version of each Click and Drag exercise is available in Connect for students with
accessibility needs
Chapter 10 – Developing New Products and Services
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POWERPOINT RESOURCES TO USE WITH LECTURES
PowerPoint
Textbook Figures Slide
Figure 10-1 How a consumer product is classified affects which products consumers buy and
the marketing strategies used …………………………..……………………………………………… 10-7
Figure 10-2 The degree of “newness” in a new product affects the amount of learning effort
consumers exert to use the product …………………………………………………………………. 10-16
Figure 10-3 Seven stages in the new-product process leading to success ……………………………….. 10-23
Applying Marketing Metrics
Which States Are Underperforming?: Annual Percentage Change in Unit Volume by State
[See UMD10AnnualPercentChgUnitSales.xls] …………………………………………………………………….. 10-22
Marketing Matters
Marketing Matters—Customer Value: Feature Bloat and Fatigue in New Products …………………… 10-14
Marketing Matters—Technology: Was the Google Glass Half Full or Half Empty? …………………. 10-29
Chapter 10 – Developing New Products and Services
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POWERPOINT RESOURCES TO USE WITH LECTURES
PowerPoint
Videos Slide
10-1: Crapola Video ………………………………………………………………………………………………………….. 10-12
10-2: Life is Good ……………………………………………………….…………………………………………………… 10-25
10-3: P&G’s Tide Pods Ad ……………………………………………………………………………………………….. 10-25
10-4: GoPro Video Case ……………………………………………………………………………………………………. 10-35
In-Class Activities (ICA)
ICA 10-1: Focus Group for a Smartwatch …………………………………………………………………………… 10-41
ICA 10-2: What Were They Thinking? Analyzing New Product Disasters ……………………………… 10-43
ICA 10-3: Using Method 6-3-5 to Find New-Product Ideas for Magnetic Poetry ……………………… 10-47
Chapter 10 – Developing New Products and Services
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LEARNING OBJECTIVES (LO)
After reading this chapter students should be able to:
LO 10-1: Recognize the various terms that pertain to products and services.
LO 10-2: Identify the ways in which consumer and business products and services can be
classified.
LO 10-3: Explain the significance of “newness” in new products and services as it relates to the
degree of consumer learning involved.
LO 10-4: Describe the factors contributing to the success or failure of a new product or service.
LO 10-5: Explain the purposes of each step of the new-product development process.
KEY TERMS
business analysis
product
business products
product item
commercialization
product line
consumer products
product mix
convenience products
protocol
development
screening and evaluation
idea generation
services
market testing
shopping products
new-product development process
specialty products
new-product strategy development
unsought products
open innovation
Chapter 10 – Developing New Products and Services
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LECTURE NOTES
APPLE: THE WORLD-CLASS NEW-PRODUCT MACHINE
Apple and its legendary product innovations have touched the lives of people on every
continent for 40 years.
A. Apple’s New-Product Development Successes
• Apple has revolutionized five different industries: personal computing, music,
smartphones, tablet computing, and digital publishing.
• Apple has created several market-changing innovations:
a. Apple II—the first commercial personal computer (1977).
b. Macintosh—the first PC with a mouse and a graphical user interface (1984).
c. iPod—the first successful MP3 music player (2001).
d. iPhone—the world’s best multitouch smartphone with almost one million
apps (2007).
e. iPad and iPad mini—the thin, tablet-shaped device that enables users to read
books, newspapers, and magazines and textbooks (2010 and 2012).
f. CarPlay—uses iPhone while driving a car to make calls, listen to music, and
access messages by voice or touch (2014).
B. And New-Product Development Stumbles
• Apple has also stumbled at times in pursuit of innovation:
a. Apple III (1980) and Apple Lisa (1983)—intended for business users; failed
due to design flaws.
b. Apple Newton (1987)—a PDA that featured handwriting recognition
software; had limited battery life and hard-to-read screen.
c. Macintosh Portable (1989)—Apple’s first battery-powered portable computer;
had a high price and un-portable weight of 16 pounds.
d. “Hockey Puck” Mouse (1998)—first Apple Mouse to use a USB connection,
but the round shape made it difficult to hold and use.
• Apple learned from each stumble and applied insights from failure to later
successful products.
C. The Next Chapter in Apple’s Story: An Apple-enabled iCar?
Chapter 10 – Developing New Products and Services
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• What major innovation is next for Apple? An Apple Car in 2019 or 2020.
• Reports that Apple has team of automotive, design, and computer software
engineers to become a player in the automotive industry.
• Apple may partner with an existing car manufacturer to build the actual car.
I. WHAT ARE PRODUCTS AND SERVICES? [LO 10-1]
• The essence of marketing is to develop offerings that meet consumer needs.
• A product:
a. Is good, service, or idea consisting of a bundle of tangible and intangible
attributes that satisfies consumers’ needs.
b. Is received in exchange for money or something else of value.
A. A Look at Goods, Services, and Ideas
• A good has tangible attributes that a consumer’s five senses can perceive.
a. A good may have:
• Intangible attributes consisting of its delivery or warranties.
• More abstract concepts, such as becoming healthier or wealthier.
b. Goods can be divided into nondurable goods and durable goods.
• A nondurable good:
– Is an item consumed in one or a few uses.
• A durable good:
– Is one that usually lasts over many uses.
– Emphasizes personal selling.
– Examples: Appliances, cars, and stereo equipment.
• Services:
a. Are intangible activities or benefits that an organization provides to satisfy
consumers’ needs.
b. Are received in exchange for money or something else of value.
Chapter 10 – Developing New Products and Services
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c. Have become a significant part of the U.S. economy, reaching almost
50 percent of its gross domestic product (GDP).
• An idea is a thought that leads to a product or action like a concept for a new
invention or getting people out to vote.
• Throughout the text, product generally includes not only physical goods but
services and ideas as well.
B. Classifying Products [LO 10-2]
Two broad categories of products widely used in marketing relate to the type of user.
• Consumer products are those purchased by the ultimate consumer.
• Business products.
a. Those that organizations buy that assist in providing other products for resale.
b. Also called B2B products or industrial products.
• Some products are both consumer and business items, such as an Apple iMac.
Each classification results in different marketing actions.
a. As a consumer product, the iMac would be sold through Apple’s retail stores
or directly from its website.
b. As a business product, an Apple salesperson might contact a firm’s purchasing
department directly and offer discounts for large volume purchases.
1. Consumer Products.
a. Consumer products differ in terms of:
• The effort the consumer spends on the decision.
b. [Figure 10-1] There are four types of consumer products:
• Convenience products are items that the consumer purchases frequently,
conveniently, and with a minimum of shopping effort.
Chapter 10 – Developing New Products and Services
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c. Each type of consumer product stresses different marketing mix actions,
degrees of brand loyalty, and shopping effort.
d. How a consumer product is classified depends on the individual:
• One person may view a camera as a shopping product and visit several
stores before deciding on a brand.
2. Business Products.
a. Their sales are often the result of derived demand…
• In which sales of business products frequently result (or are derived) from
the sale of consumer products.
• Example: As demand for Ford cars (consumer product) increases, the firm
may increase its demand for paint spraying equipment (business product).
b. Business products may be classified as components or support products.
• Components. Items that become part of the final product, which include:
– Raw materials, such as grain or lumber.
– Assemblies or parts.
• Support products. Items used to assist in producing other products and
services, which include:
– Installations, such as buildings and fixed equipment.
c. Strategies to market business products reflect both:
• The complexities of the product involved (paper clips vs. machine tools).
• The buy-class situation, which is discussed in Chapter 6.
C. Classifying Services
• Services can be classified according to whether they are delivered by:
a. People or equipment.
b. For profit organizations/business firms or nonprofit organizations.
c. Government agencies.
• These classifications are more thoroughly discussed in Chapter 12.
Chapter 10 – Developing New Products and Services
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D. Product Classes, Forms, Items, Lines, and Mixes
• Most organizations offer a range of products and services to consumers.
• Each set of offerings can be categorized according to the product class or industry
to which they belong, like the iPad, which is classified as a tablet device.
• Products can exist in various product forms within a product class, such as
music—vinyl, 8-track, cassette, CD, or digital (see Chapters 2 and 11).
• A product item is a specific product that has a unique brand, size, or price.
a. Example: Ultra Downy softener for clothes comes in several different sizes.
b. Each size is a separate stock keeping unit (SKU), which is a unique
identification number that defines an item for ordering or inventory purposes.
• A product line:
a. Is a group of product or service items that are closely related because they:
b. Example: Nike’s product lines include shoes and clothing.
c. Example: The Mayo Clinic’s service lines consist of inpatient hospital care
and outpatient physician services.
[Video 10-1: Crapola Video]
d. Example: Crapola Granola.
• Name stands for CRanberries and APples granOLA.
• Its package promises that Crapola “Makes Even Weird People Regular.”
• Crapola is sold in retail outlets in the Midwest, California, and Oregon as
• Crapola is available in three other recipes: “Number Two,” “Colon-ial
Times,” and “Kissypoo.”
• With a more extensive product line, Crapola may:
– Obtain distribution and shelf space in supermarket chains, which…
– Increase efficiencies by dealing with fewer suppliers.
e. A broad product line enables both consumers and retailers to simplify their
buying decisions.
Chapter 10 – Developing New Products and Services
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f. A broad product line enables a firm to obtain distribution, avoiding the need
for retailers to deal with many different suppliers.
• A product mix consists of all the product lines offered by an organization.
a. Cray Inc. has a small product mix of three product lines sold mostly to
governments and large businesses.
LEARNING REVIEW
10-1. What are the four main types of consumer products?
10-2. What is the difference between a product line and a product mix?
II. NEW PRODUCTS AND WHY THEY SUCCEED OR FAIL [LO 10-3]
New products are the firm’s lifeblood and keep it growing, but the financial risks are big.
A. What Is a New Product?
The term new is difficult to define. The answer depends on one’s perspective.
1. Newness Compared with Existing Products.
a. New can refer to a product being functionally different than existing products.
b. Sometimes this newness is revolutionary and creates a whole new industry.
c. At other times, additional features are added to appeal to more customers.
[ICA 10-1: Focus Group for a Smartwatch]
d. However, firms run the risk of “feature bloat” that can overwhelm consumers.
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MARKETING MATTERS
Customer Value: Too Much of a Good Thing: Feature Bloat and Feature Fatigue in New-
Product Development
Adding more features to a product to satisfy buyers seem like a no-brainer strategy.
• Feature Bloat.
a. Most marketing research with potential buyers of a product done before they buy
shows they say they do want more features in the product.
b. Feature bloat is the tendency to add unnecessary features or functionality to a
product that are not of benefit to consumers, and adds to product cost.
• Feature Fatigue.
a. Feature fatigue occurs because consumers give more weight to capability and less
weight to usability before use of the product than after use of the product.
b. Consumers tend to choose overly complex products that do not maximize
satisfaction.
c. Result of feature fatigue: annoyance and a reduced likelihood to repurchase.
2. Newness from the Consumer’s Perspective.
[Figure 10-2] This approach classifies new products in terms of their effects on
consumption according to the degree of learning required by the consumer to use
the product:
a. Continuous innovation.
• Consumers don’t need to learn new behaviors when adding new features.
• The marketing strategy is not to reeducate users but to generate consumer
awareness of the new or improved product.
• Example: Colgate Total toothpaste.
b. Dynamically continuous innovation.
• Only minor changes in consumer behavior are required.
• The marketing strategy is to educate prospective buyers on the product’s
benefits, advantages, and proper use.
• Example: Proctor & Gamble’s Swiffer WetJet.
c. Discontinuous innovation.
• Consumers must learn entirely new consumption patterns.
Chapter 10 – Developing New Products and Services
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• Marketing strategies involve:
– Gaining initial consumer awareness.
– Educating consumers on both the benefits and proper use of the
innovative product, activities that can cost millions of dollars.
• Example: Buying a wireless router for your computer.
3. Newness in Legal Terms.
a. The U.S. Federal Trade Commission (FTC) advises that the term new be
limited to use with a product up to six months after it enters regular
distribution.
b. Regular distribution is a term that remains variously interpreted.
4. Newness from the Organization’s Perspective.
Organizations view newness and innovation in their products at three levels:
a. The lowest level is a product line extension, which:
• Usually involves the least risk.
• Is an incremental improvement of an existing product.
• Example: Purina Elegant Medleys.
b. The next level consists of either:
• A significant jump in the innovation or technology, such as a mobile
phone manufacturer offering a new smartphone, or…
• A brand extension that involves putting an established brand name on a
new product in an unfamiliar market.
c. The third level is true innovation, a radical invention, a truly revolutionary
new product, such as the 3D printer.
B. Why Products and Services Succeed or Fail
• While there are many huge product successes, there are thousands of failures each
year costing businesses billions of dollars.
• A protocol is a statement that, before product development begins, identifies:
a. A well-defined target market.
b. Specific customers’ needs, wants, and preferences.
Chapter 10 – Developing New Products and Services
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c. What the product will be and do to satisfy consumers.
• Research suggests that it takes about 3,000 raw unwritten ideas to produce a
single commercially successful new product.
• Most American families buy the same 150 items over and over again—making it
difficult to gain buyers for new products.
• Less than 3 percent of new consumer packaged goods exceed first-year sales of
$50 million—the benchmark of a successful CPG launch.
1. Marketing Reasons for New-Product Failures. [LO 10-4]
a. New-product winners and losers are separated by the following marketing and
nonmarketing factors, some of which overlap:
• Insignificant point of difference.
– It’s the single most important factor that enables a new product to
defeat competitive ones.
• Incomplete market/product protocol before product development starts.
– A market-product protocol clearly defines how an offering would
satisfy specific consumer wants and needs.
– Without this protocol, firms try to design a vague product for a
phantom market.
– Example: Avert Virucidal tissues.
• Not satisfying consumer needs on critical factors.
– This factor stresses that problems on a few critical factors can kill the
product…
• Bad timing.
– The product is introduced too soon or too late.
– Consumer tastes are shifting dramatically.
– Example: Hewlett Packard Tablet
• No economical access to buyers.
Chapter 10 – Developing New Products and Services
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– Over 40,000 new consumer packaged goods products (food, beverage,
household, etc.) are introduced globally each year.
– The costs (slotting fees and failure fees) to gain and maintain access to
retailers’ shelves are huge.
– Example: Thirsty Dog! & Thirsty Cat! enhanced water.
• Poor execution of the marketing mix—brand name, package, price,
promotion, and distribution.
– Can cause products to fail if any element isn’t executed properly.
– Example: Garlic Cake.
• Too little market attractiveness.
• Poor product quality.
– This factor often results when a product is not thoroughly tested.
– The costs for poor quality can be staggering and include:
* The labor, materials, and other expenses to fix the problem.
* The lost sales, profits, and market share that usually result.
– Example: Hoverboards
b. Simple marketing research should have revealed these problems.
c. Developing successful new products sometimes involve luck, but often it:
• Involves having a product that really meets a need.
2. Organizational Inertia in New-Product Failures. Other organizational
problems and attitudes, some which overlap, can cause disaster:
a. Encountering “groupthink” in task force and committee meetings.
• People are afraid to speak up if they suspect a product concept is a dumb
idea for fear of:
– Being cast as a “negative thinker” or “not a team player.”
– Then being ostracized from real participation in the group.
• A strong public commitment to a new product may make it difficult to kill
the product even when new negative information about it comes to light.
Chapter 10 – Developing New Products and Services
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b. Avoiding the “NIH problem.”
• A great idea is a great idea, regardless of its source.
• Yet in the bureaucracy that can occur in large organizations:
c. Many of these organizational problems cause the eight marketing reasons for
new-product failure listed above.
[ICA 10-2: What Were They Thinking? Analyzing New Product Disasters]
C. How Applying Marketing Metrics Can Monitor New-Product Performance
• Marketers can use marketing dashboards to measure actual market performance
versus the goals set in new-product planning.
• Marketers can see, in a graph or chart on the marketing dashboard, what’s
working and what’s not in terms of the marketing mix actions for the new
product.
• Marketers can conduct in-depth marketing research that leads to corrective
actions.
LEARNING REVIEW
10-3. What kind of innovation would an improved electric toothbrush be?
10-4. Why can an “insignificant point of difference” lead to new-product failure?
10-5. What marketing metric might you use in a marketing dashboard to discover
which states have weak sales?
Chapter 10 – Developing New Products and Services
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APPLYING MARKETING METRICS
Which States Are Underperforming?
Annual Percentage Change in Unit Volume by State
Marketers ask the question, “How well is my business growing?”
Your Challenge.
Your snack is sold in all 50 states. Your goal is 10 percent annual growth. Your
challenge is to identify states or regions where there is either sales stagnation
(0% growth) or sales decline (negative growth).
Annual % Sales Change = [(2017 Sales – 2016 Sales) ÷ 2016 Sales] x 100
[See UMD10AnnualPercentChgUnitSales.xls]
In your marketing dashboard, there is a map of the U.S. by state that depicts three
different growth rates:
Your Findings. Unit sales growth in the Northeastern (NE) U.S. is weak.
Your Action.
• Identify and correct problems in largest volume underperforming states in the NE.
• Conduct marketing research to determine if the problem is:
– An external factor, such as changing consumer tastes.
– An internal factor, such as a breakdown in the distribution system.
III. THE NEW-PRODUCT PROCESS [LO 10–5]
• To efficiently develop new products, companies use a specific sequence of steps to
make their products ready for market.
• [Figure 10-3] The new-product development process consists of seven stages an
organization goes through to:
a. Identify opportunities.
b. Convert them to salable products or services.
• Many firms use a formal Stage-Gate® process:
Chapter 10 – Developing New Products and Services
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a. Evaluates whether the results at each stage of the new-product development
process are successful enough to warrant proceeding to the next stage.
b. If problems in a stage can’t be corrected, the project doesn’t proceed to the next
stage and product development is killed.
A. Stage 1: New-Product Strategy Development
• New-product strategy development is the stage of the new-product process that
defines the role for a new product in terms of the firm’s overall objectives.
• The firm uses a SWOT analysis and environmental scanning to assess its
strengths and weaknesses relative to the trends identified as opportunities or
threats.
• The outcome of the SWOT analysis and environmental scanning:
a. Defines the vital “protocol” for each new-product idea.
b. Identifies the strategic role it might serve in the firm’s portfolio.
• Occasionally a firm’s Stage 1 activities can be blindsided by a revolutionary new
product or technology that completely disrupts its business, sometimes called a
“disruptive innovation.” Examples include:
a. Wikipedia. This free and community-edited online encyclopedia caused
Encyclopedia Britannica to cease print production after 244 years.
b. Digital photography.
• New-product development in services is difficult because they are intangible and
performance-oriented but can have a huge impact on our lives.
B. Stage 2: Idea Generation
• Idea generation is the stage of the new-product development process that
develops a pool of concepts to serve as candidates for new products, building on
the previous stage’s results.
[ICA 10-3: Using Method 6-3-5 to Find New-Product Ideas
for Magnetic Poetry]
• Many forward-looking organizations have discovered that they are not generating
enough useful new-product ideas.
Chapter 10 – Developing New Products and Services
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• One internal approach for getting ideas within the firm is to train employees in the
art and science of asking specific, probing questions.
• The goal in generating new-product ideas and strategies is to move from:
a. “What is” questions that describe the present situation to…
b. “What if” questions that focus on solutions and marketing actions.
• Open innovation is an idea generation process that:
a. Involves a firm finding and executing creative new-product ideas by…
• There are several sources generate new-product ideas.
1. Suggestions from Employees and Friends.
a. Employees should be encouraged to suggest new-product ideas through
suggestion boxes.
b. Emphasize improved employee communications.
c. Examples: Nature Valley granola bars and Life Is Good T-shirts.
[Video 10-2: Life Is Good]
2. Customer and Supplier Suggestions.
a. To discover new-product ideas, firms ask their:
• Salespeople to talk directly to customers.
• Purchasing personnel to talk to their suppliers.
b. Business researchers emphasize that firms must actively involve customers
and suppliers in the product development process.
c. This often means focusing on what the new product will actually do for them
rather than simply what they want.
d. Look outside the firm for solutions to problems rather than insisting
“we know best.” Example: P&G’s Tide Pods.
e. Example: P&G’s Tide Pods.
• Launched in 2012 as “the biggest laundry innovation” in the past 25 years.
• Is a three-chamber “pod” that contains liquid detergent.
Chapter 10 – Developing New Products and Services
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• Had high consumer satisfaction ratings for a new laundry product.
• Redesigned the packaging because children thought the pods were candy.
[Video 10-3: P&G’s Tide Pods Ad]
f. Crowdsourcing involves generating insights leading to actions based on
massive numbers of people’s ideas.
• Can obtain ideas from 10,000 or 20,000 customers or suppliers.
• Requires a precise question to focus the idea-generation process.
3. Research and Development Laboratories.
a. A major source of new products is a firm’s own R&D laboratories.
b. Professional R&D “innovation labs” outside the organization:
• Are sources of open innovation.
• Provide new-product ideas through brainstorming and other idea
generation techniques.
• Example: IDEO.
– Is the most prolific and influential design firm in the world.
– Has created thousands of new products for its clients.
– Its brainstorming sessions can generate 100 new ideas in an hour.
– Uses “design thinking,” which…
* Involves incorporating human behavior as well as…
* Building upon the ideas of others in the innovation-design process.
– Its designs include:
* Apple mouse.
4. Competitive Products. A firm can purchase and use competitors’ products to:
a. Assess their strengths and weaknesses relative to its offerings.
b. Generate new-product ideas.
Chapter 10 – Developing New Products and Services
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c. Example: General Motors referenced Tesla for its new Chevrolet Bolt.
5. Smaller Firms, Universities, and Inventors. Visionaries outside the firm can be
a source of new-product ideas.
a. Smaller, nontraditional firms.
• Small technology firms and even small, nontraditional firms in adjacent
industries provide creative advances.
b. Universities.
• Their technology transfer centers often partner with business firms to
commercialize faculty inventions.
c. Inventors.
• Lone inventors and entrepreneurs often come up with brilliant new-
product ideas.
d. Crowdfunding.
• Is a way to gather an online community of supporters to financially rally
around a specific project that…
• Is unlikely to get resources from traditional sources, such as banks or
venture capital firms.
C. Stage 3: Screening and Evaluation
Screening and evaluation is the stage of the new-product process that internally and
externally evaluates new-product ideas to eliminate those that warrant no further
effort.