Create the Product Chapter Eight 2012 Pearson

Create the Product Chapter Eight © 2012 Pearson Education, Inc. publishing as Prentice-Hall.

Chapter Objectives § Explain how value is derived through different product layers § Describe how marketers classify products § Understand the importance and types of product innovations § Show firms develop new products § Explain the process of product adoption and the diffusion of innovations © 2012 Pearson Education, Inc. publishing as Prentice-Hall. 8 -

Real People, Real Choices: Decision Time at Bossa Nova Beverages § Which method should be used to add açai juice into the current product line? • Option 1: Add the açai juice ingredient to one of the Bossa Nova’s existing products • Option 2: Create a new line of pure açai juices with new packaging • Option 3: Focus on a single line of açai products by promoting the high antioxidant aspect of açai products; divest other brands © 2012 Pearson Education, Inc. publishing as Prentice-Hall. 8 -

Build a Better Mousetrap And Add Value § Value proposition: • Benefits the consumer will receive when buying the product § Product: • Tangible good, service, or idea that satisfies needs; a bundle of attributes § Good: • A tangible product, something we can see, touch, smell, hear, taste, or possess § Intangible products: • Services, ideas, people, places © 2012 Pearson Education, Inc. publishing as Prentice-Hall. 8 -

Layers of the Product Concept § Core product: • All the benefits the product will provide § Actual product: • Physical good or delivered service that supplies the desired benefits § Augmented product: • Actual product plus supporting features such as warranty, credit, delivery, installation, and repair service © 2012 Pearson Education, Inc. publishing as Prentice-Hall. 8 -

How Marketers Classify Products How Long Does the Product Last? § Durable goods provide benefits over a period of months, years, decades • Examples: furniture, appliances, and cars § Nondurable goods are consumed in the short term • Examples: newspapers, beverages, and printer cartridges © 2012 Pearson Education, Inc. publishing as Prentice-Hall. 8 -

How Marketers Classify Products: How Do Consumers Buy the Product? § Convenience products are frequently purchased: • Staples (milk) • Impulse products (candy bar) • Emergency products (drain opener) § Shopping products are purchased with considerable time and effort: • Price, quality, and attributes are key • Shopbots facilitate comparisons © 2012 Pearson Education, Inc. publishing as Prentice-Hall. 8 -

Classifying Goods: How Do Consumers Buy the Product? § Specialty products have unique characteristics important to buyers at almost any price • Example: Rolex watch § Unsought products are those in which consumers have little interest until a need arises • Example: Burial plots © 2012 Pearson Education, Inc. publishing as Prentice-Hall. 8 -

Business-to-Business Products § B 2 B products are classified by how organizational customers use them: • Equipment is used in daily operations • Maintenance, repair, and operating (MRO) goods are consumed relatively quickly • Raw materials are products of fishing, lumber, agricultural, and mining industries that are used in the manufacture of finished goods © 2012 Pearson Education, Inc. publishing as Prentice-Hall. 8 -

Business-to-Business Products § B 2 B products are classified by how organizational customers use them: • Processed materials are created when raw materials are transformed from their original state • Specialized services are purchased from outside suppliers; equipment or non-equipment based • Component parts are manufactured goods or subassemblies of finished goods © 2012 Pearson Education, Inc. publishing as Prentice-Hall. 8 -

“New and Improved” The Process of Innovation § Innovation: A product that customers perceive to be new and different from existing products § The Federal Trade Commission says: • A product must be entirely new or changed significantly to be called “new”, and • A product may be called “new” for only six months © 2012 Pearson Education, Inc. publishing as Prentice-Hall. 8 -

Types of Innovations § Innovations: • differ in their degree of newness • can be classified along a continuum in terms of the amount of disruption/ change they bring to people’s lives § Types of innovation: • Continuous innovations • Dynamically continuous innovations • Discontinuous innovations © 2012 Pearson Education, Inc. publishing as Prentice-Hall. 8 -

Continuous Innovations § Continuous innovations: A modification to an existing product • Sets a brand apart from the competition • Consumers don’t need to learn anything new; change is minimal v. Examples: brand extensions, line extensions • Knockoffs copy (with slight changes) the design of an original product © 2012 Pearson Education, Inc. publishing as Prentice-Hall. 8 -

Dynamically Continuous Innovation § Dynamically continuous innovation: A pronounced modification to an existing product • Requires a modest amount of learning or behavior change • Convergence: The coming together of two or more technologies to create a new system with greater benefit than its parts © 2012 Pearson Education, Inc. publishing as Prentice-Hall. 8 -

Discontinuous Innovations § Discontinuous innovation: A totally new product • Creates major changes in the way we live • Consumers must engage in a great deal of new learning v. Examples: microwave ovens when first introduced as an alternative to traditional ovens © 2012 Pearson Education, Inc. publishing as Prentice-Hall. 8 -

How Do We Measure Innovation? § Measuring innovation is complicated. § Innovation should be measured with respect to: • Firm strategy • Firm culture • Outcomes of innovation © 2012 Pearson Education, Inc. publishing as Prentice-Hall. 8 -

Developing New Products § New-product development (NPD) The phases by which firms develop new products including idea generation, product concept development and screening, marketing strategy development, business analysis, technical development, test marketing, and commercialization © 2012 Pearson Education, Inc. publishing as Prentice-Hall. 8 -

New-Product Development § Phase 1: Idea generation • Brainstorming product ideas that provide customer benefits and which are compatible with the firm’s mission § Phase 2: Product-concept development and screening • Product ideas are tested for technical and commercial success § Phase 3: Marketing strategy development • Developing a strategy to introduce the product to the marketplace © 2012 Pearson Education, Inc. publishing as Prentice-Hall. 8 -

New-Product Development § Phase 4: Business analysis • The product’s commercial viability is assessed § Phase 5: Technical development • Firm engineers refine and perfect the new product • Prototypes or test versions of the proposed product are developed (in R&D department) • The firm may need to apply for a patent © 2012 Pearson Education, Inc. publishing as Prentice-Hall. 8 -

New-Product Development § Phase 6: Test marketing: • The complete marketing plan is tested in a small geographic area similar to the larger market § Phase 7: Commercialization: • The new product is launched into the market • Begin full-scale production, distribution, advertising, and sales promotion © 2012 Pearson Education, Inc. publishing as Prentice-Hall. 8 -

Adoption and Diffusion of New Products § Product adoption: • Process by which a consumer or business customer begins to buy and use a new good, service, or idea § Diffusion: • Process by which the use of a product spreads throughout a population v. The point where a product’s sales spike from a slow climb to a new level is called the tipping point © 2012 Pearson Education, Inc. publishing as Prentice-Hall. 8 -

Stages in Consumers’ Adoption of a New Product § Awareness: • Massive advertising is used § Interest: • Prospective adopters see how the new product might satisfy a need • Teaser advertising may be used to stimulate interest § Evaluation: • Consumers weigh the costs/benefits • Impulse purchases are typically made with little evaluation © 2012 Pearson Education, Inc. publishing as Prentice-Hall. 8 -

Stages in Consumers’ Adoption of a New Product § Trial: • Potential adopters experience or use the product • Sales promotions and product demos are critical § Adoption: • The prospect buys the product § Confirmation: • The consumer weighs the expected vs. actual benefits and costs • Marketers can reinforce the consumer’s choice via marketing communications © 2012 Pearson Education, Inc. publishing as Prentice-Hall. 8 -

Innovator Categories § Diffusion of innovation adopter categories include: • Innovators • Early adopters • Early majority • Late majority • Laggards © 2012 Pearson Education, Inc. publishing as Prentice-Hall. 8 -

Product Factors That Affect the Rate of Adoption § Each characteristics affects the speed of innovation diffusion: • Relative advantage • Compatibility • Complexity • Trialability • Observability © 2012 Pearson Education, Inc. publishing as Prentice-Hall. 8 -

Real People, Real Choices: Decision Made at Bossa Nova § Palo clung to options 1 and 2 for several months but in the end chose option 3 • Why do you think Palo eventually decided to create Bossa Nova Açai juice in Mango, Passion Fruit, and Original flavors? © 2012 Pearson Education, Inc. publishing as Prentice-Hall. 8 -

Keeping It Real: Fast-Forward to Next Class Decision Time at General Mills § Meet David Clark, VP, Big G Adult Cereals at General Mills § Increased consumer interest in fiber food products created growth potential for fiber cereals § The decision to be made: How should the core Fiber One brand be positioned? © 2012 Pearson Education, Inc. publishing as Prentice-Hall. 8 -

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