1. Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Marketing: The Core by Kerin et al Slides prepared by Andrew Hughes, Australian National University CHAPTER 9 DEVELOPING NEW PRODUCTS AND SERVICES 9 - 1

2. Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Marketing: The Core by Kerin et al Slides prepared by Andrew Hughes, Australian National University After reading this chapter you should be able to: Identify the ways consumer and business goods and services are classified and marketed. Explain the effects of different ways of viewing “newness” in new products and services. 9 - 2

3. Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Marketing: The Core by Kerin et al Slides prepared by Andrew Hughes, Australian National University After reading this chapter you should be able to: Analyse the factors that contribute to the success or failure of a product or service. Describe the purposes of each step of the new- product process. 9 - 3

4. Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Marketing: The Core by Kerin et al Slides prepared by Andrew Hughes, Australian National University Developing New Products and Services The essence of marketing is in developing products, such as fitness programs. A product is a good, service or idea consisting of a bundle of tangible and intangible attributes that satisfies consumers and is received in exchange for money or some other unit of value. Tangible attributes include physical characteristics such as colour or sweetness, and intangible attributes include those aspects of a product that can’t be ‘touched’, such as the way exercising makes you feel. The life of a company often depends on how it conceives, produces and markets new products. 9 - 4

5. Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Marketing: The Core by Kerin et al Slides prepared by Andrew Hughes, Australian National University The Variations of Products Products differ in terms of whether they are designed for consumers or businesses. For most organisations, the product decision—that is, the choice about what products to offer—is not made in isolation because companies often offer a range of products. To better appreciate the product decision, let’s first define some terms pertaining to products. 9 - 5

6. Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Marketing: The Core by Kerin et al Slides prepared by Andrew Hughes, Australian National University Product Line and Product Mix A product line is a group of products—goods or services—that are closely related because they satisfy a class of needs, are used together, are sold to the same customer group, are distributed through the same type of outlets, or fall within a given price range. Each product line has its own marketing strategy. The product mix is the number of product lines offered by a company. 9 - 6

7. Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Marketing: The Core by Kerin et al Slides prepared by Andrew Hughes, Australian National University Classifying Products Both governments and companies classify products, but for different purposes. The Australian and New Zealand governments’ classification method—Australian and New Zealand Standard Industrial Classification (ANZSIC)—helps them collect information on industrial activity. Companies classify products to help develop similar marketing strategies for the wide range of products offered. Two major ways to classify products are by type of user and degree of product tangibility. 9 - 7

8. Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Marketing: The Core by Kerin et al Slides prepared by Andrew Hughes, Australian National University Type of user and degree of product tangibility Type of User The first major type of product classification is according to the user. Consumer goods are products purchased by the ultimate consumer, whereas business goods (also called industrial goods or organisational goods) are products that assist directly or indirectly in providing products for resale. Product Tangibility Classification by degree of tangibility divides products into one of three categories. 1.Non-durable good, an item consumed in one or a few uses, such as food products and fuel. 2.A durable good is an item that usually lasts over an extended period of time 3.Services are defined as intangible activities, benefits or satisfactions offered for sale, such as marketing research, health care and education. 9 - 8

9. Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Marketing: The Core by Kerin et al Slides prepared by Andrew Hughes, Australian National University The Uniqueness of Services Services have become one of the most important components of Australian and New Zealand economies. Services account for approximately 70 and 65 per cent of the gross domestic product (GDP) in Australia and New Zealand respectively. With the growing importance of services, there are four unique elements of services: 1.intangibility, 2.inconsistency, 3.inseparability 4.Inventory These are referred to as the four ‘I’s of services. 9 - 9

10. Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Marketing: The Core by Kerin et al Slides prepared by Andrew Hughes, Australian National University Classifying Goods and Services - Classification of Consumer Goods As marketing focuses on the buyer—that is, the product user—it is important to closely at the two types of users and the way in which goods and services are classified as consumer or business products. The two types of users are consumer and business. 9 - 10

11. Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Marketing: The Core by Kerin et al Slides prepared by Andrew Hughes, Australian National University Classifying Goods and Services - Classification of Consumer Goods 9 - 11

12. Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Marketing: The Core by Kerin et al Slides prepared by Andrew Hughes, Australian National University Classifying Goods and Services - Classification of Business Goods As you saw from the previous slide, there are four types of consumer goods: 1.convenience 2.shopping 3.specialty 4.unsought They differ in terms of 1.effort the consumer spends on the decision, 2.attributes used in purchase and 3.frequency of purchase. 9 - 12

13. Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Marketing: The Core by Kerin et al Slides prepared by Andrew Hughes, Australian National University Raymond Weil Watch Ad What type of consumer good? What type of consumer good? 9 - 13

14. Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Marketing: The Core by Kerin et al Slides prepared by Andrew Hughes, Australian National University Classification of Business Goods A major characteristic of business goods is that their sales are often the result of derived demand; that is, sales of industrial products frequently result, or are derived, from the sale of consumer goods. Items used in the manufacturing process that become part of the final product are production goods. The second class of business goods is support goods, which are items used to assist in producing other goods and services. 9 - 14

15. Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Marketing: The Core by Kerin et al Slides prepared by Andrew Hughes, Australian National University Classification of Services Services can be classified in several ways, according to: 1.whether they are delivered by people or equipment, 2.whether they are profit or non-profit or 3.whether or not they are government sponsored. 9 - 15

16. Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Marketing: The Core by Kerin et al Slides prepared by Andrew Hughes, Australian National University Concept Check 1.Explain the difference between product mix and product line. 1. The product mix is the number of product lines offered by a company. A product line is a group of products or services that: satisfy a class of needs, are used together, are sold to the same customer group, are distributed through the same outlets, or fall within a given price range. 9 - 16

17. Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Marketing: The Core by Kerin et al Slides prepared by Andrew Hughes, Australian National University Concept check 2.What are the four main types of consumer goods? 3.What are three ways to classify services? 2. Convenience goods, shopping goods, specialty goods, and unsought goods. 3. Delivery by people or equipment, profit or not-for- profit organisations, and government sponsored or not. 9 - 17

18. Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Marketing: The Core by Kerin et al Slides prepared by Andrew Hughes, Australian National University New Products and why they Succeed or Fail New products are the lifeblood of a company and keep it growing, but the financial risks can be large. What is a new product? The term new is difficult to define. Is Sony’s PlayStation 3 new when there was a PlayStation 1 and 2? What does new mean for new-product marketing? New can refer to a product being functionally different from existing products. Marketers often classify new products according to the degree of learning required by a consumer in order to use the product properly. The three categories of new products are: 1.continuous innovation, 2.dynamically continuous innovation, 3.discontinuous innovation. 9 - 18

19. Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Marketing: The Core by Kerin et al Slides prepared by Andrew Hughes, Australian National University Product ‘newness’, as defined by the degree of consumer learning needed to use the product 9 - 19

20. Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Marketing: The Core by Kerin et al Slides prepared by Andrew Hughes, Australian National University Why Products Succeed or Fail We all know giant product successes—such as Microsoft Windows, Swatch watches, or SkyTV. Yet the thousands of failures every year that slide quietly into oblivion cost businesses billions of dollars. Recent research suggests that it takes about 3000 raw unwritten ideas to produce a single commercially successful new product. To learn marketing lessons and convert potential failures to successes, we analyse why new products fail and then study several failures in detail. 9 - 20

21. Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Marketing: The Core by Kerin et al Slides prepared by Andrew Hughes, Australian National University Are these products new? 9 - 21

22. Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Marketing: The Core by Kerin et al Slides prepared by Andrew Hughes, Australian National University Marketing Reasons for New-Product Failures Both marketing and non-marketing factors contribute to new- product failures. Using the research results from several studies on new-product success and failure. We can identify critical marketing factors that often spell failure for new-product launches: –Insignificant point of difference –Incomplete market and product definition before product development starts –Too little market attractiveness –Poor execution of the marketing mix –Poor product quality or insensitivity to customer needs on critical factors. –Bad timing –No economical access to buyers 9 - 22

23. Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Marketing: The Core by Kerin et al Slides prepared by Andrew Hughes, Australian National University Example of a New Product Did this new product succeed or fail? Why? What sort of new product would a product like this be classified as? 9 - 23

24. Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Marketing: The Core by Kerin et al Slides prepared by Andrew Hughes, Australian National University Concept Check 1.Describe the three kinds of innovations that marketers use to categorise new products. 2.What does ‘insignificant point of difference’ mean as a reason for new-product failure? 1. Continuous innovation, dynamically continuous innovation, and discontinuous innovation. 2. The product’s characteristics did not deliver benefits to the user that were uniquely superior to those of competitors or were not deemed important to users. 9 - 24

25. Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Marketing: The Core by Kerin et al Slides prepared by Andrew Hughes, Australian National University The New-product Process A company can increase its chances of success by following a new product process. The new product process, consists of seven stages a firm goes through to identify business opportunities and convert them to a saleable good or service. This sequence begins with new-product strategy development and ends with commercialisation. 9 - 25

26. Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Marketing: The Core by Kerin et al Slides prepared by Andrew Hughes, Australian National University The new product process 9 - 26

27. Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Marketing: The Core by Kerin et al Slides prepared by Andrew Hughes, Australian National University New-Product Strategy Development For companies, new-product strategy development involves defining the role for a new product in terms of the firm’s overall corporate objectives. This step in the new product process has been added by many companies recently to provide a needed focus for ideas and concepts developed in later stages. Some of the key issues examined here are: –Identifying Markets and Strategic Roles –Cross-Functional Teams and New-Product Development 9 - 27

28. Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Marketing: The Core by Kerin et al Slides prepared by Andrew Hughes, Australian National University Idea Generation Idea generation, where a pool of concepts is developed as possible new products, must build on the previous stage’s results. New product ideas are generated by consumers, suppliers, employees, basic R&D and competitors. Some of the other key issues examined at this stage are: –Customer and Supplier Suggestions –Employee and Co-Worker Suggestions –Research and Development Breakthroughs –Competitive Products 9 - 28

29. Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Marketing: The Core by Kerin et al Slides prepared by Andrew Hughes, Australian National University Idea Generation Most mobile phones now incorporate different media devices, such as cameras and MP3 players. Where did the idea for this come from? 9 - 29

30. Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Marketing: The Core by Kerin et al Slides prepared by Andrew Hughes, Australian National University Screening and Evaluation The third stage of the new product process is screening and evaluation, which involves internal and external evaluations of the new-product ideas to eliminate those that should not be developed further. Internal approach: Internally, the firm evaluates the technical difficulty of the proposal and whether the idea meets the objectives defined in the new-product strategy development step. External approach: Concept tests are external evaluations that consist of preliminary testing of the new-product idea, rather than the actual product, with consumers. 9 - 30

31. Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Marketing: The Core by Kerin et al Slides prepared by Andrew Hughes, Australian National University Concept Check 1.What step in the new-product process has been added in recent years? 2.What are four sources of new-product ideas? 1.New-product strategy development has been added recently by many companies to provide focus for ideas and concepts developed in later stages. 2.Customer and supplier suggestions, employee suggestions, R&D breakthroughs, and competitive products. 9 - 31

32. Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Marketing: The Core by Kerin et al Slides prepared by Andrew Hughes, Australian National University Business Analysis Business analysis involves specifying the features of the product and the marketing strategy needed to commercialise it—that is, bring it to market—and making necessary financial projections. This is the last checkpoint before significant resources are invested in creating a prototype— usually, a full-scale operating model of the product. Assessing the ‘Business Fit’ of the New Product is a critical factor at this stage. 9 - 32

33. Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Marketing: The Core by Kerin et al Slides prepared by Andrew Hughes, Australian National University Development Product ideas that survive the business analysis proceed to actual development, turning the idea on paper into a prototype. This results in a demonstrable, producible product in hand. Outsiders seldom understand the technical complexities of the development stage, which involves not only manufacturing the product but also performing laboratory and consumer tests to ensure that it meets the standards set. Design of the product becomes an important element. Some new products can be so important and costly that the company is literally betting its very existence on success. 9 - 33

34. Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Marketing: The Core by Kerin et al Slides prepared by Andrew Hughes, Australian National University Mattel’s Barbie Why should laboratory and safety tests be done? 9 - 34

35. Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Marketing: The Core by Kerin et al Slides prepared by Andrew Hughes, Australian National University Market Testing The market testing stage of the new-product process involves exposing actual products to prospective consumers under realistic purchase conditions to see if they will buy. Often a product is developed, tested, refined and then tested again to get consumer reactions through test marketing. Sometimes though test marketing does not work or is not appropriate to use. 9 - 35

36. Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Marketing: The Core by Kerin et al Slides prepared by Andrew Hughes, Australian National University Commercialisation Finally, the product is brought to the point of commercialisation—positioning and launching a new product in full-scale production and sales. Companies proceed very carefully at the commercialisation stage because this is the most expensive stage for most new products, especially consumer products. To minimise the risk of financial failure, some companies use regional rollouts, introducing the product sequentially into different geographical regions to allow production levels and marketing activities to build up gradually. 9 - 36

37. Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Marketing: The Core by Kerin et al Slides prepared by Andrew Hughes, Australian National University Marketing information and methods used in the new product process 9 - 37

38. Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Marketing: The Core by Kerin et al Slides prepared by Andrew Hughes, Australian National University Concept Check 1.Describe the business analysis stage of the new-product process. 2.What is a test market? 1. Business analysis involves specifying the features of the product and the marketing strategy needed to commercialise it—bring it to market—and making financial projections. 2. A test market is a city that is viewed as being representative of consumers in terms of demographics and brand purchase patterns, is far enough from big markets to allow low-cost advertising, and has tracking systems to measure sales. 9 - 38

39. Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Marketing: The Core by Kerin et al Slides prepared by Andrew Hughes, Australian National University Concept Check 3. What is commercialisation of a new product? 3. Commercialisation involves positioning and launching a new product in full-scale production and sales and is the most expensive stage for most new products. 9 - 39

40. Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Marketing: The Core by Kerin et al Slides prepared by Andrew Hughes, Australian National University Finish Questions? 9 - 40