CHAPTER 12
DEVELOPING
NEW PRODUCTS
12-1
Developing New Products
LEARNING OBJECTIVES
LO1
Identify the reasons firms create new
products.
LO2
Describe the different groups of adopters
articulated by the diffusion of innovation
theory.
LO3
Describe the various stages involved in
developing a new product or service.
LO4
Explain the product life cycle.
12-2
Innovation and Value
Changing
Customer
Needs
Improving
Business
Relationships
WHY DO
FIRMS
CREATE
NEW
PRODUCTS?
Fashion
Cycles
Market
Saturation
Managing
Risk through
Diversity
12-3
CHECK YOURSELF
1. What are the reasons firms innovate?
12-4
Diffusion of Innovation
Source: Adapted from Everett M. Rodgers, Diffusion of Innovation (New York: Free Press, 1983).
12-5
Pioneers radically
change
competition and
consumer
preferences.
©Derrick Donnelly, Blackbag Technologies
New Product Introductions
12-6
Using the Diffusion of
Innovation Theory
Compatibility
Relative
Advantage
Observability
Factors
Affecting
Product
Diffusion
Complexity and
Trialability
12-7
CHECK YOURSELF
1. What are the five groups on the diffusion of
innovation curve?
2. What factors enhance the diffusion of a good or
service?
12-8
How Firms Develop New Products
IDEA
GENERATION
CONCEPT
TESTING
PRODUCT
DEVELOPMENT
• Development of
viable new product
ideas.
• Testing the new
product idea among
a set of potential
customers.
• Development of
prototypes and/or
the product.
MARKET
TESTING
PRODUCT
LAUNCH
EVALUATION OF
RESULTS
• Testing the actual
products in a few
test markets.
• Full-scale
commercialization
of the product.
• Analysis of the
performance of the
new product and
making appropriate
modifications.
12-9
Idea Generation
Internal R&D
Customer
input
R&D
consortia
Source of ideas
Competitor’
products
Licensing
Outsourcing
Brainstorming
12-10
Concept Testing
 Concept is a brief
written description of
the product
 Customers reactions
determine whether or
not it goes forward
 Triggers the
marketing research
process
Stockbyte/Getty Images
12-11
Product Development
Prototype
Alpha testing
Beta testing
12-12
Premarket
tests
Test
marketing
Customers
exposed
Mini product
launch
Customers
surveyed
More
expensive than
premarket
tests
Firm makes
decision
Market
demand is
estimated
Digital Vision/Getty Images
Market Testing
http://www.youtube.com/watch?v=pcj7QT0Abk8
12-13
Product Launch
Courtesy The Coca-Cola Company
©2006 Kellogg North
America Company
Kellogg’s
Drink’n
Crunch
Portable
Cereals
• An inner cup contains the
cereal and the outer cup
contains the milk
Minute
Maid
Premium
Heart Wise
Orange
Juice
• Each 8 oz. serving of the
juice contains 1 gram of
plan sterols that can reduce
cholesterol levels
Aquafresh
Floss ‘N’
Cap
Fluoride
Toothpaste
• The cap of the toothpaste
contains floss
©The Arbor Strategy Group, Inc
12-14
Evaluation of Results
Satisfaction of technical requirements
Ingram Publishing.
Customer acceptance
©Stockbyte/Getty Images.
Satisfaction of the firm’s financial requirements
Getty Images.
12-15
CHECK YOURSELF
1. What are the steps in the new product
development process?
2. Identify different sources of new product ideas.
12-16
Product Life Cycle
12-17
Strategies Based on
the Product Life Cycle: Some Caveats
Bell shaped, but can take many
shapes.
Challenging to know precisely
the stage of the PLC.
12-18