8-1 1 Chapter 8: Creating the Product “Build it and they will come!” (NOT true) Value proposition –A statement capturing why a person should buy the product (benefits she will receive) compared to competitors’ products Product: –Tangible good or intangible service that satisfies customer needs We can see, touch, smell, hear, taste, or possess tangible goods –Intangible products services, ideas, people, places
8-2 Layers of the Product
8-3 The Core Product= Benefits 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. It’s not about the product – it’s what the product DOES for the consumer.
8-4 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
8-5 The Augmented Product Consists of the actual product plus other supporting features such as warranty, credit, delivery, installation, and repair service after the sale –A key way to differentiate many products –Consistent with long-term customer relationships
8-6 Classifying Consumer Products By how long they last –Durable –Nondurable By how consumers buy them –Convenience –Shopping –Specialty –Unsought
8-7 Durable vs. Nondurable Durable –Benefits accrue to consumer over period of months, years, decades –High involvement –Understand augmented product issues –FAQ Nondurable –The good is consumed in the short-run –Low involvement –Focus on brand/price/ distribution –Decision made based on past experience
8-8 8 Classifying Goods: How Do Consumers Buy the Product? Convenience product: frequently purchased with minimum of comparison and effort –Staples (milk) –Impulse products (candy bar) –Emergency products (drain opener)
8-9 Classifying Goods: (cont’d) Shopping product: purchased with considerable time and effort considering price, attributes, quality –Use of multi-attribute model Narrow choices and tend to compare alternatives –Evoked set 9
Classifying Goods: (cont’d) Specialty products: have unique characteristics important to some buyers at any price Consumers may be highly brand loyal –But only consumer who place value on that product Consumers may not be willing to accept substitutes – Rolex watches / Land Rover / Dooney & Burke
8-11 Classifying Goods: (cont’d) Unsought products: those in which consumers have little interest until a need arises –Renter’s insurance, retirement plans, disability insurance Requires a good deal of advertising or personal selling May also require a good deal of education 11
The Process of Innovation: Creating New Products 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. Customer perspective: Innovation is anything that customers perceive as new and different
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. Failure rate is very high. New products can contribute to society.
8-14 Innovation Continuum Continuous Dynamically Discontinuous Continuous Little to no change in CBExtreme changes
8-15 Innovation Continuum Continuous Dynamically Discontinuous Continuous Little to no change in CB Extreme changes Latest Blackberry Droid new to market Smart phones introduced
8-16 Continuous Innovations Continuous innovations –Offer slight modifications to an existing product Most common form of innovation –Consumers don’t need to learn anything new; change is minimal –New flavors, new sizes, new styling—all are considered continuous innovations –Examples: brand extensions, line extensions –Knockoffs copy (with slight modification) the design of an original product
8-17 Dynamically Continuous Innovation Dynamically continuous innovation: –A pronounced modification to an existing product –Requires a *moderate* amount of learning or behavior change –Convergence: The coming together of two or more technologies to create a new system with greater benefits than its parts
8-18 Discontinuous Innovations Discontinuous innovation: –A totally new product –Radical/breakthrough/disruptive –Creates major changes in the way we live –Consumers must engage in a great deal of new learning –May radically alter lifestyles Microwave ovens in the 70s PCs in 80s Cell phones in early 90s Tablet technology
8-19 Developing New Products New-product development –continuous process of looking for entirely new products or for ways to make an existing product better Successfully introducing new products is becoming more difficult –R&D costs are enormous –Products become obsolete faster –Slotting fees are high
8-20 New Product Development Process: Idea Generation Product Concept Development / Screening Marketing Strategy Development Business Analysis Technical Development Market Testing Commercialization
8-21 Steps in the New-Product Development Process Phase 1: Idea generation –Brainstorm products that provide customer benefits and which are compatible with the firm’s mission Customers (Example: Sensual Edible line) Salespeople Service providers Anyone with direct customer contact –Research: trend-spotters, lead users, etc. Phase 2: Product-concept development / screening –Expand product concepts –Test for technical and commercial success Test markets
8-22 Best & Worst Test Market Cities
8-23 Steps in New-Product Development Phase 3: Marketing strategy development –Developing a strategy 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 –May involve green marketing
8-24 Phases in New-Product Development Phase 4: Business analysis –The product’s commercial viability is assessed in this phase **Develop pro-forma statements, compute payback periods and ROI –Assess how the new product will fit into the firm’s total product mix Cannibalization (Ch. 9)
8-25 Phases in New-Product Development Phase 5: Technical development –Firm engineers refine and perfect the new product –Develop one or more prototypes or test versions of proposed product (in R&D department). –Evaluate prototypes with prospective customers –If applicable, apply for a patent
8-26 Phases in New-Product Development Phase 6: Test marketing –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 –Full-scale production, distribution, advertising, and sales promotion are begun
8-27 Adoption and Diffusion Processes Adoption: process by which a customer begins to buy and use a new good, service, or idea Diffusion: describes how the use of a product spreads throughout a population –How an innovation is communicated and adopted throughout the marketplace –“The Tipping Point”
8-28 Categories of Adopters
8-29 Innovators 2.5% – the first to accept a new idea or product Venturesome and willing to take risks Well educated; younger; affluent They like to be first! –Willing to pay more – not price sensitive Cosmopolites: willing to seek social relationships outside of their local peer group Rely heavily on impersonal information sources
8-30 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
8-31 Early Majority 34% adopt the product prior to the mean time of adoption Deliberate and cautious Spend more time in the innovation decision process Middle class: Slightly above average in education and social status
8-32 Late Majority 34% in this adoption category 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
8-33 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
Factors Affecting the Rate of Adoption Relative Advantage: –Benefits of the new innovation relative to its costs Compatibility: –Consistent with existing behaviors and practices, as well as cultural norms Complexity: –Difficulty in using/learning to use the new innovation
8-35 Rate of Adoption Factors (Cont.) Trialability: –Can the new product be easily “tried” or “sampled? Observability: –Visibility of the benefits of the product to user, AND visibility to others