1. Chapter 12 Developing New Products

2. Learning Objectives
Learning Objective 12.1 Identify the reasons firms create new products. Learning Objective 12.2 Describe the different groups of adopters articulated by the diffusion of innovation theory. Learning Objective 12.3 Describe the various stages involved in developing a new product or service. Learning Objective 12.4 Explain the product life cycle.
LO12-1 Identify the reasons firms create new products.
LO12-2 Describe the different groups of adopters articulated by the diffusion of innovation theory.
LO12-3 Describe the various stages involved in developing a new product or service.
LO12-4 Explain the product life cycle.
These are the learning objectives guiding the chapter and will be explored in more detail in the following slides.

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Innovation and Value
New market offerings provide value to firms as well as to customers. A new product can be anything from a slight redesign to new-to-the-world offerings.
Ask students: What is an example of a slightly redesigned product? What about a new-to-the-world product?
Ask students: Think of a new product that interested you as a consumer. Did this new product alter your opinion of the firm that offered it?
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4. PROGRESS CHECK (1 of 3) What are the reasons firms innovate?
Changing customer needs, market saturation, managing risk through diversity, and fashion cycles

5. Diffusion of Innovation
The process by which the use of an innovation—whether a product, a service, or a process—spreads throughout a market group, over time and across various categories of adopters, is referred to as diffusion of innovation. As the diffusion of innovation curve shows, the number of users of an innovative product or service spreads through the population over a period of time and generally follows a bell-shaped curve. A few people buy the product or service at first, then more buy, and finally fewer people buy as the degree of the diffusion slows. These purchasers can be divided into five groups according to how soon they buy the product after it has been introduced: innovators, early adopters, early majority, late majority, and laggards.
Group activity: Have groups pick one product. Ask them: Which group of consumers would purchase this product? Why?
Example answer: TiVo has been around for about 10 years; it is probably in the early or late majority stages. Cable television, on the other hand, is now appealing to laggards; whereas some new cell phones are appealing to innovators and early adopters.
Ask students: Where are you on the curve? If they are laggards – what have they recently purchased or not yet purchased?
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source: Adapted from Everett M. Rodgers, Diffusion of Innovation (New York: Free Press, 1983).

6. New Product Introductions
Pioneers radically change competition and consumer preferences.
Despite first-mover advantages, pioneers often lose out to superior competitors. For example, CD walkmans have been taken over by apple iPods. First movers must staunchly defend their territory. After establishing the market, they generally must switch to a defender mode to fend off newcomers.

7. Using the Diffusion of Innovation Theory
Compatibility
Observability
Relative Advantage
Complexity and Trialability
Factors Affecting Product Diffusion
Different products diffuse at different rates. Various factors increase the speed of diffusion of a new product.
Group activity: Continue with the previous group activity. Assess why some of the products chosen by the groups diffused more quickly than others by applying the four criteria in the boxes.

8. PROGRESS CHECK (2 of 3)
What are the five groups on the diffusion of innovation curve?
What factors enhance the diffusion of a good or service?
Innovators, early adopters, early majority, late majority, laggards
Relative advantage, compatibility, complexity, and trialability

9. How Firms Develop New Products
IDEA GENERATION
Development of viable new product ideas.
CONCEPT TESTING
Testing the new product idea among a set of potential customers.
PRODUCT DEVELOPMENT
Development of prototypes and/or the product.
MARKET TESTING
Testing the actual products in a few test markets.
PRODUCT LAUNCH
Full-scale commercialization of the product.
EVALUATION OF RESULTS
Analysis of the performance of the new product and making appropriate modifications.
This slide is designed to introduce the new product development process and the steps to follow.
Group activity: Have each student group think of a new product. It need not be a “new-to-the-world” product. Then have them follow the steps in the New Product Development Process and describe what they would do at each step. This exercise might take an hour or so, so it may be used as an out of class assignment. Have students present their process to the rest of the group.
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Idea Generation
Firms must constantly scan the environment looking for new product ideas. Depending on the company strategy, they use different sources.
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11. 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
Concepts are presented to potential buyers or users to gauge their reactions. Marketing research techniques discussed in Chapter 10 are used to test these concepts.

12. Product Development Prototype Alpha testing Beta testing
A prototype allows consumers to interact physically with the product. Some prototypes, such as the concept cars revealed at auto shows, never actually go into production.
YouTube video:
Beta testing

13. Market Testing (1 of 2) Premarket tests Test marketing
Customers exposed
Mini product launch
Customers surveyed
More expensive than premarket tests
Premarket tests are conducted by research firms, such as ACNielsen (BASES II). Because test marketing reveals a new product to competitors, it might be inappropriate to expose some new products this way.
Ask students: Think of some products that you think should not be subjected to test marketing. Why not?
Answer: incremental improvements on existing products (such as a new flavor of soda), small niche products because they only appeal to a small market, products that could easily be copied by competition, etc.
This YouTube link ( is a funny commercial for Dodge where they are getting input from customers.
Firm makes decision
Market demand is estimated

14. Market Testing (2 of 2)
How do firms know what market tests need to be performed to ensure a successful product?
Ask students: In the rush to get a product to the market, some firms fail to conduct the necessary market tests. What happens then? Students will realize that these new products often fail because they either don’t offer value or cannot communicate value to the end consumer.

15. 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.
Launching a new product is part art and part science. Each of these products offered unique benefits. Ask students if they feel each would be successful. Drink and Crunch is still only in limited release so its success in not yet known. Minute Maid Heart Wise was introduced in 2003 and has been extremely successful. Aquafresh Floss N’Cap has been expanded to other Aquafresh lines including whitening.
Aquafresh Floss ‘N’ Cap Fluoride Toothpaste
The cap of the toothpaste contains floss.

16. Evaluation of Results Satisfaction of technical requirements
Customer acceptance
Marketers cannot only celebrate success but also must understand failure. The question of why a product fails is just as important as why another succeeded. An underperforming product may require further development.
Satisfaction of the firm’s financial requirements

17. PROGRESS CHECK (3 of 3)
What are the steps in the new product development process?
Identify different sources of new product ideas.
First, they generate ideas for the product or service. Second, firms test their concepts by either describing the idea of the new product or service to potential customers or showing them images of what the product would look like. Third, the design process entails determining what the product or service will actually include and provide. Fourth, firms test market their designs. Fifth, if everything goes well in the test market, the product is launched. Sixth, firms must evaluate the new product or service to determine its success.
Internal research and development (R&D) efforts, collaborate with other firms and institutions, license technology from research-intensive firms, brainstorm, research competitors’ products and services, and/or conduct consumer research.

18. Strategies Based on the Product Life Cycle: Some Caveats
Bell shaped, but can take many shapes.
Understanding where your product is on the PLC is difficult. If a firm misdiagnoses the stage, it can mean trouble for the firm.
Ask students: What happens to a product that is misdiagnosed as being in the decline stage? Answer: It will surely decline!
Challenging to know precisely the stage of the PLC.

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Product Life Cycle
The PLC represents an important tool managers use to plan their marketing activities.
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20. Marketing Chapter 12
The End
The End