Marketing Management

New Products

Chapter 7

New Products
Companies seek to improve their current products for the following reasons:
a simple point of corporate pride to be consistent with an innovative image as an effort to better satisfy current customers or attract new customers to stave off competition

New Products
Change is inevitable because the macroenvironmental context continually shifts
For example
Changes in demographics Changes in consumer preferences Changes in natural resources, etc.

Top Down Approach

Idea comes from inside the company. Outside feedback is sought later in the process.
Process:
1. idea creation 2. design and development 3. and commercialization

Typically found in strong engineering companies, pharmaceutical firms, financial services, high-technology companies, etc.

Co-Creation Approach
Customer feedback and market research is sought at most phases in the process
concept testing, product testing, test marketing stages, etc.

This is a more marketing oriented approach

Idea Generation Stage

Ideas can come from
Identifying customer challenges
Brushing kids teeth

Observing trends
Healthier eating

Listening to customers, sales force and/or frontline service people Observing competitors Speaking with lead users

Idea Generation Stage

Screen ideas for plausibility
Who is the target segment? What is its size? What competitors already seek their dollar? What products of our own might sales cannibalize? Do we have channels already in place for the distribution of this product? How does the new product initiative fit with our organizational goals and our marketing objectives?

Concept Testing Stage

Obtain customers feedback on the most promising ideas using focus groups, Web surveys, conjoint study, etc.
Conjoint study
Combinations of attributes are compared to determine best, next best, etc. Helps marketers determine which features are most attractive to targeted customers

Concept Testing Stage

Screen and refine ideas to determine a single prototype to pursue for a subsequent launch/no launch decision
Multiple prototypes are typically not done

Product Testing Stage

Beta version of product is made available for trial and consumption
Ideally, the product is used in as real-world a setting as possible

Customer reactions to price point, advertising copy, distribution, etc. are also examined at this point

Test Marketing Stage

Try the product in the market on a small scale before a more expensive full-scale, commercial roll-out
Research up to this point has been highly controlled
Test marketing is more real-world

Area Test Markets

Area test markets
A few of the 40-50 small representative metropolitan areas are randomly sampled The product is made available in these markets The remaining markets serve as control markets Product is offered and ads are run in the test markets Sales are observed and compared to sales in the control markets

Electronic Test Markets

Electronic test markets are more valid than area test markets
A sample of metropolitan areas is selected Within each area, households are designated to be test or control Differences between households purchasing is attributable to households having/not having exposure to ads/access to product
Done via cable transmissions not sent to the control households, product access in stores closer to tests homes, etc.

Simulated Test Markets

Simulated test markets
Customers are recruited and given play money to shop in a simulated environment They have an opportunity to buy the new product and competitors products Advertising materials are available with competitors advertising Marketers record purchases of the new product Customers complete a survey Data is used as input to sales forecasts

Forecasting
Forecast Sales Potential
If not promising, abort launch If promising, move toward commercialization and launch

Forecasting
Market Potential
Estimate from secondary data (census, etc.) and/or relevant in-house benchmarking data

Purchase Intention
Estimate from recent marketing research
Use correction factor; customer usually overstate

Price
Determine price (chapter 8)

Timing for NPD

The process of developing new products can be relatively quick or tortuously slow
Time is money There are internal and external (copyrights, regulatory approval, etc.) causes of delay

Product Life Cycle

Product Life Cycle
Describes the evolution and duration of a product being available in the marketplace

Stages
Market Introduction Market Growth Market Maturity Market Decline

Market Introduction
Market introduction
Sales are typically low and slow Heavy promotional spending on building awareness Pricing is tricky due to no or little comparisons
Penetration: low pricing Skimming: high pricing

Market Growth
Market growth
Sales are accelerating and profits rise at first Customer awareness is stronger Advertising is intended to convey brands superiority Distribution channel coverage is greater Firms might be able to begin increasing prices Competitors enter
Either kill off each other or begin to specialize

Market Maturity
Market maturity
Industry sales level off Competition intensifies likely creating lower prices and higher promotional costs resulting in declining profits Advertising continues to try to persuade & remind Products may proliferate Weaker firms leave market Try to find new benefits & increase/maintain current prices

Market Decline
Market decline
Sales and profits are both declining Need to decide how to proceed with old product
Divest: Sell off earlier rather than later Harvest: Reduce supportive and marketing expenditures in order to extract more profits Rejuvenate: Refurbish to have new beneficial features Maintain: Appeal to a new target market

Diffusion of Innovation
Innovators: first 3-5%
Like to try new products & willing to take risks

Early adopters: next 10-15%

Even more influential as opinion leaders Not considered zealots

Early majority: next 34%

More risk averse Waiting to hear about favorable experiences

Diffusion of Innovation
Late majority next (34%)
Even more cautious Often older and more conservative Rely on consistent messages received via word of mouth

Laggards or non-adopters next 5-15%

Most risk averse Skeptical of new products Stereotypically lower in income

Customers Acceptance Varies

Acceptance of new products tends to be higher when:
New products relative advantage is clear New product is compatible with customers lifestyles New product is not overly complex New product is easily tried or sampled

Companies Vary
Companies vary in their willingness to pursue new products
Innovatorsreactors

Market pioneers have difficulty with really new products First movers may have advantages in launching incrementally new products because there is less risk Early follower firms have approximately the same survival risks

Strategic Growth
Market penetration
Sell more of same products to current markets
New ways to use the products, better pricing, better reward program, etc.

Product development
Sell new or modified products to current markets
Brand and line extensions or new variations of existing products

Strategic Growth
Market development
Sell existing products to new markets
Move internationally, appeal to younger segment, etc. May need to modify image, expand channels, etc.

Diversification
Pursue new markets with new products
More difficult

Buzz Marketing
Buzz/Viral marketing
Some new products can be newsworthy Opinion leaders create and spread buzz through word of mouth

Information technology allows more interactivity between customer and company

Blogs, social networks, websites, etc.