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MM 3rd Edition Dawn Iacobucci Test Bank
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Chapter 8 - New Products
TRUE/FALSE
1. Companies are ever-evolving and the primary way they make changes is by offering “new
and improved” goods and services to customers.
2. Zena’s company is seeking to improve its current products. Ultimately, the company would
do this for one reason only.
4. It’s been shown that new products increase a company’s long-term financial performance
and the firm’s value.
© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
NAT: BUSPROG Analytic LOC: DISC: Product
TOP: How Does Marketing Develop New Products For Their Customers?
KEY: Bloom's: Comprehension MSC: MBA: Operations Skills
7. Some companies take a nearly exclusively top-down approach and use a new product
development process.
8. Frank is a senior executive at Company XYZ, and has argued that a top-down approach to
new product development should be implemented. Frank explains that just because the top-
down approach has few steps in the process doesn’t mean the products are simple, or that
the process unfolds quickly. Frank’s explanation of the top-down approach is correct.
10. In the real world, companies do not use a purely bottom up or top down marketing process.
11. In more marketing-oriented companies, customer feedback is sought at most phases in the
process.
12. Customers and marketing research are involved in the idea generation, concept testing,
product testing, and test marketing stages.
© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
ANS: F PTS: 1 DIF: Challenging REF: Page 92
NAT: BUSPROG Reflective Thinking LOC: DISC: Research
TOP: How Does Marketing Develop New Products For Their Customers?
KEY: Bloom's: Synthesis MSC: MBA: Generative Thinking
14. Marketing management is involved throughout the new product development process.
15. Many ideas for new products come from marketers observing the world around them.
16. The most typical method of product testing involves many good, old-fashioned coffee-
fueled brainstorming meetings.
17. After many ideas have been generated, marketing starts a focus group with all ideas.
18. The form of the marketing research at the concept testing stage is usually focus groups and
web surveys.
© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
TOP: Concept Testing and Design & Development
KEY: Bloom's: Knowledge
MSC: MBA: Knowledge of human behavior & society
19. In attempting to determine what drives customers’ decisions, Conny explains to Karl that
conjoint analysis is a great research method because it reveals customers’ trade-offs. Conny
is correct.
21. Typically a company will repeat the concept testing phase until it has one product in mind.
It will then make a single prototype.
22. Showing company marketing information to customers helps clarify the image of the
products and allows the company to get feedback on the marketing information itself.
23. Area test markets are small areas that represent the larger population of the country in terms
of demographics and socioeconomic status.
© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
24. Gary is a marketer for a new type of beer and he wants to see how well it would sell. He sets
up a simulated test market by placing his beer among other types in a virtual reality situation
where testers will select a beer from the shelf. The goal of this simulated test is to see how
often customers will pick his beer in real life.
25. Upon completion of the idea generation stage, the marketing manager takes the customer
data and tries to predict the product’s likely success.
27. Sales Potential = Market Potential x Purchase Intention x Price, or $SP = MP x PI x Pr.
28. New product development can move along fairly quickly for straightforward brand or line
extensions in the context of a mature consumer packaged goods company, but in other
settings, the process can be very slow.
29. The FDA is currently under investigation, being accused of pushing drugs to market too
slowly.
© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
MSC: MBA: Managing the Task Environment
30. The product life cycle is a very popular metaphor in marketing to describe the evolution and
duration of a product being available in the marketplace.
31. In general, sales increase from the introduction to growth phases of the product life cycle,
and drop in the maturity phase.
32. Profits rise in the introduction and growth stages, but sometime within the growth stage, or
certainly by maturity and decline, profits drop.
33. At market maturity, profits decline because of higher marketing costs and lower prices.
34. If a firm has an old product at the end of the life cycle, it can divest it, harvest it, or
rejuvenate it.
35. The length of product-category life cycles tends to be shorter than those of individual-brand
life cycles.
© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
MSC: MBA: Managing Administration & Control
36. Marketers can speed up imitators (make p bigger) by introducing price decreases early, or
speed up innovators (make q bigger) by introducing price decreases later.
37. The percentage of “innovators” and “early adopters” is about 20-25% of the market.
38. Consumer acceptance tends to be higher when a new product is compatible with the
customer’s lifestyle.
40. One marketing trend is the growing concern for environmental and corporate social
responsibility.
MULTIPLE CHOICE
© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
c. location
d. culture
ANS: D PTS: 1 DIF: Challenging REF: Page 91
NAT: BUSPROG Analytic LOC: DISC: Strategy
TOP: How Does Marketing Develop New Products For Their Customers?
KEY: Bloom's: Comprehension MSC: MBA: Managing the Task Environment
3. Top down is also called ________ because the idea comes from within the company, and
then feedback from the outside is sought later in the process.
a. inside out
b. outside in
c. long term
d. short term
ANS: A PTS: 1 DIF: Moderate REF: Page 92
NAT: BUSPROG Communication LOC: DISC: Strategy
TOP: How Does Marketing Develop New Products For Their Customers?
KEY: Bloom's: Knowledge MSC: MBA: Managing Strategy & Innovation
5. Marketing management is involved throughout the new product development process, and
especially in the __________ stage.
a. test marketing
b. concept testing
© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
c. product development
d. idea-generation
ANS: D PTS: 1 DIF: Moderate REF: Page 92
NAT: BUSPROG Analytic LOC: DISC: Product
TOP: How Does Marketing Develop New Products For Their Customers?
KEY: Bloom's: Comprehension MSC: MBA: Managing Strategy & Innovation
6. Which of the following steps comes immediately after idea creation in the new product
development process?
a. in-house winnowing and refinement
b. concept testing
c. product testing
d. test marketing
ANS: A PTS: 1 DIF: Moderate REF: Page 92
NAT: BUSPROG Analytic LOC: DISC: Strategy
TOP: Idea Creation and Market Potential KEY: Bloom's: Knowledge
MSC: MBA: Generative Thinking
7. Saying, “Okay, maybe some ideas are in fact bad ideas” corresponds to which step in the
process of creating new products?
a. in-house winnowing and refinement
b. brainstorming meetings
c. concept testing
d. design development
ANS: A PTS: 1 DIF: Moderate REF: Page 92
NAT: BUSPROG Analytic LOC: DISC: Strategy
TOP: Idea Creation and Market Potential KEY: Bloom's: Comprehension
MSC: MBA: Managing Strategy & Innovation
8. At which stage in the new product development process does the company have a number of
ideas that it thinks might work, and gets customers’ feedback as to which ideas sound most
promising?
a. test marketing
b. concept testing
c. product development
d. product testing
ANS: B PTS: 1 DIF: Moderate REF: Page 93
NAT: BUSPROG Analytic LOC: DISC: Marketing Plan
TOP: Concept Testing and Design & Development
KEY: Bloom's: Comprehension
MSC: MBA: Knowledge of General Business Functions
9. Focus groups and web surveys are used mostly during which phase of product
development?
a. brainstorming
© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
b. beta testing
c. concept testing
d. launch
ANS: C PTS: 1 DIF: Moderate REF: Page 93
NAT: BUSPROG Analytic LOC: DISC: Marketing Plan
TOP: Concept Testing and Design & Development
KEY: Bloom's: Comprehension MSC: MBA: Managing Strategy & Innovation
10. Adam and Jose are attempting to identify the bundle of product features most likely to
attract customers. Jose argues that they should conduct a(n) _________, which involves
comparing different combinations of attributes, and the customer simply determines which
product combination sounds best, next best, and so on.
a. focus group
b. interview
c. conjoint study
d. web survey
ANS: C PTS: 1 DIF: Easy REF: Page 94
NAT: BUSPROG Analytic LOC: DISC: Research
TOP: Concept Testing and Design & Development
KEY: Bloom's: Comprehension MSC: MBA: Managing Strategy & Innovation
11. Traditionally, 40-50 small metropolitan areas throughout the U.S. are known to marketing
research firms as having characteristics representative of the country as a whole. These are
called __________.
a. simulated test markets.
b. area test markets.
c. electronic test markets.
d. country test markets.
ANS: B PTS: 1 DIF: Moderate REF: Page 95
NAT: BUSPROG Analytic LOC: DISC: Research
TOP: Beta Testing KEY: Bloom's: Knowledge
MSC: MBA: Knowledge of human behavior & society
12. A test market that uses a virtual shopping experience to give customers a chance to buy the
product (or not) is called a ________ test market.
a. simulated
b. area
c. electronic
d. computerized
ANS: A PTS: 1 DIF: Easy REF: Page 96
NAT: BUSPROG Communication LOC: DISC: Marketing Plan
TOP: Beta Testing KEY: Bloom's: Comprehension
MSC: MBA: Knowledge of General Business Functions
13. What term refers to using customer data to try to predict the product’s likely success?
© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
a. forecasting
b. foreshadowing
c. test marketing
d. profit prediction
ANS: A PTS: 1 DIF: Easy REF: Page 96
NAT: BUSPROG Communication LOC: DISC: Marketing Plan
TOP: Launch KEY: Bloom's: Knowledge
MSC: MBA: Managing Strategy & Innovation
14. The goal of forecasting is to estimate the “$SP.” What does “$SP” stand for?
a. systematic process
b. simulated price
c. sales potential
d. sustained profitability
ANS: C PTS: 1 DIF: Easy REF: Page 96
NAT: BUSPROG Communication LOC: DISC: Strategy
TOP: Launch KEY: Bloom's: Knowledge
MSC: MBA: Operations Skills
15. In order to calculate sales potential, we need to know what three things?
a. market price, purchase potential, target market
b. test market size, purchase intention, target market
c. market intention, purchase potential, price
d. market potential, purchase intention, price
ANS: D PTS: 1 DIF: Moderate REF: Page 96
NAT: BUSPROG Analytic LOC: DISC: Marketing Plan
TOP: Launch KEY: Bloom's: Knowledge
MSC: MBA: Operations Skills
16. Research has suggested ratcheting down the purchase intention estimate by a factor of
___________.
a. 1/4
b. 3/4
c. 1/2
d. 1/8
ANS: B PTS: 1 DIF: Challenging REF: Page 96
NAT: BUSPROG Analytic LOC: DISC: Research
TOP: Launch KEY: Bloom's: Knowledge
MSC: MBA: Operations Skills
17. What term refers to the likelihood that the target segment will buy the product?
a. sales intention
b. market potential
c. purchase intention
d. sales potential
© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
ANS: C PTS: 1 DIF: Moderate REF: Page 96
NAT: BUSPROG Communication LOC: DISC: Marketing Plan
TOP: Launch KEY: Bloom's: Knowledge
MSC: MBA: Managing Strategy & Innovation
19. All of the following are stages in the product life cycle EXCEPT:
a. growth
b. maturity
c. introduction
d. concept testing
ANS: D PTS: 1 DIF: Easy REF: Page 97
NAT: BUSPROG Analytic LOC: DISC: Product
TOP: What Is The Product Life Cycle? KEY: Bloom's: Knowledge
MSC: MBA: Knowledge of General Business Functions
20. During ____________, a new product (good or service) is brought into the marketplace with
heavy marketing spending.
a. market growth
b. market introduction
c. maturity
d. decline
ANS: B PTS: 1 DIF: Easy REF: Page 97
NAT: BUSPROG Analytic LOC: DISC: Marketing Plan
TOP: What Is The Product Life Cycle? KEY: Bloom's: Comprehension
MSC: MBA: Knowledge of General Business Functions
21. In which phase of the Product Life Cycle is customer awareness getting stronger, and there
may be some buzz in the marketplace?
a. market introduction
b. decline
c. market growth
d. maturity
ANS: C PTS: 1 DIF: Moderate REF: Page 98
NAT: BUSPROG Analytic LOC: DISC: Product
© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
TOP: What Is The Product Life Cycle? KEY: Bloom's: Comprehension
MSC: MBA: Knowledge of General Business Functions
22. Company ABC is about to launch a fuller product line in an effort to satisfy more customer
segments in the market. Given these activities, Company ABC’s current product(s) is most
likely in which stage of the Product Life Cycle?
a. maturity
b. market introduction
c. decline
d. market growth
ANS: A PTS: 1 DIF: Moderate REF: Page 98
NAT: BUSPROG Analytic LOC: DISC: Product
TOP: What Is The Product Life Cycle? KEY: Bloom's: Comprehension
MSC: MBA: Knowledge of General Business Functions
23. The stage of the Product Life Cycle where sales and profits drop and new products replace
older generations is called ___________.
a. market growth.
b. market introduction.
c. decline.
d. maturity.
ANS: C PTS: 1 DIF: Easy REF: Page 98
NAT: BUSPROG Analytic LOC: DISC: Product
TOP: What Is The Product Life Cycle? KEY: Bloom's: Comprehension
MSC: MBA: Knowledge of General Business Functions
24. Procter & Gamble determined that its Thermacare Heat Wrap was underperforming and
lacked a desired level of growth potential, so it decided to sell the brand. In what phase of
the product life cycle was Thermacare Heat Wrap?
a. growth
b. decline
c. maturity
d. failure
ANS: B PTS: 1 DIF: Easy REF: Page 98
NAT: BUSPROG Analytic LOC: DISC: Product
TOP: What Is The Product Life Cycle? KEY: Bloom's: Application
MSC: MBA: Knowledge of General Business Functions
25. A product has more competition during the __________ stage than in any other stage in its
life cycle.
a. market maturity
b. market growth
c. market introduction
d. market decline
ANS: A PTS: 1 DIF: Moderate REF: Page 98
© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
NAT: BUSPROG Analytic LOC: DISC: Product
TOP: What Is The Product Life Cycle? KEY: Bloom's: Analysis
MSC: MBA: Knowledge of General Business Functions
26. The _________ are 3-5% of consumers who like to try new ideas and are willing to take
risks. They tend to be relatively educated, and capable and confident in assessing
information about a product on their own.
a. early adopters
b. innovators
c. early majority
d. laggards
ANS: B PTS: 1 DIF: Moderate REF: Page 100
NAT: BUSPROG Analytic LOC: DISC: Customer
TOP: Diffusion of Innovation KEY: Bloom's: Knowledge
MSC: MBA: Knowledge of human behavior & society
27. The __________ are a group of approximately 10-15% of the population who is so
influential that the loss of one of these customers costs the firm more than the loss of later
adopters.
a. innovators
b. late majority
c. early majority
d. early adopters
ANS: D PTS: 1 DIF: Moderate REF: Page 100
NAT: BUSPROG Analytic LOC: DISC: Customer
TOP: Diffusion of Innovation KEY: Bloom's: Knowledge
MSC: MBA: Knowledge of human behavior & society
28. The _________ are more risk averse and waiting to hear that earlier adopters have had
favorable experiences with the new product.
a. early adopters
b. late majority
c. innovators
d. early majority
ANS: D PTS: 1 DIF: Moderate REF: Page 100
NAT: BUSPROG Analytic LOC: DISC: Customer
TOP: Diffusion of Innovation KEY: Bloom's: Comprehension
MSC: MBA: Knowledge of human behavior & society
29. Hannah and Ellen rely on consistent messages received via word of mouth, and are older
and more conservative than other customers of Product X. Hannah and Ellen most likely
fall into which of the following categories?
a. late majority
b. early majority
c. laggards
© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
d. innovators
ANS: A PTS: 1 DIF: Moderate REF: Page 100
NAT: BUSPROG Analytic LOC: DISC: Customer
TOP: Diffusion of Innovation KEY: Bloom's: Comprehension
MSC: MBA: Knowledge of human behavior & society
30. What term refers to the group of people who are the most risk averse, skeptical of new
products, and stereotypically lower in income?
a. early adopters
b. early majority
c. innovators
d. laggards
ANS: D PTS: 1 DIF: Easy REF: Page 100
NAT: BUSPROG Communication LOC: DISC: Customer
TOP: Diffusion of Innovation KEY: Bloom's: Knowledge
MSC: MBA: Knowledge of human behavior & society
31. tends to be higher when the product has a clear relative advantage over existing
products, is compatible with the customer’s lifestyle, and is not overly complex (or the
complexity is masked by a user-friendly interface), and is easily tried or sampled, to
facilitate initial assessment.
a. Consumer acceptance
b. Risk
c. Cost
d. Efficiency
ANS: A PTS: 1 DIF: Moderate REF: Page 101
NAT: BUSPROG Analytic LOC: DISC: Customer
TOP: How Do New Products and Brand Extensions Fit in Marketing Strategy?
KEY: Bloom's: Analysis
MSC: MBA: Knowledge of human behavior & society
32. _________ is the path we take when we’re settled on our product mix and we think there are
more segment opportunities to target.
a. Product development
b. Market penetration
c. Market development
d. Diversification
ANS: C PTS: 1 DIF: Moderate REF: Page 102
NAT: BUSPROG Analytic LOC: DISC: Marketing Plan
TOP: How Do New Products and Brand Extensions Fit in Marketing Strategy?
KEY: Bloom's: Knowledge MSC: MBA: Managing Strategy & Innovation
33. What growth strategy combines new markets and new products?
a. market penetration
b. product development
© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
c. market development
d. diversification
ANS: D PTS: 1 DIF: Moderate REF: Page 103
NAT: BUSPROG Analytic LOC: DISC: Strategy
TOP: How Do New Products and Brand Extensions Fit in Marketing Strategy?
KEY: Bloom's: Comprehension MSC: MBA: Managing Strategy & Innovation
34. Amos does not want to find new customers or create new products. Instead, he is opening
more stores and improving the marketing mix—more intriguing advertising, better pricing,
better reward program, better in-store service, better store ambience, etc. What strategy is he
using?
a. market penetration
b. product development
c. market development
d. diversification
ANS: A PTS: 1 DIF: Moderate REF: Page 103
NAT: BUSPROG Analytic LOC: DISC: Strategy
TOP: How Do New Products and Brand Extensions Fit in Marketing Strategy?
KEY: Bloom's: Application MSC: MBA: Managing Strategy & Innovation
35. If a company wants to be innovative, which strategy are they most likely to use?
a. market penetration
b. product development
c. market development
d. diversification
ANS: B PTS: 1 DIF: Easy REF: Page 102
NAT: BUSPROG Analytic LOC: DISC: Strategy
TOP: How Do New Products and Brand Extensions Fit in Marketing Strategy?
KEY: Bloom's: Comprehension MSC: MBA: Managing Strategy & Innovation
37. There is less risk with ________ new products than with ________ new products.
a. inexpensive, expensive
b. expensive, inexpensive
c. incrementally, really
d. really, incrementally
© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
ANS: C PTS: 1 DIF: Moderate REF: Page 102
NAT: BUSPROG Analytic LOC: DISC: Product
TOP: How Do New Products and Brand Extensions Fit in Marketing Strategy?
KEY: Bloom's: Evaluation MSC: MBA: Managing Strategy & Innovation
38. The most stunning demographic trend in America and Western Europe is that the population
is _____________.
a. aging
b. getting less and less education
c. becoming more and more religious
d. getting younger
ANS: A PTS: 1 DIF: Moderate REF: Page 103
NAT: BUSPROG Analytic LOC: DISC: Customer
TOP: What Trends Should I Watch? KEY: Bloom's: Knowledge
MSC: MBA: Knowledge of human behavior & society
39. What sub-population is growing faster than any other in the U.S.?
a. African American
b. Hispanic
c. Asian
d. Caucasian
ANS: B PTS: 1 DIF: Easy REF: Page 103
NAT: BUSPROG Analytic LOC: DISC: Customer
TOP: What Trends Should I Watch? KEY: Bloom's: Knowledge
MSC: MBA: Knowledge of human behavior & society
ESSAY
ANS:
© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
The primary way that companies make changes is by offering “new and improved” goods
and services to customers. Companies seek to improve their current products for numerous,
overlapping reasons: a simple point of corporate pride, to be consistent with an image as
being innovative, as an effort to better satisfy current customers or attract new customers, or
to stave off competition. With new product introductions, the company has achieved some
success with its existing portfolio.
ANS:
Some companies take a nearly exclusively top-down approach and use a new product
development process that follows three simple steps: idea creation, design and development,
and commercialization. Marketing is essentially an afterthought to help with the final
commercialization and launch phase before introducing the product to customers. Note that
just because the top-down approach has few steps in the process doesn’t mean the products
are simple. Top-down is also called “inside out” because the idea comes from within the
company, and then feedback from the outside (customers, suppliers, etc.) is sought later in
the process.
3. List 2 areas that new ideas can come from for both internal and external sources?
ANS:
1. Internal- boss, in house experts, employees, feedback from sales force
2. External- customers, business partners, competition, context
ANS:
© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
A conjoint procedure can be done for either a focus group or online study. The study
consists of putting together different attributes of a product and asking the customer which
combinations seem the best. This analysis derives which attributes matter more than others,
and which levels are sought.
ANS:
Typically, there are 2-3 groups per segment, 8-10 target customers in one focus group. They
are invited to see the concepts and offer feedback about them. Discussions last about 1.5 to
2 hours and can begin as broadly as asking the customers to describe their uses of products
in this category (e.g., household goods, foods, their driving habits, etc.). This helps
marketers to get background information that can inform the product development or the
positioning of the product via communications materials developed subsequently. Visual
aides are very helpful and can include artist’s renderings, sleek photos, or mock-prototypes.
Sometimes, virtual reality is used, as well as competitor’s products.
ANS:
Area test markets
Some 40-50 small metropolitan areas throughout the U.S. are known to marketing research
firms as having characteristics (e.g., demographics, socioeconomic status) representative of
the country as a whole. A few (2 or 3) of these areas are randomly sampled to be “test
markets,” in which the product is made available for purchase
Electronic test markets
For these tests, a sample of those metropolitan areas is selected, and within each market,
there are households designated to be “test” and others to be “control.” Given the tighter
constraints, the validity of the electronic test market dominates that of the area test market,
and yet the marketer still doesn’t have everything under control.
Simulated test markets
These tests resemble the earlier product tests but are fleshed out in full glory: the product is
real, not a prototype. A customer is recruited (e.g., via a mall-intercept) to go to an office (in
the mall) where he is given play money and has an opportunity to buy the new product,
which is offered among competitors’ or related products.
© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
PTS: 1 DIF: Challenging REF: Pages 95-96
NAT: BUSPROG Reflective Thinking LOC: DISC: Strategy
TOP: Beta Testing KEY: Bloom's: Synthesis
MSC: MBA: Managing the Task Environment
ANS:
Forecasting is using customer data to predict the product’s success. It happens right before a
product is going to be launched. The goal is to estimate sales potential, and to do this, we
multiply market potential (how many units might possibly be sold) by purchase intention
(the likelihood that the target segment will buy the product) and by the price we intend to
charge.
The following formula describes the sales potential (SP):
$SP = MP x PI x Pr.
where MP= Market potential, PI= purchase intention, and Pr= price
The value for MP usually comes from a secondary source, like in house bench-marking. PI
comes from the most recent marketing research that was conducted. And Pr is set by the
marketer. These factors can also influence each other slightly. For example, an increase in
Pr would lead to a decrease in PI.
ANS:
During market introduction, a new product (good or service) is brought into the marketplace
with heavy marketing spending (e.g., communications to spark awareness). In addition to
advertising to provide information and attempts at persuasion, promotion can include
samples and coupons to spur trial.
The second phase is one of market growth. Sales are accelerating and profits rise at first.
Customer awareness is stronger, and there may be some buzz in the marketplace.
Distribution channel coverage is greater, so greater access also contributes to stronger sales.
The firm might be able to begin increasing prices (resulting in higher margins and greater
profits). At the same time, competitors observe the pioneering company’s successes and
start sniffing profit potential, so they enter the game.
Some point later brings a product to market maturity. Advertising continues to try to
persuade customers about a brand’s relative advantages, and serves as a reminder to buy in
the product category. Products may proliferate to a fuller product line to satisfy more
segments of customers. Industry sales have leveled off, so competition is intensifying—
there is more competition than in any other stage in the life cycle.
© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
The final phase in the product life cycle is that of market decline. Sales and profits are both
dropping, and new products are replacing older generations. The firm needs to decide what
to do with the old product:
ANS:
The concept of Diffusion of Innovation is that new products are akin to contagious diseases.
If you put a person with a cold in a room full of people and they sneeze, think about who
will get sick fastest—the people closest to Sneezy. The spreading word-of-mouth helps
activate the process of the “diffusion of innovations.” The “innovators” are the first 3-5%
who like to try new ideas and are willing to take risks. The “early adopters” are the next 10-
15% who are even more influential than “innovators” because they are a bigger group, and
because some write-off “innovators” as zealots. The “early majority” (34%) are more risk
averse than the first two groups, and they wait to hear positive reviews before adopting a
product. The “late majority” are even more cautious and tend to be older, more
conservative, and more reliant on consistent messages received through word of mouth.
Lastly, the “laggards” are the last 5-15% of customers to adopt a product, and are risk
averse, skeptical of new products in general, and stereotypical have lower income.
ANS:
It’s important to keep an eye on how the world is changing and the directions things are
going because trends form the context in which all the new products forecasting is
occurring. There are demographic, lifestyle, and cultural trends that can boost, or constrain,
the ultimate success of the new product launch. Some trends marketers should pay attention
to include demographics, lifestyle trends, and cultural differences.
© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.