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Lecture 9

ADM2320 Lecture 9: Untitled9

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Gurprit Kindra

WHY DO FIRMS CREATE NEW PRODUCTS? a. Changing Customer Needs —> Adding new products allows firms to create & deliver value by satisfying changing needs of current and new customers —> Sometimes firms take a well-known product, such as a vacuum, and make it much more interesting (e.g., Dyson) b. Fashion Cycles —> Fashion industry: relies on trends, experiences short product life cycles —> Most sales come from new products c. Market Saturation —> The longer a product exists in the marketplace, the more likely the market will become saturated (Saturated markets also offer opportunities) —> Without new products or services, the value of the firm declines d. Managing Risk through Diversity —> Innovation allows firms to create a broader portfolio of products (This leads to diversification of risk, A portfolio of products is better than having just a single product, “don’t put all your eggs in one basket”) Innovation and value i. Pioneers —> New-to-the-world products that create new markets —> Breakthrough, Disruptive ii. First Movers —> Pioneers that are first to create a market or product category 
 New-Product Development: Reasons for New Product Failure——> 
 Using the Diffusion of Innovation Theory: Factors Affecting Product Diffusion a. Compatibility —> Were cell phones compatible with how we communicated before they were invented, what were we using? b. Observability —> Did you see people enjoying the benefits from a cellular phone or mp3 player before you bought on? c. Relative Advantage = A product's degree of superiority and attractiveness to customers over similar existing products —> (CD player vs mp3 player) d. Complexity and Trialability —> Was it difficult to learn how to load music onto your MP3 player? Was it difficult to use? —> Were you able to try a mp3 player or cellular phone before buying it? Internal & External How firms develop new products Sources 1. Idea generation inputmer Internal R&D i. Internal sources refer to the company’s own formal research and New Ideas development (R&D), management and staff, and entrepreneurial programs Competitors' ii. External sources refer to sources outside the company such as customers, product Licensing competitors, distributors, suppliers, and outside design firms Brainstorming 2. Concept testing —> Concept testing = testing new-product concepts with groups of target consumers —> Concept is a brief written description of the product —> Customers’ reactions determine whether or not it goes forward —> Triggers the marketing research process 3. Product development —> Product
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