LEARNING OBJECTIVES
In this chapter we will address the following questions:
1. How can new products be categorized?
6. What is the best way to manage concept and strategy development?
7. What is the best way to manage the commercialization of new products?
8. What factors affect the rate of diffusion and consumer adoption of newly launched
products and services?
SUMMARY
1. Once a company has segmented the market, chosen its target customer groups and
2. Successful new-product development requires the company to establish an effective
organization for managing the development process. Companies can choose to use
3. Eight stages take place in the new-product development process: idea generation,
screening, concept development and testing, marketing strategy development, business
4. The consumer-adoption process is the process by which customers learn about new
products, try them, and adopt or reject them. Today many marketers are targeting
heavy users and early adopters of new products because both groups can be reached
C H A P T E R
15
INTRODUCING NEW
MARKET OFFERINGS
OPENING THOUGHT
Students will be challenged in understanding the new-product process if they are new to
the science of marketing. Students, like the general population, believe that new products
are just “thought–up” and created! Therefore, the first barrier to effective learning in this
chapter is to outline and detail the new-product process. An instructor can use examples
from his/her experience in the creation of new products or he/she can set up as an in-class
or outside of class experiment, the “creation” of a new product by the class or in groups.
TEACHING STRATEGY AND CLASS ORGANIZATION
PROJECTS
1. At this point in the semester-long Marketing Plan project, there should be a brief
write-up by the students as to the consumer-adoption process for their new product.
How will the consumer learn about their new product and how quickly will they
adopt it? Will the product be targeted to the heavy users and early adopters first, then
early and late majorities? What is their estimated time for full adoption?
2. Identify three new products (introduced to the consumer and/or business markets
within the last year) and classify them as either: a new-to-the-world product, a new
3. Sonic PDA Marketing Plan: Product strategy is based on the choices companies make
as they select target segments and create a distinctive positioning for their brand and
products. With this foundation, a marketer is ready to plan for new product
development and management. Now that you have developed the marketing plan for
Sonic 1000, you are considering new product options for the Sonic 2000. Answers to
the following questions will help you narrow the options for the second Sonic PDA
product:
• What specific needs of the targeted customer segments should Sonic seek to
satisfy with a second PDA product?
• Working with other students, generate at least four new ideas for new PDA
products, and indicate the criteria Sonic should use to screen these ideas.
• Develop the most promising idea into a product concept and explain how Sonic
can test this concept.
Summarize your answers to these questions in a written marketing plan or enter the
answers into the Marketing Mix, Marketing Research, Break-Even, Sales Forecast,
Budget Analysis, and Milestone sections of Marketing Plan Pro.
ASSIGNMENTS
Use the class and conduct a brainstorming session using the tips from the Marketing
Memo entitled “How to Run a Successful Brainstorming Session.” Use the students as
the “group” and appoint one as a moderator.
In the opening vignette of the chapter, Johnson & Johnson is noted for being one of the
most innovative U.S. companies. Other innovative companies exist as well. In a small
group, find at least three U.S. companies that have introduced numerous new products
into the marketplace over the last two years. What characteristics do all of these
companies share? What has been their success rate?
the “innovators”—technology enthusiasts and “early adopters.” Question: Can the iPhone
and iPod continue its rate of diffusion throughout the adoption curve and reach the early
majorities and late majorities users? Or will it become stuck appealing to just those two
first segments? In your answer, carefully review the sales, pricing, and products recently
introduced by competitors of Apple.
In the section entitled, Creativity Techniques, the chapter defines some techniques for
stimulating creativity in individuals and groups. In small groups, and using the techniques
described, create at least three “new ideas” for products and services. Your group can use
“lateral marketing” techniques as well. Share these new ideas with others in the class and
conduct an informal poll of which ideas have the most merit for future development.
Companies find good ideas by researching competitors’ products and services. For this
exercise, select a consumer product category (shampoos, soft drinks, snack foods, etc.),
purchasing many of the available items in this category. Suggest some incremental
END–OF–CHAPTER SUPPORT
MARKETING DEBATE—Whom Should You Target With New Products?
Some new products experts maintain that getting close to customers through intensive
research is the only way to develop successful new products. Other experts disagree and
maintain that customers can’t possibly provide useful feedback on what they don’t know
and can’t provide insights that will lead to breakthrough products.
effect of personal influence on/for the new product; 3) the differing rates of adoption (personal
comfort zones); 4) and the differences in some organizations to try new products. Companies
are not at liberty to “buy” because the product is “new.” The features and benefits of the
product must show the company how it can save time and/or save money.
MARKETING DISCUSSION
Think about the last new product you bought. How do you think its success will be affected by
the five characteristics of an innovation: relative advantage, compatibility, complexity,
divisibility, and communicability?
Student answers will differ depending upon their last new product chosen but all answers
1) Apple’s product launches over the past decade have been monumental. What makes
the company so good at innovation? Is anyone comparable to Apple in this respect?
2) How important was the iPod to Apple’s current success? Discuss the significance of
the iPhone and iPad launches to Apple’s new product development strategy.
Suggested Answer: Short answer: Very. The Apple iPod changed the way people listen to
and use music. Apple reached its impressive market domination through a combination of
3) It has been a few years since Apple’s last epic innovation. What’s next for Apple?
Suggested Answer: Student answers will vary depending upon their view of the PLC and
the value computers add to their lives. Good students will note/argue/defend that the PC
Questions
1. Why has Salesforce.com been so successful? What did the company do well when it
created and expanded its product offerings?
Suggested Answer: Salesforce.com became a first mover in the cloud-based sales
support service by offering an easy interface, no installation/licensing, welcoming
2. What are some of the challenges Salesforce.com faces in the near future?
Suggested Answer: Cloud computing is very competitive and is evolving rapidly. The
market includes both big players, with large marketing budgets, and niche companies.
3. What other products and services might Salesforce.com offer next? Why?
Suggested Answer: Student responses may vary. Salesforce.com could offer sales
DETAILED CHAPTER OUTLINE
New–product development shapes the company’s future. Improved or replacement products
and services can maintain or build sales; new-to-the–world products and services can
transform industries and companies and change lives. However, the low success rate of new
products and services points to the many challenges they face. Marketers play a key role in
new-product development by identifying and evaluating ideas and working with R&D and
other areas in every stage of development.
I. New Product Options
A. Make or Buy: a company can add new products through acquisition or development.
a. When acquiring, the company can buy other companies, buy patents from
B. Types of New Products
a. Range from new–to–the-world items that create an entirely new market to
minor improvements or revisions of existing products.
c. Companies typically must create a strong R&D and marketing partnership to
pull off a radical innovation
d. The right corporate culture is another crucial determinant; the firm must
prepare to cannibalize existing products, tolerate risk, and maintain a future
market orientation
e. A keen understanding of customers is also paramount.
f. Few reliable techniques exist for estimating demand for radical innovations
II. Challenges in New Product Development
A. Continuous innovation is a necessity.
i. Companies that fail to develop new products leave themselves
vulnerable to changing customer needs and tastes, shortened product
ii. Highly innovative firms are able to repeatedly identify and quickly
seize new market opportunities.
iii. Innovation is about “creating new choices” the competition doesn’t
have access to
B. New-Product Success
i. Most established companies focus on incremental innovation, entering
new markets by tweaking products for new customers, using variations
C. New-Product Failure
i. New products continue to fail at rates estimated as high as 50 percent
or even 95 percent in the United States and 90 percent in Europe
ii. Reasons for failure:
2. Overestimates of market size
4. Poor design or ineffectual performance
6. Insufficient distribution support
8. Inadequate ROI or payback.
iii. Some additional drawbacks new-product launches face are:
2. Social, economic, and governmental constraints
4. Capital shortages
6. Poor launch timing
8. Lack of organizational support
III. Organizational Arrangements
A. Many companies use customer-driven engineering to develop new products,
incorporating customer preferences in the final design.
B. Budgeting for New Product Development
i. R&D outcomes are so uncertain that it is difficult to use normal
investment criteria when budgeting for new-product development.
C. Organizing New-Product Development
i. Many companies assign responsibility to product managers.
ii. Cross-functional groups can be charged with developing a specific
product or business.
iii. Skunkworks are informal workplaces, sometimes garages, where
intrapreneurial teams work to develop new products.
IV. Managing the Development Process: Ideas
A. The new-product development process starts with the search for ideas.
i. Some marketing experts believe we find the greatest opportunities and
highest leverage for new products by uncovering the best possible set
of unmet customer needs or technological innovation
ii. New-product ideas can in fact come from interacting with various
products without the consent or knowledge of the companies that
produce them.
vii. Companies can find good ideas by researching the products and
services of competitors and other companies. They can find out what
customers like and dislike about competitors’ products.
viii. Internal brainstorming sessions also can be quite effective—if
conducted correctly.
B. Here is a sampling of techniques for stimulating creativity in individuals and
groups.
i. Attribute listing
ii. Forced relationships
C. New-product ideas can arise from lateral marketing that combines two product
concepts or ideas to create a new offering,
D. Concept Testing means presenting the product concept to target consumers,
physically or symbolically, and getting their reactions.
i. Rapid prototyping is used to design products on a computer and then
E. The stronger the need, the higher the expected consumer interest.
F. Consumer preferences for alternative product concepts can be measured with
conjoint analysis a method for deriving the utility values that consumers
G. Marketing Strategy Development
i. Following a successful concept test, the new-product manager will
develop a preliminary three-part strategy plan for introducing the new
product into the market.
H. Business Analysis
i. Management can evaluate the proposal’s business attractiveness.
ii. Management needs to prepare sales, cost, and profit projections to
1. In estimating sales, the manager’s first task is to estimate first–
time purchases of the new product in each period.
3. Because replacement sales are difficult to estimate before the
product is in use, some manufacturers base the decision to
launch a new product on their estimate of first-time sales alone.
v. Costs are estimated by the R&D, manufacturing, marketing, and
finance department
VI. Dragalong income is additional income to them, and cannibalized
income is reduced income
V. Managing the Development Process: Development to Commercialization
A. Products are developed into prototypes
B. The job of translating target customer requirements into a working prototype
is helped by a set of methods known as quality function deployment (QFD).
C. The methodology takes the list of desired customer attributes (CAs) generated
by market research and turns them into a list of engineering attributes (EAs)
that engineers can use.
D. The goal of the R&D department is to find a prototype that embodies the key
attributes in the product-concept statement, performs safely under normal use
F. Market Testing: the amount of testing is influenced by the investment cost and
risk on the one hand and time pressure and research cost on the other
G. Consumer-products tests seek to estimate four variables: trial, first repeat,
adoption, and purchase frequency.
H. Four major methods of consumer-goods market testing, from least to most
costly.
i. Sales-Wave Research
ii. Simulated Test Marketing
iii. Controlled Test Marketing
iv. Test Markets
testing.
K. Commercialization incurs the company’s highest costs to date
i. First entry—The first firm entering a market usually enjoys the “first
mover advantages” of locking up key distributors and customers and
gaining leadership. But if rushed to market before it has been
thoroughly debugged, the first entry can backfire.
ii. Parallel entry—The firm might time its entry to coincide with the
competitor’s entry. The market may pay more attention when two
companies are advertising the new product.
iii. Late entry—The firm might delay its launch until after the competitor
VI. The Consumer-Adoption Process
A. Adoption individual’s decision to become a regular user of a product and is
followed by the consumer-loyalty process.
B. New-product marketers typically aim at early adopters and use the theory of
innovation diffusion and consumer adoption to identify them
C. An innovation is any good, service, or idea that someone perceives as new, no
matter how long its history.
i. The innovation diffusion process is “the spread of a new idea from its
source of invention or creation to its ultimate users or adopters
ii. The consumer-adoption process is the mental steps through which an
individual passes from first hearing about an innovation to final
adoption
1. Awareness—The consumer becomes aware of the innovation
but lacks information about it.
iii. The new-product marketer should facilitate movement through these
stages.
D. Factors Influencing the Adoption Process: differences in individual readiness
to try new products, the effect of personal influence, differing rates of
adoption, and differences in organizations’ readiness to try new products.
Some researchers are focusing on use-diffusion processes as a complement to
adoption process models to see how consumers actually use new products.
i. Readiness to Try New Products and Personal Influence
1. Innovators are technology enthusiasts
3. Early majority are deliberate pragmatists who adopt the new
4. Late majority are skeptical conservatives who are risk averse,
technology shy, and price sensitive.
5. Laggards are tradition-bound and resist the innovation until the
status quo is no longer defensible.
ii. Personal influence, the effect one person has on another’s attitude or
purchase probability, has greater significance in some situations and
for some individuals than others, and it is more important in evaluation
than in the other stages.
iii. Characteristics of the Innovation
2. Compatibility
4. Divisibility