Creating the Product

2 Chapter Objectives Explain the layers of a product Describe the classifications of products Understand the importance of new products Show how firms develop new products Explain the process of product adoption and the diffusion of innovations

3 Real People, Real Choices Black and Decker (Eleni Rossides) Considering the results of a survey, Black and Decker needed to decide what to do with its ScumBuster  Option 1: if it ain’t broke, don’t fix it  Option 2: emphasize value for your money  Option 3: ramp up the ScumBuster’s features

4 Build a Better Mousetrap: The Value Proposition Value proposition: benefits the consumer will receive if she buys the product Product: tangible good, service, 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 Layers of the Product Concept Core product: basic benefits the product will provide Actual product: physical good or delivered service that supplies the benefits Augmented product: actual product plus supporting features’ such as warranty, repair, installation, customer support

6 Classifying Products Products are either consumer products or B2B products. Categories differ in how consumers and business customers feel about products and how they purchase them.

7 Classifying Goods: How Long Does the Product Last? Durable goods: provide benefits over a period of months, years, decades  Example: automobile Nondurable goods: consumed in the short term  Example: newspapers

8 Classifying Goods: How Do Consumers Buy the Product? Convenience product: frequently purchased  Staples (milk)  Impulse products (candy bar)  Emergency products (drain opener) Shopping product: purchased with considerable time and effort  Attribute based (shoes)  Price-based (water heater)

9 Classifying Goods: How Do Consumers Buy the Product? (cont’d) Specialty products: have unique characteristics important to buyers  Rolex watch Unsought products: those in which consumers have little interest until a need arises  insurance

10 Business-to-Business Products Classified by how organizational customers use them  Equipment  Maintenance, repair, and operating (MRO) products  Raw materials  Processed materials and special services  Component parts

11 The Process of Innovation The FTC 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. Innovation: anything that customers perceive as new and different

12 It’s Important to Understand How Innovations Work 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.

13 Types of Innovations Innovations differ in degree of newness  --Continuous innovations  --Dynamically continuous innovations  --Discontinuous innovations

14 Continuous Innovations A modification to an existing product --Consumer doesn’t have to learn anything new. --Knockoffs copy, with slight modification, the design of an original product.

15 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.

16 Discontinuous Innovations A totally new product --Creates major changes in the way we live. --Consumer must engage in a great deal of learning.

17 Developing New Products New-product development can be creating totally new products or making an existing product better.

18 Phases in New-Product Development Phase 1: Idea generation  Brainstorm for products that provide customer benefits. Phase 2: Product-concept development and screening  Test product ideas for technical and commercial success.

19 Phases in New-Product Development (cont’d) Phase 3: Marketing strategy development  Decide how to introduce the product to the marketplace. Phase 4: Business analysis  Assess a product’s commercial viability.

20 Phases in New-Product Development (cont’d) Phase 5: Technical development  Refine and perfect new product.  Develop prototypes or test versions of proposed product (in R&D department). Phase 6: Test marketing  Test complete marketing plan in a small geographic area similar to larger market.

21 Phases in New-Product Development (cont’d) Phase 7: Commercialization  Launch new product into the market.  Begin full-scale production, distribution, advertising, sales promotion.

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

23 Stages in Consumer Adoption of a New Product Awareness: learning the innovation exists Interest: seeing how the new product might satisfy an existing or newly realized need Evaluation: weighing costs/benefits of new product

24 Stages in Consumer Adoption of a New Product (cont’d) Trial: experiencing or using product for the first time Adoption: buying the good or agreeing with the new idea Confirmation: weighing expected versus actual benefits and costs

25 The Diffusion of Innovations Adopter categories  Innovators  Early adopters  Early majority  Late majority  Laggards

26 Product Factors Affecting Rate of Adoption Relative advantage Compatibility Complexity Trialability Observability

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 Real People, Real Choices Black and Decker (Eleni Rossides) Eleni chose Option 3: ramp up the ScumBuster’s features  The company continues to modify the basic concept with new features and new applications to “clean up” against the competition

29 Marketing in Action Case: You Make the Call What is the decision facing Kodak? What factors are important in understanding this decision situation? What are the alternatives? What decision(s) do you recommend? What are some ways to implement your recommendation?

30 Keeping It Real: Fast Forward to Next Class Decision Time at Grendha Meet Angelo Daros, VP of Grendha Shoes, a major Brazilian shoe manufacturer Plan: to launch the Rider brand in the U.S. market The decision: How to position the Rider brand for the United States