BU352 Chapter Notes - Chapter 8: Product Design, Observability, Brainstorming

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29 Nov 2012
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Chapter 8: Developing New Products
Our lives are defined by the new P/S developed through scientific and technological advances
How do firms add value to their P/S through innovation and
How does a firm change its marketing mix as a product moves through the life cycle
WHY DO FIRMS CREATE NEW PRODUCTS?
New market offerings provide value to both firms and customers
Useful to think of the degree of newness of a product on a continuum from “new-to-the-world” to “slightly
repositioned”
Innovation is the process by which ideas are transformed into new products and services that will help firms grow
Long-term reasons compel firms to introduce new P/S (innovation doesn’t always work in the short-run)
Changing Customer Needs
By adding new products to their offerings, the firm can deliver more value by changing the needs of their current
and new customers or by keeping customers from getting tired of their current offering
Companies can identify problems and develop products that customers never knew they needed
Companies can also take well known offering and innovate to make it more interesting
Market Saturation
The longer the product is in the market, the more likely that the market becomes saturated
The value of a firm will decline without new products or services
Change lets firms sustain their growth by getting consumers excited
Managing Risk through Diversity
Portfolio of products diversifies risk and enhances firm value better than a single product can
Firms with multiple products are better able to withstand external shocks
Fashion Cycles
Some industries rely on fashion trends and experience short product life cycles, as a result most sales come from
new products
E.g. apparel, arts, books, and software
Innovation and Value
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 (e.g. eBay, BlackBerry, Micorsoft’s operating
system, Windows)
o Have the advantage of being first movers = first to create market or product category, making them
readily recognizable to consumers and thus establishing a commanding and early market share lead
o Not all pioneers succeed; imitators capitalize on the weaknesses of the pioneer and gain advantage in the
market place
o They’re often less sophisticated and may be priced relatively higher, leaving room for better and less
expensive competitive products
Majority of new products are failures
o Offer consumers too few benefits compared to existing products
o Too complex or require substantial learning and effort before consumers can use them
o Bad timing they are introduced at a time when consumers are not ready for such a product or service
ADOPTION OF INNOVATION
Diffusion of innovation: process by which the use of an innovation, whether a P or S, spreads throughout a
market group over time and over various categories of adopters
o This theory helps marketers understand the rate at which consumers are likely to adopt a new P/S
o Follows bell-shaped curve
Purchasers are divided into 5 groups according to how soon they buy the product after it’s been introduced
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