Chapter 10 Developing and Managing Products Types of

Chapter 10 Developing and Managing Products

Types of innovations Continuous innovations - normal upgrading, no change in user behaviors. New to the market New to seller New to producer Discontinuous innovations – require users to change behaviors. New-to-the-world products.

NPD Process 4. Development 3. Business Analysis Alternative versions, describe in consumer terms 5. Test marketing 6. Commercialization Physical product, $$$ 2. Idea Screening Reduce # quickly 1. Idea Generation Many -- employees, customers, suppliers, distributors, competitors

New Product Development 2. Idea Screening (what do we have? +/-) • In pharmacy, 1 of 5, 000 new drug ideas is common • In autos, 1 of 20 new car concepts is made to prototype • Point? Brainstorm, then cut via research • Short and long run $ performance • Social issues: • Consumer welfare (Ben and Jerry’s) • Safety ( Marlboro cigarettes) – liability (Mc. Donald’s hot coffee)

New Product Development 3. Business Analysis • Examine consumer perceptions (Coors banquet beer) • Consider view of retailers and wholesaler (Frito Lay) 4. Development (can go hand-in-hand with analysis) • Product tests (New Coke, movies) • Risky: (leaks, skewed results) • Virtual product development: examine without construction • Prototype product and marketing strategy • Longest process (Minute Rice took 18 years!)

Concept Test A test to evaluate a new-product idea, usually before any prototype has been created.

Test Marketing +Costs +Brand Equity -Jamming -Duplication Standard Test Market Limited introduction in a small market supported by a full-fledged marketing campaign to gauge customer reactions

Product Life Cycle A concept that provides a way to trace the stages of a product’s acceptance, from its introduction (birth) to its decline (death).

Product Life Cycles Introduction Growth Maturity Decline Dollars Industry Sales Industry Profits 0 Time

Product Life Cycles INTRODUCTION Sales Product Strategy Limited models Frequent changes GROWTH More models Frequent changes. Distribution Strategy Limited Expanded Wholesale/ dealers. Longretail distributors term relations Promotion Strategy Awareness. Aggressive ads. Stimulate demand. Sampling demand Pricing Strategy High to recoup development costs Fall as result of competition & efficient production. Time MATURITY DECLINE Large number Eliminate of models. unprofitable models Extensive. Margins drop. Shelf space Advertise. Promote heavily Prices fall (usually). Phase out unprofitable outlets Phase out promotion Prices stabilize at low level.

Some misconceptions about PLC At the level of the category and not the brand – Cell phones not CINGULAR wireless. Different products go through the stages differently. Timing of stages may vary substantially.

Product Life Cycle �Criticisms: �Self fulfilling prophecy �All do not follow pattern �Product may be in different stages by the market �What do you see are the advantages of the PLC? Why should m. managers care?

Product Life Cycle � Factors that may speed products through PLC: 1. 2. 3. 4. Ease of trial (supermarkets, no risk, test drive) Ease of use (some assembly required; Toys R Us (bike); Gateway store) Easy to communicate advantages (Always low price; cars) Compatible with customer experience (Poland & free samples)

The Consumer Adoption Process Adoption process: series of stages for which consumers decide whether or not to become a regular user of a new product, including: Awareness Interest Evaluation Trial Adoption or rejection

Diffusion The process by which the adoption of an innovation spreads.

Adopter Categories

Diffusion Process and PLC Curve Introduction Growth Decline Maturity Product life cycle curve Sales LO 6 Early majority Late majority Early adopters Innovators Laggards Diffusion curve

Product Characteristics and the Rate of Adoption Complexity Compatibility Relative Advantage Observability Trialability