Chapter 10 – Developing New Products
Innovation and Value – Innovation is the process through which ideas are transformed into new
products and services that will help firms grow. May not work int he short-run , however overriding log-
term reasons compel firms to introduce new products...
As they add new product offerings, firms can create and deliver value more effectively by
satisfying the changing needs of current and new markets
The longer a product exists in the marketplace, the more likely it is that the market will become
The portfolios of products that innovation can help create helps the firm diversify its risk and
therefore enhances the firm’s value better than a single product.
In industries such as arts and software, the majority of sales comes from new products
New products to not imply new to world products, Less than 10% of all new products released
each year are new-to-marketplace goods
o Pioneers (Breakthroughs)– New product introductions that establish a completely new
market or radically change both the rules of competition and consumer preferences in
a market. Generally require higher level of learning from consumers and offer much
more benefits then predecessor products.
o First Movers – Product pioneers that are the first to create a market or product
category, making them readily recognizable to consumers and thus establishing an
early and commanding market share lead.
Because pioneering products use their resources to establish the market alone, they pave the way for
followers who spend less money on creating demand for the product category and more money on
creating demand for their specific product. As many as 95% of all consumer goods fail and product
across all industries suffer failure rates of 50-80%
This is because...
1. They offer consumers too few benefits compared to existing products
2. They are to complex and require too much effort and substantial learning before consumers can
3. Bad timing, they are introduced at a time when consumers are not ready for such new products
Adoption of Innovation – The adoption or diffusion of innovation is the process by which the use
of an innovation, whether a product or service, spreads throughout a market or group over time and
over various categories of adopters. The theory helps marketers understand the rate at which
consumers are likely to adopt as well as giving them means to identify potential markets, and predict
sales before they introduce innovations as well as design marketing campaign to push adoption through
each consumer category. Categories of consumer adoption are...
Innovators(2.5%) – Those buyers who want to be the first to have the new product or service.
These buyers enjoy taking risks, and are regarded as highly knowledgeable, and are not price
Early Adopters (13.5%)- Second to adopt after innovators. They generally don’t take as much
risk but instead wait and purchase the product after careful review. Tend to enjoy novelty and
are regarded as opinion leaders for particular product categories. Early Majority (34%) – Crucial because of it’s size, few new products will succeed without
adoption by this group. Do not take on much risk and tend to wait until all initial “bugs” have
been worked out
Late Majority (34%) – The last group of buyers to enter a new product market. When they do so
the product has achieved full market potential.
Laggards (16%) – tend to avoid change and rely on traditional products until they are no longer
available, laggards may never adopt a product or service.
The speed at which products are adopted depends on several product characteristics
Relative Advantage – If a product is perceived to be better than substitutes, then the diffusion will be
Compatibility – If a product is consistent with peoples past behaviour, their needs and what they value
then the diffusion should happen relatively quickly.
Observability – When products can be easily observed in use, their benefits or applications are easily
communicated to other potential consumers thus enhancing the diffusion process.
Complexity and Trialability – Products that are relatively less complex are also relatively easy to try.
These products will generally diffuse more quickly than products that are complex and that cannot be
The Product Development Process – The new product development process begins with the
generation of new products ideas and culminates in the launch of the new product and the evaluations
of its success. Generally process is a team effort with the team comprised of representatives from the
firms various functions (marketing, R&D, Finance etc.).
Idea Concept Product Market Product Evaluation
Generation testing Development Testing Launch of Results
Idea Generation – To generate ideas for new products or services firms can use their own R&D
departments efforts, licensing technology from research firms, brainstorming etc.
Internal R&D – Many firms have their own R&D departments in which scientists work to solve
complex problems and develop new ideas. IBM in computer industry, Rubbermaid in the
consumer goods industry and 3M in industrial goods are all examples of firms that rely on
o Product development costs are extremely high
o Resulting products have good chance of becoming pioneers or breakthroughs
o Firms anticipate that blockbuster breakthroughs will generate enough revenue to make
up for all of the introductions that did not perform in the market. Licensing – for many new scientific and technological products, firms purchase the rights to use
technology or ideas from other research-intensive firms through a licensing agreement. This
approach saves costs of in house R&D, but it means that the firm is banking on a solution that
already exists but has not yet been marketed.
Brainstorming – Firms often engage in brainstorming sessions during which a group works
together to generate ideas. One key characteristic is that no idea can be immediately accepted
or rejected. Moderator may direct focus but only at the end are the best ideas accepted.
Competitors Products – New product entry by competitor may trigger opportunity for another
firm. This firm can reverse engineer to understand the competitors product and produce an
improved version to offer to consumers
o Reverse engineering – involves taking a competitor’s product, analyzing it, and creating
and improved version that does not infringe on the competitors patents.
Consumer Input- Listening to consumer is essential for successful idea generation. The firms
design and development teams work on consumer suggestions or trends to develop products
that have a significantly greater chance of being adopted by the consumer.
o Lead users- innovative product users who modify existing products according to their
own ideas to suit their specific needs.
Concept Testing – Ideas that show marketing potential are developed further into concepts. Concepts
are brief written descriptions of a product or service; it’s technology, working pri