C H A P T E R 9 Developing New Products and Services McGraw-Hill/Irwin © 2007 The McGraw-Hill Companies, Inc. All rights reserved. Learning Objectives After studying this chapter, you should be able to: Recognize the different types of new products. Discuss the different sources of new products. Understand the stages in the new-product development process. Describe the way marketing research is used in the new-product development process. Appreciate the keys to new-product success. Bearden Marketing 5th Ed 9-2 © 2007 The McGraw-Hill Companies, Inc. All rights reserved. 3M 3M is a $20 billion company with more than 67,000 employees who create, manufacture, and sell products in 200 countries around the world. The real distinguishing characteristic of 3M is its continuous emphasis on innovation. One of the company’s major objectives is to generate 30 percent of each year’s sales from products that are less than four years old. Bearden Marketing 5th Ed 9-3 © 2007 The McGraw-Hill Companies, Inc. All rights reserved. New Product Overview Developing successful new products drives sales and profit growth for many companies. Research indicates that companies leading their industries in profitability and sales growth gain 49 percent of their revenues from products developed in the most recent five years. Companies at the bottom in sales and profit growth achieve only 11 percent of sales from new products. Bearden Marketing 5th Ed 9-4 © 2007 The McGraw-Hill Companies, Inc. All rights reserved. Types of New Products New-to-theworld Product inventions, such as Polaroid instant camera, the first car, rayon, the laser printer, in-line skates. New Category Products new to the firm but not to the world, such as P&G’s first Entries shampoo, Hallmark gift items, AT&T’s Universal Card. more Bearden Marketing 5th Ed 9-5 © 2007 The McGraw-Hill Companies, Inc. All rights reserved. Types of New Products (con’t) Additions to Line extensions or flankers on the Product Lines firm’s current markets, such as Tide Liquid detergent, Chrysler K cars. Current products made better; Product Improvements virtually every product on the market today has been improved, often many times. more Bearden Marketing 5th Ed 9-6 © 2007 The McGraw-Hill Companies, Inc. All rights reserved. Types of New Products (con’t) Products retargeted for a new use or Repositionings application, such as Kellogg’s Frosted Flakes cereal (now targeted to adults), and pork repositioned by National Pork Producers in recent years from being similar to beef to being the “other white meat.” Bearden Marketing 5th Ed 9-7 © 2007 The McGraw-Hill Companies, Inc. All rights reserved. Sources of New Products External Sources New Products Collaborative Venture Internal Development Bearden Marketing 5th Ed 9-8 © 2007 The McGraw-Hill Companies, Inc. All rights reserved. New Product Development Process A new product development process can be conceived as consisting of the seven stages presented below. The process is presented as a logical series of steps. In reality, the lines between each step are often blurred as companies are involved in different stages at the same time; sometimes they even eliminate specific stages. Exhibit 9-2 Bearden Marketing 5th Ed 9-9 © 2007 The McGraw-Hill Companies, Inc. All rights reserved. New product Development Approaches Exhibit 9-3 Bearden Marketing 5th Ed 9-10 © 2007 The McGraw-Hill Companies, Inc. All rights reserved. Ideas Idea generation is the initial stage of the new Idea Generation product development process. A new product begins as someone’s idea. Firms typically generate a large number of ideas relative to the number of successful products introduced. Idea Screening Bearden Marketing 5th Ed The purpose of idea screening is to evaluate the idea pool and reduce it to a smaller, more attractive set of potential new products. The ideas should be screened for consistency with company vision and strategic objectives, potential market acceptance, fit with the firm’s capabilities, and possible long-term contribution to profit. 9-11 © 2007 The McGraw-Hill Companies, Inc. All rights reserved. 3M’s Idea Screening Checklist Bearden Marketing 5th Ed 9-12 © 2007 The McGraw-Hill Companies, Inc. All rights reserved. Concept Development and Testing Concept Development Concept Tests Bearden Marketing 5th Ed Concept development is the process of shaping and refining the idea into a more complete product concept. Concept tests are then used to get potential customers to evaluate the product concept. 9-13 © 2007 The McGraw-Hill Companies, Inc. All rights reserved. Concept Testing Exhibit 9-5 Bearden Marketing 5th Ed 9-14 © 2007 The McGraw-Hill Companies, Inc. All rights reserved. Analysis and Development Business Analysis Product Development Bearden Marketing 5th Ed The business analysis stage of the new product development process calls for preparing initial marketing plans for the product. Prototype development means converting the concept into an actual product. The objective is to use the information obtained from the concept tests to design an actual product that can be further tested. 9-15 © 2007 The McGraw-Hill Companies, Inc. All rights reserved. Product Function Development Exhibit 9-6 Bearden Marketing 5th Ed 9-16 © 2007 The McGraw-Hill Companies, Inc. All rights reserved. Test Marketing Test Marketing Test marketing involves testing the product prototype and marketing strategy in simulated or actual market situations. Simulated test marketing refers to Simulated Test evaluating a new product in situations contrived to be similar to how Marketing consumers would purchase and use it. Standard Test Marketing Bearden Marketing 5th Ed In standard test marketing, a firm tests a new product and its marketing strategy in actual market situations. 9-17 © 2007 The McGraw-Hill Companies, Inc. All rights reserved. Commercialization During the commercialization stage, the firm introduces the product on a full-scale basis. Consumer Adoption The adoption process describes the steps consumers follow in deciding whether to use a new product. Timing One strategic consideration for new products in new product categories or industries is whether to be an early entry. Coordination A firm needs to coordinate all functions to implement this strategy effectively. Bearden Marketing 5th Ed 9-18 © 2007 The McGraw-Hill Companies, Inc. All rights reserved. Keys to New Product Success Many executives are not satisfied with the speed of new product development in their companies and have difficulty in planning and budgeting for new projects. Front-end planning is critical to improving the new product development process. Bearden Marketing 5th Ed 9-19 © 2007 The McGraw-Hill Companies, Inc. All rights reserved. Marketing Research Support Marketing research can make important contributions to the new product development process. Below are some of the types of marketing research that might be used throughout the new product development process. Exhibit 9-9 Bearden Marketing 5th Ed 9-20 © 2007 The McGraw-Hill Companies, Inc. All rights reserved. Best Products of 2004 The Aliph Jawbone Handset includes two microphones that make it possible to use a cell phone in noisy places. Hewlett-Packard’s Photosmart R707 Digital Camera is a pocket-sized, 5.1 megapixel camera that lets the user fix red eye on the camera. The Ryobi AIRgrip Laser Level uses a tiny vacuum to stick to walls and can be turned for horizontal and vertical leveling. Maytag’s Neptune Drying Center has a drying cabinet on top of a tumble dryer. The Oral B Brush-Ups Finger Toothbrush is a disposable toothbrush that fits on a finger with toothpaste built in and no need for rinsing. Honda’s CRF 250K Motorcycle is a race-ready, off-road bike that meets emission standards in all states. Bearden Marketing 5th Ed 9-21 © 2007 The McGraw-Hill Companies, Inc. All rights reserved. Summary After studying this chapter, you should be able to: Recognize the different types of new products. Discuss the different sources of new products. Understand the stages in the new-product development process. Describe the way marketing research is used in the new-product development process. Appreciate the keys to new-product success. Bearden Marketing 5th Ed 9-22 © 2007 The McGraw-Hill Companies, Inc. All rights reserved.