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Chapter 11 MKT120 Product Development
This document discusses innovation and new product development. It introduces key concepts like the diffusion of innovation theory, product life cycle, and strategies for different stages. The document also outlines the new product development process from idea generation through evaluation. It describes methods like internal R&D, customer input, concept testing, and market testing that firms use to create new products and services.
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Chapter 11 MKT120 Product Development
- 1. © McGraw-Hill Companies,Inc., McGraw-Hill/Irwin
- 2. Learning Objectives LEARNING OBJECTIVES How can firms create value through innovation? What is the diffusion of innovation theory, and how can managers use it to make product line decisions? How do firms create new products and services? What is a product life cycle, and how can the concept be applied to product line decisions? © McGraw-Hill Companies, Inc., McGraw-Hill/Irwin 11-2
- 3. Innovation and Value ©McGraw-Hill Companies, Inc., McGraw-Hill/Irwin 11-3
- 4. New Product Introductions Pioneers radically change competition and consumer preferences. © McGraw-Hill Companies, Inc., McGraw-Hill/Irwin 11-4
- 5. Diffusion of Innovation ©McGraw-Hill Companies, Inc., McGraw-Hill/Irwin 11-5
- 6. Using the Diffusionof Innovation Theory © McGraw-Hill Companies, Inc., McGraw-Hill/Irwin 11-6
- 7. How Firms DevelopNew Products © McGraw-Hill Companies, Inc., McGraw-Hill/Irwin 11-7
- 8. Idea Generation © McGraw-HillCompanies, Inc., McGraw-Hill/Irwin 11-8
- 9. Internal R&D High product development costs Often the source of technological products Often the source of breakthrough products Crystal Pepsi Commercial © McGraw-Hill Companies, Inc., McGraw-Hill/Irwin 11-9
- 10. R&D Consortia Lower costs and risks; firms join together Form research consortiums Benefits spread to all firms Example, pharmaceutical industry research © McGraw-Hill Companies, Inc., McGraw-Hill/Irwin 11-10
- 11. Licensing Firms purchase the rights to technology or ideas from other research-intensive firms University research centers also often provide such licenses © McGraw-Hill Companies, Inc., McGraw-Hill/Irwin 11-11
- 12. Groups work together to generate ideas No idea can be immediately dismissed IDEO Website © McGraw-Hill Companies, Inc., McGraw-Hill/Irwin 11-12
- 13. Competitors’ Products © McGraw-HillCompanies, Inc., McGraw-Hill/Irwin Companies, Inc., McGraw-Hill/Irwin © 2007 McGraw-Hill 11-13
- 14. Customer Input As much as 85% of new business to business products come from customers Lead users modify existing products according to their own specific needs © McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Companies, Inc., McGraw-Hill/Irwin © 2007 McGraw-Hill 11-14
- 15. Concept Testing Concept is a brief written description of the product Customers reactions determine whether or not it goes forward Triggers the marketing research process © McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Companies, Inc., McGraw-Hill/Irwin © 2007 McGraw-Hill 11-15
- 16. Product Development © McGraw-HillCompanies, Inc., McGraw-Hill/Irwin Companies, Inc., McGraw-Hill/Irwin © 2007 McGraw-Hill 11-16
- 17. Market Testing Dodge Commercial © McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Companies, Inc., McGraw-Hill/Irwin © 2007 McGraw-Hill 11-17
- 18. Market Testing How dofirms know what market tests need to How do firms know what market tests need to be performed to ensure a successful product? be performed to ensure a successful product? © McGraw-Hill Companies, Inc., McGraw-Hill/Irwin 11-18
- 19. Product Launch © McGraw-HillCompanies, Inc., McGraw-Hill/Irwin Companies, Inc., McGraw-Hill/Irwin © 2007 McGraw-Hill 11-19
- 20. New Product MarketingMix © McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Companies, Inc., McGraw-Hill/Irwin © 2007 McGraw-Hill 11-20
- 21. Launching a NewProduct How do firms launch a new product innovation? How do firms launch a new product innovation? © McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Companies, Inc., McGraw-Hill/Irwin © 2007 McGraw-Hill 11-21
- 22. Evaluation of Results ©McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Companies, Inc., McGraw-Hill/Irwin © 2007 McGraw-Hill 11-22
- 23. Product Life Cycle ©McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Companies, Inc., McGraw-Hill/Irwin © 2007 McGraw-Hill 11-23
- 24. Stages in theProduct Life Cycle Exhibit 11.6 © McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Companies, Inc., McGraw-Hill/Irwin © 2007 McGraw-Hill 11-24
- 25. Strategies Based onthe Product Life Cycle: Some Caveats Theoretically they are bell shaped but in reality they can take many shapes Managers do not know exactly what the shape each product’s life cycle will take so there is no way to know precisely what stage they are in. © McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Companies, Inc., McGraw-Hill/Irwin © 2007 McGraw-Hill 11-25
- 26. Inventables Build aliving showcase of what’s possible to deliver inspiration and innovation to the dreamers of the world. Inventables Website © McGraw-Hill Companies, Inc., McGraw-Hill/Irwin 11-26
- 27. Introduction © McGraw-Hill Companies,Inc., McGraw-Hill/Irwin Companies, Inc., McGraw-Hill/Irwin © 2007 McGraw-Hill 11-27
- 28. The introduction stageof the PLC © McGraw-Hill Companies, Inc., McGraw-Hill/Irwin 11-28
- 29. Growth © McGraw-Hill Companies,Inc., McGraw-Hill/Irwin Companies, Inc., McGraw-Hill/Irwin © 2007 McGraw-Hill 11-29
- 30. The growth stageof the PLC © McGraw-Hill Companies, Inc., McGraw-Hill/Irwin 11-30
- 31. Maturity © McGraw-Hill Companies,Inc., McGraw-Hill/Irwin Companies, Inc., McGraw-Hill/Irwin © 2007 McGraw-Hill 11-31
- 32. The maturity stageof the PLC © McGraw-Hill Companies, Inc., McGraw-Hill/Irwin 11-32
- 33. Decline © McGraw-Hill Companies,Inc., McGraw-Hill/Irwin Companies, Inc., McGraw-Hill/Irwin © 2007 McGraw-Hill 11-33
- 34. A behavior inthe decline stage? © McGraw-Hill Companies, Inc., McGraw-Hill/Irwin 11-34
- 35. Check Yourself 1. What are the five groups depicted in the diffusion of innovation curve? 2. What factors enhance the diffusion of a good or service? © McGraw-Hill Companies, Inc., McGraw-Hill/Irwin 11-35
- 36. Check Yourself 1. What are the steps in the new product development process? 2. Identify different sources of new product ideas. © McGraw-Hill Companies, Inc., McGraw-Hill/Irwin 11-36
- 37. Check Yourself 1. What are the stages in the product life cycle? 2. How do sales and profits change during the various stages? © McGraw-Hill Companies, Inc., McGraw-Hill/Irwin 11-37
- 38. Glossary Alpha testing istesting where the firm attempts to determine whether the product will perform according to its design and whether it satisfies the need for which it was intended. Return to slide © McGraw-Hill Companies, Inc., McGraw-Hill/Irwin 11-38
- 39. Glossary Beta testing usespotential consumers, who examine the product prototype in a “real use” setting to determine its functionality, performance, potential problems, and other issues specific to its use. Return to slide © McGraw-Hill Companies, Inc., McGraw-Hill/Irwin 11-39
- 40. Glossary Firms with productsin the decline stage either position themselves for a niche segment of diehard consumers or those with special needs or they completely exit the market. Return to slide © McGraw-Hill Companies, Inc., McGraw-Hill/Irwin 11-40
- 41. Glossary Diffusion of innovationis the process by which the use of an innovation spreads throughout a market group, over time and over various categories of adopters. Return to slide © McGraw-Hill Companies, Inc., McGraw-Hill/Irwin 11-41
- 42. Glossary The growth stageof the product life cycle is marked by a growing number of product adopters, rapid growth in industry sales, and increases in both the number of competitors and the number of available product versions. Return to slide © McGraw-Hill Companies, Inc., McGraw-Hill/Irwin 11-42
- 43. Glossary Innovation is theprocess by which ideas are transformed into new products and services that will help firms grow. Return to slide © McGraw-Hill Companies, Inc., McGraw-Hill/Irwin 11-43
- 44. Glossary The introduction stagefor a new, innovative product or service usually starts with a single firm, and innovators are the ones to try the new offering. Return to slide © McGraw-Hill Companies, Inc., McGraw-Hill/Irwin 11-44
- 45. Glossary The maturity stageof the product life cycle is characterized by the adoption of the product by the late majority and intense competition for market share among firms. Return to slide © McGraw-Hill Companies, Inc., McGraw-Hill/Irwin 11-45
- 46. Glossary Pioneers or breakthroughsare new product introductions, especially new-to-the-world products that create new markets. Return to slide © McGraw-Hill Companies, Inc., McGraw-Hill/Irwin 11-46
- 47. Glossary Premarket tests areconducted by firms before they actually bring a product or service to market to determine how many customers will try and then continue to use the product or service according to a small group of potential consumers. Return to slide © McGraw-Hill Companies, Inc., McGraw-Hill/Irwin 11-47
- 48. Glossary The product lifecycle defines 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 strategy planning. Return to slide © McGraw-Hill Companies, Inc., McGraw-Hill/Irwin 11-48
- 49. Glossary A prototype isthe 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 through different manufacturing processes—sometimes even crafted individually. Return to slide © McGraw-Hill Companies, Inc., McGraw-Hill/Irwin 11-49
- 50. Glossary Reverse engineering involvestaking apart a product, analyzing it, and creating an improved product that does not infringe on the competitors’ patents, if any exist. Return to slide © McGraw-Hill Companies, Inc., McGraw-Hill/Irwin 11-50
- 51. Glossary Test marketing introducesthe offering to a limited geographical area prior to a national launch. Return to slide © McGraw-Hill Companies, Inc., McGraw-Hill/Irwin 11-51
Editor's Notes
- #3 These questions are the learning objectives guiding the chapter and will be explored in more detail in the following slides.
- #4 A new product can be anything from a slight redesign to new-to-the-world offerings. Ask students: What is an example of a slightly redesigned product? What about a new-to-the-world product? Ask students : Think of a new product that interested you as a consumer. Did this new product alter your opinion of the firm that offered it?
- #5 Despite first-mover advantages, pioneers often lose out to superior competitors. For example, DVD walkmans have been taken over by apple iPods. First movers must staunchly defend their territory. After establishing the market, they generally must switch to a defender mode to fend off newcomers.
- #6 Group activity: Have groups pick one product. Ask them; what group of consumers would purchase this product? Why? Example answer: TiVo has been around for about 10 years, it is probably in the early or late majority stages. Cable television, on the other hand, is now appealing to laggards; whereas some new cell phones are appealing to innovators and early adopters. Ask students where they are on the curve? If they are laggards – what have they recently purchased or not yet purchased?
- #7 Different products diffuse at different rates. Various factors increase the speed of diffusion of a new product. Group activity : Continue with the previous group activity. Assess why some of the products chosen by the groups diffused more quickly than others by applying the four criteria in the boxes.
- #8 This slide is designed to introduce the new product development process and the steps to follow. Group activity: Have each student group think of a new product. It need not be a “new-to-the-world” product. Then have them follow the steps in the New Product Development Process and describe what they would do at each step. This exercise might take an hour or so, so it may be used as an out of class assignment. Have students present their process to the rest of the group .
- #9 Firms must constantly scan the environment looking for new product ideas. Depending on the company strategy, they use different sources.
- #10 Larger firms often maintain their own R&D department and rely on it to generate new products that will lead the market. This YouTube link (always check before class) is for Pepsi Crystal – a new product invented by Pepsi which did not last long on the market.
- #11 To defray large new product development costs, firms/governments may join forces with educational institutions. Group activity: Investigate whether any research groups work through your university. How might their findings help firms develop new products?
- #12 Firms license the use of new products, technology and processes. Small biotech firms frequently license their inventions to larger pharmaceutical firms
- #13 Many firms, such as ConAgra, now give employees time to develop new products and new ideas, and then showcase them in employee new product shows. This web link brings you to IDEO.com. Like Inventables from the first slide, they are a design firm that helps clients generate new product ideas .
- #14 Products with patents or other proprietary protections cannot be copied, so reverse engineered products must be substantively different from their source product.
- #15 Fashion-based product lines often identify trend leaders and watch them to gather new ideas. Ask students: Have you ever modified a product, e.g., apparel, a car? Why did you do it?
- #16 Concepts are presented to potential buyers or users to gauge their reactions. Marketing research techniques discussed in chapter 9 are used to test these concepts.
- #17 A prototype allows consumers to interact physically with the product. Some prototypes, such as the concept cars revealed at auto shows, never actually go into production. Before releasing its new Vista package in 2007, Microsoft began beta testing in August 2005 to gather feedback from computer aficionados.
- #18 Premarket test are conducted by research firms, such as ACNielsen (BASES II). Because test marketing reveals a new product to competitors, it might be inappropriate to expose some new products this way. Ask students : Think of some products that you think should not be subjected to test marketing. Why not? Answer: incremental improvements on existing products (such as a new flavor of soda), small niche products because they only appeal to small market, products that could easily be copied by competition, etc. This YouTube link (always check before class) is a funny commercial for Dodge where they are getting input from customers.
- #19 Ask students : In the rush to get a product to the market, some firms fail to conduct the necessary market tests. What happens then? Students will realize that these new products often fail because the either don’t offer value or cannot communicate value to the end consumer.
- #20 Launching a new product is part art and part science. Each of these products offered unique benefits. Ask students if they feel each would be successful? Drink and Crunch is still only in limited release so its success in not yet known. Minute Maid Heart Wise was introduced in 2003 and has been extremely successful. Aquafresh Floss N’Cap has been expanded to other Aquafresh lines including whitening.
- #21 The right product must hit the market at the right time and for the right price. It matters little how good a product is if the launch lacks sufficient resources. Group activity : Continue with the same products the students have been working with. Design the marketing mix required to launch it. How will you communicate its benefits? What types of distribution will you use? How will you determine the price? When will you launch?
- #22 “ Timing is everything” may be an old saying, but it is only too true for new product success.
- #23 Marketers cannot only celebrate success but also must understand failure. The question of why a product fails is just as important as why another succeeded. An underperforming product may require further development.
- #24 The PLC represents an important tool managers use to plan their marketing activities.
- #25 At each stage of the lifecycle, the marketing mix elements change in response to the marketplace. Group activity : List products that currently exist in each of the stages. What marketing mix would you design for each of these products?
- #26 Understanding where your product is on the PLC is difficult. If a firm misdiagnoses the stage, it can mean trouble for the firm. Ask students : What happens to a product that is misdiagnosed as being in the decline stage? Answer: It will surely decline!
- #27 Visit the inventables playground through this web link which links to their “playground” blog . Their “technology Hunters” go out to find what is new and interesting. Ask students who would be interested in this job and why? Ask them what kind of background they would need? Most “hunters” have some experience in material sciences and need skills in interviewing and researching.
- #28 Discuss the difficulties associated with the introduction stage, especially if the product is totally new to the world. Ask students : What challenges do firms face in this stage?
- #29 This ad is very good to discuss how the PLC can be for a product category, a brand, or an individual product in the line. The Mucinex brand itself is in a very mature category. The brand has only been around for a few years and is still in the growth stage. This particular product is in the introduction stage of the PLC.
- #30 Discuss the concept of the “tipping point” — the transition between introduction and growth when the product either gains market acceptance or must exit the market. The majority of new products fail at this point.
- #31 Clorox wipes compete in a market that is attracting many new offerings every year. They must continue to fight for customer acceptance and market share.
- #32 Most U.S. products are in the maturity stage, which means most U.S. firms must engage in defending their market share. In the battle for soft drinks, a very mature market,, a 1% market share switch between Coke and Pepsi can account for millions of dollars in revenue Ask students : What marketing activities should firms engage in at this stage? .
- #33 The market for mattresses is very mature. However, brand like Sealy continue to innovate to prolong the maturity phase.
- #34 Ask students : If your company’s product were in its decline stage, how would you determine whether to update the product, continue offering it for a small segment, or exit the market completely?
- #35 Pirating is big – many would like to see a decline in this behavior and for related products to be in the decline stage of the PLC. In fact, there is huge growth in downloadable products to help copy software, movies and music.
- #36 Innovators, early adopters, early majority, late majority, laggards. Relative advantage, compatibility, complexity and trialability
- #37 First, they generate ideas for the product or service. Second, firms test their concepts by either describing the idea of the new product or service to potential customers or showing them images of what the product would look like. Third, the design process entails determining what the product or service will actually include and provide. Fourth, firms test market their designs. Fifth, if everything goes well in the test market, the product is launched. Sixth, firms must evaluate the new product or service to determine its success. Internal research and development (R&D) efforts, collaborate with other firms and institutions, license technology from research-intensive firms, brainstorm, research competitors’ products and services, and/or conduct consumer research;
- #38 Introduction, growth, maturity, decline Profits and sales grow until maturity and then begin to decline