Chapter 7 Marketing Research and Decision Support Systems

Chapter 11Developing and Managing Products

When you innovate, youve got to be prepared for everyone telling you youre nuts. Larry Ellison, Founder Oracle Corporation2

http://www.achievement.org/autodoc/page/ell0bio-1 First flight! Dec. 17th 1903, Orville at the controls, 12 seconds, 120 feet.3

How do we create value through innovation?Over half of all growth in the United States comes from new products and servicesThe greatest rewards go to companies that create new business models First mover advantageAnd we are happy-..er4Types of innovationsinnovations - normal upgrading, no change in user behaviors.New to the marketNew to sellerNew to producer

..innovations/Destructive creation require users to change behaviors. New-to-the-world products.

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3. Business AnalysisNew Product Development Process

1. IdeaGeneration2. ...........Screening4. ...................5. .marketing6. CommercializationBy many -- employees, customers, suppliers, distributors, competitorsReduce # quicklyAlternative versions,describe in consumer termsPhysical product, $$$6New Product Development Process2. Idea Screening (what do we have? +/-)In pharmacy, 1 of 5,000 new drug ideas is commonIn autos, 1 of 20 new car concepts is made to prototypePoint? Brainstorm, then cut via researchShort and long run $ performanceSocial issues:Consumer welfare (Ben and Jerrys)Safety ( Marlboro cigarettes) liability (McDonalds hot coffee)7New Product Development Process3. Business AnalysisExamine consumer perceptionsConsider view of retailers and wholesaler4. Development (can go hand-in-hand with analysis)Product tests (New Coke, movies)Risky: (leaks, skewed results)Virtual product development: examine without construction Prototype product and marketing strategyLongest process (Minute Rice took 18 years!)8Concept TestConcept TestA test to evaluate a new-product idea, usually before any prototype has been created.

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Test MarketingStandardTest Market

+Costs+Brand Equity -Jamming-Duplication

Limited introduction in a small market supported by a full-fledged marketing campaign to gauge customer reactions10Product Life Cycle:PLCA concept that provides a way to trace the stages of a products acceptance, from its introduction (birth) to its decline (death).11Strengths The product life cycle is considered as both straightforward and powerful model. By using the model as guidance, effective and timely marketing will take the product through each stage and can be planned in advance. The product life cycle can also be use to alert the marketer, when the product is in the stages of growth and maturity, to integrate extension strategies during this period to maintain the high profit level.

Weaknesses It is hard to tell which stage the product is in, as there are constant short-term fluctuations due to external factors, consequently marketing actions could be taken too early or too late. By failing recognize the stage of product in the product life cycle model; it can cause business failure for especially a small business.

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Product Life Cycles

TimeDollarsIntroduction .. DeclineIndustry ..Industry .012Marketing objectiveGain AwarenessStress differentiationMaintain brand loyaltyHarvesting, deletionCompetitionNoneGrowingManyReducedProductOneMore versionsFull product lineBest sellersPriceSkimming or penetrationGain share, dealDefend share, profitStay profitablePromotionInform, educateStress competitive differencesReminder orientedMinimal promotionPlace(distribution)LimitedMore outletsMaximum outletsFewer outletsContinuous: no new behaviors must be learned (new and improved)Dynamically continuous: some learning (Electric toothbrush, cd player)Discontinuous innovation: extensive learning (computers)

NOTE: Link to product diffusion.Consumers attitudes and needs changeCompetition changesVarious target markets at diff stagesSales changes over the 4 stages

Product Life Cycles StrategiesTimeINTRODUCTIONGROWTHMATURITYDECLINEProductStrategyDistributionStrategyPromotionStrategyPricingStrategyLimited modelsFrequent changesMore modelsFrequent changes.Large number of models.

Eliminate unprofitable modelsLimitedWholesale/retail distributorsExpanded dealers. Long-term relationsExtensive.Margins drop.Shelf spacePhase out unprofitable outletsAwareness. Stimulate demand.SamplingAggressive ads.StimulatedemandAdvertise. Promote heavilyPhase outpromotion

High to recoupdevelopment costsFall as result ofcompetition &efficient produc-tion.Prices fall (usually).Prices stabilize at low level.Sales13ExamplesINTRODUCTIONGROWTHMATURITYDECLINEThird generation mobile phonesTransition lensesPersonal ComputersTypewritersE-conferencingEmailFaxesHandwritten lettersAll-in-one racing skin-suits Breathable synthetic fabricsBeer, AutosVCRiris-based personal identity cards Smart cardsCredit cardsCheque books14Some misconceptions about PLCAt the level of the category and not the brand Cell phones not CINGULAR wireless. However, in practice is used both ways..

Different products go through the stages differently.

Timing of stages may vary substantially.What other advantages do you see for a M. Manager?

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16Product Life CyclesTimeINTRODUCTIONGROWTHMATURITYDECLINEProductStrategyDistributionStrategyPromotionStrategyPricingStrategyLimited modelsFrequent changesMore modelsFrequent changes.Large number of models.

Eliminate unprofitable modelsLimitedWholesale/retail distributorsExpanded dealers. Long-term relationsExtensive.Margins drop.Shelf spacePhase out unprofitable outletsAwareness. Stimulate demand.SamplingAggressive ads.StimulatedemandAdvertise. Promote heavilyPhase outpromotion

High to recoupdevelopment costsFall as result ofcompetition &efficient produc-tion.Prices fall (usually).Prices stabilize at low level.Sales17

Extending the PLC

Change product

Change product use

Change product image

Change product positioning

What already presented tool can help us out here?Introduce new variations of the original product, e.g. a childrens version2) Use a new advertising campaign3) Sell into new markets, e.g. export the product to another country4) Introduce a new, improved version of the product5) Sell through additional, different retail outlets6) Modify the 'augmented product'. Services can be added where none existed before -- adding free set-up and delivery are good examplesAdvertising try to gain a new audience or remind the current audience, e.g. the recent Kelloggs Cornflakes adverts.Price reduction more attractive to customers.Adding value add new features to the current product, e.g. video messaging on mobile phones.Explore new markets try selling abroad, e.g. Robbie Williams trying to sell more records in the US.New packaging brightening up old packaging, or subtle changes such as putting crisps in foil packets or Seventies music compilations.

19Product Life CycleFactors that may speed products through PLC:Ease of trialEase of useEasy to communicate advantagesCompatible with customer experience20The Consumer Adoption ProcessAdoption process: series of stages for which consumers decide whether or not to become a regular user of a new product, including:AwarenessInterestEvaluationTrialAdoption or rejection21DiffusionDiffusion

The process by which the .of an innovation spreads.22Four Key Elements: The innovation The communication process and channels The adoption time The social systems involved

Adopter Categories

..23Diffusion Process and PLC CurveInnovatorsEarly adoptersEarly majorityLate majorityLaggardsProductlife cyclecurveDiffusioncurveIntroductionGrowthMaturityDeclineSales24How do we use the Diffusion of innovation theory?- MM can predict which types of customers will buy their products immediately after introduction or laterCan develop effective MMix25Product Characteristics and the Rate of AdoptionTrialabilityObservabilityRelative AdvantageCompatibilityComplexity26