11 Chapter Developing New Products
Why do firms create new products?
Innovation- process by which ideas get transformed into new offerings, including
products, services, processes and branding concepts that will help firms grow
Changing customer needs
Market saturation
Managing risk through diversity
Fashion cycles
Improving business relationships
Diffusion of Innovation:
Diffusion of Innovation- process by which innovation, spreads throughout a market
group, over time and across various categories of adopters
Pioneers or breakthroughs- new products establishing a completely new market or
radically change both the rules of competition and consumer preferences in a market
First Movers- 1st to create the market or product category, they become readily
recognizable to consumers and thus establish a commanding and early market share lead
o Command a greater market share over a longer time period than later entrants can
1) Innovators- buyers who want to be the first on the block to have the new product/service
2) Early Adopters- second subgroup that begins using a product/service innovation
o Dont like as much risk but instead wait and purchase after careful review
3) Early Majority- 34% of population and crucial group for profitable new products
o If the group isnt large enough the product generally fails
4) Late Majority- last group of buyers to enter a new product market
o Full market potential
5) Laggards- make up roughly 16% of the market
o Avoids change and rely on traditional products until they are no longer available
6) Using the diffusion of Innovation Theory
o Relative advantage
o Compatibility
o Observability
o Complexity and trailability
How Firms Develop New Products:
1) Idea Generation
o Internal Research and Development
o R&O Consortia
Clinical Trial- medical study that tests the safety and effectiveness of a
drug, or treatment in people
o Licensing
o Brainstorming
o Outsourcing
o Competitors Products
Reverse engineering involves taking apart a product, analyzing it, and
creating an improved product that does not infringe on the competitors
patents, if any exist
2)
3)
4)
5)
6)
o Customer input
Concept Testing
Concepts are brief written descriptions of the product; its technology, working principles
and forms; and what customer it needs would satisfy
Concept testing- process by which a concept statement is presented to potential
buyers/users to obtain their reactions
Product Development- the process of balancing various engineering, manufacturing,
marketing and economic considerations to develop a products form and features or a
services features
Prototype- 1st physical form or service description of a new product, still in rough or
tentative form, that has the same properties as a new product but is produced through
different manufacturing processes- sometimes even crafted individually
Alpha testing- firm attempts to determine whether the product will perform according
to its design and whether it satisfies the need for which it was intended
Beta testing- uses potential customers, who examine the product prototype in a real
use setting to determine its functionality, performance, potential problems and other
issues specific to its issue
Market Testing
Premarket tests- conducted prior to bringing a product/service to market to
determine how many customers will try and continue use of the product according
to a small group of potential consumers
Test marketing- introduces the offering to a limited geographical area the potential
success of a product
Product Launch
Promotiono Trade promotion- promotions to wholesalers or relatives to get them to
purchase the new products, often combine introductory price promotions,
special events and personal selling
o Introductory price promotions- limited-duration, lower-than-normal prices
designed to provide retailers with an incentive to try products
o Trade show- temporary concentration of manufacturers that provide
retailers the opportunity to view what is available and new in the
marketplace
o Place
o Price
o Timing- slotting allowance=fee paid to get new products in a store
Evaluation of Results
Product life cycle:
o Stages that products move through as they enter, get established in and
leave the marketplace
o Introduction stage- product launch
o Growth stage- when a product gains acceptance, demand and sales
increase and more competitors emerge in the product category
o Maturing stage- industry sales reach their peak, firms try to rejuvenate by
adding new features or repositioning
o Decline happens if maturing stage fails