Chapter Eight
Developing the Product, Service and Value of The
Offering
Authors’ Comments
This chapter develops three principal ideas.
• The use of the product life cycle to guide the development and management
of the offering.
o Even though the PLC is not predictive, it still gives a framework for
thinking about how strategy must evolve over time. The focus on the
Opening Vignette
The Best and the Brightest still have Product Failures
This opening provides the opportunity to discuss some business history through
product failures! Many people, including most students, believe that product failures
are failures of products − that is, the physical failure of a product, while it can be
shown that the overwhelming majority of product failures are related to poor or non-
existent marketing. Here is a short summary of the “failures” noted in the opening
vignette:
• The Edsel: (~$350 million loss) This car has been the icon of product failure
for generations. Gen Y students, however, may have heard of it but
probably never seen it. Ask your students to “Google” it. When they find a
photo I like to comment that it looks like a BMW sucking a lemon (they
relate to BMW). Basis of Failure: Product introduced four years after market
research (actually by the standards at the time, very good research) effort
ended. The market had changed significantly.
Students may not know that the United States once considered
Chapter 8: Developing the Product, Service and Value of the Offering 2
(At the Comdex show following the product announcement, I inquired
about the Star System at the Xerox booth. Xerox personnel had no idea
what I was referring to!)
• New Coke: ($?) Coca Cola discovered that in blind taste tests, people
actually did prefer Pepsi, and set about to duplicate the taste in their new
• RCA Videodisc Player: ($?) Not to be confused with today’s DVDs, this
player was introduced in ~1980. It used large, “LP” sized discs and a very
different technology than today’s discs. RCA was convinced following their
success with VHS recorders that the consumer market would embrace the
product, notwithstanding all the market studies that said otherwise. The
main use for the VHS recorders was time shifting/recording. The videodisc
technology that RCA was so proud of could not record. There wasn’t a
selection of pre-recorded discs available either.
Chapter 8: Developing the Product, Service and Value of the Offering 3
Without a doubt, you can find examples more closely related to your
community and/or students. However, the common thread above was the
Learning Objective
Understand the importance of customer and supplier involvement in
the development of new offerings.
Value offerings mean collaborative efforts between customers and suppliers as
The Product Life Cycle:
Exhibit 8-1 (PowerPoint 8.2) shows the PLC with five stages.
• Development
Assumptions associated with use of the PLC:
• All products and offerings have a limited life.
• All products pass through different stages of evolution.
o For each of these stages, there is an idealized marketing mix that best
Development Stage (PowerPoint 8.4)
Note that the transition between “development” and “introduction” is most
often a continuous period rather than a specific line.
During this stage:
Chapter 8: Developing the Product, Service and Value of the Offering 4
• No sales volume.
• Product is not yet completely defined−may be a collaboration with
From the viewpoint of the degree of innovation, consider a discussion
of high learning versus low-learning products, particularly where the
developer’s view does not correspond with that of the customer.
Introduction Stage (PowerPoint 8.5)
• Low sales volume.
Growth Stage (PowerPoint 8.6)
• Profits increase−new adopters accept product−pragmatists begin to
accept the offering.
Key Issues as Offering Enters Growth Stage: (PowerPoint 8.7)
Consider a discussion of product acceptance among pragmatists as
Maturity Stage (PowerPoint 8.8)
• Profits have peaked, competition fights over market share.
• Promotion reinforces buyer decisions and focuses on supplier
Chapter 8: Developing the Product, Service and Value of the Offering 5
Decline Stage (PowerPoint 8.9)
• Consolidation usually occurs among suppliers.
Learning Objective
Know the role of marketing in the development process, particularly
in a market-driven firm, as the source of direction and definition.
Traditional New Product Development Model (PowerPoint 8.10)
Reinforce that, though this model is often discussed sequentially, in reality
many of these steps are concurrent. It may be helpful to draw parallels to the
Buyer Decision Process from Chapter 3.
Stage 1: Idea Generation
Stage 2: Product Screening
Notes on Product Development
Customer/Market Orientation (PowerPoint 8.11)
Two product development approaches:
• Engineering Driven (assumes customers buy technology). Relate to
the “Product Concept” of Marketing.
Chapter 8: Developing the Product, Service and Value of the Offering 6
Stage Gates (PowerPoint 8.14)
• Checkpoints along the path of the product development process.
• Multidisciplinary review of the development effort–not individual
THE ROLE OF MARKETING IN THE PRODUCT DEVELOPMENT PROCESS
“Marketing Defines the Outcomes”
We believe that the role of marketing in the new product development
process cannot be overemphasized. Too often, a firm that does not give full
Consider using marketing’s role in the process as a way to gather the
interaction of many of the subjects discussed up to this point (PLC, TALC,
Growth-Share Matrix, Buyer Decision Process and so on).
The Role of Marketing: (PowerPoint 8.15)
• Understand the technology in depth
• Define and redefine current and future customer needs
Reducing the Risk of New Product Failures
The text cites data related to the frequency of new product failures. The
failure rate for consumer products is much higher than for business-to–
Chapter 8: Developing the Product, Service and Value of the Offering 7
Exhibit 8-3: Why Do New Products Fail? (PowerPoint 8.16)
• The Missing Marketing Plan
• No Real Need Exists
Learning Objective
Recognize the concept of the value network as a powerful tool in
creating market ownership.
Collaborators
Delivering customer value as a group of organizations, not as a single
organization.
The text discusses the idea that the early stages of the development of a
value network is collaboration with other like-minded companies to
create an integrated solution for a customer.
Value Networks as an alternative to vertical integration, albeit
temporary but very fast, leads to a discussion of what vertical
Side Note: If natural gas companies had not been myopic in
their view of the market, would they have innovated into electric
product development? Students may have difficulty grasping that
homes were once “piped” with natural gas for consumer use
(lighting, etc.) just as they are now wired for electricity. It seems
that this might have put an earlier end to the smoking habit.
Make or Buy Decisions: Exhibit 8-4 (PowerPoint 8.17)
The text discusses the pros and cons of vertical integration, and using
the Sensacon case example, goes through several steps in the
Chapter 8: Developing the Product, Service and Value of the Offering 8
21st century.
Key Terms
collaborators
decline stage
development stage
discontinuous replacement technologies
Answers to Questions for Review and Discussion
1. Review the generalized Product Life Cycle as shown in Exhibit 8-1. How well
does the PLC model work for rapidly changing technologies? Markets? Why?
The PLC model works as well in rapidly changing technologies and markets as in others, but the
2. At what point in the PLC are the following product categories?
Railroads Gasoline Commercial aircraft
Desktop computers Genetic engineering
category/product life cycle stage
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3. How can executive attachment to a technology lead to product failure?
Executive attachment to a technology can lead to product failure because it can impede
4. How does the fast pace of markets impact make or buy decisions?
The fast pace of markets impacts make or buy decisions by shortening developmental times,
5. What are the implications of outsourcing significant parts of an offering that will
have a very long maturity stage in its PLC?
The implications of outsourcing significant parts of an offering that will have a long maturity
6. What are the implications of vertically integrating to provide most/all of the
elements of value for a product category that competes in a highly competitive
technology market?
The reasons for vertically integrating to provide most/all elements of value for a category
7. What role does marketing play in the new product development process? What
are marketing’s responsibilities?
The Role of Marketing:
•
Understand the technology in depth
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8. How are the attitude and culture of the new product development team related
to the number of successful developments?
The attitude and culture of new product teams will be related to overall success rates when the
9. Is it better to invest heavily in the early stages of NPD or toward the end of the
process? Why?
It is better to invest heavily (in marketing) in the early stages of the new product development
10. If misunderstood or misapplied, what are potential pitfalls of the stage gate
method of managing NPD?
When misunderstood or misapplied, the potential pitfalls of the stage gate method of managing
11. Using Exhibit 8-3, explain how effective marketing can overcome each listed
reason for product failures.
No Marketing Plan: (~22% of product failures) The most likely scenario under which this occurs
is when, through a myopic view of the market, the product developer believes that the
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A “me too” product fails to penetrate the market: (~24% of product failures) Without a
sustainable distinctive advantage, jumping into someone else’s new market may not lead to the
same level of success as the market innovator. Market leadership/ownership is usually not an
attribute associated with followers.