© McGraw-Hill Companies, Inc., McGraw-Hill/Irwin

11-2 © McGraw-Hill Companies, Inc., McGraw-Hill/Irwin LEARNING OBJECTIVES Learning Objectives How can firms create value through innovation? What is the diffusion of innovation theory, and how can managers use it to make product line decisions? How do firms create new products and services? What is a product life cycle, and how can the concept be applied to product line decisions?

11-3 © McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Inventables Build a living showcase of what’s possible to deliver inspiration and innovation to the dreamers of the world. Inventables Website

11-4 © McGraw-Hill Companies, Inc., McGraw-Hill/Irwin InnovationInnovation and Value Benefits of new products Satisfy the changing needs of consumers Add value to the firm Diversify firm’s risk

11-5 © McGraw-Hill Companies, Inc., McGraw-Hill/Irwin New Product Introductions PioneersPioneers radically change competition and consumer preferences. PioneersPioneers radically change competition and consumer preferences.

11-6 © McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Diffusion of Innovation

11-7 © McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Using the Diffusion of Innovation Theory Factors Affecting Product Diffusion CompatibilityObservabilityTrialability Relative Advantage

11-8 © McGraw-Hill Companies, Inc., McGraw-Hill/Irwin 1. What are the five groups depicted in the diffusion of innovation curve? 2. What factors enhance the diffusion of a good or service? Check Yourself

11-9 © McGraw-Hill Companies, Inc., McGraw-Hill/Irwin How Firms Develop New Products

11-10 © McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Idea Generation

11-11 © McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Internal R&D Crystal Pepsi Commercial High product development costs Often the source of technological products Often the source of breakthrough products

11-12 © McGraw-Hill Companies, Inc., McGraw-Hill/Irwin R&D Consortia Lower costs and risks; firms join together Form research consortiums Benefits spread to all firms Example, pharmaceutical industry research

11-13 © McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Licensing Firms purchase the rights to technology or ideas from other research-intensive firms University research centers also often provide such licenses

11-14 © McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Groups work together to generate ideas No idea can be immediately dismissed IDEO Website

11-15 © McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Competitors’ Products © 2007 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Reverse engineering “Me Too” or copycat products

11-16 © McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Customer Input As much as 85% of new business to business products come from customers Lead users modify existing products according to their own specific needs Lead users © 2007 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin

11-17 © McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Concept Testing Concept is a brief written description of the product Customers reactions determine whether or not it goes forward Triggers the marketing research process © 2007 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin

11-18 © McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Product Development PrototypeAlpha testingBeta testing © 2007 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin

11-19 © McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Market Testing Premarket tests Customers exposed Customers surveyed Firm makes decision Test marketing Mini product launch More expensive than premarket tests Market demand is estimated © 2007 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Dodge Commercial

11-20 © McGraw-Hill Companies, Inc., McGraw-Hill/Irwin How do firms know what market tests need to be performed to ensure a successful product? Market Testing

11-21 © McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Product Launch Kellogg’s Drink’n Crunch Portable Cereals An inner cup contains the cereal and the outer cup contains the milk Minute Maid Premium Heart Wise Orange Juice Each 8 oz. serving of the juice contains 1 gram of plan sterols that can reduce cholesterol levels Aquafresh Floss ‘N’ Cap Fluoride Toothpaste The cap of the toothpaste contains floss © 2007 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin

11-22 © McGraw-Hill Companies, Inc., McGraw-Hill/Irwin New Product Marketing Mix © 2007 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Promotion PlacePrice

11-23 © McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Launching a New Product How do firms launch a new product innovation? © 2007 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin

11-24 © McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Evaluation of Results © 2007 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin

11-25 © McGraw-Hill Companies, Inc., McGraw-Hill/Irwin 1. What are the steps in the new product development process? 2. Identify different sources of new product ideas. Check Yourself

11-26 © McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Product Life Cycle © 2007 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin

11-27 © McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Stages in the Product Life Cycle © 2007 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Exhibit 11.6

11-28 © McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Introduction © 2007 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin

11-29 © McGraw-Hill Companies, Inc., McGraw-Hill/Irwin The introduction stage of the PLC

11-30 © McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Growth © 2007 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin

11-31 © McGraw-Hill Companies, Inc., McGraw-Hill/Irwin The growth stage of the PLC

11-32 © McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Maturity © 2007 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin

11-33 © McGraw-Hill Companies, Inc., McGraw-Hill/Irwin The maturity stage of the PLC

11-34 © McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Decline © 2007 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin

11-35 © McGraw-Hill Companies, Inc., McGraw-Hill/Irwin A behavior in the decline stage?

11-36 © McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Strategies Based on the Product Life Cycle: Some Caveats Theoretically they are bell shaped but in reality they can take many shapes Managers do not know exactly what the shape each product’s life cycle will take so there is no way to know precisely what stage they are in. © 2007 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin

11-37 © McGraw-Hill Companies, Inc., McGraw-Hill/Irwin 1. What are the stages in the product life cycle? 2. How do sales and profits change during the various stages? Check Yourself

11-38 © McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Glossary Alpha testing is testing where the firm attempts to determine whether the product will perform according to its design and whether it satisfies the need for which it was intended. Return to slide

11-39 © McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Glossary Beta testing uses potential consumers, who examine the product prototype in a “real use” setting to determine its functionality, performance, potential problems, and other issues specific to its use. Return to slide

11-40 © McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Glossary Firms with products in the decline stage either position themselves for a niche segment of diehard consumers or those with special needs or they completely exit the market. Return to slide

11-41 © McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Glossary Diffusion of innovation is the process by which the use of an innovation spreads throughout a market group, over time and over various categories of adopters. Return to slide

11-42 © McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Glossary The growth stage of the product life cycle is marked by a growing number of product adopters, rapid growth in industry sales, and increases in both the number of competitors and the number of available product versions. Return to slide

11-43 © McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Glossary Innovation is the process by which ideas are transformed into new products and services that will help firms grow. Return to slide

11-44 © McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Glossary The introduction stage for a new, innovative product or service usually starts with a single firm, and innovators are the ones to try the new offering. Return to slide

11-45 © McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Glossary The maturity stage of the product life cycle is characterized by the adoption of the product by the late majority and intense competition for market share among firms. Return to slide

11-46 © McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Glossary Pioneers or breakthroughs are new product introductions, especially new-to-the-world products that create new markets. Return to slide

11-47 © McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Glossary Premarket tests are conducted by firms before they actually bring a product or service to market to determine how many customers will try and then continue to use the product or service according to a small group of potential consumers. Return to slide

11-48 © McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Glossary The product life cycle defines the stages that new products move through as they enter, get established in, and ultimately leave the marketplace and thereby offers marketers a starting point for their strategy planning. Return to slide

11-49 © McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Glossary A prototype is the first physical form or service description of a new product, still in rough or tentative form, that has the same properties as a new product but is produced through different manufacturing processes—sometimes even crafted individually. Return to slide

11-50 © McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Glossary Reverse engineering involves taking apart a product, analyzing it, and creating an improved product that does not infringe on the competitors’ patents, if any exist. Return to slide

11-51 © McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Glossary Test marketing introduces the offering to a limited geographical area prior to a national launch. Return to slide