Chapter 10

Marketing: Developing New Products and Services
 


AFTER READING THIS CHAPTER
YOU SHOULD BE ABLE TO:
  • Understand the ways in which consumer and business goods and services can be classified and marketed.
  • Explain the implications of alternative ways of viewing “newness” in new products.
 
  • Analyze the factors contributing to a product’s success or failure.
  • Recognize and understand the purposes of each step of the new-product process.
 

 


DEVELOPING NEW
PRODUCTS AND SERVICES

3M:  CONTINUOUS INNOVATION
+ GENUINE BENEFITS
= SATISFIED CUSTOMERS
 

 


THE VARIATIONS OF PRODUCTS

  • Product Line and Product Mix
  • Classifying Products
  • Type of User
  • Degree of Tangibility
  • Services and New-Product Development
 

 


Product

A good, service, or idea consisting of a bundle of tangible and intangible attributes that satisfies consumers and is received in exchanges for money or some other unit of value.
 
 

 


Product Line

A group of products that are closely related because they satisfy a class of needs, are used together, are sold to the same customer group, are distributed through the same outlets, or fall within a given price range.
 
 

 


Consumer Goods

Products purchased by the ultimate consumer.
 
 

 


Business Goods

Products that assist directly or indirectly in providing products for resale.
 
 

 


CLASSIFYING CONSUMER
AND BUSINESS GOODS

  • Classification of Consumer Goods
 
 

 


Convenience Goods

Items that the consumer purchases frequently and with a minimum of shopping effort.
 
 

 


Shopping Goods

Items for which the consumer compares several alternatives on criteria such as price, quality, or style.
 

 


Specialty Goods

Items that a consumer makes a special effort to search out and buy.
 

 


Unsought Goods

Items that the consumer either does not know about or knows about but does not initially want.
 
 

 


FIGURE 10-1  Classification of consumer goods


CLASSIFYING CONSUMER
AND BUSINESS GOODS

  • Classification of Business Goods
 
 

 


Production Goods

Items used in the manufacturing process that become part of the final product.
 
 

 


Support Goods

Items used to assist in producing other goods and services.
 

 


Concept Check

1.  Explain the difference between product mix and product line.
 
A:  Product mix is the number of products lines offered by a company; product line is a group of closely related products that satisfy a class of needs, are used together, are sold to the same customer group, are distributed through the same type of outlets, or fall within a given price range.
 
2.  What are the four main types of consumer good?
 
A:  Convenience, shopping, specialty, and unsought goods
 
3.  To which type of good (business or consumer) does the term derived demand generally apply?
 
A:  Business good
 

 


NEW PRODUCTS AND WHY THEY SUCCEED AND FAIL
  • What is a New Product?
  • Newness Compared with Existing Products
  • Newness in Legal Terms
  • Newness from the Company’s Perspective
  • Newness from the Consumer’s Perspective
 

 


FIGURE 10-2  Consumption effects define newness


NEW PRODUCTS AND WHY THEY SUCCEED AND FAIL

  • Marketing Reasons for Failures
  • §Insignificant “point of difference”
  • §Incomplete market and product definition
    (Protocol)
  • §Too little market attractiveness
  • §Poor execution of the marketing mix
  • §Poor product quality or sensitivity
  • §Bad timing
  • §No economical access to buyers
  • A Look at Some Failures
  • §Kimberly Clark’s Avert
    Virucidal Tissues
  • §Out International’s Hey!
 

 

 

 


Protocol

A statement that, before product development begins, identifies (1) a well-defined target market; (2) specific customer’ needs, wants, and preferences; an (3) what the product will do.
 

 


FIGURE 10-3  Why did these new products fail?


Concept Check

1.  From a consumer’s viewpoint, what kind of innovation would an improved electric toothbrush be?
 
A:  Continuous innovation
 

2.  What does “insignificant point of difference” mean as a reason for new-product failure?

 
A:  The expected benefit compared with competitors’ offerings is not that important.
 
 

 


FIGURE 10-4  Stages in the new-product process


New-Product Process

The sequence of activities a firm uses to identify business opportunities and convert them to a salable good or service.
 

 


THE NEW-PRODUCT PROCESS
  • Objectives of the Stage:  Identify Markets and Strategic Roles
  • 3M:  Cross-Functional Teams, Six Sigma, and Lead Users
  • Customer and Supplier Suggestions
  • Employee and Co-Worker Suggestions
  • Research and Development Breakthroughs
  • Competitive Products
  • Internal Approach
  • External Approach
 

 


New-Product
Strategy Development

Defining the role for a new product in terms of the firm’s overall corporate objectives.
 
 

 


Six Sigma

A means to “delight the customer” by achieving quality through a highly disciplined process to focus on developing and delivering near-perfect products and services.
 
 

 


Idea Generation

Developing a pool of concepts as candidates for new products.
 
 

 


Screening and Evaluation

The third stage of the new product process which involves internal and external evaluations of the new-product ideas to eliminate those that warrant no further effort.
 
 

 


Concept Check

1.  What step in the new-product process has been added in recent years?
 
A:  New product strategy development.
 
2.  What are four sources of new-product ideas?
 
A:  Customer and supplier suggestions, employee and co-worker suggestions, research and development, competitive products
 
3.  What is the difference between internal and external screening and evaluation approaches used by a firm in the new-product process?
A:  In internal screening, company employees evaluate the technical feasibility of new-product ideas, whereas in external screening, evaluation consists of preliminary testing of the concept with consumers rather than the actual product.
 
 

 


THE NEW-PRODUCT PROCESS

  • Simulated Test Markets
  • When Test Markets Don’t Work

 

 

 


Business Analysis

Involves specifying the features of the product and the marketing strategy needed to commercialize it and making necessary financial projections.
 
 

 


Development

Turning the idea on paper into a prototype.
 

 


Market Testing

Exposing actual products to prospective consumers under realistic purchase conditions to see if they will buy.
 
 

 


FIGURE 10-5  Six important U.S. test markets


THE NEW-PRODUCT PROCESS

  • Burger King’s French Fries:  The Complexities of Commercialization
  • The Risks and Uncertainties of the Commercialization Stage
  • Speed as a Factor in New-Product Process
 

 


Commercialization

Positioning and launching a new product in full-scale production and sales.
 
 

 


Slotting Fee

Payment manufacturer makes to place a new item on a retailer’s shelf.
 
 

 


Failure Fee

A penalty payment made by a manufacturer to compensate the retailer for sales its valuable shelf space never made.
 
 

 


FIGURE 10-6  Marketing information and methods
used in the new-product process


Concept Check

1.  How does the development stage of the new-product process involve testing the product inside and outside the firm?
 
A:  Internally, laboratory tests are done to see if the product achieves the physical standards.  Externally, consumer tests are done.
 
2.  What is a test market?
A:  A test done to determine whether consumers will actually buy the product and to try different ways of marketing it.
 
3.  What is the commercialization of a new product?
 
A:  Positioning and launching the product in full-scale production and sales.
 
 

 


Chapter 10 - Summary

 

  1. A product is a good, service, or idea consisting of a bundle of tangible and intangible attributes that satisfies consumers and is received in exchange for money or some other unit of value. A company's product decisions involve the product item, product line, and range of its product mix.
  2. Products can be classified by user and tangibility. By user, the major distinctions are consumer or business goods. Consumer goods consist of convenience, shopping, and specialty products. Business goods are for either production or support. By degree of tangibility, products divide into nondurable goods, durable goods, and services.
  3. There are several ways to define a new product, such as the degree of distinction from existing products, a time base specified by the FTC, a company perspective, or effect on a consumer's usage pattern.
  4. In terms of its effect on a consumer's use of a product, a discontinuous innovation represents the greatest change and a continuous innovation the least. A dynamically continuous innovation is disruptive but not totally new.
  5. The failure of a new product is usually attributable to one of seven marketing reasons: insignificant point of difference, incomplete market and product definition before product development begins, too little market attractiveness, poor execution of the marketing mix, poor product quality on critical factors, bad timing, and no economical access to buyers.
  6. The new-product process consists of seven stages. Objectives for new products are determined in the first stage, new-product strategy development; this is followed by idea generation, screening and evaluation, business analysis, development, market testing, and commercialization.
  7. Ideas for new products come from several sources, including consumers, employees, R&D laboratories, and competitors.
  8. Screening and evaluation can be done internally or externally.
  9. Business analysis involves defining the features of the new product, a marketing strategy to introduce it, and a financial forecast.
  10. Development involves not only producing a prototype product but also testing it in the lab and on consumers to see that it meets the standards set for it.
  11. In market testing new products, companies often rely on market tests to see that consumers will actually buy the product when it's offered for sale and that other marketing mix factors are working. Products surviving this stage are commercialized-taken to market.

 

 


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