Week XVI

Introducing New Market Offerings

New Product Options Challenges in New-Product Development Organizational Arrangements Managing the Development Process: Ideas Managing the Development Process: Concept Strategy Managing the Development Porcess: Development to Commercialization The Consumer-Adoption Process

New Product Options

Make or Buy

3 forms of acquision route:

1) Company can buy other companies 2) Can acquire patents from other companies 3) Can buy a license or franchise from another company

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Challenges in New-Product Development

Vulnerabilities of existing products include:
1) Changing customers needs & tastes

2) New technologies
3) Shortened PLC 4) Increase in domestic & foreign competition

Innovative firms should:

1) Create a positive attitude towards innovation & risk taking 2) Routinize the innovation process 3) Practice teamwork 4) Allow their people to experiment & fail

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New-Product Success
1) Incremental innovation used by more established companies
1) Allow companies to enter new markets by tweaking products for new customers 2) Use variations on a core product to stay one step ahead of the market 3) Create interim solutions for industry wide problems

2) Disruptive technologies used more by new companies

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New-Product Failure Reasons:

(1) Ignored or misinterpreted market research (2) Overestimares of market size (3) High development cost (4) Poo design (5) Incorrect positioning (6) Ineffective advertising (7) Insufficient distribution support

(8) Competitors who fight back hard

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Factors hindrance for new product development:

(1) Shortage of important ideas incertain areas (2) Fragmented markets (3) Social & govermental constrains (4) Cost of development (5) Capital shortage (6) Shorter required development time

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Organizational Arrangements New Product Development Decisions:

I. II. Idea generation Idea screening

III. Concept development & training

IV. Marketing strategy development

V. Business analysis VI. Product development

VII. Market testing

VIII. Commercialization

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Managing the Development Process: Ideas I. Idea Generation 7 ways to draw new ideas from your customers:
(1) Observe how customers are using your product (2) Ask customers about their problems w/ your products (3) Ask your customers about their dream products (4) Use a customer advisory board to comment on your companys idea (5) Use web site for new ideas (6) Form a brand community of enthusiasts who discuss your product (7) Encourage or chanllenge your customers to change or improve your product

Some techniques for stimulating creativity in individuals/groups:

(1) Attribute listing

(2) Forced relationship

(3) Morphological analysis (4) Reverse assumption analysis (5) New contexts (6) Mind mapping

II. Idea Screening

2 types of eror in idea screening:
(1) DROP error (2) GO error

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Managing the Development Process: Concept Strategy Product Idea a possible product the company might offer to the market Product Concept is an elaborate version of the idea expressed inconsumer terms

III. Concept Development & Training

Questions to asnwer to turn a product idea into a concept:
(1) Who will use this product? (2) What primary benefit should this product provide?

(3) When will people start consuming/buying?

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After answering these questions, we move to:

Category concept defines the products competition

Brand concept use the brand positioning map

Concept Testing presenting the product concept, symbolically or physically to target consumers & getting their reactions

IV. Marketing Strategy Development

Prelimenary 3 part strategy plan
(1) Describe target market size, structure & bahavior (2) Planned product positioning (3) Sales, market share & profit goals

V. Business Analysis

Estimated total sales

Sum od estimated first-time sales, replacement sales & repeat sales Sales estimation methods depend on whether the product is purchased once, infrequentlyor often Costs are estimated by the R&D, manufacturing, marketing& finance departments Breakeven analysis estimates how many units the company must sell to break even w/ the given price & cost structure Risk analysis using this we obtain 3 estimates (optimistic, pessimistic, & most likely)

Estimated cost & profits

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Managing the Development Porcess: Development to Commercialization VI. Product Development

Is the job in translating target customer requirements into a working prototype is helped by a set of methods known as quality function deployment (QFD)

2 steps:
(1) Physical prototypes building the products

(2) Customer test inviting target market customers to rate/measure product

(1) Rank-order method (2) Paired-comparison method (3) Monadic-rating method

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VII. Market Testing

Business-goods Market Testing Consumer-goods Market Testing 4 variables:
(a) Trial

(b) First repeat

(c) Adoption (d) Purchase frequency

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4 methods of consumer-goods market testing:

(1) Sales-wave Research consumers who initially try the product at no cost are reoffered it, or a competitors product at slightly reduced price (2) Simulated test Marketing finding 30 to 40 qualified shoppers & questioning them about brand familiarity & preferences in a specific product category (3) Controlled Test Marketing a research firm manages a panel of stores that will carry new products for a fee (4) Test Market fill deployment

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VIII. Commercialization
Sequence for new products for commercialization:
(1) When (Timing)
(1) First entry (2) Parallel entry (3) Late entry

(2) Where (Geographic Strategy) (3) To Whom (Target-Market Prospect) (4) How (Introductory Market Strategy)
(1) Critical Path Scheduling a master chart showing the simultaneous & sequential activities that must take place to launch the product

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The Consumer-Adoption Process

Adoption the individuals decision to become a regular user of the product Consumer-Adoption Process the mental steps through which an individual passes from hearing about innovation to final adoption Innovation is any good, service or idea that someone perceives as new, no matter how long its history plp

5 stages in Adoption:
(1) Awareness consumers are aware of the innovation but lacks informattion about it

(2) Interest consumer is stimulated to seek information about the innovation

(3) Evaluation consumers consider whether to try the innovation (4) Trial consumer tries the innovation to improve his or her estimate of its value

(5) Adoption consumer decides to make full & regular use of the innovation

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Factors influencing the Adoption Process

(1) Differences in individual readiness to try new products

(2) Effect of personal influence

(3) Differing rates of adoption (4) Differences in organizations readiness to try new products

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1) differences in individual readiness to try new products

Adoptor categories:
a) innovators techonoly enthusiasts; venturesome & enjoy tinkering w/ new products & mastering their intricacies; for low prices they are happy to conduct aplha & beta testing & report early weaknesses b) early adopters are opinion leaders who carefully search for new technologies that might give them a dramatic competitive edge; less price sensitive c) early majority deliberate pragmatist who adopt the new technology when its benefits are proven & a lot of adoption has already taken place; they make up the mainstream market

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d) late majority are skeptical conservatives who are risk averse, technology shy & price sensitive
e) laggards are tradition-bound & resist the innovation until they find that the status quo is no longer defensible 2) personal influence the effect one person has on another's attitude or purchase probability 3) rate of adoption a) relative advantage degree to which the innovation appears superior to existing products b) compatibility degree to which the innovation matches the values & experiences of the individual

c) complexity degree to which the innovation is difficult to understand or use

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d) divisibility degree to which the innovation can be tried on a limited basis

e) communicability degree to which the benefits of use are observable or describabale to others 4) organization's readiness to adopt innovation Variable for organizations adoption:

(1) Organizations environment (community progressiveness & income) (2) The organization itself (size, profits, pressure to change) (3) Administrators (education level, age, sophistication)
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