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Chapter 8

Management and Organizational Studies 2320A/B Chapter 8: Chapter 8


Department
Management and Organizational Studies
Course Code
MOS 2320A/B
Professor
Ben Marcus
Chapter
8

This preview shows pages 1-2. to view the full 8 pages of the document.
DEVELOPING NEW PRODUCTS
Product - anything that is of value to a consumer and can be offered through a
marketing exchange
Product strategies are central to the creation of value for the consumer
-
WHY DO FIRMS CREATE NEW PRODUCTS?
New product doesn't mean its never existed before
Think of it on a spectrum from "new to world" to "slightly repositioned"
-
Innovation - the process by which ideas are transformed into new products and
services that will help firms grow
Changing Customer Needs
Meeting new needs
-
Keeping customers from getting bored of the company's existing product
-
Identify problems are create a product consumers didn't even know they
needed
-
Market Saturation
Longer a product exists on the market, more likely it will get saturated
-
Saturated markets offer opportunities for a company to adopt a new process or
mentality
-
General Mills creating gluten free products
-
Managing Risk Through Diversity
Enhance value
-
Better withstand external shocks like consumer changes or competitive activity
-
Fashion Cycles
For companies that rely on fashion trends and experience short product life
styles, most sales come from new products
-
Improving Business Relationships
Don't always target end consumers, might benefit relationships with suppliers
-
CapriSun changed the way they were stacked on pallets in order to sell more at
distribution points
-
Innovation and Value
Pioneers - new product introductions that establish a completely new market or
radically change the rules of the competition and consumer preferences in a market
Also called a breakthrough
-
Require a higher level of learning from customers
-
Offer many more benefits than predecessor
-
Advantage of being 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
-
Not all pioneers succeed
Imitators capitalize on weaknesses
Have to pave the way
Less sophisticated design with high prices
-
95% of products fail
Offer too few benefits compared with existing products
Too complex or require substantial learning by consumers
Bad timing
Firms overextend their brand image/abilities
-
ADOPTION OF INNOVATION
Diffusion of innovation - the process by which the use of an innovation, whether a
product or service, spread throughout a market group over time and over various
categories of adopters
Generally follows a bell curve
-
Innovators
Those buyers who want to be the first to have the new product or service
-
Enjoy taking risks, highly knowledgeable, not price sensitive
-
Keep themselves well informed on the product category
-
2.5% of the market
-
Crucial to the success of any new product or service because they help it gain
market acceptance
-
Early Adopters
Don’t take as much risk as innovators
-
Wait to purchase a product after careful research
-
Enjoy novelty
-
Opinion leaders for particular product categories
-
13.5%
-
Crucial for getting interest of the rest of the market
-
Early Majority
34%
-
Few new products can be profitable until this group buys it
-
Wait for the bugs to be worked out of a new product
-
When they enter the market, number of competitors has reached its peak
-
Late Majority
34%
-
Product has reached full market potential
-
When they reach market, sales plateau or decline
-
Laggards
16%
-
Avoid change
-
Rely on traditional products until they are no longer available
-
Very few companies pursue these consumers
-
Using the Adoption Cycle
Predict which types of customers will buy their new product
-
Develop effective marketing strategies to push acceptance with each group
-
Must understand the curve
-
Relative Advantage: If a product is perceived to be better than substitutes, the
diffusion will be relatively quick
-
Compatibility: make timely decisions with real time information
-
Observability: when products are easily observed their benefits are easily
communicated which enhances diffusion
-
Complexity and Trialability: products that are relatively less complex are
relatively easy to try and will diffuse quickly
-
HOW FIRMS DEVELOP NEW PRODUCTS
Process is iterative with a number of feedback loops at various stages
-
Team effort with people playing different roles at each stage
-
Substantially new products will likely follow the process fairly closely while
imitators have low development costs and may skip a few steps
-
Idea Generation
Internal R&D: scientists work to solve complex problems and develop new ideas
High cost, continuous investments
Expect such products to generate enough revenue to make these costs
worthwhile
Reverse innovation - turn to subsidiaries in less developed markets for
new ideas
-
Licensing: buy the use of technology or ideas from other research intensive
firms through a licensing agreement
Saves high costs
Banking on a solution that exists but has not been marketed
-
Brainstorming
-
Competitors' Products: use reverse engineering - taking apart a competitors
product, analyzing it, and created an improved product that does not infringe
on the patents
Wide spread approach
-
Customer Input: listening to the customer
Really prevalent in B2B markets
Sometimes they don't expressly demand it but we can observe their
behaviours
Monitor feedback online
Analyze innovators/lead users
-
Concept Testing
Concepts - brief written documents of a product, its technology, working principle,
forms, and what customer needs it would satisfy
Concept testing - the process in which a concept statements is presented to potential
buyers or users to obtain their reactions
Enable developer to estimate sales value and if its worth further development
-
Likely start with qualitative research and then quantitative
-
Most important question is purchase intention
-
Product Development
A process of balancing various engineering, manufacturing, marketing, and
economic considerations to develop a product
-
Prototype - the first physical form or service description of a new product, still in
rough or tentative form, that has the same properties as a new product but is
produced differently
Alpha testing - an attempt by the firm to determine whether a product will perform
according to its design and whether it satisfies the need for which it was intended
Occurs in firm's R&D department
-
Beta testing - having potential consumers examine a prototype in a real-use setting to
determine its functionality, performance, potential problems, and other issues specific
to its use
Market Testing
Premarket tests: conducted before a product or service is brought to market to
determine how many consumers will try and then continue to use it
Potential consumers are exposed to the marketing mix variables,
surveyed, and then are given a sample of the product
Find out probability of purchase and repeat purchases to generate a sales
estimate
-
Test Marketing: introduces a new product to a limited geographic area prior to a
national launch
Uses all elements of marketing mix
Estimates demand
Costs more and takes longer
Key advantage is that it studies actual consumer behaviour which is more
reliable
Many firms use "BehaviourScan" to improve probability of success during
test marketing
Can sometimes result in showing your hand to competitors
-
Product Launch
Firm is ready to launch product to entire market
-
Most crucial step
-
Requires tremendous financial resources
-
Promotion: test results help in determining communication strategies, may
need to provide more education
-
Place: need to have adequate stock and at the right locations, product offering
should be as complete as possible
-
Price: sometimes easier to offer a higher price with promotions, then over time
lower it
-
Timing: depends on product, customer needs to be ready for it
-
Evaluation of Results
Determine if it was a success/failure and what changes to the marketing mix are
needed
-
Measure based on three interrelated factors:
Satisfaction of technical requirements
Customer acceptance
Satisfaction of firm's financial requirements such as sales and profits
-
THE PRODUCT LIFE CYCLE (PLC)
See exhibit 8.7
The stages that new products move through as they enter, get established in,
and ultimately leave the marketplace and thereby offers marketers a starting
point for their strategic planning
-
Introduction stage: innovators start buying it
-
Growth stage: product gains acceptance, demand and sales increase, and
competitors emerge in the product category
-
Maturity stage: industry sales reach their peak, so firms try to rejuvenate their
products by adding new features or repositioning them
-
Decline stage: sales decline and product eventually exits the market
-
Not every product follows the same lifetime curve
-
Useful tool for managers to analyze the types of strategies that may be required
over the life of their product
-
Introduction Stage
Usually starts with a single firm
-
Initial losses because of high start up costs and low revenue
-
If successful, may see profit at the end of this stage
-
Growth Stage
Growing number of adopters, rapid growth in industry sales, increases in
number of competitors and available product versions
-
Market becomes more segmented and consumer preferences more varied
-
First attempt to reach new customers
-
Profits rise
-
Maturity Stage
Adoption of product by late majority and intense competition
-
Average price of product falls and in combination with increased marketing
costs, erodes profit
-
To extend lifetime:
Entry into new markets or market segments
Development of new products
-
See exhibit 8.8
Decline Stage
Either position themselves for a niche segment of diehard customers or
completely exit the market
-
The Shape of the Product Life Cycle Curve
In theory, assumed to be bell shaped
-
Each product has own individual shape
-
Differing and unpredictable shapes make it hard for managers to apply the life
cycle
-
See exhibit 8.9
Chapter 8
Saturday, March 3, 2018
12:06 PM

Only pages 1-2 are available for preview. Some parts have been intentionally blurred.

DEVELOPING NEW PRODUCTS
Product - anything that is of value to a consumer and can be offered through a
marketing exchange
Product strategies are central to the creation of value for the consumer
-
WHY DO FIRMS CREATE NEW PRODUCTS?
New product doesn't mean its never existed before
Think of it on a spectrum from "new to world" to "slightly repositioned"
-
Innovation - the process by which ideas are transformed into new products and
services that will help firms grow
Changing Customer Needs
Meeting new needs
-
Keeping customers from getting bored of the company's existing product
-
Identify problems are create a product consumers didn't even know they
needed
-
Market Saturation
Longer a product exists on the market, more likely it will get saturated
-
Saturated markets offer opportunities for a company to adopt a new process or
mentality
-
General Mills creating gluten free products
-
Managing Risk Through Diversity
Enhance value
-
Better withstand external shocks like consumer changes or competitive activity
-
Fashion Cycles
For companies that rely on fashion trends and experience short product life
styles, most sales come from new products
-
Improving Business Relationships
Don't always target end consumers, might benefit relationships with suppliers
-
CapriSun changed the way they were stacked on pallets in order to sell more at
distribution points
-
Innovation and Value
Pioneers - new product introductions that establish a completely new market or
radically change the rules of the competition and consumer preferences in a market
Also called a breakthrough
-
Require a higher level of learning from customers
-
Offer many more benefits than predecessor
-
Advantage of being 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
-
Not all pioneers succeed
Imitators capitalize on weaknesses
Have to pave the way
Less sophisticated design with high prices
-
95% of products fail
Offer too few benefits compared with existing products
Too complex or require substantial learning by consumers
Bad timing
Firms overextend their brand image/abilities
-
ADOPTION OF INNOVATION
Diffusion of innovation - the process by which the use of an innovation, whether a
product or service, spread throughout a market group over time and over various
categories of adopters
Generally follows a bell curve
-
Innovators
Those buyers who want to be the first to have the new product or service
-
Enjoy taking risks, highly knowledgeable, not price sensitive
-
Keep themselves well informed on the product category
-
2.5% of the market
-
Crucial to the success of any new product or service because they help it gain
market acceptance
-
Early Adopters
Don’t take as much risk as innovators
-
Wait to purchase a product after careful research
-
Enjoy novelty
-
Opinion leaders for particular product categories
-
13.5%
-
Crucial for getting interest of the rest of the market
-
Early Majority
34%
-
Few new products can be profitable until this group buys it
-
Wait for the bugs to be worked out of a new product
-
When they enter the market, number of competitors has reached its peak
-
Late Majority
34%
-
Product has reached full market potential
-
When they reach market, sales plateau or decline
-
Laggards
16%
-
Avoid change
-
Rely on traditional products until they are no longer available
-
Very few companies pursue these consumers
-
Using the Adoption Cycle
Predict which types of customers will buy their new product
-
Develop effective marketing strategies to push acceptance with each group
-
Must understand the curve
-
Relative Advantage: If a product is perceived to be better than substitutes, the
diffusion will be relatively quick
-
Compatibility: make timely decisions with real time information
-
Observability: when products are easily observed their benefits are easily
communicated which enhances diffusion
-
Complexity and Trialability: products that are relatively less complex are
relatively easy to try and will diffuse quickly
-
HOW FIRMS DEVELOP NEW PRODUCTS
Process is iterative with a number of feedback loops at various stages
-
Team effort with people playing different roles at each stage
-
Substantially new products will likely follow the process fairly closely while
imitators have low development costs and may skip a few steps
-
Idea Generation
Internal R&D: scientists work to solve complex problems and develop new ideas
High cost, continuous investments
Expect such products to generate enough revenue to make these costs
worthwhile
Reverse innovation - turn to subsidiaries in less developed markets for
new ideas
-
Licensing: buy the use of technology or ideas from other research intensive
firms through a licensing agreement
Saves high costs
Banking on a solution that exists but has not been marketed
-
Brainstorming
-
Competitors' Products: use reverse engineering - taking apart a competitors
product, analyzing it, and created an improved product that does not infringe
on the patents
Wide spread approach
-
Customer Input: listening to the customer
Really prevalent in B2B markets
Sometimes they don't expressly demand it but we can observe their
behaviours
Monitor feedback online
Analyze innovators/lead users
-
Concept Testing
Concepts - brief written documents of a product, its technology, working principle,
forms, and what customer needs it would satisfy
Concept testing - the process in which a concept statements is presented to potential
buyers or users to obtain their reactions
Enable developer to estimate sales value and if its worth further development
-
Likely start with qualitative research and then quantitative
-
Most important question is purchase intention
-
Product Development
A process of balancing various engineering, manufacturing, marketing, and
economic considerations to develop a product
-
Prototype - the first physical form or service description of a new product, still in
rough or tentative form, that has the same properties as a new product but is
produced differently
Alpha testing - an attempt by the firm to determine whether a product will perform
according to its design and whether it satisfies the need for which it was intended
Occurs in firm's R&D department
-
Beta testing - having potential consumers examine a prototype in a real-use setting to
determine its functionality, performance, potential problems, and other issues specific
to its use
Market Testing
Premarket tests: conducted before a product or service is brought to market to
determine how many consumers will try and then continue to use it
Potential consumers are exposed to the marketing mix variables,
surveyed, and then are given a sample of the product
Find out probability of purchase and repeat purchases to generate a sales
estimate
-
Test Marketing: introduces a new product to a limited geographic area prior to a
national launch
Uses all elements of marketing mix
Estimates demand
Costs more and takes longer
Key advantage is that it studies actual consumer behaviour which is more
reliable
Many firms use "BehaviourScan" to improve probability of success during
test marketing
Can sometimes result in showing your hand to competitors
-
Product Launch
Firm is ready to launch product to entire market
-
Most crucial step
-
Requires tremendous financial resources
-
Promotion: test results help in determining communication strategies, may
need to provide more education
-
Place: need to have adequate stock and at the right locations, product offering
should be as complete as possible
-
Price: sometimes easier to offer a higher price with promotions, then over time
lower it
-
Timing: depends on product, customer needs to be ready for it
-
Evaluation of Results
Determine if it was a success/failure and what changes to the marketing mix are
needed
-
Measure based on three interrelated factors:
Satisfaction of technical requirements
Customer acceptance
Satisfaction of firm's financial requirements such as sales and profits
-
THE PRODUCT LIFE CYCLE (PLC)
See exhibit 8.7
The stages that new products move through as they enter, get established in,
and ultimately leave the marketplace and thereby offers marketers a starting
point for their strategic planning
-
Introduction stage: innovators start buying it
-
Growth stage: product gains acceptance, demand and sales increase, and
competitors emerge in the product category
-
Maturity stage: industry sales reach their peak, so firms try to rejuvenate their
products by adding new features or repositioning them
-
Decline stage: sales decline and product eventually exits the market
-
Not every product follows the same lifetime curve
-
Useful tool for managers to analyze the types of strategies that may be required
over the life of their product
-
Introduction Stage
Usually starts with a single firm
-
Initial losses because of high start up costs and low revenue
-
If successful, may see profit at the end of this stage
-
Growth Stage
Growing number of adopters, rapid growth in industry sales, increases in
number of competitors and available product versions
-
Market becomes more segmented and consumer preferences more varied
-
First attempt to reach new customers
-
Profits rise
-
Maturity Stage
Adoption of product by late majority and intense competition
-
Average price of product falls and in combination with increased marketing
costs, erodes profit
-
To extend lifetime:
Entry into new markets or market segments
Development of new products
-
See exhibit 8.8
Decline Stage
Either position themselves for a niche segment of diehard customers or
completely exit the market
-
The Shape of the Product Life Cycle Curve
In theory, assumed to be bell shaped
-
Each product has own individual shape
-
Differing and unpredictable shapes make it hard for managers to apply the life
cycle
-
See exhibit 8.9
Chapter 8
Saturday, March 3, 2018 12:06 PM
You're Reading a Preview

Unlock to view full version

Only pages 1-2 are available for preview. Some parts have been intentionally blurred.

DEVELOPING NEW PRODUCTS
Product - anything that is of value to a consumer and can be offered through a
marketing exchange
Product strategies are central to the creation of value for the consumer
-
WHY DO FIRMS CREATE NEW PRODUCTS?
New product doesn't mean its never existed before
Think of it on a spectrum from "new to world" to "slightly repositioned"
-
Innovation - the process by which ideas are transformed into new products and
services that will help firms grow
Changing Customer Needs
Meeting new needs
-
Keeping customers from getting bored of the company's existing product
-
Identify problems are create a product consumers didn't even know they
needed
-
Market Saturation
Longer a product exists on the market, more likely it will get saturated
-
Saturated markets offer opportunities for a company to adopt a new process or
mentality
-
General Mills creating gluten free products
-
Managing Risk Through Diversity
Enhance value
-
Better withstand external shocks like consumer changes or competitive activity
-
Fashion Cycles
For companies that rely on fashion trends and experience short product life
styles, most sales come from new products
-
Improving Business Relationships
Don't always target end consumers, might benefit relationships with suppliers
-
CapriSun changed the way they were stacked on pallets in order to sell more at
distribution points
-
Innovation and Value
Pioneers - new product introductions that establish a completely new market or
radically change the rules of the competition and consumer preferences in a market
Also called a breakthrough
-
Require a higher level of learning from customers
-
Offer many more benefits than predecessor
-
Advantage of being 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
-
Not all pioneers succeed
Imitators capitalize on weaknesses
Have to pave the way
Less sophisticated design with high prices
-
95% of products fail
Offer too few benefits compared with existing products
Too complex or require substantial learning by consumers
Bad timing
Firms overextend their brand image/abilities
-
ADOPTION OF INNOVATION
Diffusion of innovation - the process by which the use of an innovation, whether a
product or service, spread throughout a market group over time and over various
categories of adopters
Generally follows a bell curve
-
Innovators
Those buyers who want to be the first to have the new product or service
-
Enjoy taking risks, highly knowledgeable, not price sensitive
-
Keep themselves well informed on the product category
-
2.5% of the market
-
Crucial to the success of any new product or service because they help it gain
market acceptance
-
Early Adopters
Don’t take as much risk as innovators
-
Wait to purchase a product after careful research
-
Enjoy novelty
-
Opinion leaders for particular product categories
-
13.5%
-
Crucial for getting interest of the rest of the market
-
Early Majority
34%
-
Few new products can be profitable until this group buys it
-
Wait for the bugs to be worked out of a new product
-
When they enter the market, number of competitors has reached its peak
-
Late Majority
34%
-
Product has reached full market potential
-
When they reach market, sales plateau or decline
-
Laggards
16%
-
Avoid change
-
Rely on traditional products until they are no longer available
-
Very few companies pursue these consumers
-
Using the Adoption Cycle
Predict which types of customers will buy their new product
-
Develop effective marketing strategies to push acceptance with each group
-
Must understand the curve
-
Relative Advantage: If a product is perceived to be better than substitutes, the
diffusion will be relatively quick
-
Compatibility: make timely decisions with real time information
-
Observability: when products are easily observed their benefits are easily
communicated which enhances diffusion
-
Complexity and Trialability: products that are relatively less complex are
relatively easy to try and will diffuse quickly
-
HOW FIRMS DEVELOP NEW PRODUCTS
Process is iterative with a number of feedback loops at various stages
-
Team effort with people playing different roles at each stage
-
Substantially new products will likely follow the process fairly closely while
imitators have low development costs and may skip a few steps
-
Idea Generation
Internal R&D: scientists work to solve complex problems and develop new ideas
High cost, continuous investments
Expect such products to generate enough revenue to make these costs
worthwhile
Reverse innovation - turn to subsidiaries in less developed markets for
new ideas
-
Licensing: buy the use of technology or ideas from other research intensive
firms through a licensing agreement
Saves high costs
Banking on a solution that exists but has not been marketed
-
Brainstorming
-
Competitors' Products: use reverse engineering - taking apart a competitors
product, analyzing it, and created an improved product that does not infringe
on the patents
Wide spread approach
-
Customer Input: listening to the customer
Really prevalent in B2B markets
Sometimes they don't expressly demand it but we can observe their
behaviours
Monitor feedback online
Analyze innovators/lead users
-
Concept Testing
Concepts - brief written documents of a product, its technology, working principle,
forms, and what customer needs it would satisfy
Concept testing - the process in which a concept statements is presented to potential
buyers or users to obtain their reactions
Enable developer to estimate sales value and if its worth further development
-
Likely start with qualitative research and then quantitative
-
Most important question is purchase intention
-
Product Development
A process of balancing various engineering, manufacturing, marketing, and
economic considerations to develop a product
-
Prototype - the first physical form or service description of a new product, still in
rough or tentative form, that has the same properties as a new product but is
produced differently
Alpha testing - an attempt by the firm to determine whether a product will perform
according to its design and whether it satisfies the need for which it was intended
Occurs in firm's R&D department
-
Beta testing - having potential consumers examine a prototype in a real-use setting to
determine its functionality, performance, potential problems, and other issues specific
to its use
Market Testing
Premarket tests: conducted before a product or service is brought to market to
determine how many consumers will try and then continue to use it
Potential consumers are exposed to the marketing mix variables,
surveyed, and then are given a sample of the product
Find out probability of purchase and repeat purchases to generate a sales
estimate
-
Test Marketing: introduces a new product to a limited geographic area prior to a
national launch
Uses all elements of marketing mix
Estimates demand
Costs more and takes longer
Key advantage is that it studies actual consumer behaviour which is more
reliable
Many firms use "BehaviourScan" to improve probability of success during
test marketing
Can sometimes result in showing your hand to competitors
-
Product Launch
Firm is ready to launch product to entire market
-
Most crucial step
-
Requires tremendous financial resources
-
Promotion: test results help in determining communication strategies, may
need to provide more education
-
Place: need to have adequate stock and at the right locations, product offering
should be as complete as possible
-
Price: sometimes easier to offer a higher price with promotions, then over time
lower it
-
Timing: depends on product, customer needs to be ready for it
-
Evaluation of Results
Determine if it was a success/failure and what changes to the marketing mix are
needed
-
Measure based on three interrelated factors:
Satisfaction of technical requirements
Customer acceptance
Satisfaction of firm's financial requirements such as sales and profits
-
THE PRODUCT LIFE CYCLE (PLC)
See exhibit 8.7
The stages that new products move through as they enter, get established in,
and ultimately leave the marketplace and thereby offers marketers a starting
point for their strategic planning
-
Introduction stage: innovators start buying it
-
Growth stage: product gains acceptance, demand and sales increase, and
competitors emerge in the product category
-
Maturity stage: industry sales reach their peak, so firms try to rejuvenate their
products by adding new features or repositioning them
-
Decline stage: sales decline and product eventually exits the market
-
Not every product follows the same lifetime curve
-
Useful tool for managers to analyze the types of strategies that may be required
over the life of their product
-
Introduction Stage
Usually starts with a single firm
-
Initial losses because of high start up costs and low revenue
-
If successful, may see profit at the end of this stage
-
Growth Stage
Growing number of adopters, rapid growth in industry sales, increases in
number of competitors and available product versions
-
Market becomes more segmented and consumer preferences more varied
-
First attempt to reach new customers
-
Profits rise
-
Maturity Stage
Adoption of product by late majority and intense competition
-
Average price of product falls and in combination with increased marketing
costs, erodes profit
-
To extend lifetime:
Entry into new markets or market segments
Development of new products
-
See exhibit 8.8
Decline Stage
Either position themselves for a niche segment of diehard customers or
completely exit the market
-
The Shape of the Product Life Cycle Curve
In theory, assumed to be bell shaped
-
Each product has own individual shape
-
Differing and unpredictable shapes make it hard for managers to apply the life
cycle
-
See exhibit 8.9
Chapter 8
Saturday, March 3, 2018 12:06 PM
You're Reading a Preview

Unlock to view full version