Chapter 9 – Developing New Products and Services
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CHAPTER CONTENTS
PAGE
POWERPOINT RESOURCES TO USE WITH LECTURES ……………………………………. 9-2
LEARNING OBJECTIVES (LO) …………………………………………………………………………….. 9-3
KEY TERMS …………………………………………………………………………………………………………… 9-3
LECTURE NOTES
• Chapter Opener: Apple: The World-Class New-Product Machine ………………………… 9-4
APPLYING MARKETING KNOWLEDGE ……………………………………………………………. 9-31
BUILDING YOUR MARKETING PLAN ……………………………………………………………….. 9-33
VIDEO CASE (VC)
• VC-9: GoPro: Making All of Us Heroes with Exciting New Products ………………….. 9-34
IN-CLASS ACTIVITIES (ICA)
• ICA 9-1: Focus Group for a Smartwatch …………………………………………………………… 9-38
• ICA 9-2: What Were They Thinking? Analyzing New Product Disasters ……………… 9-42
• ICA 9-3: Using Method 6-3-5 to Find New-Product Ideas for Magnetic Poetry …….. 9-48
CONNECT EXERCISES ……………………………………………………….………….9-54
• New-Product Development Process Click and Drag*
• Classifying Consumer Products Click and Drag*
9-2
Chapter 9 – Developing New Products and Services
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POWERPOINT RESOURCES TO USE WITH LECTURES
PowerPoint
Textbook Figures Slide
Figure 9-1 How a consumer product is classified affects which products consumers buy and
the marketing strategies used …………………………………………………………………………… 9-7
Figure 9-2 Services can be classified as equipment-based or people-based ……………………………. 9-9
Applying Marketing Metrics
Which States are Underperforming?: Annual Percentage Change in Unit Volume by State
[See UMD10AnnualPercentChgUnitSales.xls] ……………………………………………………………………… 9-25
Marketing Matters, Making Responsible Decisions, and/or Marketing Insights
Marketing Matters—Customer Value: Feature Bloat and Fatigue in New Products ……………………. 9-17
Marketing Matters—Technology: Was the Google Glass Half Full or Half Empty? ………………….. 9-32
Videos
9-1: Crapola Video …………………………………………………………………………………………………………….. 9-15
9-3: P&G’s Tide Pods Ad ………………………………………………………………………………………………….. 9-28
In-Class Activities (ICA)
ICA 9-1: Focus Group for a Smartwatch ……………………………………………………………………………… 9-43
Chapter 9 – Developing New Products and Services
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LEARNING OBJECTIVES (LO)
After reading this chapter students should be able to:
LO 9-1: Recognize the various terms that pertain to products and services.
LO 9-3: Describe four unique elements of service.
LO 9-5: Describe the factors contributing to the success or failure of a new product or service.
KEY TERMS
business analysis
open innovation
business products
product
commercialization
product item
consumer products
product line
development
product mix
four I’s of services
protocol
idea generation
screening and evaluation
market testing
services
new-product development process
new-product strategy development
Chapter 9 – 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).
g. Apple Watch – smartwatch that is a market share leader in wearable
technology (2015).
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.
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d. “Hockey Puck” mouse (1998) – first Apple mouse to use a USB connection
but the round shape made it difficult to hold and use.
C. The Next Chapter in Apple’s Story: An Apple-enabled iCar?
• What major innovation is next for Apple? An Apple Car in 2020?
I. WHAT ARE PRODUCTS AND SERVICES? [LO 9-1; LO 9-2]
• The essence of marketing is to develop offerings that meet consumer needs.
• A product:
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:
b. Goods can be divided into nondurable goods and durable goods.
• A nondurable good:
• A durable good:
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• Services:
a. Are intangible activities or benefits that an organization provides to satisfy
consumers’ needs.
• 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.
B. Classifying Products [LO 9-2]
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.
• 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
1. Consumer Products.
a. Consumer products differ in terms of:
• The effort the consumer spends on the decision.
b. [Figure 9-1] There are four types of consumer products:
• Convenience products are items that the consumer purchases frequently,
conveniently, and with a minimum of shopping effort.
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• Shopping products are items for which the consumer compares several
alternatives on criteria such as price, quality, or style.
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:
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
b. Business products may be classified as components or support products.
• Components. Items that become part of the final product, which include:
• 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:
C. Classifying Services
• Services can be classified according to whether they are delivered by:
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• Services can also be classified in three major ways:
1. Delivery by People or Equipment. [Figure 9-2]
a. People-based services.
• Professional services include those offered by management consulting
b. Equipment-based services:
c. A growing number of customers use self-service technologies.
2. Delivery by Business Firms or Nonprofit Organizations
a. Privately owned companies must make a profit. Nonprofits seek to satisfy
3. Delivery by Government Agencies
a. Federal, state, and local government agencies provide a broad range of
services.
II. THE UNIQUENESS OF SERVICES [LO 9-3]
• Services are intangible activities or benefits that an organization provides to satisfy
consumers’ needs in exchange for money or something else of value. Four unique
elements distinguish services from goods: intangibility, inconsistency, inseparability,
and inventory.
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A. The Four I’s of Services
The four I’s of services consist of the four unique elements to services: intangibility,
inconsistency, inseparability, and inventory.
1. Intangibility.
a. Services are intangible—They cannot be held, touched, or seen before the
purchase decision.
2. Inconsistency.
a. Because services depend on the people who provide them, their quality varies
with each person’s capabilities and day–to-day job performance.
b. Inconsistency is more of a problem with services than with tangible products.
3. Inseparability.
4. Inventory.
a. Inventory of services is different from that of products.
c. Idle production capacity occurs when the service provider is available but
there is no demand for the service.
d. With services, inventory carrying costs are more subjective.
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B. Assessing and Improving Service Quality
• Gap analysis is a type of analysis that compares the differences between the
consumer’s expectations about and experiences with a service based on
dimensions of service quality.
• Example: Airline customers evaluate reliability (is flight on time?), tangibility (is
the plane clean?), and responsiveness (are flight attendants willing to answer my
questions?)
• The relative importance of the various dimensions of service quality varies by the
type of service.
• Customers who experience a “service failure:”
• Even services in which consumers are observers (such as music, art museums,
etc.) can use marketing research to improve the service quality.
• For services, developing customer service delivery expectations is critical.
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.
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• A product item is a specific product that has a unique brand, size, or price.
• 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 9-1: Crapola Video]
d. Example: Crapola Granola.
• Name stands for CRanberries and APples granOLA.
• Its package promises that Crapola “Makes Even Weird People Regular.”
e. A broad product line enables both consumers and retailers to simplify their
buying decisions.
• A product mix consists of all the product lines offered by an organization.
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LEARNING REVIEW
9-1. What are the four main types of consumer products?
Answer: They are: (1) convenience products—items that the consumer purchases
9-1. What are the four I’s of services?
Answer: The four I’s of services are: (1) intangibility, which means that they can’t be
held, touched, or seen; (2) inconsistency, which means that their quality varies with
9-3. What is the difference between a product line and a product mix?
III. NEW PRODUCTS AND WHY THEY SUCCEED OR FAIL [LO 9-3]
New products are the firm’s lifeblood and keep it growing, but the financial risks are big.
A. What Is a New Product?
1. Newness Compared with Existing Products.
a. New can refer to a product being functionally different than existing products.
[ICA 9-1: Focus Group for a Smartwatch]
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d. However, firms run the risk of “feature bloat” that can overwhelm consumers.
MARKETING MATTERS
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
• Feature Fatigue.
a. Feature fatigue occurs because consumers give more weight to capability, and less
2. Newness from the Consumer’s Perspective.
[Figure 9-3] 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.
b. Dynamically continuous innovation.
• Only minor changes in consumer behavior are required.
c. Discontinuous innovation.
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• Consumers must learn entirely new consumption patterns.
• Marketing strategies involve:
• 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
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.
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.
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• Research suggests that it takes about 3,000 raw unwritten ideas to produce a
single commercially successful new product.
1. Marketing Reasons for New-Product Failures. [LO 9-5]
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
• Incomplete market/product protocol before product development starts.
– A market-product protocol clearly defines how an offering would
• Not satisfying consumer needs on critical factors.
– This factor stresses that problems on a few critical factors can kill the
• Bad timing.
– The product is introduced too soon or too late.
• No economical access to buyers.
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• Poor execution of the marketing mix—brand name, package, price,
promotion, and distribution.
• Too little market attractiveness.
– New-product managers look for large and growing target markets with
• Poor product quality.
– This factor often results when a product is not thoroughly tested.
– The costs for poor quality can be staggering and include:
b. Simple marketing research should have revealed these problems.
c. Developing successful new products sometimes involve luck, but often it:
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:
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b. Avoiding the “NIH problem.”
• A great idea is a great idea, regardless of its source.
c. Many of these organizational problems cause the eight marketing reasons for
new-product failure listed above.
[ICA 9-2: 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
LEARNING REVIEW
9-4. What kind of innovation would an improved electric toothbrush be?
9-5. Why can an “insignificant point of difference” lead to new-product failure?
Answer: The product must have superior characteristics that deliver unique benefits to
9-6. What marketing metric might you use in a marketing dashboard to discover
which states have weak sales?
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USING MARKETING DASHBOARDS
Which States are Underperforming?
Annual Percentage Change in Unit Volume by State
Marketers ask the question, “How well is my business growing?”
Your Challenge.
[See UMD10AnnualPercentChgUnitSales.xls]
In your marketing dashboard, there is a map of the U.S. by state that depicts three
different growth rates:
• Green: Unit sales growth > 10% (good).
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:
IV. THE NEW-PRODUCT PROCESS [LO 9-6]
• To efficiently develop new products, companies use a specific sequence of steps to
make their products ready for market.
• [Figure 9-4] The new-product development process consists of seven stages an
organization goes through to:
a. Identify opportunities.
• Many firms use a formal Stage-Gate® process:
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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 outcome of the SWOT analysis and environmental scanning:
• 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.
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 9-3: Using Method 6-3-5 to Find New-Product Ideas
for Magnetic Poetry]