Chapter 8 Flashcards
(20 cards)
What is a product?
= something that is of value and can be offered in a marketing exchange
New products
- slight modification to an existing product
- true innovation (i.e., never seen before)
Why do firms create new products?
changing customer needs
market saturation (recall PMEG)
reducing risk through diverse product offerings (recall differentiated targeting)
fashion cycles
improving business relationships
Steps in developing new products?
- Idea generation
- Concept Testing
- Product Development
- Market testing
- Product launch
- Evaluation of Results
Idea generation
Identify problem and think of a solution:
inputs from consumers, employees, partners, etc.
internal R&D
outsource product development
competitor’s product (via reverse engineering)
licensing
product concept
= a detailed word description, a drawing, or a crude mock-up (prototype) of the idea that can be shown to consumers
- test concept with consumers
- ask how likely they are to purchase such a product
Product Development
- develop concept into an actual product
- tested for endurance, wear, breaking points, and usability
alpha testing – by R&D
beta testing – by consumers - recruit them online
calls for large jump in investment
Market testing
product and program introduced in real but limited market conditions
Product launch
execute the 4Ps
full-scale launch or phased launch
the most expensive stage for most new products (manufacturing and marketing spending)
Innovation Diffusion Theory
a) Innovators – 2.5%
b) Early adopters – 13.5% (most crucial)
c) Early Majority – 34%
d) Late Majority – 34%
e) Laggards – 16%
diffusion of innovation
the process by which the use of an innovation spreads throughout a market group over time and over various categories of adopters.
pioneers (breakthroughs)
new product introductions that establish a completely new market or radically change both the rules of competition and consumer preferences in a market
Factors affecting diffusion
- Compatibility – being consistent with existing value systems and practices (Starbucks: USA vs Australia)
- Relative Advantage – being better than the predecessor e.g. Netflix
- Complexity – being perceived as less difficult to understand and use
- Trialability – being able to experiment with innovation on a limited basis e.g. Costco sampling
- Observability - being able to show to the results of innovation e.g. Tesla Optimus Robots
Product Life Cycle
- Introduction
- Growth
- Maturity
- Decline
Introduction of a product
- firm works to stimulate demand for a new market entry
- build product awareness
- promotional campaigns stress product features
– additional promotions to intermediaries to induce them to carry the product - product prices are high but financial losses are common due to low sales and high promotion and R&D costs
innovators drive this period
Growth of a Product
sales volume rises rapidly
firm begins to realize substantial profits
success attracts competitors
early adopters and majority drive this period
What to do to sustain rapid growth of your product?
identify new markets
improvements to the product, new features
additional promotion/distribution spending
new channels, new segments
Maturity
- additional sales of the product plateaus
- intense competition in the market: profits decline
- differences between competing products decrease
3 options if your product is declining
maintain: leave as is, hope to make money as competitors exit or by focusing on a niche segment
revitalize: reformulate product or positioning
drop: pull the product off the market to avoid costs
4 types of PLC:
- high-learning product
- low-learning product
- fashion product
- fad product
