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Chapter 8

Chapter 8 BU352.docx

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Wilfrid Laurier University
Dave Ashberry

BU352 Chapter 8 – Developing New Products Week 6 Why do Firms Create New Products -Product- anything that is of value to a consumer an can be offered through a marketing exchange -New market offerings provide value to both firms and customers -Completely new-to-the-market products represent fewer than 10 percent of all new product introductions each year -Innovation – the process by which ideas are transformed into new products and services that will help firms grow -Without innovation and its resulting new products and services, firms would have only two choices: continue to market current products to current customers or take the same product to another market with similar customers Changing Customer Needs -When they add new products to their offerings, firms can create and deliver value more effectively by satisfying the changing needs to their current and new customers or simply by keeping customers from getting bored with the current product or service offering Market Saturation -The longer a product exists in the marketplace, the more likely it is that the market will become saturated -Without new products or services, the value of the firm will ultimately decline Managing Risk through Diversity -Through innovation, firms often create a broader portfolio of products, which helps them diversify their risk and enhance firm value better than a single product can Fashion Cycles -In industries that rely on fashion trends and experience short product life cycles – including apparel, arts, books, and software – most sales come from new products Innovation and Value -New product introductions, especially new-to-the-world products that create new markets can add tremendous values to firms -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 -Disruptive products require a higher level of learning from consumers and offer much 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 -Not all new products succeed in the marketplace -Even if they succeed, new-to-the-world products are not adopted by everyone at the same time Adoption of Innovation -Diffusion of innovation – the process by which the use of an innovation, whether a product or a service, spreads throughout a market group over time and over various categories of adopters -Purchasers can be divided into five groups according to how soon they buy the product after it has been introduced Innovators -Innovators – those buyers who want to be the first to have the new product or service -These buyers enjoy taking risks, are regarded as highly knowledgeable, and are not price sensitive BU352 Chapter 8 – Developing New Products Week 6 -Typically, innovators keep themselves very well informed about the product category by subscribing to trade and specialty magazines -2.5% of total buyers in market Early Adopters -Early adopters- the second group of consumers in the diffusion of innovation model, after innovators, to use a product or service innovation; generally don’t like to take as much risk as innovators -13.5% of buyers in market – act as opinion leaders Early Majority -Early majority – a group of consumers in the diffusion of innovation model that represents approximately 34% of the population; members don’t like to take much risk and therefore tend to wait until bugs are worked out -Few new products and services can be profitable until this large group buys them Late Majority -Late majority – the last group of buyers to enter a new product market -34% Laggards -Laggards – consumers who like to avoid change and rely on traditional products until they are no longer available -Laggards may never adopt a new product or service Using the Adoption Cycle -Using the adoption cycle, firms can predict which types of customers will buy their new product or service immediately after its introduction Relative Advantage -If a product is perceived to be better than substitutes, then the diffusion will be relatively quick Compatibility -Most business professionals and execs have to make decisions in a timely fashion and be able to communicate their decisions in a timely manner also; they need real time information to do this Observability -When products are easily observed their benefits or uses are easily communicated to others, thus enhancing the diffusion process Complexity and Trialability -Products that are relatively less complex are also relatively easy to try -These products will generally diffuse more quickly than those that are not -The diffusion of innovation theory thus comes into play in the immediate and long-term aftermath of a new product or service introduction How Firms Develop New Products -Begins with the generation of new product ideas and culminates in the launch of the new product and the evaluation of its success -The process is generally a team effort with the new product team composed of members from various functions: marketing, design, engineering, manufacturing, procurement, and finance BU352 Chapter 8 – Developing New Products Week 6 Idea Generation Internal Research and Development -Many firms have their own R&D departments, in which scientists work to solve complex problems and develop new ideas Licensing -For many new scientific and technological products, firms buy the rights to use the technology or ideas from research-intensive firms through a licensing agreement -This approach saves the high cost of in house R&D Brainstorming -Firms often engage in brainstorming sessions during which a group works together to generate ideas -Ideas can be immediately accepted or rejected Competitors’ Products -A new product entry by a competitor may trigger a market opportunity for a firm, which can us reverse engineering to understand the competitor’s product and then bring an improv
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