Chapter 11 Developing and Managing Products

“When you innovate, you’ve got to be prepared for everyone telling you you’re nuts.” Larry Ellison, Founder Oracle Corporation 2

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 services The greatest rewards go to companies that create new business models First mover advantage And we are happy-..er…

Types of innovations ……………innovations - normal upgrading, no change in user behaviors. New to the market New to seller New to producer ………………..innovations/Destructive creation – require users to change behaviors. New-to-the-world products.

3. Business Analysis New Product Development Process 1. Idea Generation Screening ……….marketing 6. Commercialization By many -- employees, customers, suppliers, distributors, competitors Reduce # quickly Alternative versions, describe in consumer terms Physical product, $$$

New Product Development Process 2. Idea Screening (what do we have? +/-) In pharmacy, 1 of 5,000 new drug ideas is common In autos, 1 of 20 new car concepts is made to prototype Point? Brainstorm, then cut via research Short and long run $ performance Social issues: Consumer welfare (Ben and Jerry’s) Safety ( Marlboro cigarettes) – liability (McDonald’s hot coffee)

New Product Development Process 3. Business Analysis Examine consumer perceptions Consider view of retailers and wholesaler 4. 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 strategy Longest process (Minute Rice took 18 years!)

Concept Test A test to evaluate a new-product idea, usually before any prototype has been created.

Test Marketing Standard Test Market +Costs +Brand Equity -Jamming -Duplication Limited introduction in a small market supported by a full-fledged marketing campaign to gauge customer reactions

Product Life Cycle:PLC A concept that provides a way to trace the stages of a product’s acceptance, from its introduction (birth) to its decline (death).

Product Life Cycles Time Dollars Introduction ………… ………….. Decline Industry ……….. ……….. Industry ………. ………. 0

Product Life Cycles Strategies Time INTRODUCTIONGROWTHMATURITYDECLINE Product Strategy Distribution Strategy Promotion Strategy Pricing Strategy Limited models Frequent changes More models Frequent changes. Large number of models. Eliminate unprofitable models Limited Wholesale/ retail distributors Expanded dealers. Long- term relations Extensive. Margins drop. Shelf space Phase out unprofitable outlets Awareness. Stimulate demand.Sampling Aggressive ads. Stimulate demand Advertise. Promote heavily Phase out promotion High to recoup development costs Fall as result of competition & efficient produc- tion. Prices fall (usually). Prices stabilize at low level. Sales

Examples INTRODUCTIONGROWTHMATURITYDECLINE Third generation mobile phones Transition lenses Personal Computers Typewriters E-conferencing Faxes Handwritten letters All-in-one racing skin-suits Breathable synthetic fabrics Beer, AutosVCR iris-based personal identity cards Smart cardsCredit cardsCheque books

Some misconceptions about PLC At 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?

Product Life Cycles Time INTRODUCTIONGROWTHMATURITYDECLINE Product Strategy Distribution Strategy Promotion Strategy Pricing Strategy Limited models Frequent changes More models Frequent changes. Large number of models. Eliminate unprofitable models Limited Wholesale/ retail distributors Expanded dealers. Long- term relations Extensive. Margins drop. Shelf space Phase out unprofitable outlets Awareness. Stimulate demand.Sampling Aggressive ads. Stimulate demand Advertise. Promote heavily Phase out promotion High to recoup development costs Fall as result of competition & efficient produc- tion. Prices fall (usually). Prices stabilize at low level. Sales

Extending the PLC Change product Change product use Change product image Change product positioning What already presented tool can help us out here?

Product Life Cycle Factors that may speed products through PLC: 1. Ease of trial 2. Ease of use 3. Easy to communicate advantages 4. Compatible with customer experience

The Consumer Adoption Process Adoption process: series of stages for which consumers decide whether or not to become a regular user of a new product, including: Awareness Interest Evaluation Trial Adoption or rejection

Diffusion The process by which the ………….of an innovation spreads.

Adopter Categories ….

Diffusion Process and PLC Curve Innovators Early adopters Early majority Late majority Laggards Product life cycle curve Diffusioncurve Introduction Growth Maturity Decline Sales

How do we use the Diffusion of innovation theory? - MM can predict which types of customers will buy their products immediately after introduction or later Can develop effective MMix

Product Characteristics and the Rate of Adoption Trialability Observability Relative Advantage Compatibility Complexity