1. Chapter 12 Developing New Products
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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.

3. FirstBuild
The text uses the example of Xiaomi, a Chinese company whose strategy began with its product: offer smartphones comparable to those produced by rivals such as Apple and Samsung, but at approximately half the price. Part of the strength of the brand was that its new product offerings have been especially popular among “regular” consumers and young purchasers, many of whom simply cannot afford the high prices demanded for more traditional smartphone brands. However, Xiaomi has struggled to maintain its innovation pace. 
Another example is 3D printing. As more companies and consumers seek out 3D printers, their prices have dropped precipitously. The technology keeps improving, and the machines seem poised to take off.
Ask students: How could you see yourself using a 3D printer?
Website:
Courtesy of GE FirstBuild

4. Jump to Appendix 1 long image description
Innovation and Value
New market offerings provide value to firms as well as to customers. A new product can be anything from a slight reposition to new-to-the-world offerings.
Ask students: What is an example of a repositioned 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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5. PROGRESS CHECK (1 of 4) What are the reasons firms innovate?
Changing customer needs, market saturation, managing risk through diversity, and fashion cycles

6. Diffusion of Innovation
The process by which the use of an innovation spreads throughout a market group over time and across categories of adopters. Pioneers or breakthroughs establish completely new markets or radically change competition and consumer preferences. Pioneers have the advantage of being first movers.
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.
©Stephen Lam/Reuters/Alamy Stock Photo

7. Product Failures

8. Exhibit 12.2: 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?
Ask students: Where are you on the curve? If they are laggards – what have they recently purchased or not yet purchased?
Ethical & Societal Dilemma 12.1 Drones in the Sky, Questions on the Ground discusses one of the hottest new products on the market.
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source: Adapted from Everett M. Rodgers, Diffusion of Innovation (New York: Free Press, 1983).

9. Jump to Appendix 3 long image description
Identify the Adopter
The first year they were offered, John wanted a tablet computer, but he did not know which one to choose. He waited until there were more choices, lower prices, and improved quality. John is part of the ___________ diffusion of innovation group. 
Innovators
Late Majority
Tiffany always asks Samantha about beauty supply products. She considers her a well-informed friend who always knows the latest trends. For Tiffany, Samantha is a(n) ___________ in the diffusion of innovation curve. 
Early Adopters
Laggards
Denise and Janet attend a large university in Texas. Denise asked for Janet’s address, but Janet said she didn't have one. Janet would probably be considered a(n) ___________ in the diffusion of innovation process. 
Early Majority
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10. 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.

11. PROGRESS CHECK (2 of 4)
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

12. Exhibit 12.3: The Product Development Process
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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13. Exhibit 12.4: Sources of New Product Ideas
Firms must constantly scan the environment looking for new product ideas. Depending on the company strategy, they use different sources.
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14. Sources of New Product Ideas: Internal R&D
High product development costs Often the source of technological products Often the source of breakthrough products
Larger firms often maintain their own R&D department and rely on it to generate new products that will lead the market. According to Marketing Analytics 12.1 Data That Help the Brand and the Customer: GM’s Big Data Use, General Motors is leveraging the data it gathers from customers as a sort of internal research source to support its designs.
©Tom Gannam/AP Images

15. Sources of New Product Ideas: R&D Consortia
Firms join together to form research consortiums Lower costs and risks Benefits spread to all firms Example: pharmaceutical industry research
To develop new product ideas, more and more firms have been joining an R&D consortia, or groups of other firms and institutions, possibly including government and educational institutions, to explore new ideas or obtain solutions for developing new products.
Group activity: Investigate whether any research groups work through your university. How might their findings help firms develop new products?

16. Sources of New Product Ideas: Licensing
Firms purchase the rights to technology or ideas from other research-intensive firms. University research centers often provide such licenses.
Firms license the use of new products, technology, and processes. Small biotech firms frequently license their inventions to larger pharmaceutical firms

17. Sources of New Product Ideas: Brainstorming
Groups work together to generate ideas. No idea is immediately accepted or dismissed. Members vote on the best idea or combination of ideas.
Many firms, such as ConAgra, now give employees time to develop new products and new ideas, and then showcase them in employee new product shows.

18. Sources of New Product Ideas: Outsourcing
Hiring an outside firm to help generate ideas and develop new products and services. Design firms help clients generate new product and service ideas in industries such as health care, toys, and computers.
In some cases, companies have trouble moving through these steps alone, which prompts them to turn to outside firms.
©1001slide/E+/Getty Images

19. Sources of New Product Ideas: Competitors’ Products
Reverse engineering Copycat products
Products with patents or other proprietary protections cannot be copied, so reverse engineered products must be substantively different from their source product.

20. Sources of New Product Ideas: Customer Input
Listening to the customer in both B2B and B2C markets can lead to successful idea generation. Lead users: innovative product users who modify existing products according to their own specific needs.
Listening to the customer in both B2B and B2C markets is essential for successful idea generation and throughout the product development process. Another particularly successful customer input approach is to analyze lead users, those innovative product users who modify existing products according to their own ideas to suit their specific needs. If lead users customize a firm’s products, other customers might wish to do so as well.
Ask students: Have you ever modified a product, e.g., apparel, a car? Why did you do it?
©Big Cheese Photo/SuperStock

21. The Product Development Process: Concept Testing
A concept is a brief written description of the product. Concept testing is the process in which the concept is presented to potential buyers or users to obtain their reactions. It 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.

22. The Product Development Process: Product Development or Product Design
Prototype
Alpha 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
©Nick Wass/AP Images

23. The Product Development Process: Market Testing
Premarket tests
Test marketing
Customers exposed to product
Mini product launch
More expensive than premarket tests
Customers surveyed
Premarket tests are conducted by research firms, such as ACNielsen (BASES). 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

24. The Product Development Process: Product Launch
This step requires tremendous financial resources and extensive coordination of all aspects of the marketing mix. The firm confirms its target market(s), decides how the product will be positioned, finalizes the remaining marketing mix variables, and determines the marketing budget. Timing of the launch may be critical.

25. Do you think these product launches were successful?
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 plant 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.

26. The Product Development Process: Evaluation of Results
Satisfaction of technical requirements
Degree of 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

27. PROGRESS CHECK (3 of 4)
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.

28. The Product Life Cycle
Defines the stages that products move through as they enter, get established in, and ultimately leave the marketplace. A useful tool in marketing strategy planning. Reflects marketplace trends.

29. Exhibit 12.5: Product Life Cycle
The product life cycle represents an important tool managers use to plan their marketing activities.
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30. Exhibit 12.6: Characteristics of Different Stages of the Product Life Cycle
Introduction
Growth
Maturity
Decline
Sales
Low
Rising
Peak
Declining
Profits
Negative or low
Rapidly rising
Peak to declining
Typical consumers
Innovators
Early adopters and early majority
Late majority
Laggards
Competitors (number of firms and products)
One or few
Few but increasing
High number of competitors and competitive products
Low number of competitors and products
At each stage of the life cycle, the marketing mix elements change in response to the marketplace.
Group activity: List products that currently exist in each of the stages. What marketing mix would you design for each of these products?

31. The Introduction Stage of the PLC
Discuss the difficulties associated with the introduction stage, especially if the product is totally new to the world.
Ask students: What challenges do firms face in this stage?
This is useful in discussing how the PLC can be for a product category, a brand, or an individual product in the line. The KFC brand itself is in a very mature category. This particular product (grilled chicken) is in the introduction stage of the PLC.

32. The Growth Stage of the PLC
Discuss the concept of the “tipping point” — the transition between introduction and growth when the product either gains market acceptance or must exit the market.
The majority of new products fail at this point.
Clorox wipes compete in a market that is attracting many new offerings every year. They must continue to fight for customer acceptance and market share.
Adding Value 12.3 Skinny on Ingredients, Thick on Promise: The Growth of SkinnyPop Snacks outlines how a couple of entrepreneurs had to take a trial-and-error approach before they ultimately found the segment of the popcorn market that would allow their SkinnyPop brand to grow massively and quickly.

33. The Maturity Stage of the PLC
Most U.S. products are in the maturity stage, which means most U.S. firms must engage in defending their market share. In the battle for soft drinks, a very mature market, a 1% market share switch between Coke and Pepsi can account for millions of dollars in revenue 
Ask students: What marketing activities should firms engage in at this stage?
The market for laundry sheets is very mature. However, brands like Purex continue to innovate to prolong the maturity phase.

34. The Decline Stage of the PLC
Ask students: If your company’s product were in its decline stage, how would you determine whether to update the product, continue offering it for a small segment, or exit the market completely?
Pirating is big—many would like to see a decline in this behavior and for related products to be in the decline stage of the PLC. In fact, there is huge growth in downloadable products to help copy software, movies, and music.

35. Limitations of Product Life Cycle
Each product or service has its own shape.
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.

36. PROGRESS CHECK (4 of 4)
What are the key marketing characteristics of products or services at each stage of the product life cycle?
Why might placement decisions for products or services into stages of the product life cycle become a self-fulfilling prophecy?
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. Sensing the viability and commercialization possibilities of some market-creating new product, other firms soon enter the market with similar or improved products at lower prices. 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. 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. Marketing costs (e.g., promotion, distribution) increase as these firms vigorously defend their market share against competitors. 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.
The most challenging part of applying the product life cycle concept is that managers do not know exactly what shape each product’s life cycle will take, so there is no way to know precisely what stage a product is in. If, for example, a product experiences several seasons of declining sales, a manager may determine that it has moved from the growth stage to decline and so decides to stop promoting the product. As a result, of course, sales decline further. The manager then believes he or she made the right decision because the product continues to follow a predetermined life cycle. But what if the original sales decline was due to a poor strategy or increased competition—issues that could have been addressed with positive marketing support? In this case, the product life cycle decision became a self-fulfilling prophecy, and a growth product was doomed to an unnecessary decline.

37. Marketing Chapter 12
The End