Create the Product Chapter Eight © 2012 Pearson Education, Inc. publishing as Prentice-Hall.

8-2 © 2012 Pearson Education, Inc. publishing as Prentice-Hall. Chapter Objectives  Explain how value is derived through different product layers  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

8-3 © 2012 Pearson Education, Inc. publishing as Prentice-Hall. 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 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 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 Option 3: Focus on a single line of açai products by promoting the high antioxidant aspect of açai products; divest other brands

8-4 © 2012 Pearson Education, Inc. publishing as Prentice-Hall. Build a Better Mousetrap - And Add Value  Value proposition: Benefits the consumer will receive when buying the product Benefits the consumer will receive when buying the product  Product: Tangible good, service, or idea that satisfies needs; a bundle of attributes Tangible good, service, or idea that satisfies needs; a bundle of attributes  Good: A tangible product, something we can see, touch, smell, hear, taste, or possess A tangible product, something we can see, touch, smell, hear, taste, or possess  Intangible products: Services, ideas, people, places Services, ideas, people, places

8-5 © 2012 Pearson Education, Inc. publishing as Prentice-Hall. Layers of the Product Concept  Core product: All the benefits the product will provide All the benefits the product will provide  Actual product: Physical good or delivered service that supplies the desired benefits 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 Actual product plus supporting features such as warranty, credit, delivery, installation, and repair service

8-6 © 2012 Pearson Education, Inc. publishing as Prentice-Hall. How Marketers Classify Products How Long Does the Product Last?  Durable goods provide benefits over a period of months, years, decades Examples: furniture, appliances, and cars Examples: furniture, appliances, and cars  Nondurable goods are consumed in the short term Examples: newspapers, beverages, and printer cartridges Examples: newspapers, beverages, and printer cartridges

8-7 © 2012 Pearson Education, Inc. publishing as Prentice-Hall.  Convenience products are frequently purchased: Staples (milk) Staples (milk) Impulse products (candy bar) Impulse products (candy bar) Emergency products (drain opener) Emergency products (drain opener)  Shopping products are purchased with considerable time and effort: Price, quality, and attributes are key Price, quality, and attributes are key Shopbots facilitate comparisons Shopbots facilitate comparisons How Marketers Classify Products: How Do Consumers Buy the Product?

8-8 © 2012 Pearson Education, Inc. publishing as Prentice-Hall.  Specialty products have unique characteristics important to buyers at almost any price Example: Rolex watch Example: Rolex watch  Unsought products are those in which consumers have little interest until a need arises Example: Burial plots Example: Burial plots Classifying Goods: How Do Consumers Buy the Product?

8-9 © 2012 Pearson Education, Inc. publishing as Prentice-Hall. Business-to-Business Products  B2B products are classified by how organizational customers use them: Equipment is used in daily operations Equipment is used in daily operations Maintenance, repair, and operating (MRO) goods are consumed relatively quickly 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 Raw materials are products of fishing, lumber, agricultural, and mining industries that are used in the manufacture of finished goods

8-10 © 2012 Pearson Education, Inc. publishing as Prentice-Hall. 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 Processed materials are created when raw materials are transformed from their original state Specialized services are purchased from outside suppliers; equipment or non-equipment based Specialized services are purchased from outside suppliers; equipment or non-equipment based Component parts are manufactured goods or subassemblies of finished goods Component parts are manufactured goods or subassemblies of finished goods

8-11 © 2012 Pearson Education, Inc. publishing as Prentice-Hall. “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 must be entirely new or changed significantly to be called “new”, and A product may be called “new” for only six months A product may be called “new” for only six months

8-12 © 2012 Pearson Education, Inc. publishing as Prentice-Hall. Types of Innovations  Innovations: differ in their degree of newness differ in their degree of newness can be classified along a continuum in terms of the amount of disruption/ change they bring to people’s lives can be classified along a continuum in terms of the amount of disruption/ change they bring to people’s lives  Types of innovation: Continuous innovations Continuous innovations Dynamically continuous innovations Dynamically continuous innovations Discontinuous innovations Discontinuous innovations

8-13 © 2012 Pearson Education, Inc. publishing as Prentice-Hall. Continuous Innovations  Continuous innovations: A modification to an existing product Sets a brand apart from the competition Sets a brand apart from the competition Consumers don’t need to learn anything new; change is minimal Consumers don’t need to learn anything new; change is minimal  Examples: brand extensions, line extensions Knockoffs copy (with slight changes) the design of an original product Knockoffs copy (with slight changes) the design of an original product

8-14 © 2012 Pearson Education, Inc. publishing as Prentice-Hall. Dynamically Continuous Innovation  Dynamically continuous innovation: A pronounced modification to an existing product Requires a modest amount of learning or behavior change 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 Convergence: The coming together of two or more technologies to create a new system with greater benefit than its parts

8-15 © 2012 Pearson Education, Inc. publishing as Prentice-Hall. Discontinuous Innovations  Discontinuous innovation: A totally new product Creates major changes in the way we live Creates major changes in the way we live Consumers must engage in a great deal of new learning Consumers must engage in a great deal of new learning  Examples: microwave ovens when first introduced as an alternative to traditional ovens

8-16 © 2012 Pearson Education, Inc. publishing as Prentice-Hall. How Do We Measure Innovation?  Measuring innovation is complicated.  Innovation should be measured with respect to: Firm strategy Firm strategy Firm culture Firm culture Outcomes of innovation Outcomes of innovation

8-17 © 2012 Pearson Education, Inc. publishing as Prentice-Hall. Developing New Products  New-product development (NPD) The phases by which firms develop new products including idea generation, product concept development and screening, marketing strategy development, business analysis, technical development, test marketing, and commercialization

8-18 © 2012 Pearson Education, Inc. publishing as Prentice-Hall. New-Product Development  Phase 1: Idea generation Brainstorming product ideas that provide customer benefits and which are compatible with the firm’s mission Brainstorming product ideas 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 Product ideas are tested for technical and commercial success  Phase 3: Marketing strategy development Developing a strategy to introduce the product to the marketplace Developing a strategy to introduce the product to the marketplace

8-19 © 2012 Pearson Education, Inc. publishing as Prentice-Hall. New-Product Development  Phase 4: Business analysis The product’s commercial viability is assessed The product’s commercial viability is assessed  Phase 5: Technical development Firm engineers refine and perfect the new product Firm engineers refine and perfect the new product Prototypes or test versions of the proposed product are developed (in R&D department) Prototypes or test versions of the proposed product are developed (in R&D department) The firm may need to apply for a patent The firm may need to apply for a patent

8-20 © 2012 Pearson Education, Inc. publishing as Prentice-Hall. New-Product Development  Phase 6: Test marketing: The complete marketing plan is tested in a small geographic area similar to the larger market 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 The new product is launched into the market Begin full-scale production, distribution, advertising, and sales promotion Begin full-scale production, distribution, advertising, and sales promotion

8-21 © 2012 Pearson Education, Inc. publishing as Prentice-Hall. Adoption and Diffusion of New Products  Product adoption: Process by which a consumer or business customer begins to buy and use a new good, service, or idea 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 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

8-22 © 2012 Pearson Education, Inc. publishing as Prentice-Hall. Stages in Consumers’ Adoption of a New Product  Awareness: Massive advertising is used Massive advertising is used  Interest: Prospective adopters see how the new product might satisfy a need Prospective adopters see how the new product might satisfy a need Teaser advertising may be used to stimulate interest Teaser advertising may be used to stimulate interest  Evaluation: Consumers weigh the costs/benefits Consumers weigh the costs/benefits Impulse purchases are typically made with little evaluation Impulse purchases are typically made with little evaluation

8-23 © 2012 Pearson Education, Inc. publishing as Prentice-Hall.  Trial: Potential adopters experience or use the product Potential adopters experience or use the product Sales promotions and product demos are critical Sales promotions and product demos are critical  Adoption: The prospect buys the product The prospect buys the product  Confirmation: The consumer weighs the expected vs. actual benefits and costs The consumer weighs the expected vs. actual benefits and costs Marketers can reinforce the consumer’s choice via marketing communications Marketers can reinforce the consumer’s choice via marketing communications Stages in Consumers’ Adoption of a New Product

8-24 © 2012 Pearson Education, Inc. publishing as Prentice-Hall. Innovator Categories  Diffusion of innovation adopter categories include: Innovators Innovators Early adopters Early adopters Early majority Early majority Late majority Late majority Laggards Laggards

8-25 © 2012 Pearson Education, Inc. publishing as Prentice-Hall. Product Factors That Affect the Rate of Adoption  Each characteristics affects the speed of innovation diffusion: Relative advantage Relative advantage Compatibility Compatibility Complexity Complexity Trialability Trialability Observability Observability

8-26 © 2012 Pearson Education, Inc. publishing as Prentice-Hall. Real People, Real Choices: Decision Made at Bossa Nova  Palo clung to options 1 and 2 for several months but in the end chose option 3 Why do you think Palo eventually decided to create Bossa Nova Açai juice in Mango, Passion Fruit, and Original flavors? Why do you think Palo eventually decided to create Bossa Nova Açai juice in Mango, Passion Fruit, and Original flavors?

8-27 © 2012 Pearson Education, Inc. publishing as Prentice-Hall. Keeping It Real: Fast-Forward to Next Class Decision Time at General Mills  Meet David Clark, VP, Big G Adult Cereals at General Mills  Increased consumer interest in fiber food products created growth potential for fiber cereals  The decision to be made: How should the core Fiber One brand be positioned?

8-28 © 2012 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