Chp 8: Developing New Producs Flashcards
define product
anything that is of value to a consumer and can be offered through a marketing exchange
what are products
Products may be places, ideas, organizations, people, communities
how to think of degree of newness
on the continuum from new to the world to slightly repositioned
define innovation
process by which ideas are transformed into new products + services that will help firms grow
what happens without innovation
firms can only continue to market current products to current customers or take same product to another market with similar customers
5 reasons firms create new products
1) changing consumer needs
2) market saturation
3) managing risk through diversity
4) fashion cycles
5) improving business relationships
explain reason 1 why firm creates new products: changing consumer needs
1) When firms add new products, they create and deliver value more effectively by satisfying changing needs of current and new customers or by keeping customers from getting bored with current product or service offering
2) Companies can identify problems and develop products customers never knew they needed
3) Or firms can take a well known offering and innovate it to make it more interesting
explain reason why firm creates new products: market saturation
1) Without new products, value of firm will decline. Firms sustain growth by getting consumers excited by new looks/features
2) Saturated markets also offer opportunities for firms willing to adopt new process or mentality (gluten free foods)
explain reason why firm creates new products: managing risk through diversity
1) Broader portfolio of products diversifies risk and enhances firm value
2) If some products doing poorly, others may do well
3) With multiple products, firms can withstand external shocks including changing consumer preferences or competitive activity better
explain reason why firm creates new products: fashion cycles
In industries that rely on fashion trends and rely on short product life cycles, most sales come from new products (books, video games)
explain reason why firm creates new products: improving business relationships
1) Sometimes new products do not target end consumer but function to improve relationship with suppliers
2) Ex. allowing retail stockers to reach whichever flavour was needed easily
define diffusion of innovation
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
what does diffusion of innovation help
Helps marketers understand rate at which consumers are likely to adopt a new product/service and can help identify potential markets for new product and predict potential sales
define 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 (like Apple Ipod, created new industry and changed way people listened to music)
what do pioneers have advantage of
Have advantage of being first movers
define 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
market share of market pioneers
Market pioneers can command a greater market share over longer time period than later entrants
uphill battle of market pioneers
These products face uphill task of establishing market alone, pave way for followers (who can spend less marketing effort creating demand for product category and instead focus on specific brand), less sophisticated design, priced higher (can leave room for better and lower-priced competitive products)
define disruptive innovations
new product introductions that are simpler, less sophisticated and usually less expensive than existing products/services (like netflix disrupted movie rental industry)
main reason of failure of new products
1) failure to assess market property by neglecting to do appropriate product testing, targeting wrong segment, poor positioning
2) Many offer consumers too few benefits, too complex, require substantial learning + effort, bad timing (product introduced at time consumer wasn’t ready for them), venturing into products inconsistent with brand image or value proposition)
explain consumer adoption cycle
Number of users of an innovative product spreads through population over time and generally follows bell shaped curve
5 categories of CAC & %
Innovators - 2.5% Early adopters - 13.5% Early majority - 34% Late majority - 34% Laggards - 16%
define innovators
those buyers who want to be the first to have the new product/service
3 points to innovators
1) Enjoy taking risks, are highly knowledgeable (may subscribe to trade magazines, talk to experts, search internet, attend product related forums), not price sensitive
2) Firms that invest in latest tech, either in product or to make firm more efficient, are also considered innovators
3) Crucial - help product gain market acceptance through talking and spreading positive word of mouth and bring in early adopters
define early adopters
second group of consumers to use a product or service innovation. Generally don’t like to take as much risk as innovators
3 points to early adopters
1) Wait and purchase product after careful review, enjoy novelty, regarded as opinion leaders for particular product categories so spreads word
2) If early adopter group is small, # of people who ultimately adopt innovation will likely also be small
3) Crucial - bring in other 3 buyer categories to market
define early majority
members don’t like to take much risk and wait until bugs are worked out
2 points to early majority
1) Crucial - few new products/services can be profitable until this large group buys them
2) When they enter the market, # of competitors in marketplace usually also reached its peak, so buyers have many different price + quality choices
define late majority
last group of buyers to enter new product market
3 points to late majority
1) When they enter, product has achieved full market potential
2) Use product long after other consumers interested have used it
3) Sales tend to level off or may be in decline when they enter
define laggards
consumers who like to avoid change and rely on traditional products until they are no longer available
1 point to laggard
In some cases, may never adopt product/service
explain using CAC
Firms can predict which types of consumers will buy their product immediately after intro and later - firms can develop effective promotion, pricing, other marketing strategies to push acceptance within each customer group
4 factors affecting product diffusion speed
1) compatability
2) observability
3) complexity + trailability
4) relative advatage
factor affecting product diffusion speed: 2 points to compatability
1) Process may be quick or slow depending on various consumer features, including international cultural differences
2) Example: in canada we drink coffee, in japan they drink tea
factor affecting product diffusion speed: 2 points to observability
1) When products are easily observed, their benefits/uses are easily communicated to others, which increases diffusion process
2) Product may diffuse slowly if people feel uncomfortable talking about what they perceive to be involved in their personal care
factor affecting product diffusion speed: 2 points to complexity + trialability
1) Products less complex are easy to try, will diffuse more quickly
2) In response: firms may offer trial period for complex products like vacuum that it isn’t so easy to pick up and try at home
factor affecting product diffusion speed: 1 point to relative advantage
If product perceived to be better than substitutes, diffusion will be quick
product development process function
not linear, it consist of number of feedback loops
roles that are involved in product development process
Marketing, design, engineering, manufacturing, procurement, finance
how does marketing play role in product development process
communicating customer needs/wants, marketplace preferences and attitudes to R&D and engineering group
how product development process varies for products
New products will follow process fairly closely, products imitating successful ones from competitors, having low development cost or involving incremental changes may skip 1+ steps
