DEVELOPING NEW PRODUCTS AND SERVICES

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CHAPTER
DEVELOPING NEW PRODUCTS AND SERVICES
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AFTER READING THIS CHAPTERYOU SHOULD BE ABLE TO

• Recognize the various terms that pertain to
  products and services.

• Identify the ways in which consumer and business
  goods and services can be classified.

• Explain the implications of alternative ways of
  viewing newness in new products and services.

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AFTER READING THIS CHAPTERYOU SHOULD BE ABLE TO

• Describe the factors contributing a products or
  services failure.

• Explain the purposes of each step of the
  new-product process.

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THE VARIATIONS OF PRODUCTS

• Product

• Product Line and Product Mix

• Product Line

• Product Item

• Stock Keeping Unit (SKU)

• Product Mix

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THE VARIATIONS OF PRODUCTS

• Classifying Products

• Type of User

• Consumer Goods

• Business Goods

• Degree of Tangibility

• Nondurable Good

• Services

• Durable Good

• Services and New-Product Development

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CLASSIFYING CONSUMER AND BUSINESS GOODS

• Classification of Consumer Goods

• Convenience Goods

• Shopping Goods

• Specialty Goods

• Unsought Goods

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FIGURE 10-1 Classification of consumer goods
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CLASSIFYING CONSUMER AND BUSINESS GOODS

• Classification of Business Goods

• Production Goods

• Support Goods

• Installations

• Accessory Equipment

• Supplies

• Industrial Services

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Concept Check
1. Explain the difference between product mix
and product line.
A The product mix is the number of product lines
offered by a company. A product line is a group
of products or services that satisfy a class of
needs, are used together, are sold to the same
customer group, are distributed through the same
type of outlets, or fall within a given price
range.
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Concept Check
2. What are the four main types of consumer goods?
A convenience goods, shopping goods, specialty
goods, and unsought goods
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Concept Check
3. To which type of good (business or consumer)
does the term derived demand generally apply?
A business
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NEW PRODUCTS AND WHY THEY SUCCEED OR FAIL

• What is a New Product?

• Newness Compared with Existing Products

• Newness in Legal Terms (Regular Distribution?)

• Regular Distribution

• Newness from the Companys Perspective

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NEW PRODUCTS AND WHY THEY SUCCEED OR FAIL

• What is a New Product?

• Newness from the Consumers Perspective

• Continuous Innovation

• Dynamically Continuous Innovation

• Discontinuous Innovation

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FIGURE 10-2 Consumption effects define newness
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NEW PRODUCTS AND WHY THEY SUCCEED OR FAIL

• Why Products Succeed or Fail

• Marketing Reasons for New-Product Failures

• Insignificant Point of Difference

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FIGURE 10-B What it takes to launch one
commercially successful new product
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MARKETING NEWSNET
What Separates New-ProductWinners and Losers
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NEW PRODUCTS AND WHY THEY SUCCEED OR FAIL

• Why Products Succeed or Fail

• Marketing Reasons for New-Product Failures

• Incomplete Market and Product Definition
  Before Product Development Starts

• Protocol

• Too Little Market Attractiveness

• Poor Execution of the Marketing Mix Name,
  Price, Promotion, and Distribution

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NEW PRODUCTS AND WHY THEY SUCCEED OR FAIL

• Why Products Succeed or Fail

• Marketing Reasons for New-Product Failures

• Poor Product Quality or Insensitivity to
  Customer Needs on Critical Factors

• Bad Timing

• No Economic Access to Buyers

• A Look at Some Failures

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Concept Check
1. From a consumers viewpoint, what kind of
innovation would an improved electric toothbrush
be?
A continuous innovation
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Concept Check
2. What does insignificant point of difference
mean as a reason for new-product failure?
A The product must have superior characteristics
that deliver unique benefits to the user compared
to those of competitors.
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THE NEW-PRODUCT PROCESS

• New-Product Process

• New-Product Strategy Development

• Objectives of the Stage Identify Markets and
  Strategic Roles

• 3M Cross-Functional Teams and Six Sigma

• Cross-Functional Teams

• Six Sigma

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FIGURE 10-4 Stages in the new-product process
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FIGURE 10-C Strategic roles of most successful
new products
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THE NEW-PRODUCT PROCESS

• Idea Generation

• Customer and Supplier Suggestions

• Employee and Co-Worker Suggestions

• Research and Development Breakthroughs

• Competitive Products

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THE NEW-PRODUCT PROCESS

• Screening and Evaluation

• Internal Approach

• External Approach

• Concept Tests

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Concept Check
1. What step in the new-product process has been
added in recent years?
A New-product strategy development has been
added recently by many companies to provide focus
for ideas and concepts developed later.
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Concept Check
2. What are main sources of new-product ideas?
A Customer and supplier suggestions, employee
suggestions, RD breakthroughs, and competitive
products.
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Concept Check
3. What is the difference between internal and
external screening and evaluation approaches used
by a firm in the new-product process?
A In internal screening, company employees
evaluate the technical feasibility of new product
ideas. In external screening, evaluation
consists of preliminary testing of the concept
(not the actual product) with consumers.
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THE NEW-PRODUCT PROCESS

• Business Analysis

• Prototype

• Development

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ETHICS AND SOCIAL RESPONSIBILITY ALERT
SUVs and Pickups versus CarsGodzilla Meets a
Chimp?
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THE NEW-PRODUCT PROCESS

• Market Testing

• Test Marketing

• Simulated (or Laboratory) Test Markets (STM)

• When Test Markets Dont Work

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FIGURE 10-5 Six important U.S. test markets and
the demographics winnerWichita Falls, Texas,
metropolitan statistical area
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THE NEW-PRODUCT PROCESS

• Commercialization

• Burger Kings French Fries The Complexities
  of Commercialization

• The Risks and Uncertainties of the
  Commercialization Stage

• Slotting Fee

• Failure Fee

• Speed as a Factor in New-Product Success

• Time to Market (TtM)

• Fast Prototyping

• Parallel Development

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FIGURE 10-6 Marketing information and methods
used in the new-product process
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Concept Check
1. How does the development stage of the
new-product process involve testing the product
inside and outside the firm?
A Internally, laboratory tests are done to see
if the product achieves the physical, quality,
and safety standards externally, consumer tests
are done.
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Concept Check
2. What is a test market?
A A test market is a city that is viewed as
being representative of U.S. consumers in terms
of demographics and brand purchase behaviors, is
far enough from big markets to allow low-cost
advertising, and has tracking systems to measure
sales.
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Concept Check
3. What is commercialization of a new product?
A Commercialization involves positioning and
launching a new product in full-scale production
and sales and is the most expensive stage for
most new products.
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JALAPEÑO SODA, ANYONE?
GOING ONLINE
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Going Online
1. Access the NewProductWorks website. Study
the Hits and Misses categories We Expect Them
to be Successes, Jury is Out, Failures, and
Favorite Failures. Pick two of the failed
products and identify the reasons that led to
their failure.
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Going Online
2. Contrast these failed products with those
that are deemed successes to learn why they
became sure-fire winners.
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WHY NEW-PRODUCT DEVELOPMENT CAN BEA DICE
ROLLSOME FORECASTS
SUPPLEMENTALLECTURE NOTE 10-1
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FIGURE 10-A Why new-product development can be a
dice roll some forecasts
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THE NEW-PRODUCT PROCESS AT 3M
SUPPLEMENTALLECTURE NOTE 10-2
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DOES A PRODUCT DEVELOPMENT TEAM NEED A FORMAL
LEADER?
SUPPLEMENTALLECTURE NOTE 10-3
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FIGURE 10-D Five alternative structures for
product development projects
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FIGURE 10-E Overall performance of five
structures for product development projects
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NEW-PRODUCT SCREENING AND EVALUATION AT
MEDTRONIC, INC.
SUPPLEMENTALLECTURE NOTE 10-4
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FIGURE 10-F A weighted point system Medtronic
uses to spot a winning new medical product (part
1)
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FIGURE 10-G A weighted point system Medtronic
uses to spot a winning new medical product (part
2)
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3M GREPTILE GRIP GOLF GLOVEGREAT GRIPPING!
VIDEO CASE 10
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VIDEO CASE 10 3M
1. What are the characteristics of the target
market for the 3M Greptile Grip golf glove?
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VIDEO CASE 10 3M
2. What are the key points of difference of the
3M Greptile Grip golf glove when compared to
competitors products, such as FootJoy and Nike?
Substitute products, such as golf grips?
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VIDEO CASE 10 3M
3. How does the Greptile Grip golf glove meet
3Ms three criteria for new products?
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VIDEO CASE 10 3M
4. Since 3M has no prior products for the golf
market, what special promotion and distribution
problems might 3M have?
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VIDEO CASE 10 3M
5. How would you rate the 3M GreptileGrip golf
glove on the following reasons for success and
failure (a) significant points of difference
(b) size and growth of the golf market (c)
product quality(d) market timing (e) execution
of the marketing mix (f) synergy or fit with
3Ms manufacturing and/or marketing capabilities
and (g) access to consumers?
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MEDTRONIC IN CHINA WHERE SIMPLER SERVES
PATIENTS BETTER
APPENDIX D CASE D-10
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APPENDIX D CASE D-10 Medtronic
1. Assess Medtronics decision to develop and
market the new Champion heart pacemaker in terms
of the following reasons for new-product success
(a) points of difference, (b) market
attractiveness, (c) bad timing, and (d) economic
access to doctors and patients.
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APPENDIX D CASE D-10 Medtronic
2. Discuss the steps of the new-product process
as they relate to the Champion Pacemaker.
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APPENDIX D CASE D-10 Medtronic
3. New-product development is important to a
company like Medtronic, but it is hard work, and
often leads to failure. How can a company
encourage its employees to take initiative, make
a profit, and be ethically and socially
responsible?
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APPENDIX D CASE D-10 Medtronic
4. Relate Medtronics decision to sell pacemakers
in China to its corporate mission statement. How
does the decision relate to these Medtronic
stakeholders (a) shareholders of Medtronic
stock, (b) Medtronic employees, and (c) Chinese
patients?
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APPENDIX D CASE D-10 Medtronic
5. Medtronic chose to design and build a new
low-priced, highly reliable, reduced-feature
heart pacemaker in its Shanghai plant. What are
the strengths and weaknesses of this decision
from (a) a marketing viewpoint and (b) an ethical
viewpoint?
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Product
A product is a good, service, or idea consisting
of a bundle of tangible and intangible attributes
that satisfies consumers and is received in
exchange for money or some other unit of value.
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Product Line
A product line is a group of productsthat are
closely related because they satisfy a class of
needs, are used together, are sold to the same
customer group, are distributed through the same
type of outlets, or fall within a given price
range.
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Product Mix
The product mix is the number of product lines
offered by a company.
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Consumer Goods
Consumer goods are products purchased by the
ultimate consumer.
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Business Goods
Business goods are products that assist directly
or indirectly in providing products for resale.
Also called as B2B goods, industrial goods, or
organizational goods.
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Convenience Goods
Convenience goods are items thatthe consumer
purchases frequently, conveniently, and with a
minimumof shopping effort.
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Shopping Goods
Shopping goods are items for which the consumer
compares several alternatives on criteria, such
as price, quality, or style.
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Specialty Goods
Specialty goods are items that a consumer makes a
special effort tosearch out and buy.
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Unsought Goods
Unsought goods are items that the consumer either
does not know about or knows about but does not
initially want.
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Production Goods
Production goods are items used in the
manufacturing process that become part of the
final product.
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Support Goods
Support goods are items used to assist in
producing other goods and services.
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Protocol
A protocol is a statement that, before product
development begins, identifies (1) a
well-defined target market(2) specific
customers needs, wants,and preferences and (3)
what theproduct will be and do.
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New-Product Process
The new-product process consists of seven stages
a firm goes through to identify business
opportunities and convert them to a salable good
or service.
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New-Product Strategy Development
New-product strategy development is the stage of
the new-product process that defines the role for
a new product in terms of the firms overall
corporate objectives.
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Six Sigma
Six Sigma is a means to delight the customer by
achieving quality througha highly disciplined
process to focus on developing and delivering
near-perfect products and services.
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Idea Generation
Idea generation is the stage of the new-product
process that involves developing a pool of
concepts as candidates for new products.
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Screening and Evaluation
Screening and evaluation is the stageof the
new-product process that involves internal and
external evaluations of the new-product ideas to
eliminate thosethat warrant no further effort.
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Business Analysis
Business analysis is the stage of thenew-product
process that involves specifying the product
features and marketing strategy and
makingnecessary financial projections neededto
commercialize a product.
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Development
Development is the stage of the new-product
process that involves turningthe idea on paper
into a prototype.
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Market Testing
Market testing is the stage of thenew-product
process that involves exposing actual products to
prospective consumers under realistic purchase
conditions to see if they will buy.
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Commercialization
Commercialization is the stage of the new-product
process that involves positioning and launching a
new product in full-scale production and sales.
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Slotting Fee
A slotting fee is a payment a manufacturer makes
to place anew item on a retailers shelf.
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Failure Fee
A failure fee is a penalty payment a manufacturer
makes to compensate a retailer for sales its
valuable shelf space failed to make.
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