Marketing Chapter 7 Lecture Notes
Marketing Chapter 7 Lecture Notes
Sales of new products potentially provide a very large boost to the company’s growth rate
BUT
The cost to introduce new products can be in the millions, to hundreds of millions of dollars, depending
on the product and the industry.
AND
AND
Finally, after all that money and time, many new products are failures, ranging from 33 percent to 90
percent, depending on the industry
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New Product Strategies
New-to-the-world products – Products that are new inventions (also known as “breakthrough
products”)
New category entries – Products that take the firm into a new category, but are not new to the world
Additions to product lines – Products that are line extensions or “flankers” to the current markets
Note: the new product strategies listed above refer to a specific company’s products, and not the
market in general.
For example, the company can have a product improvement for its own product, however, this
improvement may simply make the company’s product similar to the other products in the market.
In other words, the product is an improvement for the company, but it is a “me-too” product for the
market”.
Growth Vectors
Market penetration – Growth direction through increase in market share for present markets
Product development – Creating new products to replace existing ones
Market development – Finding new customers for existing products
Diversification – Developing new products and cultivating new markets
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Policy-making criteria on new products should specify:
Specified time period for recuperating operating costs and contributing to profits
Every product starts as an idea BUT most ideas do not become products!
Idea generation – Requires recognizing available idea sources (i.e. The 4Cs)
Top-management support – New product development must focus on meeting customer needs
Technology push and market pull research activities play an important role
Out-rotation – Involves placing employees in positions that require direct contact with
customers, competitors, and other key outside groups
Looking to do 2 things
1. Strategic risk – Risk of not matching the role of a new product with a specific strategic need
2. Market risk – Risk that a new product won’t meet a market need in a value-added,
differentiated way
3. Internal risk – Risk that a new product won’t be developed within the desired time and budget
BUT if there is risk, there may be the possibility of a strategic alliance (A long-term partnership
between two organizations designed to accomplish strategic goals of both parties)
For the ideas that survive the screening phase, these ideas now need to be examined further. Further
steps taken at this point include:
1. Analyze the proposal in terms of production, marketing, financial and competitive factors
5. Create a project plan with estimated costs, capital requirement, and manpower needs
Because you may have more than one good idea, the responsibility for further developing each idea can
be given to different groups/teams in the company. Two popular examples are:
Skunkworks – A project team can work in relative privacy away from the rest of the
organization
Rugby or relay approach – Groups in different areas of the company are simultaneously
working on the project
A key component contributing to the success relates to the emphasis placed on creating cross-
functional teams early in the development process
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(3) Project Planning (Continued)
Product features
Product design
Product safety
Quality Level
Warranty – Producer’s statement of what it will do to compensate the buyer if the product is
defective or does not work properly
To emphasize high quality, organizations generally offer customers more than implied
warranties enforced by the courts
Guarantee – An assurance that the product is as represented and will perform properly
Imply to some buyers that the manufacturer is confident of the new products’ quality
Upon evaluation, if all expectations are met, then consider further research and testing, produce a
finished product, and market test it
The main goal is to evaluate and adjust, if necessary, the marketing strategy to be used in the
marketing mix
Developers can use interaction with buyers as a foundation for future product development
Throughout the process, findings are being analyzed and forecasts of volume developed
Upon completion of the test market, prepare a final marketing plan in preparation for launch
1. Do I test market?
2. If the answer to Q#1 is Yes, then Q#2 is “Do I do a field test or laboratory test?”
In a field test market, the product is introduced into the market on a limited basis.
A select market (geographic) is chosen and the product is “tested” in that market to see how
the customers react to the product.
Targeted customers are invited into the laboratory and are shown the product (taste, use, etc.),
are shown promotions/advertisements for the product, etc. and are then asked their opinion on
everything from product features to product pricing to product image.
a. Cost
b. Competition – Do my competitors get any advantages from my test marketing?
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(6) Commercialization
Follow-up to eliminate bugs in the design, production costs, quality control, and inventory
requirements
Procedures and responsibility for evaluating the success of the new product by comparison
with projections are also finalized
Time to Market
Defined as the time between product definition and marketplace product availability.
Generally, companies that reach the market first with a new product enjoy both profit and
market share advantages.
Increasingly, companies are bypassing time-consuming regional test markets, when feasible, in
favor of national launches
#3 PP- Faulty estimates of market potential and other marketing research mistakes
#3 PP- Faulty estimates of production or marketing costs
#3 PP- No competitive point of difference, unexpected reactions from competitors, or both
#3 PP and #4 PD - Poor quality of product
#3 PP and #4 PD Poor positioning
#4 PD Poor perceived price/quality (value) relationship
#4 PD Nondelivery of promised benefits of product
#4 PD Improper channels of distribution selected
#4 PD Too little marketing support
Rapid change in the market (economy) after product introduction (or during the new product
development process)
Generally, a company’s inability to satisfy customer needs can be attributed to three main sources:
Research Considerations
NOTE: These considerations/questions are being asked throughout the Idea Screening, Product
Planning and Product Development Stages.
What is the anticipated market demand over time? Are the potential applications for the
product restricted?
Can the item be patented? Are there any antitrust problems?
Can the product be sold through present channels and the current sales force? What number of
new salespersons will be needed? What additional sales training will be required?
At different volume levels, what will be the unit manufacturing costs?
What is the most appropriate package to use in terms of color, material, design, and so forth?
What is the estimated return on investment?
What is the appropriate pricing strategy?