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CHAPTER 11
DEVELOPING NEW MARKET
OFFERINGS
IMPORTANT TOPICS OF THIS
CHAPTER
What is a New Product?
 Challenges in New Product Development
(NPD)
 Organizational Structure & NPD
 Stages & Management of NPD
 Diffusion & Adaption of New Products

NEW PRODUCTS
New-to-the-World Products(10%)
 New Product Lines/Functions/Applications
(20%)
 Additions to Existing Product Lines(26%)
 Improvements and Revisions of Existing
Products(26%)
 Repositioning(7%)
 Cost Reductions(11%)

CAUSES OF NEW PRODUCT
FAILURE








Failure in Market Research Findings
Overestimated Demand and Size of Market
Design Failure
Positioning Problem
Ineffective Communication/Promotion
High Development Cost/ Price
Pressure from Competitors
Poor Timing
CAUSES OF NEW PRODUCT
SUCCESS
Technological Superiority
 Easy of Market Entry
 Competitive Advantage
 Size and Speed in Market growth
 Identifying Needs/Wants and Good Timing
 Effective Promotion/Communication
 Uniqueness of the Concept/Product
 Marketing and Managerial Synergy/Team
Effort

CHALLENGES IN NEW
PRODUCT DEVELOPMENT
Shortage in New Product Ideas
 Fragmented Markets
 Social and Governmental Constraints
 High Development Cost
 Shortage of Cash/Capital
 Faster Development Time
 Shorter Product Life Cycle

EFFECTIVE
ORGANIZATIONAL
ARRANGEMENTS

Top Management:
» R&D Budget.

Organization for New-Product Development:
»
»
»
»
Product managers
New Product Managers
New Product Committee
New Product Departments:

R&D.
» New Product Venture Team
THE NEW-PRODUCT
DEVELOPMENT PROCESS

Idea Generation:
» Sources of new ideas:


Customers’ needs and wants, scientists and engineers,
competitors, sales force and channels, top management,
universities and research firms.
Idea Screening:
» Idea manager
» Idea committee:


DROP-error
GO-error
THE NEW-PRODUCT
DEVELOPMENT PROCESS

Concept Development and Testing:
» Concept development:



Category concepts
Product-positioning map
Brand positioning map turns into brand concept
» Concept testing


Virtual reality.
Customer-driven engineering:
– Incorporating customer preferences into final
engineering design.
Expensive
High price/oz.
Bacon
and
eggs
Pancakes
Hot
cereal
Cold
cereal
Instant
breakfast
Inexpensive
Low in calories
b) Brand-positioning
map
(instant breakfast market)
Brand C
Brand B
Brand A
Low price/oz.
High in calories
(a) Product-positioning
map
(breakfast market)
Quick
Slow
Product & Brand Positioning
THE NEW PRODUCT
DEVELOPMENT PROCESS

Marketing Strategy Development:
» Size of market, structure, behavior, market share and short-run
profit goals
» Pricing and distribution strategy
» Long-run sales and profit goals.

Business Analysis:
» Sales, cost and profit projections:


Estimating total sales:
– First-time sales.
– Replacement sales.
– Repeat sales.
Estimating costs and profits:
– Cost of goods sold, gross margin, gross contribution, net
contribution, discounted contribution and pay back period,
break-even analysis, risk analysis.
THE NEW PRODUCT
DEVELOPMENT PROCESS

Product Development:
» Physical version of the product:


Functional test (alpha testing)
Customer test (beta testing)
» Measuring consumer preferences:



Rank-order.
Paired comparison.
Monadic rating.
THE NEW PRODUCT
DEVELOPMENT PROCESS

Market Testing:
– Consumer-goods market testing:
» Trial, first repeat, adoption and purchase frequency:




sales-wave research-trying with no cost to consumer.
simulated test marketing.
controlled test marketing.
test markets- reliable forecasts, testing the marketing mix:
– how many cities.
– which cities.
– length of test.
– what information to learn.
– what action to take-trial and repurchase rate.
Consumer-Goods Market Testing
Simulated
Test Market
Test in a simulated
shopping environment
to a sample of
Sales- consumers.
Controlled
Test Market
A few stores that have
agreed to carry new
products for a fee.
Wave
Research
Standard
Test Market
Test offering trail to
a sample of
consumers in
successive
periods.
Full marketing campaign
in a small number of
representative cities.
THE NEW PRODUCT
DEVELOPMENT PROCESS
– Business goods market testing:
» Alpha testing

Measure and improve product performance.
» Beta testing:

Testing in customer’s site
» Trade shows
» Dealers’ showroom.

Commercialization:
– Timing:
» First entry.
» Parallel entry.
» Late entry.
NEW PRODUCT
DEVELOPMENT PROCESS

Commercialization (cont.):
» Geographical strategy:




Single locality
Regional
National
Global
» Target-market prospects:



Users
Nonusers
Opinion leaders
» Strategic model:

Critical path.
THE CONSUMER ADOPTION
PROCESS

Early strategies:
» Mass-market approach,
» Heavy-user target market.

Early adopter theory:
» Time laps between exposure and trials.
» Influence to early adopter:



Media exposure.
Early adopter as opinion leader.
Stages in adoption:
»
»
»
»
»
Awareness.
Interest.
Evaluation.
Trial.
Adoption.
THE CONSUMER ADOPTION
PROCESS (CONT.)

Factors influencing the adoption process:
» People’s readiness:

Adopter Categories:
– Innovator(2.5%)
– Early Adopters(13.5%),
– Early Majority (34%),
– Late Majority(34%).
– Laggards(16%).
» Personal Influence:

More important at the evaluation stage, and on late
adopters than the early adopters.
Adopter Categorization of the Basis of Relative Time
of Adoption of Innovations
34%
Early
majority
2 1/2%
Innovators
13 1/2%
Early
adopters
34%
Late
majority
16%
Laggards
Time of adoption innovations
INFLUENCING FACTORS TO
ADOPTION PROCESS
» Characteristics of the Innovation affect rate:





Relative advantage
Compatibility
Complexity
Divisibility
Communicability
» Organizations to Adopt Innovation:


Environmental factors
Organizational factors:
– Progressiveness.
– Size.
– Pressure.