Chapter 9 Product Planning and Development Copyright © 2001 by McGraw-Hill Ryerson Limited Sommers  Barnes Ninth Canadian Edition Presentation by Karen A. Blotnicky Karen A. Blotnicky Mount Saint Vincent University, Halifax, NS

Copyright © 2001 McGraw-Hill Ryerson Limited Chapter Goals To gain an understanding of: The meaning of total “product” and “new” product Classification of business and consumer products and its relevance to marketing planning Product innovation The product-development process When to add new products to a product line The adoption and diffusion process for products Organizational structures for product planning and development

Copyright © 2001 McGraw-Hill Ryerson Limited What is a Product? it is more than physical products; includes services, places, persons, and ideas it is easy to visualize the products of Esso, but more difficult to describe those of the Toronto Symphony, UNICEF, or the Salvation Army some products are sold only to consumers, while others are sold to organizations whether a product is a consumer product or a business product depends on how it is used

Copyright © 2001 McGraw-Hill Ryerson Limited Seller’s services Seller’s services Product quality Product quality Physical characteristics of goods Physical characteristics of goods Price Brand Design Packaging Product warranty Product warranty Seller’s reputation Seller’s reputation Colour The Total Product

Copyright © 2001 McGraw-Hill Ryerson Limited Consumer Goods Classes Consumer products can be classified by the buying behaviour of the consumers: Convenience goods Convenience goods are bought with little time and effort, such as milk, bread, a chocolate bar. Shopping goods Shopping goods are those where extensive comparison is the norm-- cars, furniture, clothes. Specialty goods Specialty goods are those for which consumers have a strong brand preference. BMW, Armani. Unsought goods Unsought goods are those now unknown to the consumer or, if known, undesired.

Copyright © 2001 McGraw-Hill Ryerson Limited Classifying Business Products raw materialsraw materials: unprocessed, become part of other manufactured products manufactured parts and materials:manufactured parts and materials: processed products that become part of other products installations:installations: major buildings and equipment accessory equipment:accessory equipment: used in operations, include computers, desks, tools operating suppliesoperating supplies: low value, used by most firms, convenience products for businesses

Copyright © 2001 McGraw-Hill Ryerson Limited Innovation is Required Products go through life cycles-- you need new ones coming on stream. Profits highest when products new. Consumers more selective: they look carefully at each purchase. Also a little jaded. High failure rates in the 75% range. Leads to new products: Innovative= truly unique Improved, with valuable new benefits Imitative, another “me too” product.

Copyright © 2001 McGraw-Hill Ryerson Limited Ford’s Edsel automobile. 2. Dupont’s Corfam synthetic leather. 3. Polaroid’s Polavision. 4. United Artist’s Heaven’s Gate western movie. 5. RCA’s Videodisc. 6. Time’s TV-Cable Week magazine. 7. IBM’s PCjr. 8. New Coke. 9. R.J. Reynolds’ Premier cigarette. 10. Nutrasweet’s Simplesse fat substitute. Ten World-Class Product Failures

Copyright © 2001 McGraw-Hill Ryerson Limited New Product Development companies must be constantly modifying existing products and developing new ones; the marketplace demands it how new is new? most new products are modifications of or extensions to existing ones the introduction of a new product is a strategic decision which should be guided by the company’s goals and a new product introduction strategy

Copyright © 2001 McGraw-Hill Ryerson Limited Identify the strategic role of new products, then... Identify the strategic role of new products, then Idea generation 1. Idea generation 2. Screening of ideas 2. Screening of ideas 3. Business analysis 3. Business analysis 4. Prototype development 4. Prototype development 5. Market Tests 5. Market Tests 6. Commer- cialization 6. Commer- cialization The New Product Development Process

Copyright © 2001 McGraw-Hill Ryerson Limited The New Product Development Process A new product is best developed through a series of six stages: The first two stages provide a focus for generating new-product ideas and a basis for evaluating them. The next three stages deal with ideas and are the least expensive. In their haste, some companies skip stages — the most common omission being market tests. 9-7

Copyright © 2001 McGraw-Hill Ryerson Limited Criteria for New Products there must be adequate market demand: this is necessary but not sufficient for success must satisfy key financial criteria must be compatible with environmental standards must fit with the company’s marketing structure should also be compatible with production capabilities, satisfy legal requirements, and fit with corporate goals and objectives

Copyright © 2001 McGraw-Hill Ryerson Limited Development of New Product Strategy Company Goals Product StrategyExamples Defend market share Introduce addition to existing produce line/ revise existing product Pizza Hut’s “Big New Yorker” and “Stuffed Crust” pies Strengthen reputation as an innovator Introduce a really new product - not just an extension of an existing product Digital cameras introduced by Sony, Canon, and other firms

Copyright © 2001 McGraw-Hill Ryerson Limited Adoption-Diffusion Process different new products are adopted by consumers at different rates the individual consumer goes through certain stages before adopting a new product marketers must be interested in first creating awareness, then interest, then trial, before the consumer is considered an adopter some people are genuine innovators, while others wait and try later; some never adopt

Copyright © 2001 McGraw-Hill Ryerson Limited New Product Adoption and Diffusion Adoption process: Adoption process: The decision- making activity of an individual through which the new product is accepted. Diffusion: Diffusion: The process by which an innovation is spread through a social system over time.

Copyright © 2001 McGraw-Hill Ryerson Limited Stages in the Adoption Process awareness:awareness: customer is exposed to the product interest:interest: interest and information seeking evaluation:evaluation: assessment of the advantages and disadvantages of the new product trial:trial: customer tries the product in low-risk situation; may be a sample or test drive adoption:adoption: customer decides to buy the product confirmation:confirmation: customer decides to stay with the product; attempts dissonance reduction

Copyright © 2001 McGraw-Hill Ryerson Limited Adopter Categories Researchers have identified five categories of individual adopters for new products: Innovators — 3% of the market. Early adopters — 13% of the market. Early majority — 34% of the market. Late majority — 34% of the market. Laggards — 16% of the market. In addition, some individuals — nonadopters — never accept the innovation.

Copyright © 2001 McGraw-Hill Ryerson Limited Evaluation of new safer baseball for youngsters : 1. Relative advantage—superior to current balls in terms of safety but not tradition. 2. Compatibility—coincides with cultural values and experiences of parents but not of coaches. 3. Complexity—no problem understanding. 4. Trialability—ball can be easily tested. 5. Observability—can see a youngster who’s hit with the new ball dust off and trot to first base. Five Characteristics Affecting Adoption Rate: Example

Copyright © 2001 McGraw-Hill Ryerson Limited New Product Organization Companies take a variety of approaches to organizing the new product function: product-planning committees new-product departments cross-functional new venture teams product managers many larger firms are replacing the product manager with category managers