MBA 671S. Borna

MM cc

consumer behaviorconsumer behavior

TargetTargetmarketingmarketing

MkgMkgenvironmentenvironment

Strategy planningStrategy planning

segmentationsegmentation

positioningpositioning

ProductProduct

The exchange objectThe exchange object

Marketing Strategy Planning:Marketing Strategy Planning:

Identification of Target MarketsIdentification of Target Markets

Developing Appropriate Developing Appropriate Marketing Mix For the TargetMarketing Mix For the TargetMarket(s).Market(s).

ProductProduct

PromotionPromotion

placeplace

priceprice

Systems Approach to Policy Systems Approach to Policy DecisionsDecisions

The Exchange ObjectThe Exchange Object

MM cc

ProductProduct

What do we mean by new What do we mean by new products?products?

Joseph Schumpeter envisionedJoseph Schumpeter envisionedinnovation as being characterizedinnovation as being characterizedby (1) construction of new plants;by (1) construction of new plants; (2) introduction of new firms;(2) introduction of new firms;& (3) the rise to leadership of new& (3) the rise to leadership of new man. man. From this point of view innovationFrom this point of view innovationin a in a discontinuousdiscontinuous events. events.

An innovation is an idea perceived An innovation is an idea perceived as new by the individual. as new by the individual.

Everett RogersEverett Rogers

The operational definition:The operational definition:any form of a product that has any form of a product that has recently become availablerecently become availablein a market.in a market.

What is new product?What is new product?from developers view:from developers view:

New- to-the world productsNew- to-the world productsNew category entries, e.g. P & GNew category entries, e.g. P & G first first shampooshampooAddition to product lines Liquid TideAddition to product lines Liquid TideProduct improvementsProduct improvementsRepositioning,e.g., Arm and HammerRepositioning,e.g., Arm and Hammer baking soda, as drain deodorant baking soda, as drain deodorant

1. Continuous innovations1. Continuous innovations2. Dynamically continuous2. Dynamically continuous innovationsinnovations3. Discontinuous innovations3. Discontinuous innovations

Innovations may be classified as:Innovations may be classified as:

Continuous innovations:Continuous innovations:

has the least disrupting has the least disrupting influence on establishedinfluence on establishedconsumption patterns.consumption patterns.

Dynamically ContinuousDynamically ContinuousInnovation:Innovation:

has more disrupting effects thanhas more disrupting effects thancontinuos innovation, althoughcontinuos innovation, althoughit still does not generally alterit still does not generally alterestablished patternsestablished patterns

Discontinuous InnovationsDiscontinuous Innovations

involves the establishmentinvolves the establishmentof new behavior pattern.of new behavior pattern.

Nature of InnovationNature of Innovation

NoNo

Cont.Cont.Innov. Innov.

DynamicallyDynamicallyContinuous Continuous InnovationsInnovations

ChangeChange

RadicalRadicalChangeChange

DiscontinuousDiscontinuousinnovationsinnovations

behavior patternbehavior pattern

Importance of new productsImportance of new products

P.L.C.P.L.C.

Growth, ProfitabilityGrowth, Profitability

Competition Competition

The new-productThe new-productdevelopment dilemmadevelopment dilemma

High R & D costsHigh R & D costsHigh attrition rate of new High attrition rate of new product product ideasideasHigh rate of market failureHigh rate of market failureShorter life spans of successfulShorter life spans of successfulproductproduct

cont.cont.

Costliness of new productCostliness of new productdevelopment processdevelopment process

Social and governmentSocial and governmentconstraints.constraints.

Fragmented MarketsFragmented Markets

Dilemma: cont.Dilemma: cont.

COST OF NEW PRODUCT COST OF NEW PRODUCT FAILURESFAILURES

Product EstimatedProduct Estimated

loss (mil)loss (mil)

RCA’s Selectavision $300.00RCA’s Selectavision $300.00Ford’s Edsel 350.00Ford’s Edsel 350.00Du Pont’s Corfam 100.00 Du Pont’s Corfam 100.00

Scott Paper Co. Baby S. 12.8Scott Paper Co. Baby S. 12.8General Food’s FreezeGeneral Food’s FreezeDried fruit cereals 5.0Dried fruit cereals 5.0Hunt’s pizza and hickoryHunt’s pizza and hickoryflavored catsup's 11.2flavored catsup's 11.2American Home’s easy-offAmerican Home’s easy-offHousehold cleaner .8 Household cleaner .8

Stage No. of Cost per Total Stage No. of Cost per Total Ideas P. idea Cost Ideas P. idea Cost

1. Idea 1. Idea 6464 1000 $64,000 1000 $64,000 ScreeningScreening2. Concept 2. Concept 1616 20,000 $320,000 20,000 $320,000 TestingTesting3. Product 3. Product 8 8 200,000 $1,600,000 200,000 $1,600,000 Development Development

Costliness of New ProductCostliness of New Product Development processDevelopment process

4. Test 4. Test 44 500,000 $2,000,000 500,000 $2,000,000 Mkg.Mkg.5. National 5. National 22 5,000,000 $10,000,000 5,000,000 $10,000,000 LaunchLaunch

Total $13,984,000Total $13,984,000

New Product DevelopmentNew Product DevelopmentAlternativesAlternatives

1. Co. laboratories1. Co. laboratoriesa.a. InternalInternal2. independent2. independent research firmsresearch firms

b. Externalb. External 1. acquisition1. acquisition 2. patents and 2. patents and licenseslicenses

3. new product3. new productconsultantsconsultants

Initiating FactorsInitiating Factors

1. Product life cycle1. Product life cycle

2. Technology2. Technology

3. Changing consumer taste3. Changing consumer taste

New Product Development New Product Development ProcessProcess

New Product Development New Product Development ProcessProcess

IdeaIdeaGenerationGeneration

ConceptConceptDevelopmentDevelopmentand Testingand Testing

MarketingMarketingStrategyStrategy

DevelopmentDevelopment

IdeaIdeaScreeningScreening

BusinessBusinessAnalysisAnalysis

ProductProductDevelopmentDevelopment

MarketMarketTestingTesting

CommercializationCommercialization

Sources of new ideasSources of new ideas

customerscustomerstechnologytechnologycompetitioncompetitionemployeesemployees

executivesexecutivesco. scientistsco. scientistsinventorsinventors othersothers

customerscustomerstechnologytechnologycompetitioncompetition

executivesexecutivesco.co.scientistsscientistsothersothers

managermanagerof of ideaidea

processprocess

Sources of new ideasSources of new ideas

customers, scientists, customers, scientists, competitorscompetitors

Idea-generating devicesIdea-generating devices attribute listingattribute listing brainstormingbrainstorming morphological analysismorphological analysis (structural analysis)(structural analysis)

Screening new product ideasScreening new product ideas

Criteria for ScreeningCriteria for ScreeningTo avoid making two types of To avoid making two types of errorserrors1. Rejecting an idea that could1. Rejecting an idea that couldbecome a very successfulbecome a very successfulproductproduct2. Accepting an idea that later2. Accepting an idea that laterfails fails

Concept DevelopmentConcept Developmentand Testingand Testing

New Product IdeaNew Product IdeaNew Product ConceptNew Product ConceptNew Product ImageNew Product Image

According to Kotler:According to Kotler:

A product idea is a possible productA product idea is a possible productthat the company that the company mightmight offer to the offer to themarket.market.A product concept is an elaborateA product concept is an elaborateversion of the idea expressed inversion of the idea expressed inmeaningful consumer terms.meaningful consumer terms.A product image is the consumers’A product image is the consumers’perceptionperception of product concept. of product concept.

B.L.D. as an exampleB.L.D. as an example

Product IdeaProduct Idea: a powder to be: a powder to beadded to milk or water.added to milk or water.

Product Concept:Product Concept:

Who will use the product:Who will use the product:Teenagers, young or adult, Teenagers, young or adult, middle-aged adults?middle-aged adults?

When it will be used?When it will be used?Breakfast, lunch, afternoon, Breakfast, lunch, afternoon, dinner time, late evening?dinner time, late evening?

1.1. concept oneconcept one:: an instant break-an instant break- fastfast2.2. concept twoconcept two: a tasty snack drink: a tasty snack drink for childrenfor children3.3. concept threeconcept three: a health : a health supplement for adults.supplement for adults.

Note:Note:

Each of the above conceptsEach of the above concepts represents a represents a categorycategory concept concept

i.e., each positions the idea withini.e., each positions the idea withina a categorycategory..

It is the category concept, not theIt is the category concept, not theproduct concept that defines theproduct concept that defines theproduct’s competition.product’s competition.

Business AnalysisBusiness Analysis

1. Break-even analysis1. Break-even analysisS =S =

BEBE

TFCTFC

P -VCP -VCUU UUNOTE: B.E. is not a NOTE: B.E. is not a

forecasting method!forecasting method! $$S2S2SS

BEBE

Q1Q1 Q2Q2 QQFCFC

TCTC

P=(S -S )(P -VC )P=(S -S )(P -VC )aa BEBE UU UU

Product DevelopmentProduct Development

1. Building prototype models1. Building prototype models2. Functional testing2. Functional testing3. The issue of product design3. The issue of product design *interaction between marketing and*interaction between marketing and development personneldevelopment personnel *consumer preferences*consumer preferences *product features*product features

*functional and consumer*functional and consumer testingtesting

Market TestingMarket Testing

Product Use TestsProduct Use Tests

Test MarketingTest Marketing

Market TestingMarket Testing

Simulated store techniqueSimulated store techniqueControlled test marketingControlled test marketing

How many cities?How many cities?Which cities?Which cities?Length of test?Length of test?What information?What information?

Test Test marketsmarkets

CommercializationCommercialization

Main Questions:Main Questions:When (timing)When (timing)

first entry first entry (first mover advantage)(first mover advantage)

parallel entryparallel entrylate entrylate entry

Where?Where?

(Geographical Strategy(Geographical StrategyLocal, region, nationalLocal, region, nationalinternational?international?

To whom?To whom? (target market)(target market)

Diffusion of InnovationsDiffusion of Innovations

A Macro ProcessA Macro Process

Adoption processAdoption processis ais a micro processmicro process

AwarenessAwarenessInterestInteresttrialtrialadoptionadoption

Diffusion of InnovationsDiffusion of Innovations

Four basic elements ofFour basic elements ofdiffusion processdiffusion process

1. Innovation1. Innovation2. The Communication of 2. The Communication of innovation among individualsinnovation among individuals3. The social system3. The social system4. Time4. Time

The Social System:The Social System:

The time:The time:the diffusion of new product the diffusion of new product adoption is a temporal phenomenonadoption is a temporal phenomenon

Diffusion as a process rather thanDiffusion as a process rather thanan event.an event.

Product characteristicsProduct characteristicsaffecting diffusion rateaffecting diffusion rate

1. Complexity:1. Complexity: functional or attribute complexityfunctional or attribute complexity trade off complexitytrade off complexity2.2. Relative advantageRelative advantage3.3. ObservabilityObservability4. Perceived risk 4. Perceived risk 5. Trialability5. Trialability6. Compatibility6. Compatibility

7.7. Type of groupType of group ((Young, affluentYoung, affluent and highly educated accept changeand highly educated accept change including new products).including new products).

8.8. Type of DecisionType of Decision ((Group vs Group vs individual decision)individual decision)9.9. Fulfillment of a needFulfillment of a need

Diffusion EnhancementDiffusion Enhancement StrategiesStrategies

Diffusion Diffusion DiffusionDiffusion Diffusion DiffusionDeterminant Inhibitor Determinant Inhibitor EnhancementEnhancement StrategiesStrategies

1.Nature of 1.Nature of ConservativeConservative GroupGroup

Reach other markets;Reach other markets;Target innovators within groupTarget innovators within group

Diffusion EnhancementDiffusion Enhancement StrategiesStrategies

Diffusion Diffusion DiffusionDiffusion Diffusion DiffusionDeterminant Inhibitor Determinant Inhibitor EnhancementEnhancement StrategiesStrategies

Type of GroupType of GroupDecisionDecision

Choose media to reach all deciders;Choose media to reach all deciders;Provide conflict reduction themesProvide conflict reduction themes

Diffusion EnhancementDiffusion Enhancement StrategiesStrategies

Diffusion Diffusion DiffusionDiffusion Diffusion DiffusionDeterminant Inhibitor Determinant Inhibitor EnhancementEnhancement StrategiesStrategies

Marketing LimitedMarketing LimitedEffortEffort

Use regional rollout; target innovatorsUse regional rollout; target innovatorswithin groupwithin group

Diffusion EnhancementDiffusion Enhancement StrategiesStrategies

Diffusion Diffusion DiffusionDiffusion Diffusion DiffusionDeterminant Inhibitor Determinant Inhibitor EnhancementEnhancement StrategiesStrategies

Felt Need WeakFelt Need Weak

Extensive Advertising ShowingExtensive Advertising Showingimportance of benefitsimportance of benefits

Diffusion EnhancementDiffusion Enhancement StrategiesStrategies

Diffusion Diffusion DiffusionDiffusion Diffusion DiffusionDeterminant Inhibitor Determinant Inhibitor EnhancementEnhancement StrategiesStrategies

Compatibility ConflictCompatibility Conflict

Stress Attributes Consistent withStress Attributes Consistent withvalues and normsvalues and norms

Diffusion EnhancementDiffusion Enhancement StrategiesStrategies

Diffusion Diffusion DiffusionDiffusion Diffusion DiffusionDeterminant Inhibitor Determinant Inhibitor EnhancementEnhancement StrategiesStrategies

Relative LowRelative Lowadvantageadvantage

Lower Price; Redesign ProductLower Price; Redesign Product

Diffusion EnhancementDiffusion Enhancement StrategiesStrategies

Diffusion Diffusion DiffusionDiffusion Diffusion DiffusionDeterminant Inhibitor Determinant Inhibitor EnhancementEnhancement StrategiesStrategies

Observibility LowObservibility Low

Use extensive advertisingUse extensive advertising

Diffusion EnhancementDiffusion Enhancement StrategiesStrategies

Diffusion Diffusion DiffusionDiffusion Diffusion DiffusionDeterminant Inhibitor Determinant Inhibitor EnhancementEnhancement StrategiesStrategies

Trialability LowTrialability Low

Use free samples to early adoptersUse free samples to early adoptersspecial prices to rental agenciesspecial prices to rental agencies

Diffusion EnhancementDiffusion Enhancement StrategiesStrategies

Diffusion Diffusion DiffusionDiffusion Diffusion DiffusionDeterminant Inhibitor Determinant Inhibitor EnhancementEnhancement StrategiesStrategies

PerceivedPerceived risk High risk High

Success documentationSuccess documentationendorsement by credible sourcesendorsement by credible sourcesGuaranteesGuarantees

Adoption processAdoption processis a micro processis a micro process

AwarenessAwarenessInterestInteresttrialtrialadoptionadoption

ActionAction

AwarenessAwareness

InterestInterest

AdoptionAdoption

TrialTrial

cognitioncognition

affection affection

2 1/2%Innovators

13 1/2%Early

adopters

34%Early

majority

34%Late

majority

16%Laggards

Time of adoption innovations

Adopter Categorization of the Basis of Adopter Categorization of the Basis of Relative Time of Adoption of InnovationsRelative Time of Adoption of Innovations

Adopter Categorization of the Basis of Adopter Categorization of the Basis of Relative Time of Adoption of InnovationsRelative Time of Adoption of Innovations

ReviewReviewReviewReview

Challenges in New Product Challenges in New Product Development (NPD)Development (NPD)

Organizational Structure & NPDOrganizational Structure & NPD Stages & Management of NPDStages & Management of NPD Diffusion & Adaption of New ProductsDiffusion & Adaption of New Products