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Summary Marketing chapter 8
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Marketing chapter 8 new product development8.1 What is a new product?
- Innovation: a creation resulting from study and experimentation. The introduction of
something new.
- Types of new products:
1. Product innovation: new to the world, a new product category.
2. Me-too product: new to the company, imitation product. Already sold by other
firms.
3. Product line addition: line extension, added tot the product line. Also flanker brand.
4. Product modification: improved version of the firm’s current product. Change to
some of the elements of the existing product.
5. Repositioned product: new positioning for an existing product.
- Flanker brand: a new item introduced under a new brand name into a product category in
which the company sells products.
- How innovation affects customers, how noticeable is the improvement?
Classify the products effect by:
1. Continuous innovation
2. Dynamically continuous innovation
3. Discontinuous innovation
- Continuous innovation: consumers do not have to change their attitudes or behaviour.
Maximise the consumer’s awareness and availability in retail channels.
- Dynamically continuous innovation: consumers need to adapt their behaviour and
consumption patterns slightly, to learn to use the new product. Clear positioning strategy
and clarification of product benefits through marketing communication.
- Discontinuous innovation: consumers go through an extensive learning process and through
behavioural changes in order to use the new product. Stimulate consumers learning process
through demonstrations, personal selling, samples and no-risk trial offer.
, 8.2 Reasons for product development
- 1. High return on investment: on average new products account for 40% of the
company’s profit.
2. Sales growth objectives: new products help to increase revenues in saturated
markets.
3. Excess capacity: new products help to cover fixed overhead costs.
4. Complete the product line: boosts product portfolio to attract and keep customers.
5. Government regulations: necessary to adapt products to stricter legislation.
6. Competition: rivals’ actions stimulate innovation and product improvement.
Substitute products may threaten competition, because they are seen as
alternatives.
7. Changing customer needs: exploit opportunities and trends in the marketing
environment.
8. New technology: Research & development breakthroughs create marketing
opportunities. They are working to achieve technological breakthroughs.
- Research and development: a company’s internal department, that aims to discover
solutions to problems and to create new products.
- Make or buy: decision between developing a product internally or getting an well-known
product by buying from an existing company.
Three factors that should be considered when making the decision:
1. Profitability
2. Risk
3. Know-how
- Profitability: to buy will give business quicker profits, don’t have to undertake all the
planning. The return on investment is greater if the product I developed by the company
itself, keep rewards to itself, because they took the initiative.
- Risk: less risk is involved when buying the product rather than making it.
- Know-how: consider the potential for synergy.
, - Merger: combination of two or more companies for the purpose of combining resources.
- Synergy: the possibility of increasing the efficiency and effectiveness of its operation by
carrying out activities jointly rather than separately.
8.3 Developing new products
- Product development process model:
- Product development process: activities a company uses to transform product ideas into
marketable product and services.
1. Strategy development: set clear objectives, SWOT analysis. Proactive or reactive.
Proactive: foresee future events/trends, offensive approach.
Reactive: responds to events that have take place, defensive approach.
2. Idea generation: use all sources of innovative ideas. Technology-push is replaced by
consumer pull.
3. Screening and evaluation: decide on criteria to evaluate ideas and concept test (show
drawing, animation, model) to assess a consumer’s reaction to the new product.
4. Business analysis: try to determine whether the the proposed products or services will be
profitable for the firm. Assumptions about the expected costs and revenues.
Pro forma income statement: estimate expected costs and revenues.
Market share projection: linking the break-even point to the existing competition (total
costs equal to the revenue).
5. Prototype development: create a test model that performs all functions. Decide on the
marketing mix.
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