McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All Rights Reserved.

Recognize the various terms that pertain to products and services. LO1 Identify the ways in which consumer and business goods can be classified. Explain the significance of “newness” in new products and services as it relates to the degree of consumer learning involved. LO3 LO2 LEARNING OBJECTIVES (LO) AFTER READING CHAPTER 10, YOU SHOULD BE ABLE TO: 10-2

Describe the factors contributing to a new product’s or service’s success or failure. Explain the purposes of each step of the new-product process. LO4 LO5 LEARNING OBJECTIVES (LO) AFTER READING CHAPTER 10, YOU SHOULD BE ABLE TO: 10-3

NEW PRODUCT REVOLUTIONS: APPLE AND ITS INNOVATION MACHINE 10-4

 Apple’s Innovation Machine  How the iPhone Came About  What the iPhone Can Do NEW PRODUCT REVOLUTIONS: APPLE AND ITS INNOVATION MACHINE 10-5

THE VARIATION OF PRODUCTS PRODUCT, PRODUCT LINE, AND PRODUCT MIX LO1  Product Product  Product Line Product Line  Product Mix Product Mix Product Item Stock Keeping Unit (SKU) 10-6

Slide M’S NEW GREPTILE GRIP GOLF GLOVE: HOW TO GET TO THE TOP OF THE LEADER BOARD The Product? The Target Market? The Special Marketing Task?

THE VARIATIONS OF PRODUCTS Slide 10-6 Product  Product Line Product Line  Product Mix Product Mix Product Line and Product Mix Product Item Stock Keeping Unit (SKU)

Any physical good, service, or idea that satisfies a want or need; plus anything that would enhance the product in the eyes of the consumers, such as the brand PRODUCT

● Product Line ● Group of products that are physically similar or are intended for a similar market PRODUCT LINE & PRODUCT MIX

● Product Line ● Product Item – a specific product as noted by a unique brand, size, or price ● Stock Keeping Unit (SKU) – a unique identification number that defines an item for ordering or inventory purposes PRODUCT LINE & PRODUCT MIX

Slide 10-7 Little Remedies How does an extensive product line benefit both consumers and retailers?

● Product Mix ● Combination of manufacturer’s product lines PRODUCT LINE & PRODUCT MIX

 Theme parks & resorts  ABC Television Network  TV & radio stations  Film studios & production  Video programs & licensing  Consumer products  Publishing MICKEY MOUSE’S PRODUCT MIX

● Creation of real or perceived differences ● Actual product differences are sometimes quite small ● Marketers must create a unique, attractive image PRODUCT DIFFERENTIATION

Little Remedies How does an extensive product line benefit both consumers and retailers? LO

THE VARIATION OF PRODUCTS CLASSIFYING PRODUCTS LO1  I. Type of User Consumer Goods Business Goods 10-17

● Consumer ● Purchased by the ultimate consumer ● Sometimes called B2C Goods I.Type Of User

● Business ● Purchased for use in production of other goods and services ● Sometimes called business goods, B2B goods, industrial goods, organizational or commercial goods ● Some products can be considered both consumer and business items I.Type Of User

CLASSIFYING CONSUMER AND BUSINESS GOODS Slide 10-9  Convenience Goods Convenience Goods Classification of Consumer Goods  Shopping Goods Shopping Goods  Specialty Goods Specialty Goods  Unsought Goods Unsought Goods

Slide Convenience Goods Convenience goods – items that the consumer purchases frequently, conveniently, and with a minimum of shopping effort.

Slide Shopping Goods Shopping Goods – items for which the consumer compares several alternatives on criteria, such as price, quality, or style.

Slide Specialty Goods Specialty Goods – items that a consumer makes a special effort to search out and buy.

Slide Unsought Goods Unsought Goods – items that the consumer either does not know about or knows about but does not initially want.

FIGURE 10-1 FIGURE 10-1 How a consumer good is classified affects what products consumers buy and the marketing strategies used 10-25

Rolex Watch What type of consumer good? LO

CLASSIFYING CONSUMER AND BUSINESS GOODS CLASSIFYING BUSINESS GOODS LO2  Production Goods Production Goods  Support Goods Support Goods Supplies Industrial Services Installations Accessory Equipment 10-27

● Classification of Business Goods ● Major characteristic is that sales are often result of derived demand PRODUCT DIFFERENTIATION CLASSIFYING CONSUMER AND BUSINESS GOODS

● Classification of Business Goods ● Production Goods ● Items used in manufacturing process that become part of final product, e.g., raw materials or component parts PRODUCT DIFFERENTIATION CLASSIFYING CONSUMER AND BUSINESS GOODS

● Support Goods ● Items used to assist in producing other goods and services ● Include : ● Installations ● Accessory Equipment ● Supplies ● Industrial Services PRODUCT DIFFERENTIATION CLASSIFYING CONSUMER AND BUSINESS GOODS

● Support Goods ● Installations – buildings and fixed equipment ● Industrial buyers deal directly with construction companies and manufacturers through sales reps ● Pricing is often through competitive bidding PRODUCT DIFFERENTIATION CLASSIFYING CONSUMER AND BUSINESS GOODS

● Support Goods ● Accessory Equipment – tools and office equipment ● Usually purchased in small-order sizes by buyers PRODUCT DIFFERENTIATION CLASSIFYING CONSUMER AND BUSINESS GOODS

● Support Goods ● Supplies ● Similar to consumer convenience goods and purchased with little effort through straight rebuy e.g., copier paper, brooms, paper clips ● Price and delivery are key factors PRODUCT DIFFERENTIATION CLASSIFYING CONSUMER AND BUSINESS GOODS

● Support Goods ● Industrial Services – intangible activities to assist industrial buyers ● Maintenance and repair, legal or tax counsel PRODUCT DIFFERENTIATION CLASSIFYING CONSUMER AND BUSINESS GOODS

THE VARIATION OF PRODUCTS CLASSIFYING PRODUCTS LO1  II. Degree of Tangibility Nondurable Goods Durable Goods Services 10-35

1. Non-durable Goods ● Consumed in one or a few uses ● E.g., food products or fuel ● Tends to be inexpensive and purchased frequently ● Consumer advertising and wide distribution II.Degree of Tangibility

2. Durable Goods ● Last over an extended number of uses ● E.g., appliances, automobiles ● Generally cost more and last longer ● Personal selling is important marketing activity in answering consumer questions II.Degree of Tangibility, cont.

3. Services ● Intangible activities, benefits, or satisfactions offered for sale ● E.g., marketing research, health care ● Special marketing needed to communicate benefits to potential buyers II.Degree of Tangibility, cont.

● “New-product” development is often difficult to observe step by step III.Services and New-Product Development

Slide Concept Check 1. Explain the difference between product mix and product line. A: The product mix is the number of product lines offered by a company. A product line is a group of products or services 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.

Slide Concept Check 2. What are the four main types of consumer goods? A: convenience goods, shopping goods, specialty goods, and unsought goods

Slide Concept Check 3. To which type of good (business or consumer) does the term derived demand generally apply? A: business

NEW PRODUCTS AND WHY THEY SUCCEED OR FAIL Slide What is a New Product?

Slide  Newness Compared with Existing Products What is a New Product?  Newness in Legal Terms  Newness from the Company’s Perspective Regular Distribution NEW PRODUCTS AND WHY THEY SUCCEED OR FAIL WHAT IS A NEW PRODUCT?

Slide  Newness in Legal Terms (Regular Distribution) –FTC advises that term “new” be limited to use with product up to six months after entering into regular distribution NEW PRODUCTS AND WHY THEY SUCCEED OR FAIL WHAT IS A NEW PRODUCT?

Slide  Newness Compared with Existing Products –Functionally different from existing products –Additional features may be added to an existing product NEW PRODUCTS AND WHY THEY SUCCEED OR FAIL WHAT IS A NEW PRODUCT?

Slide  Newness from the Company’s Perspective –Lowest level is a product line extension – incremental improvement of an existing product –Next level – significant jump in innovation or technology –True innovation – truly new product NEW PRODUCTS AND WHY THEY SUCCEED OR FAIL WHAT IS A NEW PRODUCT?

LO3  Newness From the Organization’s Perspective Product Line Extension Significant Jump in Innovation or technology True Innovation 10-48

NEW PRODUCTS AND WHY THEY SUCCEED OR FAIL WHAT IS A NEW PRODUCT? LO3  Newness From the Company’s Perspective –Lowest level is a product line extension – incremental improvement of an existing product

NEW PRODUCTS AND WHY THEY SUCCEED OR FAIL WHAT IS A NEW PRODUCT? LO3  Newness From the Organization’s Perspective –Next level is a significant jump in innovation or technology

NEW PRODUCTS AND WHY THEY SUCCEED OR FAIL WHAT IS A NEW PRODUCT? LO3  Newness From the Organization’s Perspective –True innovation is a truly new product

NEW PRODUCTS AND WHY THEY SUCCEED OR FAIL Slide Newness from the Consumer’s Perspective Classifies products according to the degree of learning required by the consumer to use the product properly: A. Continuous Innovation B. Dynamically Continuous Innovation C. Discontinuous Innovation

NEW PRODUCTS AND WHY THEY SUCCEED OR FAIL Slide A. Continuous Innovation –No new behaviors must be learned –Effective marketing depends on generating awareness and having strong distribution –Not reeducating users

NEW PRODUCTS AND WHY THEY SUCCEED OR FAIL Slide B. Dynamically Continuous Innovation –Minor changes in behavior are required –Marketing strategy is to educate prospective buyers on their benefits, advantages, proper use

NEW PRODUCTS AND WHY THEY SUCCEED OR FAIL Slide C. Discontinuous Innovation –Consumers must learn entirely new consumption patterns –Marketing efforts involve gaining initial consumer awareness and educating consumers on both benefits and proper use of the innovative product – $$$$$$$

Slide Sony’s PlayStation 2 and Microsoft’s Xbox How does the term “new” apply? XboxPS2

Slide MARKETING NEWSNET Blindsided in the Twenty-First Century— The Convergence of Digital Devices

FIGURE 10-2 FIGURE 10-2 The degree of “newness” in a new product affects the amount of learning effort consumers exert to use the product 10-58

MARKETING MATTERS Bought a Computer, Lawn Mower, and Dishwasher? Call the Geek Squad! 10-59

FIGURE 10-A FIGURE 10-A What it takes to launch one commercially successful new product 10-60

NEW PRODUCTS AND WHY THEY SUCCEED OR FAIL WHY PRODUCTS SUCCEED OR FAIL LO4  Marketing Reasons for New-Product Failures Insignificant Points of Difference Incomplete Market and Product Definition Before Product Development Starts  Protocol Protocol Too Little Market Attractiveness 10-61

NEW PRODUCTS AND WHY THEY SUCCEED OR FAIL WHY PRODUCTS SUCCEED OR FAIL LO4  Marketing Reasons for New-Product Failures Poor Execution of the Marketing Mix Poor Product Quality or Sensitivity to Customer Needs on Critical Factors Bad Timing No Access to Buyers 10-62

General Mills Fingos Why did this product fail? LO

Thirsty Dog! and Thirsty Cat! Why did these products fail? LO

MARKETING MATTERS What Separates New-Product Winners and Losers? 10-65

FIGURE 10-3 FIGURE 10-3 Why did these two new products fail? 10-66

NEW PRODUCTS AND WHY THEY SUCCEED OR FAIL WHY PRODUCTS SUCCEED OR FAIL LO4 Not Listening to the “Voice” of the Consumer Skipping Steps in the New-Product Process  What Were They Thinking? Organizational Problems in New-Product Failure Marketing a Poorly Conceived Product Too Quickly “Groupthink” in Task Force & Committee Meetings Not Learning Lessons From Past Failures 10-67

USING MARKETING DASHBOARDS Monitoring Your New-Product Launch Household (HH) Trial and Repeat Percents 10-68

FIGURE 10-B FIGURE 10-B Strategic roles of most successful new products 10-69

The new-product process consists of the stages a firm goes through to identify business opportunities and convert them to a salable good or service New Product Process

FIGURE 10-4 FIGURE 10-4 Stages in the new-product process 10-71

New-product strategy development is the stage of the new-product process that defines the role for a new product in terms of the firm’s overall corporate objectives New-Product Strategy Development

THE NEW-PRODUCT PROCESS NEW-PRODUCT STRATEGY DEVELOPMENT LO5 SWOT Analysis  Objectives: Identify Markets and Strategic Roles Environmental Scanning  Improve Innovation: Use Cross-Functional Teams 10-73

Idea Generation Idea generation is the stage of the new-product process that involves developing a pool of concepts as candidates for new products

THE NEW-PRODUCT PROCESS IDEA GENERATION LO5  Employee and Co-Worker Suggestions  Customer and Supplier Suggestions  R&D Breakthroughs  Competitive Products  Universities, Inventors, and Small Tech Firms 10-75

Volvo’s YCC How are new-product ideas generated? LO

Screening and evaluation is the stage of the new-product process that involves internal and external evaluations of the new-product ideas to eliminate those that warrant no further effort THE NEW-PRODUCT PROCESS Screening and Evaluation

THE NEW-PRODUCT PROCESS SCREENING AND EVALUATION LO5  External Approach  Concept Tests  Internal Approach 10-78

THE NEW-PRODUCT PROCESS BUSINESS ANALYSIS AND DEVELOPMENT LO5  Business Analysis Business Analysis  Development Development 10-79

Business analysis is the stage of the new-product process that involves specifying the product features and marketing strategy and making necessary financial projections needed to commercialize a product THE NEW-PRODUCT PROCESS Business Analysis

Development is the stage of the new-product process that involves turning the idea on paper into a prototype THE NEW-PRODUCT PROCESS Development

Market testing is the stage of the new-product process that involves exposing actual products to prospective consumers under realistic purchase conditions to see if they will buy THE NEW-PRODUCT PROCESS Market Testing

THE NEW-PRODUCT PROCESS MARKET TESTING LO5  Test Marketing  Simulated Test Markets (STMs)  When Test Markets Don’t Work  Services  Expensive or Costly Products 10-83

FIGURE 10-5 FIGURE 10-5 Six important U.S. test markets 10-84

Commercialization is the stage of the new-product process that involves positioning and launching a new product in full-scale production and sales THE NEW-PRODUCT PROCESS COMMERCIALIZATION

LO5 The Risks and Uncertainties Slotting Fee Failure Fee 10-86

A slotting fee is a payment a manufacturer makes to place a new item on a retailer’s shelf THE NEW-PRODUCT PROCESS Slotting Fee

A failure fee is a penalty payment a manufacturer makes to compensate a retailer for sales its valuable shelf space failed to make THE NEW-PRODUCT PROCESS Failure Fee

THE NEW-PRODUCT PROCESS COMMERCIALIZATION LO5  Regional Rollouts 10-89

THE NEW-PRODUCT PROCESS COMMERCIALIZATION LO5  Speed as a Factor in New-Product Success Time to Market (TtM) Parallel Development Fast Prototyping 10-90

FIGURE 10-6 FIGURE 10-6 Marketing information and methods used in each stage of the new- product process 10-91

Product 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

Product Line A product line consists of 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 type of outlets, or fall within a given price range

Product Mix A product mix consists of the number of product lines offered by a company

Consumer Goods Consumer goods are products purchased by the ultimate consumer

Business Goods Business goods are products that assist directly or indirectly in providing products for resale. Also called B2B goods, industrial goods, or organizational goods

Convenience Goods Convenience goods are items that the consumer purchases frequently, conveniently, and with a minimum of shopping effort

Shopping Goods Shopping goods are items for which the consumer compares several alternatives on criteria, such as price, quality, or style

Specialty Goods Specialty goods are items that a consumer makes a special effort to search out and buy

Unsought Goods Unsought goods are items that the consumer either does not know about or knows about but does not initially want

Production Goods Production goods are items used in the manufacturing process that become part of the final product

Support Goods Support goods are items used to assist in producing other goods and services

Protocol A protocol is a statement that, before product development begins, identifies: (1) a well- defined target market; (2) specific customers’ needs, wants, and preferences; and (3) what the product will be and do

New-Product Process The new-product process consists of the stages a firm goes through to identify business opportunities and convert them to a salable good or service

New-Product Strategy Development New-product strategy development is the stage of the new-product process that defines the role for a new product in terms of the firm’s overall corporate objectives

Idea Generation Idea generation is the stage of the new-product process that involves developing a pool of concepts as candidates for new products

Screening and Evaluation Screening and evaluation is the stage of the new-product process that involves internal and external evaluations of the new-product ideas to eliminate those that warrant no further effort

Business Analysis Business analysis is the stage of the new-product process that involves specifying the product features and marketing strategy and making necessary financial projections needed to commercialize a product

Development Development is the stage of the new-product process that involves turning the idea on paper into a prototype

Market Testing Market testing is the stage of the new-product process that involves exposing actual products to prospective consumers under realistic purchase conditions to see if they will buy

Commercialization Commercialization is the stage of the new-product process that involves positioning and launching a new product in full-scale production and sales

Slotting Fee A slotting fee is a payment a manufacturer makes to place a new item on a retailer’s shelf

Failure Fee A failure fee is a penalty payment a manufacturer makes to compensate a retailer for sales its valuable shelf space failed to make