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Marketing Chapter 7 Lecture Notes

The document outlines the new product planning process, emphasizing the potential for significant sales growth but also the high costs and risks associated with new product development. It details various new product strategies, growth vectors, and the steps involved in the new product development process, including idea generation, screening, project planning, product development, test marketing, and commercialization. Additionally, it highlights factors contributing to new product success and common causes of failure.

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0% found this document useful (0 votes)
17 views

Marketing Chapter 7 Lecture Notes

The document outlines the new product planning process, emphasizing the potential for significant sales growth but also the high costs and risks associated with new product development. It details various new product strategies, growth vectors, and the steps involved in the new product development process, including idea generation, screening, project planning, product development, test marketing, and commercialization. Additionally, it highlights factors contributing to new product success and common causes of failure.

Uploaded by

miran.chisty11
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Chapter 7 – New Product Planning


Do Not Read

Page 105 last paragraph


Page 107 paragraph 2 starting “It has already …” and para 3
Page 109 paragraph 2
Page 110 marketing insight 7-2
Page 113 marketing insight 7-4
Page 115 marketing insight 7-6
Page 117 all

Facts About New Products

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

It can take years to have the product ready for market

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

Product improvements – Current products made better

Repositioning – Products retargeted for new use or application

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

Organizational Growth Strategies


3
Policy-making criteria on new products should specify:

 Working definition of profit concept acceptable to top management

 Minimum level or floor of profits (Hurdle Rate)

 Availability and cost of capital to develop a new product (Hurdle Rate)

 Specified time period for recuperating operating costs and contributing to profits

The New Product Development Process


4

(1) Idea Generation

Every product starts as an idea BUT most ideas do not become products!

Idea generation – Requires recognizing available idea sources (i.e. The 4Cs)

 Least expensive step in new product development

 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

(2) Idea Screening

Looking to do 2 things

(1) Eliminate the bad ideas


(2) Develop the good ideas

When considering what ideas to eliminate, 3 types of risk need to be considered:

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)

Potential benefits of strategic alliances include:

i. Increased access to technology, funding, and information


ii. Market expansion and greater penetration of current markets
iii. De-escalated competitive rivalries
5
(3) Project Planning (also referred to as Business Case Planning/Development)

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

2. Establish a development budget with preliminary marketing and technical research

3. Create a “rough form” product

4. Alternative product features and components specified

5. Create a project plan with estimated costs, capital requirement, and manpower needs

6. Review the project plan with top management

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)

New Product Decisions

 Product features

 Fact or particular specification of the product


 Determined by what it is that the customer wants offered

 Product design

 Can clearly differentiate a new product from competitors


 Good design can add value to the new product

 Product safety

 Safety is both an ethical and practical issue


 Ethically, customers should not be harmed by using the product as intended
 It may be so expensive to make them safer that buyers cannot afford to buy them

 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

Some Criteria for Determining Perceptions of Quality


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(4) Product Development

Upon evaluation, if all expectations are met, then consider further research and testing, produce a
finished product, and market test it

Development report must provide details of:

 Results of the studies by the engineering department


 Required plan design
 Production facilities design
 Tooling requirements
 Marketing test plan – Fully developed marketing mix
 Financial program survey
 Estimated release date

(5) Test Marketing

 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

Two questions to ask

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?”

Field Test Market

 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.

Laboratory Test Market

 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.

Answer to questions 1 and 2 above depend on:

a. Cost
b. Competition – Do my competitors get any advantages from my test marketing?
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(6) Commercialization

The firm commits to introducing the product into the marketplace

 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

Measurements of New Product Performance


9
Factors Associated with New Product Success

Causes of New Product Failure

 #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:

1. Inadequacy of upfront intelligence efforts


2. Failure on the part of the company to stick close to what the company does best
3. Inability to provide better value than competing products and technologies
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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?

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