Chapter 10Developing and Managing Products

Types of innovationsContinuous innovations - normal upgrading,

no change in user behaviors.New to the marketNew to sellerNew to producer

Discontinuous innovations – require users to change behaviors. New-to-the-world products.

3. Business Analysis3. Business Analysis

NPD Process

1. Idea1. IdeaGenerationGeneration

2. Idea2. IdeaScreeningScreening

4. Development4. Development5. Test marketing5. Test marketing

6. Commercialization6. Commercialization

Many -- employees, customers, suppliers, distributors, competitors

Reduce # quickly

Alternative versions,describe in consumer terms

Physical product, $$$

New Product Development2. Idea Screening (what do we have? +/-)

• In pharmacy, 1 of 5,000 new drug ideas is common

• In autos, 1 of 20 new car concepts is made to prototype

• Point? Brainstorm, then cut via research

• Short and long run $ performance• Social issues:

• Consumer welfare (Ben and Jerry’s)• Safety ( Marlboro cigarettes) –

liability (McDonald’s hot coffee)

New Product Development 3. Business Analysis

• Examine consumer perceptions (Coors banquet beer)

• Consider view of retailers and wholesaler (Frito Lay)

4. Development (can go hand-in-hand with analysis)• Product tests (New Coke, movies)• Risky: (leaks, skewed results)• Virtual product development: examine without

construction • Prototype product and marketing strategy• Longest process (Minute Rice took 18 years!)

Concept Test

Concept Test A test to evaluate a new-product idea, usually before any prototype has been created.

Test MarketingStandard

Test Market+Costs+Brand Equity -Jamming-Duplication

Limited introduction in a small market supported by a full-fledged marketing campaign to gauge customer reactions

Product Life Cycle

A concept that provides a way to trace the stages of a product’s acceptance, from its introduction (birth) to its decline (death).

Product Life Cycles

Time

Dol

lars

Introduction Growth Maturity DeclineIntroduction Growth Maturity Decline

IndustryIndustry SalesSales

IndustryIndustry ProfitsProfits

0

Product Life Cycles

Time

INTRODUCTION GROWTH MATURITY DECLINE

ProductStrategy

DistributionStrategy

PromotionStrategy

PricingStrategy

Limited modelsFrequent changes

More modelsFrequent changes.

Large number of models.

Eliminate unprofitable

models

LimitedWholesale/

retail distributors

Expanded dealers. Long-term relations

Extensive.Margins drop.Shelf space

Phase out unprofitable

outlets

Awareness. Stimulate

demand.Sampling

Aggressive ads.Stimulatedemand

Advertise. Promote heavily

Phase outpromotion

High to recoupdevelopment

costs

Fall as result ofcompetition &

efficient produc-tion.

Prices fall (usually).

Prices stabilize at low level.

Sale

s

Some misconceptions about PLC

At the level of the category and not the brand – Cell phones not CINGULAR wireless.

Different products go through the stages differently.

Timing of stages may vary substantially.

Product Life CycleCriticisms:

Self fulfilling prophecyAll do not follow patternProduct may be in different stages by the

market

What do you see are the advantages of the PLC? Why should m.managers care?

Product Life Cycle Factors that may speed products through

PLC:1. Ease of trial (supermarkets, no risk, test drive)2. Ease of use (some assembly required; Toys R Us

(bike); Gateway store)3. Easy to communicate advantages (Always low

price; cars)4. Compatible with customer experience (Poland &

free samples)

The Consumer Adoption Process

Adoption process: series of stages for which consumers decide whether or not to become a regular user of a new product, including:AwarenessInterestEvaluationTrialAdoption or rejection

Diffusion

Diffusion The process by which the adoption of an innovation spreads.

Adopter Categories

LO6 Diffusion Process and PLC Curve

Innovators

Early adopters

Early majorityLate majority

Laggards

ProductProductlife cyclelife cyclecurvecurve

DiffusionDiffusioncurvecurve

Introduction Growth Maturity Decline

Sale

s

Product Characteristics and the Rate of Adoption

Trialability

Observability

Relative Advantage

Compatibility

Complexity