LEARNING OBJECTIVES
In this chapter we will address the following questions:
1. What challenges does a company face in developing new products and services?
2. What organizational structures and processes do managers use to oversee new-
product development?
3. What are the main stages in developing new products and services?
4. What is the best way to manage the new-product development process?
5. 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
C H A P T E R
20
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.
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
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.
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 consumer-adoption process is similar to the product life cycle in its stages of
introduction, growth, expansion, and decline. For example, by the time a product reaches
the late majority, the product is also entering the latter stages of the product life cycle and
price and promotion become increasingly important to maintaining sales. Overlaying
these two graphs, comment on what their similarity means for marketers. Why do you
think that the length of the adoption process and the product life cycle stages are similar?
What does this similarity say about consumer buying practices? What lessons must
marketers understand, in terms of new product launches, about these two?
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.
consumers/customers prefer and the features they would buy. Remember, the adoption
process for new items goes through 1) an individual’s readiness to try new products; 2) the
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?
Marketing Excellence: APPLE
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
3) What’s next for Apple? Should it continue to move away from computers and towards
more new handheld devices?
Suggested Answer: Student answers will vary depending upon their view of the PLC and
Marketing Excellence: RESEARCH IN MOTION
1) Evaluate Research In Motion’s keys to success. What did the company do well and, in
hindsight, what should it have done differently during its decade of extreme growth?
Suggested Answer: RIM focused on products that focus on high-security capabilities and
essential business features, including an organizer, calendar, pager, longer-lasting battery,
2) Is Research In Motion still a leader in innovation? Why or why not? What’s next for
the company?
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. But the low success rate of new
products and services points to the many challenges they face. Companies are doing more
NEW PRODUCT OPTIONS
Make or Buy
A company can add new products through acquisition or development.
A) The acquisition route can take three forms:
1) The company can buy other companies.
But firms can successfully make only so many acquisitions. At some point, they need organic
growth—the development of new products from within.
B) The development route can take two forms:
1) It can develop new products in its own laboratories called organic growth.
Types of New Products
New products range from new–to–the-world products that create an entirely new market to
minor improvements or revisions of existing products. Most new-product activity is devoted
to improving existing products.
A) Fewer than 10 to 15 percent of all new products are truly innovative and new to the
world.
CHALLENGES IN NEW PRODUCT DEVELOPMENT
New-product introductions have accelerated, and in retailing, consumer goods, electronics,
autos, and other industries, the time to bring a product to market has been cut in half.
The Innovative Imperative
A) In an economy of rapid change, continuous innovation is a necessity. Highly
innovative firms are able to identify and quickly seize new market opportunities.
New Product Success
A) Most established companies focus on incremental innovation. entering new
markets by tweaking products for new customers, using variations on a core
product to stay one step ahead of the market, and creating interim solutions for
industry-wide problems.
New Product Failure
A) New products continue to fail at a disturbing rate:
1) Around 95 percent in the United States
New products can fail for many reasons:
1) Shortage of important ideas in certain areas
2) Fragmented markets
ORGANIZATIONAL ARRANGEMENTS
Many companies today use customer-driven engineering to design new products.
A) Customer-driven engineering attaches high importance to incorporating customer
preferences in the final design.
Budgeting for New-Product Development
R&D outcomes are so uncertain that it is difficult to use normal investment criteria when
budgeting for new-product development.
A) Some companies solve this problem by financing as many projects as possible, hoping
to achieve a few winners.
Organizing New-Product Development
Companies handle the organizational aspect of new-product development in several
ways.
A) New-product manager
1) A venture team is a cross-functional group charged with developing a specific
product or business. These skunkworks are informal places where
“intrapreneurial” teams attempt to develop new products.
F) Some companies use the stage-gate system to manage the innovation process.
1) The gatekeepers make one of four decisions at each stage of the process:
a. Go
b. Kill
MANAGING THE DEVELOPMENT PROCESS: IDEAS
The new product development process starts with the search for ideas.
Idea Generation
New product ideas can come from interacting with various groups and from using
creativity-generating techniques.
Marketing Insight: P&G’s new connect and develop approach to innovation
Interacting with Others
A) Encouraged by the open innovation movement, many firms are going outside their
bounds to tap external sources of new ideas, including customers, employees,
scientists, engineers, channel members, marketing agencies, top management, and
even competitors’.
Marketing Memo: Seven ways to draw new ideas from your customers
Lists the seven ways that companies get new ideas from their customers: observe, ask, use
customer advisory boards, use Web sites for new ideas, use the community of enthusiasts;
encourage challenges or improvements in your product.
INTERACTING WITH EMPLOYEES
Employees can be a source of ideas for improving production, products, and services
throughout the company.
Top management can be another major source of ideas.
STUDYING COMPETITORS
Companies can find good ideas by researching the products and services of competitors and
products.
ADOPTING CREATIVITY TECHNIQUES Internal brainstorming sessions also can be
quite effective—if conducted correctly.
Marketing Memo: How to run a successful brainstorming session
B) Forced relationships
C) Morphological analysis
Using Idea Screening
A) In screening ideas, the company must avoid two types of errors. A DROP-error
occurs when the company dismisses a good idea.
B) The purpose of screening is to drop poor ideas as early as possible. The rationale
is that product-development costs rise substantially with each successive
development stage.
MANAGING THE DEVELOPMENT PROCESS: CONCEPT TO STRATEGY
Attractive ideas must be refined into testable product concepts.
A) A product idea is a possible product the company might offer to the market.
B) A product concept is an elaborated version of the idea expressed in consumer terms.
Concept Development and Testing
Concept development is a necessary but not sufficient step for new product success.