DEVELOPING NEW PRODUCTS AND SERVICES

Layers of the Product Concept

The Core Product Consists of all the benefits the product will provide for consumers or business customers A customer purchases a 1/2” drill bit. What does s/he want? A 1/2” hole! Marketing is about supplying benefits - not products.

The Actual Product Consists of the physical good or delivered service that supplies the desired benefit Example: A washing machine’s core product is the ability to get clothes clean, but the actual product is a large, square, metal apparatus Actual product also includes appearance, styling, packaging, and the brand

The Augmented Product Consists of the actual product plus other supporting features such as warranty, credit, delivery, installation, and repair service after the sale

Classification of consumer goods

Classifying Products

Shopping Products Good or service for which consumers will spend time and effort gathering information on price, product attributes, and product quality Consumers will tend to compare alternatives before making a purchase Types of shopping products attribute-based shopping products price-based shopping products

Specialty Products Goods or services bought with much consumer effort in an extended problem- solving situation Consumers insist upon a particular item and will not accept substitutes Example: Sony’s AIBO Robot Dog

Unsought Products Goods or services for which a consumer has little awareness or interest until a need arises Require a good deal of advertising or personal selling to interest people

Business Products Equipment: Installations & Accessories Specialized Services Processed Materials Business Product Classes MRO Supplies Raw Materials Component Parts and Materials

Life-Changing Innovations CD Photocopier Fax Cell phone Post-it Notes Air conditioner Microwave What is your favorite life-changing innovation?

Types of Innovations Innovations differ in their degree of newness and this helps to determine how quickly products will be adopted by a target market The more novel the innovation, the slower the diffusion process Innovation continuum is based on the amount of disruption or change

Innovation Continuum Continuous Dynamically Discontinuous Continuous Little to no change Extreme changes

“New” Products What is a New Product? Newness Compared with Existing Products Newness in Legal Terms Newness from the Company’s Perspective Newness from the Consumer’s Perspective

Consumption effects define newness

Marketing Reasons for New Product Failures Insignificant “point of difference” Incomplete market and product definition Too little market attractiveness Poor execution of the marketing mix Poor product quality or sensitivity Bad timing No economical access to buyers

Stages in the new-product process

Marketing Strategy Development Develop a marketing strategy that can be used to introduce the product to the marketplace Identify the target market Estimate its size Determine how the product can be positioned Plan pricing, distribution, and promotion expenditures necessary for roll-out

Idea Generation Sources of new ideas customers salespeople research and development breakthroughs competitive products anyone with direct customer contact

Product Concept Development and Screening Expand ideas into more complete product concepts Describe what features the product should have and benefits those features will provide for consumers Evaluate the chance for technical and commercial success – internal and external

Business Analysis Assess how the new product will fit into the firm’s total product mix Evaluate whether the product can be a profitable contribution for organization’s product mix Only after approval at this stage does significant development $$ expenditure begin

Technical Development Work with engineers to refine the design and production process Develop one or more prototypes Evaluate prototypes with prospective customers If applicable, apply for a patent

Market Testing Try out the complete marketing plan - product, price, place, and promotion - in a small geographic area that is similar to larger target market Traditional test marketing is expensive and gives competition a chance to evaluate the new product Simulated test markets eliminate competitive viewing and cost less

Six important U.S. test markets

Commercialization Launch the product! Full scale production Distribution Advertising Sales promotion and more

Adoption and Diffusion Processes Adoption is the process by which a consumer or business customer begins to buy and use a new good, service, or idea Diffusion describes how the use of a product spreads throughout a population

Six Stages of Adoption Confirmation Adoption Trial Evaluation Interest Awareness

Diffusion Process Concerned with the broader issue of how an innovation is communicated and adopted throughout the marketplace The process of spreading out - PLC Adopter categories Five different type of consumers Normal distribution

The Product Life Cycle

Adopter Categories Mean Time of Adoption Innovators (2.5%) Early Adopters (13.5%) Early Majority (34%) Late Majority (34%) Laggards (16%)

Innovators 2.5%, the first to accept a new idea or product Venturesome and willing to take risks Cosmopolites: willing to seek social relationships outside of their local peer group Rely heavily on impersonal information sources

Early Adopters 13.5%, the second to adopt an innovation Heavy media users Tend to be concerned with social acceptance Opinion leaders primarily come from the early adopter group

Early Majority 34% adopt the product prior to the mean time of adoption Deliberate and cautious Spend more time in the innovation decision process Slightly above average in education and social status

Late Majority 34% follow the average adoption time Older, more conservative Peers are the primary source of new ideas Below average in education, income and social status Wait to purchase until product has become a necessity and/or peers pressure to adopt

Laggards 16% - last to adopt an innovation Lower in social class than other categories Bound by tradition Product may have already been replaced by another innovation

Marketing information and methods used in the new-product process