Management and Organizational Studies 2320A/B Study Guide - Final Guide: Lego Friends, Customer Service, Voice Of The Customer
11 Jan 2020
School
Department
Professor
MOS 2320
Marketing
Final Exam Notes
CHAPTER 8
Developing New Products
Lego Reinvents Itself
- One of the world’s top toy manufacturers
- Faced with declining profits → LEGO reinvents itself
- Social media sites with interactive play
- LEGO Friends → with more appeal to lagging girl market
Product – Anything that is of value to a customer and can be offered through a marketing exchange
- Goods, services, places, ideas, organizations, people, communities
- Innovation adds value
Why Do Firms Create New Products?
- New does not necessarily mean never before seen rather for example it can be like a new edition of LEGO that people
haven’t seen before
- Completely new to the market products represent fewer than 10% of all new product introduction each year
- New market offerings provide value to both firms and customers
- Firms MUST innovate in order to stay in business and current
- Innovation = New products and services
Innovation – The process by which ideas are transformed into new products and services that will help firms grow
- Without this firms only have 2 choices
o To continue to market products to current customer
o Take the same product to another market with similar customers
- Only 3% of new products actually succeed
Changing Customer Needs
- When adding new products firms can create and deliver value more effectively by satisfying the changing needs of their
current and new customers
- Sometimes firms take a well-known product, such as a vacuum, and make it much more interesting such as Dyson (ball
turns on the spot)
- Also, by keeping customers from getting bored with their current product offerings
Market Saturation
- The longer a product exists in the marketplace, the more likely it will be saturated
- Without new products or services, the value of the firm will ultimately decline
- Can offer opportunities for a company that is willing to adopt a new process or mentality
Managing Risk Through Diversity
- You may have products that are doing very well and others that are not doing so well
- New products allow companies to add to existing products and their portfolio
- This leads to diversification of risk
- A portfolio of products is better than having just a single product
o “Don’t put all your eggs in one basket”
- Companies put aside a % they want new customers to come from
Fashion Cycles
- Fashion industry relies on trends and experiences short product life cycles
- Fashion → Most sales come from new products
- Like movies or books, they always have to have new ones and they keep changing
- Customers want something new
- Clothing → New things come up a few times a year
- Just like a game, a customer wants to beat it and then play a new one
o Consumers want to be challenged by another game or experience the most recent version
Improving Business Relationship
- Sometimes new products function as a way to improve relationships with suppliers
- Sometimes changing and innovating things even within a store and on the shelves could improve sales
- Ex. Kraft → Capri Sun
Innovation and Value
- Pioneers – New product introductions that establish a completely new market or radically change both the rules of
competition and consumer preferences in a market (also called breakthroughs)
o Disruptive products require a higher level of learning from customers and offer many more benefits than
predecessor products
- First Movers – Product pioneers that are the first to create a market or product category, making them readily recognizable
to consumers and thus establishing a commanding and early market share lead
o Ex. Apple’s iPod eliminated the need for CD’s with iTunes
o Pioneers command a greater market share over a longer time period than later entrants can
o Imitators capitalize on the weakness of pioneers and subsequently gain advantage in the market
o Reasons why new products don’t always succeed
▪ They offer consumers too few benefits compared with existing products
▪ They are too complex or require substantial learning and effort before consumers can use them
▪ Bad Timing – They are introduced at a time when consumers are not ready for such new products or
services
Adoption of Innovation
- Diffusion of Innovation – The process by which the use of an
innovation, whether a product or service, spreads throughout
a market group over time and over various categories or
adopters
o Gives firms a means to identify potential markets for
their new products or services
o The number of users an innovative product or
service spreads through the population over time
and generally follows a bell-shaped curve
- Innovators – Those buyers who want to be the first to have the new product or service
o Highly knowledgeable and are not price sensitive
o Keep themselves well informed about the product category
o The person who stood in lines for the latest new product and get it first
- Early Adopters – The second group of consumers in the diffusion of innovation model, after innovators, to use a product or
service innovation
o Don’t like to take as much risk as innovators
o Wait and purchase the product after careful review
o Regarded as opinion leaders for particular categories
o Ex. Waits for reviews of a movie before going to see it
- Early Majority – A group of consumers in the diffusion of innovation model that represents approximately 34% of the
population
o Don’t like to take as much risk and therefore tend to wait until the bugs are worked out of a particular product or
service
o They experience little risk
- Late Majority – The last group of buyers to enter a new product market
o The product has achieved its full market potential
o Ex. When it finally comes to cable television, they will watch the movie
o Sales tend to level off or may be in decline
- Laggards – Consumers who like to avoid change and rely on traditional products until they are no longer available
o May never adopt a certain product or service
o Very few companies actively pursue these consumers
Using the Adoption Cycle
- Firms can predict which types of consumers will buy their new product or service immediately after its introduction, as well
as later as the product gets more and more accepted by the market
Factors Affecting Product Diffusion
1. Relative Advantage
o If a product is perceived to be better than substitutes, then the diffusion will be relatively quick
o Ex. iPad instead of an average tablet
2. Compatibility
o To make the product more compatible with the needs of people in different cultures, it is made in various sizes
o Have to make decisions in a timely fashion and be able to communicate their decisions in a timely manner
o They need real time information to do this
o Since people are accustomed to drinking coffee it’s relatively easy for Starbucks to acquire customers in Canada
o Harder in China and Japan where tea is the national drink
3. Observability
o When products are easily observed, their benefits or users are easily communicated to others, which enhances the
diffusion process
o Ex. People seeing their friend using an iPad
o Botox is not something people would love to share with others, but it is less easily observed by others and
therefore diffused more slowly
4. Complex and Trialability
o The more complex the product the longer it takes to diffuse
o Products that are relatively less complex are also relatively easy to try/sample
o Ex. Those that want an iPad know that they can go to the store and see it but the Kindle is more difficult because
there aren’t any Amazon retail stores
o May not be aware that they can buy them at staples
How Firms Develop New Products
Idea Generation
- To generate new ideas, you use and collaborate with a lot of other firms and institutions and such
- Sometimes ideas can come from employees, customers, suppliers, trade shows, and such
- Internal Research and Development (R&D)
o Many firms have their own research and development departments
o High product development costs
o Often the source of technological products
o Often the source of breakthrough products
o Firms expect such products to generate enough revenue and profits to cover the costs
o Considered continuous investments
- Licensing
o Firms buy the rights to use the technology or ideas from other research-intensive firms through a licensing
agreement
o University research centres also often provide such licenses
o Saves the costs of in-house R&D
o Licensing offers and ideal solution to companies seeking to get their decisions to market faster
- Brainstorming
o Groups work together to generate ideas
o No idea can be immediately accepted or rejected
o Only at the end of the session do the members vote on the best ideas or combinations of ideas
o The ideas that receive the most votes are carried forward to the next stage of the product development process
- Outsourcing
o When companies have trouble moving through these steps alone, which prompts them to turn to outside firms
- Competitor’s Products
o New product entry by a competitor may trigger a market opportunity for a firm
