b2b marketing lecture eight: b2b new product...

B2B Marketing

Lecture Eight: B2B – New Product

Development

Lecture Objectives:

At the end of the session, students are

expected to: Define value proposition and discussion on the

types of value proposition.

Explain the layers of a product.

Discuss the importance and types of product innovations.

Demonstrate how firms develop new products.

Explain the process of product adoption and the diffusion of innovations.

Building a Better Value Proposition Value proposition – is defined as the benefits the

consumer will receive when buying the product. (Kotler, 2006)

Example: Dell: Dell’s value proposition is

simple. Dell will deliver a low-cost,

customized computer direct to your door.

Dell can keep its prices down because of it’s

just-in-time ordering system which minimizes

stock and the need to calculate demand in

advance.

Four (4) Types of Value Proposition

1. Our product is unique

2. We have the lowest prices

3. We make things easier for you

4. We take ownership of a problem

Our product is unique

Coca-cola: Coca-cola, produced by Coca-cola

Enterprises is a unique product with it’s formula

famously being a closely guarded secret. This secret

formula combined with exclusive use of the coca-

cola brand name means that nobody else can ever

produce a coca-cola product, merely imitations of it.

Types of Value Proposition……..

We have the lowest prices

Wal-Mart: All Wal-Mart stores and adverts focus on

the fact that Wall-Mart tries to save its customers

money. Even the way in which the stores are

designed reinforces this message to consumers.

Wal-Mart is able charge less provided it receives

higher customer numbers.

We make things easier for you

FedEx: FedEx has the value proposition that it

doesn’t just offer fast delivery; it offers guaranteed

delivery by a specific time. This guarantee makes life

much easier for its customers.

Types of Value Proposition…….. We take ownership of a problem IBM: Global Services division position themselves

as trusted experts in technology who will work collaboratively with you. Essentially, your problem becomes their problem, and your success is their success.

What is the meaning of Product? – Tangible good, service, or idea that satisfies

customer needs

Layers of the Product Concept Core product:

– All the benefits the product will provide.

Actual product: – Physical good or delivered service that supplies

the desired benefits.

Augmented product: – Actual product plus supporting features such as

warranty, credit, delivery, installation, and repair service after the sale.

The Process of Innovation Innovation - A product that customers

perceive to be new and different from existing products.

How Innovation works

Successful innovations spread throughout

the population.

Technology is advancing at a dizzying pace.

New products are expensive to develop and

even more costly if they fail.

New products can contribute to society.

Types of Innovations

Innovations differ in their degree of newness

and can be classified along a continuum in

terms of the amount of disruption/change they

bring to people’s lives.

•Continuous innovations

•Dynamically continuous innovations

•Discontinuous innovations

Continuous Innovations

Continuous innovations – A modification

to an existing product.

– Most common form of innovation

– Consumers don’t need to learn anything new;

change is minimal

– Examples: brand extensions, line extensions

– Knockoffs copy (with slight modification) the

design of an original product

Dynamically Continuous Innovation

Dynamically continuous innovation-A pronounced modification to an existing product. – Requires a modest amount of learning or

behavior change

Convergence-the coming together of two or more technologies to create a new system with greater benefit than its parts

Discontinuous Innovations - A totally new

product.

– Creates major changes in the way we live.

– Consumers must engage in a great deal of

new learning.

– Examples: microwave ovens when first

introduced as an alternative to traditional

ovens.

Developing New Products (NPD)

New-product development is a continuous process of looking for entirely new products or for ways to make an existing product better.

Successfully introducing new products is becoming more difficult – R&D costs are enormous.

– Products become obsolete faster.

– Slotting (Manufacturer charges) fees are high.

Phases in New Product Development

Phase 1: Idea generation – Brainstorming products that provide customer

benefits and which are compatible with the firm’s mission.

Phase 2: Product-concept development and screening – Product ideas are tested for technical and

commercial success.

Phase 3: Marketing strategy development – Developing a strategy to introduce the product to

the marketplace.

Phases in New Product Development

Phase 4: Business analysis

– The product’s commercial viability is assessed in

this phase. Example: business plan

Phase 5: Technical development

– Firm engineers refine and perfect the new product

– Prototypes or test versions of the proposed

product are developed (in R&D department).

Phase 6: Test marketing

– The complete marketing plan is tested in a small

geographic area similar to

the larger market.

Phases in New Product Development

Phase 7: Commercialization

– The new product is launched into the market.

– Full-scale production, distribution, advertising,

and sales promotion are begun.

Example of New Product Development

IdeaPAINT

Phases of NPD

Phase 1: Idea Generation - which came by

brainstorming from a student, Jeff Avallon and

his friends in a study room with walls covered

in Post-it notes.

Phase 2: Concept Development and Testing - they

decided to devise an erasable paint to satisfy

their want. To testify the feasibility of the idea,

they seek help from two professors, a college-

board member and a parent to see if they

believed in the idea and put investment.

Phase 3: After that, they started to find the target

market, not only for school, but also for work

and home. During Marketing Strategy

Development, they need to plan the potential

price, distribution, and marketing budget.

Phases of NPD

Phase 4: Business Analysis – They prepared the

business plan containing Profit goal and

marketing mix strategy.

Phase 5: Product Development - they were going

out of concept but take actions by producing a

prototype.

Phase 6: Test marketing - when IdeaPaint finally

had a prototype, “they had a conversation with

everybody at school, Babson, who could be a

potential customer or user.” When the final

product was ready, they let the school be the

first customer.

Phases of NPD

Phase 7: Commercialization – They introduce

IdeaPaint into the market.

References:

Chan, S. (2010). The New Product Development

Process. (Online).

URL:http://www.entrepreneur.com/magazine/entr

epreneur/2010/march/205056.html (Date Visited:

14/5/2012)

Kotler, P. (2003). Marketing Management.

International Edition. New Jersey, USA: Pearson

Education Ltd.

Tutorial Questions

1. Discuss the new product development (NPD)

process. Cite an example to illustrate the 7

phases of the NPD process.

2. Critically explain the different types of value

propositions. Choose at least one of this type to

apply in one of the businesses in Oman.

3. Describe in your own words the three types of

innovations.