© 2018 Cengage Learning.® May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
© 2018 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 8. 1
8
New Products and
Innovation
© 2018 Cengage Learning.® May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 8. 2
Marketing Framework
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Discussion Questions #1
1. List three new products.
2. Why do you think companies introduce
new products?
© 2018 Cengage Learning.® May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 8. 4
Why Improve Products?
• For corporate pride
• To be consistent with innovative image
• To better attract/satisfy customers
• To stave off competition
• Because the macroenvironment changes
• Consumer tastes, natural resources,
demographics, cultural changes, etc.
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Approaches to Developing New Products
• Top-down (inside-out)
1. Idea generation
2. Design and development
3. Commercialization
• Customer feedback is sought later in the
process; marketing supports product launch
• Works well in industries where internal R&D
has expertise that end-customers lack
• Co-creation (bottom-up or outside-in)
• Customer & company co-create products
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New Product Development Process
(slide 1 of 2)
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New Product Development Process
(slide 2 of 2)
• The NPD process is not entirely linear
• It is important to continually revisit prior
decisions and change when necessary
• e.g., A good decision in stage 2 may not be a
good decision in later stages
• Marketing is involved throughout process
• Idea generation, refinement, marketing mix
decisions, etc.
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Where Do New Ideas Come From?
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Idea Creation & Market Potential
(slide 1 of 2)
1. Idea generation
• Brainstorming: “No idea’s a bad idea; let’s
get everything up on the white board”
• Firms may allocate time for employees to
work on pet projects
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Idea Creation & Market Potential
(slide 2 of 2)
2. In-house winnowing & refinement
• Screen ideas for plausibility using
• Internal experts’ knowledge
• Marketers’ target knowledge
• Management’s company knowledge
• Feasibility assessments & business
analyses are somewhat fuzzy at this stage
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Concept Testing, Design, & Development
(slide 1 of 4)
3. Obtain feedback on plausible ideas
• Use marketing research to
• Save a company from a bad idea
• Yield information to tweak an idea
• Encourage pursuit of good idea
• Research may include focus groups, online
surveys, etc.
• Conjoint analysis may also be used to
determine trade-offs
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Concept Testing, Design, & Development
(slide 2 of 4)
• Focus groups
• 2–3 groups (per segment) of 8–10
customers
• Usually last 1.5–2 hours
• Goal is background information to improve
product development or product positioning
• Participants give feedback on product
concepts
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Concept Testing, Design, & Development
(slide 3 of 4)
• Conjoint procedure
• Different combinations of attributes are put
together and compared
• Customer says which is best, next best, etc.
• Use in focus groups, online studies, etc.
• Allows marketers to see what attributes are
most attractive
• e.g., Should a laptop be light, powerful,
specific color, and preloaded with software?
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Concept Testing, Design, & Development
(slide 4 of 4)
4. Research results are used to develop a
prototype
• Only one prototype is developed at a time
• If the prototype is not successful, another
prototype is developed
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Beta Testing
(slide 1 of 4)
• A beta version is made available for trial
• Ideal to simulate a real-world purchase
• Used to help forecast sales
• Customer reactions to marketing
materials are also examined
• Ad copy, price points, distribution, etc.
• Clarifies image of product to customer
• Allows company to get feedback
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Beta Testing
(slide 2 of 4)
• Try product in market on a small scale
before an expensive full-scale rollout
• Area test markets:
• Product is made available and ads are run in a
few randomly selected metropolitan areas
• Sales are observed and compared to sales in
control markets
• Not as commonly used now because
• They are expensive, require setup, tip off
competition, and sampled areas may have own
“flavors”
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Beta Testing
(slide 3 of 4)
• Electronic test markets are more valid
than area test markets
• Households within a sample of metropolitan
areas are selected: some are designated
“test” and some are “control”
• Electronic (cable) transmissions are sent to
test households, but not sent to the control
households
• Differences between the test and control
households’ purchasing are evaluated
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Beta Testing
(slide 4 of 4)
• Simulated test markets
• Popular premarket launch tests
• Customers are recruited and given play
money to shop in a simulated environment
• They can buy the new product and
competitors’ products
• Advertising materials are available with
competitors’ advertising
• Marketers record purchases
• Customers complete a survey
• Data are used as input to forecast sales
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Launch
(slide 1 of 5)
• Forecast sales
• If not promising, abort launch
• If promising, launch
• Forecasts are important to
• Accounting and finance for budgeting
• Sales force for setting sales goals
• Production and logistics for planning
equipment, storage, transportation, etc.
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Launch
(slide 2 of 5)
• Forecasting
• Goal is to estimate sales potential ($SP), not
sales
1. Determine market potential (MP)
• How many units might be sold
– Start with secondary data
» Census, sales for similar products, etc.
» Relevant in-house benchmarking data
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Launch
(slide 3 of 5)
• Forecasting (continued)
2. Estimate the purchase intention (PI)
• Likelihood target will buy the product
• Use recent marketing research
– e.g., Assume research suggests PI = 0.7
• Note: Customers usually overstate PI;
estimate ¾ downward P = ¾(0.7)= 0.525
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Launch
(slide 4 of 5)
• Forecasting (continued)
3. Determine the price (Pr)
• Remember economics; PI may increase as
Pr decreases
• Forecasting equation: $SP = MP × PI × Pr
• Remember this number is not profit; it is
maximum sales
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Launch
(slide 5 of 5)
• Timing
• Process of developing new products can be
relatively quick or slow
• Delays caused by
– Internal activities such as testing
– External factors such as regulations
• e.g., New pharmaceuticals take years
– Promotional efforts are intended to create
enough sales to recoup development costs
© 2018 Cengage Learning.® May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 8. 24
Discussion Question #2
• Outline each likely stage in the new
product development process for the
introduction of Swiffer Sweeper.
© 2018 Cengage Learning.® May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 8. 25
Product Life Cycle
(slide 1 of 5)
• Describes the evolution and duration of a
product in the marketplace
• Phases have predictable sales and profits
as well as optimal marketing actions
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Product Life Cycle
(slide 2 of 5)
• Market introduction
• Low sales
• Heavy marketing spending on awareness
• Pricing strategies
• Penetration: low price
• Skimming: high price; recoup R&D costs
• Limited distribution
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Product Life Cycle
(slide 3 of 5)
• Market growth
• Sales and profits increase
• Distribution coverage is greater
• Price may increase
• Competition
• Competitors enter the market and kill each
other off or specialize
• Product needs competitive advantage
• Promotion focuses on product’s superiority
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Product Life Cycle
(slide 4 of 5)
• Market maturity
• Industry sales level off; competition is fierce
with weaker firms leaving; profits decline
• Promotion focuses on product’s superiority
and provides a reminder to buy
• Product line may be extended and new
benefits may be added
• Marketing costs increase and price falls due
to competition
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Product Life Cycle
(slide 5 of 5)
• Market decline
• Sales and profit decline
• New products replace older generations
• Old products may be
• Divested: sold—sell early to get best price
• Harvested: support reduced
• Rejuvenated: refurbished with new benefits
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Discussion Questions #3
1. Do products have to die?
2. Are the lengths of product life cycles
consistent across products?
3. Do individual brands have shorter or
longer life cycles than product
categories?
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Diffusion of Innovation
(slide 1 of 3)
• A normal curve is utilized to partition
customers into groups to show how new
products spread through the marketplace
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Diffusion of Innovation
(slide 2 of 3)
• Innovators: first 3–5%
• Like to try new products; willing to take risks
• Early adopters: next 10–15%
• Even more influential as opinion leaders
because the group is bigger
• Early majority: next 34%
• More risk averse
• Waiting to hear about favorable experiences
from early adopters
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Diffusion of Innovation
(slide 3 of 3)
• Late majority: next 34%
• Even more cautious
• Often older and more conservative
• Want to buy only proven products
• Laggards or non-adopters: next 5–15%
• Most risk averse
• Skeptical of new products
• Stereotypically lower in income
• Product category may not be relevant to
them
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Discussion Question #4
• Use the diffusion of innovation model to
explain the growth of the smartphone
market.
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Cumulative Diffusion
• Diffusion curve is recast to show
cumulative sales
• Tipping point: point at which sales rate
increases rapidly
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Mathematical Model of Diffusion
• Two ways to use diffusion model
1. Observe early sales data, fit the model, and
predict future sales
2. Plug in past results on similar products and
predict future sales
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Model of Diffusion
• Coefficient of innovation (p)
• Likelihood purchase or adoption due to
promotion
• Increase p by decreasing price earlier
• Coefficient of imitation (q)
• Likelihood of purchase or adoption due to
word-of-mouth information
• q is usually bigger than p
• Increase q by decreasing price later
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New Product Acceptance
• Acceptance of new products tends to be
higher when the new product:
• Has clear relative advantage
• Is compatible with customers’ lifestyles
• Is not overly complex or has a user-friendly
interface
• Is easily tried or sampled
© 2018 Cengage Learning.® May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 8. 39
New Product Willingness
• Companies vary in their willingness to
pursue new products
• From innovator to reactor
• Market pioneers have difficulty with
“really new” products
• First movers launch “incrementally new”
products because there is less risk
• Early followers have approximately the
same survival risks
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Growth Strategies
(slide 1 of 3)
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Growth Strategies
(slide 2 of 3)
• Market penetration
• Sell the same products to current customers
• New ways to use, better marketing mix, etc.
• Easiest strategy
• Product development
• Sell new or modified products to current
customers
• Introduce extensions or new variations
• Company wants to be innovative
© 2018 Cengage Learning.® May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 8. 42
Growth Strategies
(slide 3 of 3)
• Market development
• Sell existing products to new segments
• Move global or target different segment
• May need to change image, channels, etc.
• Diversification
• Pursue new markets with new products
• Too difficult for most companies due to lack
of experience in product and market
• Toughest strategy
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Trends to Watch
• Aging of population
• Hispanic population growth
• More wealthy Americans
• Growing concern for environment and
corporate social responsibility
• Cultural differences
• Role of China and fast-growing
economies
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Discussion Questions #5
1. How could firms capitalize on the
opportunity presented by the aging
population?
2. Discuss changes in the global
economy.
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Managerial Recap
(slide 1 of 2)
• New products are crucial to growth
• New product development process
• Idea generation to market potential, to
concept testing, design and development,
then beta testing, and ultimately the launch
© 2018 Cengage Learning.® May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 8. 46
Managerial Recap
(slide 2 of 2)
• Products evolve through a life cycle
• Introduction, growth, maturity, and decline
• Each stage is recognizable by its sales and
profitability and carries 4P recommendations
• Models can be used to forecast sales
• Marketers should study important trends
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