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Chapter 9

74-231 Chapter 9 notes.pdf

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University of Windsor
Alex Wellington

Chapter 9: Developing & Managing New Products 2013-02-11 8:07 AM 1) Learning Objective 1: • “New” and “free” are some of the most popular and effective words in marketing • New product: a product new to the world, the market, the producer, the seller, or some combination of these • New product advantages: o Being first on the market has numerous advantages o Increased sales through longer sales life o Increased margins o Increased product loyalty o More resale opportunities o Greater market responsiveness o A sustained leadership position • Categories of new products: o New-to-the-world o New product lines o Product line additions o Improvements or revisions o Repositioned products o Lower priced products • Tide is one of the most revolutionized product – its formula is changed roughly every 6 months 2) Learning Objective 2: • It’s about trying to reduce failure! You don’t want a new product to fail of course • In the process, there are the new product success factors o Long term commitment o Company specific approach o Capitalize on experience o Establish an environment § You have to accept failure because its common, but at the same time, you can’t laugh it off! • New-product development process: o New-product strategy § What are we trying to come up with? What’s our focus? o Idea generation § Sources of new product ideas: customers, employees, distributors, vendors, competitors, r&d, consultants § Ex: www.mystarbucksidea.com o Idea screening § Comes after brainstorming § The first filter in the product development process, which eliminates ideas that are inconsistent with the organization’s new product strategy or are inappropriate for some other reason o Business analysis § Considerations in this stage: demand, cost, sales, profitability § We’re not sure how much demand there will be § A new product is usually not fulfilling a need that hasn’t been filled before. Those older products were maybe just not perfect. § Look at how dominant/important the need is and estimate how much the demand will be § Regardless, you won’t know for sure how much the demand will be, nor the cost (until you try to make it) § Lower price = more demand. But price signals quality! § Sales – you don’t know how much you’ll make without demand § Profitability – you don’t know profits without knowing sales o Development § Creation of prototype ú Auto show prototypes § Marketing strategy § Packaging, branding, labeling ú Ex: food packaging companies ú Most food companies give you trade offs – lowering salt means more sugar, etc § Preliminary promotion, price and distribution strategy ú Look at what the marketing strategy will be for the prototype ú Can we actually make these things? o Manufacturing feasibility § Ex: Chevrolet Volt – they weren’t able to make the car for a profitable price. No one is going to pay 30 000$ for it so they changed the car to reach a better price range § Ex: Texas Instruments – they needed 120$ to produce a calculator, but this number was only true for the first hundred thousand ones produced. They sold these calculators at 65$ and hit their targets of producing many more at a lower cost. They were able to lower their cost of production to 40$. This is an example of a learning curve. o Test marketing § The limited introduction of a product and a marketing program to determine the reactions of potential customers in a market situation § Last chance to make adjustments and changes. Were trying to reduce the risk of failure. Test marketing is the final step to check something out, see if the market responds or if we misunderstood it entirely. § Allows you to make adjustments in product, packaging, size and price § Disadvatnage: the competitors can now see it, so if its easily copied, they’ll have a chance to react to your product § Alternatives to test marketing: ú Avoids competitors ú Single source research using supermarket scanner data: sees if people will buy in certain markets ú Simulated (laboratory) market testing: invite typical consumers that are part of a research panel and that have sworn secrecy, bring them into an artificial store (hence its expensive) and see how they react to the product ú Online test marketing: you have a recruited panel of individuals (potential customers that sign confidentiality agreements) that try your product o Commercialization: § Very expensive process and takes the longest time (see graph) § Production: producing much larger quantities § Inventory buildup: want to have enough inventory. Can be a disaster without it (customers will get upset as to where the product is!). Its very expensive to put a product on every shelf. § Distribution shipments § Sales training: need to train salespeople about your products § Trade announcements § Customer advertising o New product • Brainstorming: the process of getting a group to think of unlimited ways to vary a product of solve a problem • Concept test: a test to evaluate a new-product idea, usually before any prototype has been created • Simultaneous product development: o A team-oriented approach to new product development o You can get products out faster when working together in groups, with suppliers and such 3) Learning Objective 3: Explain why some products succeed and others fail • Some examples of failed products: pet antacids, MC Hammer toothpaste, toaster egg, toaster chicken, aerosol ketchup • Why new products fail o No discernible benefits: not better than anything that’s out there already, so why would you switch? o Poor match between features and customer desires: bad match between what customers want and the product o Overestimation of market size: probably the biggest cause – estimate millions will buy, but only hundreds will buy for example. We think the need is greater than it really is. o Incorrect positioning: snack foods for dogs, sounds strange as there are already treats. Another example is pet clothing o Price too high or too low: price conveys an image related to quality o Inadequate distribution: real problem – distributors want products that they know are gonna sell, they’re not interested in carrying products for which there’s no established demand for. Distributors don’t want to give up valuable shelf space for something that isn’t proven to sell o Poor promotion: there’s a threshold level that people need to experience before they’re aware of a product. This comes up to 3-4 messages. How expensive can it be to expose every person in Canada to 3-4 ads? Very, and some companies don’t have the ability to do this o Inferior product: it’s inferior to what’s already out there. Its just plain bad! • Success factors – factors in successful new products o What stops us from being successful and what helps us? o Match between product and market needs – ex: Apple iPod, a great example that met the demand of people as a replacement for cassettes, CDs and old MP3 players that didn’t offer enough options o Different from substitute products o Benefit to large number of people – Many people needed/wanted an iPod o Other factors: § listening to customers – even when they’re complaining! You could be very successful if you listen before your competitors do § producing the best product – don’t make it cheap, make it good quality and trustworthy § vision of future market – think long-term and develop products for it. Ex: Toyota that developed Hybrid technol
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