Chapter 10 Developing and Managing Products

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

3. Business Analysis NPD Process 1. Idea Generation 2. Idea Screening 4. Development 5. Test marketing 6. Commercialization Many -- employees, customers, suppliers, distributors, competitors Reduce # quickly Alternative versions, describe in consumer terms Physical product, $$$

New Product Development 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 3. Business Analysis Examine consumer perceptions (Coors banquet beer) Consider view of retailers and wholesaler (Frito Lay) 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 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 Growth Maturity Decline Industry Sales Sales Industry Profits Profits 0

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

Some misconceptions about PLC At the level of the category and not the brand – Cell phones not CINGULAR wireless. Different products go through the stages differently. Timing of stages may vary substantially.

Product Life Cycle Criticisms: Self fulfilling prophecy All do not follow pattern Product may be in different stages by the market What do you see are the advantages of the PLC? Why should m.managers care?

Product Life Cycle Factors that may speed products through PLC: 1. Ease of trial (supermarkets, no risk, test drive) 2. Ease of use (some assembly required; Toys R Us (bike); Gateway store) 3. Easy to communicate advantages (Always low price; cars) 4. Compatible with customer experience (Poland & free samples)

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 adoption of an innovation spreads.

Adopter Categories

LO 6 Diffusion Process and PLC Curve Innovators Early adopters Early majority Late majority Laggards Product life cycle curve Diffusioncurve Introduction Growth Maturity Decline Sales

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