1. Chapter 8 Create the Product

2. Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall8-2 Chapter Objectives  Articulate the value proposition  Explain the layers of a product  Describe how marketers classify products  Understand the importance and types of product innovations  Show how firms develop new products  Explain the process of product adoption and the diffusion of innovations

3. Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall8-3 Real People, Real Choices: Decision Time at Bossa Nova Beverages  Which method should be used to add açai juice into the current product line? –Option 1: Add the açai juice ingredient to one of the Bossa Nova’s existing products –Option 2: Create a new line of pure açai juices with new packaging –Option 3: Focus on a single line of açai products by promoting the high antioxidant aspect of açai products; divest other brands

4. Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall8-4 Build a Better Mousetrap: The Value Proposition  Value proposition: –Benefits the consumer will receive when buying the product  Product: –Tangible good, service, or idea that satisfies customer needs  Good: –A tangible product, something we can see, touch, smell, hear, taste, or possess  Intangible products: –Services, ideas, people, places

5. Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall8-5 Layers of the Product Concept  Core product: –All the benefits the product will provide  Actual product: –Physical good or delivered service that supplies the desired benefits  Augmented product: –Actual product plus supporting features such as warranty, credit, delivery, installation, and repair service after the sale

6. Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall8-6 How Marketers Classify Products  Consumer products –Durable –Nondurable –Convenience products –Shopping products –Specialty products –Unsought products  Business-to- business products –Equipment –Maintenance, repair & operating products –Raw materials –Processed materials –Specialized services –Component parts

7. Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall8-7 Classifying Goods: How Long Does the Product Last?  Durable goods provide benefits over a period of months, years, decades –Examples: automobile, washing machine  Nondurable goods are consumed in the short term –Examples: newspapers, beverages, printer cartridges

8. Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall8-8 Classifying Goods: How Do Consumers Buy the Product?  Convenience products are frequently purchased –Staples (milk) –Impulse products (candy bar) –Emergency products (drain opener)  Shopping products are purchased with considerable time and effort –Attribute based (shoes) –Price based (water heater)

9. Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall8-9 Classifying Goods: How Do Consumers Buy the Product?  Specialty products have unique characteristics important to buyers – Rolex watch  Unsought products are those in which consumers have little interest until a need arises –Burial plots

10. Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall8-10 Business-to-Business Products  B2B products are classified by how organizational customers use them –Equipment is used in daily operations –Maintenance, repair, and operating (MRO) goods are consumed relatively quickly –Raw materials are products of fishing, lumber, agricultural, and mining industries that are used in the manufacture of finished goods

11. Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall8-11 Business-to-Business Products  B2B products are classified by how organizational customers use them –Processed materials are created when raw materials are transformed from their original state –Specialized services are purchased from outside suppliers and may be equipment based or non- equipment based –Component parts are manufactured goods or subassemblies of finished goods that organizations need to complete their own products

12. Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall8-12 “New and Improved” The Process of Innovation  Innovation: A product that customers perceive to be new and different from existing products  The Federal Trade Commission says: – A product must be entirely new or changed significantly to be called new, and – A product may be called “new” for only six months

13. Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall8-13 It’s Important to Understand How Innovations Work  Successful innovations spread throughout the population  Technology is advancing at a dizzying pace  New products are expensive to develop and even more costly if they fail  New products can contribute to society

14. Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall8-14 Types of Innovations  Innovations differ in their degree of newness and can be classified along a continuum in terms of the amount of disruption/change they bring to people’s lives –Continuous innovations –Dynamically continuous innovations –Discontinuous innovations

15. Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall8-15 Continuous Innovations  Continuous innovations: A modification to an existing product –Most common form of innovation –Consumers don’t need to learn anything new; change is minimal –Examples: brand extensions, line extensions –Knockoffs copy (with slight modification) the design of an original product

16. Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall8-16 Dynamically Continuous Innovation  Dynamically continuous innovation: A pronounced modification to an existing product –Requires a modest amount of learning or behavior change –Convergence: The coming together of two or more technologies to create a new system with greater benefit than its parts

17. Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall8-17 Discontinuous Innovations  Discontinuous innovation: A totally new product –Creates major changes in the way we live –Consumers must engage in a great deal of new learning –Examples: microwave ovens when first introduced as an alternative to traditional ovens

18. Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall8-18 Developing New Products  New-product development is a continuous process of looking for entirely new products or for ways to make an existing product better  Successfully introducing new products is becoming more difficult –R&D costs are enormous –Products become obsolete faster –Slotting fees are high

19. Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall8-19 Phases in New-Product Development  Phase 1: Idea generation –Brainstorming products that provide customer benefits and which are compatible with the firm’s mission  Phase 2: Product-concept development and screening –Product ideas are tested for technical and commercial success  Phase 3: Marketing strategy development –Developing a strategy to introduce the product to the marketplace –May involve green marketing

20. Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall8-20 Phases in New-Product Development  Phase 4: Business analysis –The product’s commercial viability is assessed in this phase  Phase 5: Technical development –Firm engineers refine and perfect the new product –Prototypes or test versions of the proposed product are developed (in R&D department)

21. Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall8-21 Phases in New-Product Development  Phase 6: Test marketing –The complete marketing plan is tested in a small geographic area similar to the larger market  Phase 7: Commercialization –The new product is launched into the market –Full-scale production, distribution, advertising, and sales promotion are begun

22. Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall8-22 Adoption and Diffusion  Product adoption: –Process by which a consumer or business customer begins to buy and use a new good, service, or idea  Diffusion: –Process by which the use of a product spreads throughout a population –The point where a product’s sales spike from a slow climb to a new level is called the tipping point

23. Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall8-23 Stages in Consumer Adoption of a New Product  Awareness: –Massive advertising is used to generate awareness that the innovation exists  Interest: –Prospective adopters see how the new product might satisfy a need –Consumers are open to information –Teaser advertising may be used to stimulate interest

24. Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall8-24 Stages in Consumer Adoption of a New Product  Evaluation: –Consumers weigh the costs/benefits –Impulse purchases are typically made with little evaluation  Trial: –Potential adopters experience or use the product for the first time –Sales promotions and product demos are critical for generating trial

25. Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall8-25 Stages in Consumer Adoption of a New Product  Adoption: –The prospect buys the product or agrees with the new idea  Confirmation: –After adoption, the consumer weighs the expected vs. actual benefits and costs –Marketers can reinforce the consumer’s choice via marketing communications

26. Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall8-26 Innovation and Adoption  Diffusion of innovation adopter categories –Innovators –Early adopters –Early majority –Late majority –Laggards  Factors affecting the rate of adoption –Relative advantage –Compatibility –Complexity –Trialability –Observability

27. Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall8-27 How Organizational Differences Affect Adoption  Innovators: –Are new, smaller, or younger firms  Early-adopter firms: –Are market-share leaders  Late-majority firms: –Prefer the status quo and have large investments in existing production technology  Laggard firms: –Are probably already losing money

28. Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall8-28 Real People, Real Choices: Decision Made at Bossa Nova  Bossa Nova clung to options 1 and 2 for several months but in the end chose option 3 –Implementation: Bossa Nova Açai juice was introduced in Mango, Passion Fruit, and Original flavors. Venture capital funding allowed the firm to grow by 300% annually and products are in all major retailers today –Measuring success: Sales were compared to carbonated beverage run-rates

29. Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall8-29 Keeping It Real: Fast-Forward to Next Class Decision Time at Petters  Meet Tom Petters, chairman and CEO of Petters Group Worldwide  Petters Group began as a licensee of the Polaroid brand; Polaroid currently faces many challenges  The decision to be made: What role should Polaroid play in the future of Petters Group?

30. Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall8-30 Copyright © 2009 Pearson Education, Inc. Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Printed in the United States of America.