Download Chapter 9

CHAPTER 9
DEVELOPING
NEW PRODUCTS
AND SERVICES
Copyright  2007 McGraw-Hill Australia Pty Ltd
PPTs t/a Marketing: The Core by Kerin et al
Slides prepared by Andrew Hughes, Australian National University
9-1
After reading this chapter you should
be able to:
• Identify the ways consumer and business goods
and services are classified and marketed.
• Explain the effects of different ways of viewing
“newness” in new products and services.
Copyright  2007 McGraw-Hill Australia Pty Ltd
PPTs t/a Marketing: The Core by Kerin et al
Slides prepared by Andrew Hughes, Australian National University
9-2
After reading this chapter you
should be able to:
• Analyse the factors that contribute to the success
or failure of a product or service.
• Describe the purposes of each step of the newproduct process.
Copyright  2007 McGraw-Hill Australia Pty Ltd
PPTs t/a Marketing: The Core by Kerin et al
Slides prepared by Andrew Hughes, Australian National University
9-3
Developing New Products and
Services
• The essence of marketing is in developing products,
such as fitness programs.
• 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.
• Tangible attributes include physical characteristics
such as colour or sweetness, and intangible
attributes include those aspects of a product that
can’t be ‘touched’, such as the way exercising makes
you feel.
• The life of a company often depends on how it
conceives, produces and markets new products.
Copyright  2007 McGraw-Hill Australia Pty Ltd
PPTs t/a Marketing: The Core by Kerin et al
Slides prepared by Andrew Hughes, Australian National University
9-4
The Variations of Products
• Products differ in terms of whether they are designed
for consumers or businesses.
• For most organisations, the product decision—that is,
the choice about what products to offer—is not made
in isolation because companies often offer a range of
products.
• To better appreciate the product decision, let’s first
define some terms pertaining to products.
Copyright  2007 McGraw-Hill Australia Pty Ltd
PPTs t/a Marketing: The Core by Kerin et al
Slides prepared by Andrew Hughes, Australian National University
9-5
Product Line and Product Mix
• A product line is a group of products—goods or
services—that 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.
• Each product line has its own marketing strategy.
• The product mix is the number of product lines
offered by a company.
Copyright  2007 McGraw-Hill Australia Pty Ltd
PPTs t/a Marketing: The Core by Kerin et al
Slides prepared by Andrew Hughes, Australian National University
9-6
Classifying Products
• Both governments and companies classify products,
but for different purposes.
• The Australian and New Zealand governments’
classification method—Australian and New Zealand
Standard Industrial Classification (ANZSIC)—helps
them collect information on industrial activity.
• Companies classify products to help develop similar
marketing strategies for the wide range of products
offered.
• Two major ways to classify products are by type of
user and degree of product tangibility.
Copyright  2007 McGraw-Hill Australia Pty Ltd
PPTs t/a Marketing: The Core by Kerin et al
Slides prepared by Andrew Hughes, Australian National University
9-7
Type of user and degree of product
tangibility
Type of User
• The first major type of product classification is according to the
user.
• Consumer goods are products purchased by the ultimate
consumer, whereas business goods (also called industrial
goods or organisational goods) are products that assist directly
or indirectly in providing products for resale.
Product Tangibility
• Classification by degree of tangibility divides products into one
of three categories.
1. Non-durable good, an item consumed in one or a few uses,
such as food products and fuel.
2. A durable good is an item that usually lasts over an extended
period of time
3. Services are defined as intangible activities, benefits or
satisfactions offered for sale, such as marketing research,
health care and education.
Copyright  2007 McGraw-Hill Australia Pty Ltd
PPTs t/a Marketing: The Core by Kerin et al
Slides prepared by Andrew Hughes, Australian National University
9-8
The Uniqueness of Services
• Services have become one of the most important
components of Australian and New Zealand
economies.
• Services account for approximately 70 and 65 per
cent of the gross domestic product (GDP) in Australia
and New Zealand respectively.
• With the growing importance of services, there are
four unique elements of services:
1.
2.
3.
4.
intangibility,
inconsistency,
inseparability
Inventory
• These are referred to as the four ‘I’s of services.
Copyright  2007 McGraw-Hill Australia Pty Ltd
PPTs t/a Marketing: The Core by Kerin et al
Slides prepared by Andrew Hughes, Australian National University
9-9
Classifying Goods and Services Classification of Consumer Goods
• As marketing focuses on the buyer—that is, the
product user—it is important to closely at the two
types of users and the way in which goods and
services are classified as consumer or business
products.
• The two types of users are consumer and business.
Copyright  2007 McGraw-Hill Australia Pty Ltd
PPTs t/a Marketing: The Core by Kerin et al
Slides prepared by Andrew Hughes, Australian National University
9 - 10
Classifying Goods and Services Classification of Consumer Goods
Copyright  2007 McGraw-Hill Australia Pty Ltd
PPTs t/a Marketing: The Core by Kerin et al
Slides prepared by Andrew Hughes, Australian National University
9 - 11
Classifying Goods and Services Classification of Business Goods
•
As you saw from the previous slide, there are four
types of consumer goods:
1.
2.
3.
4.
•
convenience
shopping
specialty
unsought
They differ in terms of
1. effort the consumer spends on the decision,
2. attributes used in purchase and
3. frequency of purchase.
Copyright  2007 McGraw-Hill Australia Pty Ltd
PPTs t/a Marketing: The Core by Kerin et al
Slides prepared by Andrew Hughes, Australian National University
9 - 12
What type of consumer good?
Raymond Weil
Watch Ad
What type of
consumer good?
Copyright  2007 McGraw-Hill Australia Pty Ltd
PPTs t/a Marketing: The Core by Kerin et al
Slides prepared by Andrew Hughes, Australian National University
9 - 13
Classification of Business Goods
• A major characteristic of business goods is that their
sales are often the result of derived demand; that is,
sales of industrial products frequently result, or are
derived, from the sale of consumer goods.
• Items used in the manufacturing process that
become part of the final product are production
goods.
• The second class of business goods is support
goods, which are items used to assist in producing
other goods and services.
Copyright  2007 McGraw-Hill Australia Pty Ltd
PPTs t/a Marketing: The Core by Kerin et al
Slides prepared by Andrew Hughes, Australian National University
9 - 14
Classification of Services
•
Services can be classified in several ways,
according to:
1. whether they are delivered by people or equipment,
2. whether they are profit or non-profit or
3. whether or not they are government sponsored.
Copyright  2007 McGraw-Hill Australia Pty Ltd
PPTs t/a Marketing: The Core by Kerin et al
Slides prepared by Andrew Hughes, Australian National University
9 - 15
Concept Check
1. Explain the difference between product mix and
product line.
1. 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 outlets, or
fall within a given price range.
Copyright  2007 McGraw-Hill Australia Pty Ltd
PPTs t/a Marketing: The Core by Kerin et al
Slides prepared by Andrew Hughes, Australian National University
9 - 16
Concept check
2. What are the four main types of consumer
goods?
3. What are three ways to classify services?
2. Convenience goods, shopping goods, specialty
goods, and unsought goods.
3. Delivery by people or equipment, profit or not-forprofit organisations, and government sponsored or
not.
Copyright  2007 McGraw-Hill Australia Pty Ltd
PPTs t/a Marketing: The Core by Kerin et al
Slides prepared by Andrew Hughes, Australian National University
9 - 17
New Products and why they Succeed
or Fail
•
•
•
•
•
•
•
New products are the lifeblood of a company and keep it
growing, but the financial risks can be large.
What is a new product?
The term new is difficult to define. Is Sony’s PlayStation 3 new
when there was a PlayStation 1 and 2?
What does new mean for new-product marketing?
New can refer to a product being functionally different from
existing products.
Marketers often classify new products according to the degree
of learning required by a consumer in order to use the product
properly.
The three categories of new products are:
1. continuous innovation,
2. dynamically continuous innovation,
3. discontinuous innovation.
Copyright  2007 McGraw-Hill Australia Pty Ltd
PPTs t/a Marketing: The Core by Kerin et al
Slides prepared by Andrew Hughes, Australian National University
9 - 18
Product ‘newness’, as defined by the
degree of consumer learning needed to
use the product
Copyright  2007 McGraw-Hill Australia Pty Ltd
PPTs t/a Marketing: The Core by Kerin et al
Slides prepared by Andrew Hughes, Australian National University
9 - 19
Why Products Succeed or Fail
• We all know giant product successes—such as
Microsoft Windows, Swatch watches, or SkyTV.
• Yet the thousands of failures every year that slide
quietly into oblivion cost businesses billions of
dollars.
• Recent research suggests that it takes about 3000
raw unwritten ideas to produce a single commercially
successful new product.
• To learn marketing lessons and convert potential
failures to successes, we analyse why new products
fail and then study several failures in detail.
Copyright  2007 McGraw-Hill Australia Pty Ltd
PPTs t/a Marketing: The Core by Kerin et al
Slides prepared by Andrew Hughes, Australian National University
9 - 20
Are these products new?
Copyright  2007 McGraw-Hill Australia Pty Ltd
PPTs t/a Marketing: The Core by Kerin et al
Slides prepared by Andrew Hughes, Australian National University
9 - 21
Marketing Reasons for New-Product
Failures
• Both marketing and non-marketing factors contribute to newproduct failures.
• Using the research results from several studies on new-product
success and failure.
• We can identify critical marketing factors that often spell failure
for new-product launches:
– Insignificant point of difference
– Incomplete market and product definition before product
development starts
– Too little market attractiveness
– Poor execution of the marketing mix
– Poor product quality or insensitivity to customer needs on critical
factors.
– Bad timing
– No economical access to buyers
Copyright  2007 McGraw-Hill Australia Pty Ltd
PPTs t/a Marketing: The Core by Kerin et al
Slides prepared by Andrew Hughes, Australian National University
9 - 22
Example of a New Product
• Did this new product
succeed or fail?
• Why?
• What sort of new product
would a product like this be
classified as?
Copyright  2007 McGraw-Hill Australia Pty Ltd
PPTs t/a Marketing: The Core by Kerin et al
Slides prepared by Andrew Hughes, Australian National University
9 - 23
Concept Check
1. Describe the three kinds of innovations that
marketers use to categorise new products.
2. What does ‘insignificant point of difference’
mean as a reason for new-product failure?
1. Continuous innovation, dynamically continuous
innovation, and discontinuous innovation.
2. The product’s characteristics did not deliver
benefits to the user that were uniquely superior
to those of competitors or were not deemed
important to users.
Copyright  2007 McGraw-Hill Australia Pty Ltd
PPTs t/a Marketing: The Core by Kerin et al
Slides prepared by Andrew Hughes, Australian National University
9 - 24
The New-product Process
• A company can increase its chances of success by
following a new product process.
• The new product process, consists of seven stages a
firm goes through to identify business opportunities
and convert them to a saleable good or service.
• This sequence begins with new-product strategy
development and ends with commercialisation.
Copyright  2007 McGraw-Hill Australia Pty Ltd
PPTs t/a Marketing: The Core by Kerin et al
Slides prepared by Andrew Hughes, Australian National University
9 - 25
The new product process
Copyright  2007 McGraw-Hill Australia Pty Ltd
PPTs t/a Marketing: The Core by Kerin et al
Slides prepared by Andrew Hughes, Australian National University
9 - 26
New-Product Strategy Development
• For companies, new-product strategy development
involves defining the role for a new product in terms
of the firm’s overall corporate objectives.
• This step in the new product process has been added
by many companies recently to provide a needed
focus for ideas and concepts developed in later
stages.
• Some of the key issues examined here are:
– Identifying Markets and Strategic Roles
– Cross-Functional Teams and New-Product Development
Copyright  2007 McGraw-Hill Australia Pty Ltd
PPTs t/a Marketing: The Core by Kerin et al
Slides prepared by Andrew Hughes, Australian National University
9 - 27
Idea Generation
• Idea generation, where a pool of concepts is
developed as possible new products, must build on
the previous stage’s results.
• New product ideas are generated by consumers,
suppliers, employees, basic R&D and competitors.
• Some of the other key issues examined at this stage
are:
–
–
–
–
Customer and Supplier Suggestions
Employee and Co-Worker Suggestions
Research and Development Breakthroughs
Competitive Products
Copyright  2007 McGraw-Hill Australia Pty Ltd
PPTs t/a Marketing: The Core by Kerin et al
Slides prepared by Andrew Hughes, Australian National University
9 - 28
Idea Generation
• Most mobile phones now
incorporate different media
devices, such as cameras
and MP3 players.
• Where did the idea for this
come from?
Copyright  2007 McGraw-Hill Australia Pty Ltd
PPTs t/a Marketing: The Core by Kerin et al
Slides prepared by Andrew Hughes, Australian National University
9 - 29
Screening and Evaluation
• The third stage of the new product process is screening and
evaluation, which involves internal and external evaluations of
the new-product ideas to eliminate those that should not be
developed further.
• Internal approach: Internally, the firm evaluates the technical
difficulty of the proposal and whether the idea meets the
objectives defined in the new-product strategy development
step.
• External approach: Concept tests are external evaluations that
consist of preliminary testing of the new-product idea, rather
than the actual product, with consumers.
Copyright  2007 McGraw-Hill Australia Pty Ltd
PPTs t/a Marketing: The Core by Kerin et al
Slides prepared by Andrew Hughes, Australian National University
9 - 30
Concept Check
1. What step in the new-product process has been
added in recent years?
2. What are four sources of new-product ideas?
1. New-product strategy development has been
added recently by many companies to provide
focus for ideas and concepts developed in later
stages.
2. Customer and supplier suggestions, employee
suggestions, R&D breakthroughs, and
competitive products.
Copyright  2007 McGraw-Hill Australia Pty Ltd
PPTs t/a Marketing: The Core by Kerin et al
Slides prepared by Andrew Hughes, Australian National University
9 - 31
Business Analysis
• Business analysis involves specifying the features of
the product and the marketing strategy needed to
commercialise it—that is, bring it to market—and
making necessary financial projections.
• This is the last checkpoint before significant
resources are invested in creating a prototype—
usually, a full-scale operating model of the product.
• Assessing the ‘Business Fit’ of the New Product is a
critical factor at this stage.
Copyright  2007 McGraw-Hill Australia Pty Ltd
PPTs t/a Marketing: The Core by Kerin et al
Slides prepared by Andrew Hughes, Australian National University
9 - 32
Development
• Product ideas that survive the business analysis proceed to
actual development, turning the idea on paper into a prototype.
• This results in a demonstrable, producible product in hand.
• Outsiders seldom understand the technical complexities of the
development stage, which involves not only manufacturing the
product but also performing laboratory and consumer tests to
ensure that it meets the standards set.
• Design of the product becomes an important element.
• Some new products can be so important and costly that the
company is literally betting its very existence on success.
Copyright  2007 McGraw-Hill Australia Pty Ltd
PPTs t/a Marketing: The Core by Kerin et al
Slides prepared by Andrew Hughes, Australian National University
9 - 33
Mattel’s Barbie
Why should laboratory and safety tests be done?
Copyright  2007 McGraw-Hill Australia Pty Ltd
PPTs t/a Marketing: The Core by Kerin et al
Slides prepared by Andrew Hughes, Australian National University
9 - 34
Market Testing
• The market testing stage of the new-product process
involves exposing actual products to prospective
consumers under realistic purchase conditions to see
if they will buy.
• Often a product is developed, tested, refined and
then tested again to get consumer reactions through
test marketing.
• Sometimes though test marketing does not work or is
not appropriate to use.
Copyright  2007 McGraw-Hill Australia Pty Ltd
PPTs t/a Marketing: The Core by Kerin et al
Slides prepared by Andrew Hughes, Australian National University
9 - 35
Commercialisation
• Finally, the product is brought to the point of
commercialisation—positioning and launching a new
product in full-scale production and sales.
• Companies proceed very carefully at the
commercialisation stage because this is the most
expensive stage for most new products, especially
consumer products.
• To minimise the risk of financial failure, some
companies use regional rollouts, introducing the
product sequentially into different geographical
regions to allow production levels and marketing
activities to build up gradually.
Copyright  2007 McGraw-Hill Australia Pty Ltd
PPTs t/a Marketing: The Core by Kerin et al
Slides prepared by Andrew Hughes, Australian National University
9 - 36
Marketing information and methods
used in the new product process
Copyright  2007 McGraw-Hill Australia Pty Ltd
PPTs t/a Marketing: The Core by Kerin et al
Slides prepared by Andrew Hughes, Australian National University
9 - 37
Concept Check
1. Describe the business analysis stage of the new-product
process.
2. What is a test market?
1. Business analysis involves specifying the features of the
product and the marketing strategy needed to
commercialise it—bring it to market—and making financial
projections.
2. A test market is a city that is viewed as being
representative of consumers in terms of demographics
and brand purchase patterns, is far enough from big
markets to allow low-cost advertising, and has tracking
systems to measure sales.
Copyright  2007 McGraw-Hill Australia Pty Ltd
PPTs t/a Marketing: The Core by Kerin et al
Slides prepared by Andrew Hughes, Australian National University
9 - 38
Concept Check
3. What is commercialisation of a new product?
3. Commercialisation involves positioning and
launching a new product in full-scale production
and sales and is the most expensive stage for
most new products.
Copyright  2007 McGraw-Hill Australia Pty Ltd
PPTs t/a Marketing: The Core by Kerin et al
Slides prepared by Andrew Hughes, Australian National University
9 - 39
Finish
• Questions?
Copyright  2007 McGraw-Hill Australia Pty Ltd
PPTs t/a Marketing: The Core by Kerin et al
Slides prepared by Andrew Hughes, Australian National University
9 - 40