NEW PRODUCT DEVELOPMENT REVIEWER ◦ 1.4 Feasibility Analysis - Is the demand adequate?
- From an
DEVELOPING NEW SERVICES
Chapter Four
LEARNING OUTCOME:
To be able to describe and present the market
opportunity for a new product or service in terms of its
potential users, as well as its competing and complementary
products and services.
LEARNING OBJECTIVES:
At the end of this chapter, the learner will be able to:
1. define what Service Development is;
2. understand the New Service Development Process;
3. evaluate how to use Service Bundles effectively;
4. value the role of Lead Users in the creation of a new service;
and
5. learn the differences among different Approaches in the
development of new products.
INTRODUCTION
◦ In creating new services, a company has to be clear. The new
service implementation should be related to the strategy and
priorities of the organization. In these changing times, a
business needs to be successful at managing its services. Each
developed service will go through a phase of the life cycle, so
they will need a replacement or a change. Due to numerous
market developments, with the systematic mechanism to
improve the same, a new service must be prepared.
SERVICE DEVELOPMENT
◦ It is the end-to-end procedure of designing a new service to
be offered to consumers and implementing it.
◦ The creation of new services is an organizational process that
connects marketing and operational skills to plan, design and
execute a customer-valued service. To tackle this
fundamentally cross-functional activity, a multi-disciplinary
and integrated perspective is required.
THE NEW SERVICE DEVELOPMENT PROCESS
1. Front End Planning
◦ 1.1 Organizational Mission and New Service Strategy - What is
the mission of the organization? - What are the new service
growth objectives?
◦ 1.2 Idea Generation - Aligned with the mission and strategy of
the organization? - Built on the competence of the
organization? - Is it feasible, legal and ethical?
◦ 1.3 Concept Development - Is it unique to prospective clients
and enticing to them? - Does the demand exist? - Is it feasible
to deliver?
expense, deployment and revenue perspective, is the service
feasible
2. Implementation
◦ 2.1 Prototype Development and Testing - Have all the
variables that could influence distribution been identified and
minimized?
◦ 2.2 Market Testing - Create marketing strategy: Brand?
Promotion? Price?
◦ 2.3 Introduction to the Market - Are there service delivery
problems? - Staff well-equipped and motivated? - How about
the customers, are they satisfied?
◦ 2.4 Post Introduction Evaluation - Ongoing evaluation: Is there
a need for improvements in the way the service is being
implemented?
Price Bundling in Service
It combines several products or services into a single broad
package at an all-inclusive discounted price. It can raise
profits because it promotes the purchasing of more than one
item, despite the fact that the goods are sold at discounted
rates. An example: Paul, for instance, attempts to make a
hotel room reservation, but finds that a package of room
reservations with breakfast inclusions is cheaper than
purchasing them separately. In this scenario, as he knows that
he can save more money, Paul will get the bundle
Consumer Surplus
◦ It is defined as the difference between the price of the
product or service and what amount the customers are
willing to pay for them.
Example:
Both hair treatments and scalp massage treatments are
provided by your full service salon and spa business. Using
market research and your own experience, you have
concluded that two major customer groups exist. Those in the
first group are thinking about appearance and are willing to
pay ₱3,000.00 for the hair treatments, but just ₱100.00 for
the scalp massage. The second group is less-appearance-
oriented, but they prioritize relaxation; for the hair
treatments, they are willing to pay ₱2,500.00 and ₱300.00 for
the scalp massage.
Advantages of Price Bundling:
1. In a single act of purchase, customers enjoy its versatility.
2. Customers can save money and time.
3. When choosing complimentary products, customers avoid
frustration.
4. As they are able to apply competitive pricing to a group of
products, sellers may outsell their competitors.
5. It intensifies the seller's sales.
6. Increased cost effectiveness. 1.
7. New channels of marketing can be tested by the sellers. 2.
Disadvantage of Price Bundling: 3.
1. Although paying for all of them, customers do not always
need all the items in a bundle. 4.
2. For bundled products, it is difficult for retailers to remain
transparent in their pricing decisions.
◦ As opposed to those that are better sold individually, there
are products that perform better when sold in bundles. It is
essential to wisely group such products and ensure that
customers do not see bundling as a limitation of their
freedom of choice. ◦ Design thinking is an innovation framework based on viewing
◦ Buyers, deprived of freedom of choice, tend to create a so-
called "negative synergy" that works against the bundle and
the retailer. This causes revenue to decline. Thus, when
choosing between pure bundling (it is impossible to buy
products separately) and mixed bundling (it is possible to buy
products separately and in bundles), retailers need to be
careful. The latter method helps consumers to be more
1.
creative and freer in their choices.
2.
◦ A new product arises from an individual or a team's artistic
creativity and technological knowledge. The product may 3.
emerge from a need discovered, from a new technology, or
from a new application of an existing technology. 4.
◦ The intended users of the product are more often than not 5.
conspicuously excluded in the creation process. It is important
to understand from the earliest possible moment whether
the intended users of the product actually find the product
◦ This is a standard, composite approach that, as opposed to
useful enough to spend money on it. The usefulness of a
product or service defines its importance to users. The
usability of a product defines how easily consumers can use
the product's benefit.
Lead Users
They are referred to as individuals who deal intensively with
1.
an issue in a specific field for which there is no sufficient
solution on the market. 2.
1. Lead users have an interest in solving a problem themselves. 3.
2. Lead users are well aware of the issue that other users 4.
observe far later.
5.
3. Lead users have unique requirements that can only be applied
to in the future by the market. 6.
4. Lead users benefit from early developments that can fulfill
these needs. They are therefore particularly driven to become
involved and to work on the creation of new technologies ◦ A unifying process for product development is known as the
along with the business.
Lead User Method
It is the technique used by an organization to consistently
incorporate lead users into the production process. Ideally,
four steps are included in this method:
Identification of the most significant market trends.
Lead users' identification.
Workshop(s) for designing new ideas for the planned product
with lead users.
Results projection to the current market. Thus, a company
with its "customers" represents a particularly cooperative
product creation process, the lead user system.
APPROACHES TO NEW PRODUCT AND SERVICE
DEVELOPMENT
The Design Thinking Approach
problems or needs from the perspective of the user. Because
this human-centered approach requires a thorough
understanding of what both your customers think and feel,
the process of design thinking requires you to empathize first
with the people you are trying to design new solutions for.
Steps in the Design Thinking Approach
Emphatize with the user.
Define the problem.
Brainstorm potential solutions.
Build a prototype.
Test your solution.
The New Product Development Framework
digital products like software, companies often use to develop
physical products. The NPD framework has many variations. A
five-step approach is used by some organizations, while
others break it into as many as eight phases.
Steps in the NPD Framework:
Ideate
Research
Plan
Prototype
Source
Cost
Rational Product Management Approach
rational product management. This approach provides a
framework for strategic planning, iterative development,
continuous quality checking, and monitoring of changes,
based on the logical development process used by the
software industry.
 Two distinct but integrated tracks for an organization to
oversee the development of any project or product were
identified by the software industry experts who developed
the rational approach:

A. The Management Perspective - This includes strategic

planning, market analysis, business opportunities being
found, and budgetary consequences being decided.

B. B. The Technical Perspective - This includes choosing

strategies for engineering, supervising quality control, and
handling technological resources.

Steps in Rational Product Management Approach

1. Inception

2. Elaboration

3. Construction

4. Transition

Summary

1. The creation of new services connects marketing and

operational skills to execute a customer-valued service.

2. Price bundling combines several goods or services at an all-

inclusive discounted price into a single, large bundle.

3. The difference between the price of the good or service and

the amount the consumers are willing to pay for them is
known as consumer surplus.

4. Lead users are defined as people who deal intensively with a

problem in a particular field for which there is no adequate
solution on the market.

5. Design thinking approach is a method for creativity focused

on seeing challenges or needs from the user's viewpoint.

6. New product development framework is a standard,

composite approach that businesses mostly use to produce
physical products.

7. Rational product management approach offers a structure

based on the logical development model used by the
software industry.

Marketing Research Techniques

Marketing Research

It is the method of collecting, reviewing and evaluating information

about a market, about a product or service to be sold for sale in
that market, and about the actual, current and future buyers for
the product or service; analysis into the characteristics, spending
patterns, place and needs of your business's market segment, the
Market research offers pertinent knowledge that is most likely part • these contain both new aspects of the service and
of business planning phase, in order to address marketing radical new procedures. Amazon, for instance,
problems. However, lacking market analysis, the purpose of diversified into offering processing power on demand
product differentiation and segmentation is difficult to achieve. and became a pioneer in cloud computing services.

Hierarchy of New Service Categories Achieving Success in New Service Development

A service company has many opportunities to innovate. There are
seven types of innovative services ranging from simple changes in
theme to major innovations
• Style changes. This is the simplest kind of development
that usually does not require improvements in either
procedures or output. Sometimes, though, they are
widely noticeable, generate enthusiasm, and can
inspire workers. For example, websites or new
uniforms for the retail divisions for service workers are
redesigned.
• Service Improvements. There are the most frequent
kinds of innovation. They require minor performance
modifications in current products, or enhancements to
either the main product or existing additional facilities.
Sometimes, it's the little things that matter, and the
consumers love it.
A variety of studies have found that the three following variables
are the most effective:
• Market Synergy. The new product blends in with the
company's current image, experience and resources; it
is stronger than rival products in terms of satisfying the
needs of consumers, as the company has a good
knowledge of the purchasing habits of its customers
and enjoys great support from the company and its
subsidiaries before and after the launch.
• Organizational factors. Inter-functional communication
and teamwork are strong. Production employees must
be well informed of their involvement and the value of
new innovations to the company. Until production,
workers must grasp the new product and the
underlying mechanisms, as well as information on
direct rivals.

• Supplementary service innovations. This take the form
of introducing new service products to the current core
service or substantially upgrading an existing added
service, such as adding parking at the shopping
location, and allowing payment via mobile (e.g., G-
Cash, PayMaya).
• Market research factors. In the planning process,
comprehensive and objectively planned market
analysis analyses are performed early with a good
understanding of the type of knowledge to be
collected. Until conducting field surveys, a successful
product idea is established.

• Process line extensions. These also reflect distinctive

forms in which current goods are distributed. The aim
is to give current customers more comfort and
experience or to draw customers who find their
conventional approach unsatisfactory. They also
include connecting to an established high touch
channel a lower contact channel such as self-service to
augment service delivery by service staff or
development of online or app-based services (e.g.
Klook).

• Product line extensions. There are additions to the

existing product lines of a company. It is possible to see
the first enterprise in an industry to sell such a product
as an innovator. Others are simply supporters, often
protecting themselves. These innovative services may
be built to satisfy a larger range of needs or to target
new clients with diverse demands or both. A
restaurant, for example, may expand the product line
to also include a menu for dog lovers, so that both the
owners and their dogs can dine in the same restaurant.

• Major Process Innovations. These consist of using

innovative processes to offer newly introduced
advantages to current core goods. Online classes, for
example, transform higher education through state-of-
the-art technologies, the internet and smartphones.

• Major service innovations. There are emerging core

markets goods not previously identified. Typically,
PRICE AND VALUE COMMUNICATION
LESSON 3
What is marketing communications strategy?
Marketing communications strategy is the strategy used by a
company or individual to reach their target market through various
types of communication. It includes your message (what is to be
said), the medium (where it is to be said), and the target (to whom
your message is reaching).
Any integrated marketing communications strategy (IMC) should
have three guiding principles:
Brand alignment: Whatever marketing channel you choose
should have the same brand perception as yours. For example, if
you sell luxury watches, build relationships with journalists from
TIME magazine, not those writing in your local newspaper.
Customer alignment: Follow the oldest rule in marketing – ‘be
where your customers already are’. Pick channels where your
consumers are already active. If you’re targeting younger
millennials, advertise on social media platforms like Instagram,
not Facebook, and certainly not day-time TV!
Budget alignment: Choose a marketing channel that fits your
budget (obviously).
The 6 most efficient marketing communication strategies:
• A Great Brand Name
• Don’t Forget the Creativity of the Logo
• Product Positioning- Clarity is key
• Efficient Advertisement Pitch
• Blog -Enable People to Talk about Your Product
• Corporate Events and Social activities- Enhance your
Company Image
Methods of Communicating with Customers
Text/Chat
Being able to text or chat a customer actually works well when
it comes to both marketing and customer service. It is a simple
and easy way to send out automated and personalized
marketing messages to people while also providing a fast and
easy way for customers to text you for answers to their
questions. Using AI chatbot will help you get the most out of
communicating with customers through text because a
machine can easily send out personalized messages and
respond to questions 24/7 without a real person ever having
to get involved.
Methods of Communicating with Customers
Email
Emailing went out of style for a few years as texting and social
media became more popular forms of communication. But it
has come back in style and is extremely popular again. In fact,
63% of those surveyed said they prefer email communications
with businesses over any other form of communication,
putting text in second at 14%. On top of that, 59% said that
they would likely make a purchase if that email included a
sitewide or category wide sale. Artificial Intelligence also can
help to personalize emails and determine what types of
content your audience wants to see in an email.
Methods of Communicating with Customers
Social Media
One way to easily stay in contact with customers, new and
old, is through social media platforms. Most people turn to
social media when looking for recommendations for where to
go or what to buy. Plus, people are on social media all day
making it easy to worm your way into an ad or two on their
account. Artificial Intelligence can help identify what type of
content you should be posting as well as what kinds of
responses customers want from you. Make sure to engage
customers with new content on your social media accounts
regularly, and respond to any comments on your page as
quickly as possible, so they feel validated and valued.
Methods of Communicating with Customers
Phone conversations
Even with all the other methods of communication out there,
phone conversations will never go away. However, all the
other methods of communicating actually help since there are
fewer people who call in with questions if they can get their
answers in other ways. Artificial intelligence can even help
here by “listening” to the conversation and giving
recommendations to the customer service agent on what to
say next based on the customer’s previous history with the
company and how the call is going.
Adapting the Message for Purchase Context
Value-based messages must also be adjusted to the purchase
context. A buyer will go through four basic stages:
origination, information gathering, selection, and
fulfillment. Effective messages will address the buyer’s
specific needs at each stage.
Origination
It is the stage at which the customer becomes aware of a need
and begins the search for a suitable offering to satisfy it.
Information Gathering
This stage is critical for complex goods with a high cost of
search. It is the seller’s burden to provide accurate and
relevant information to the customer. This can include easy
access to product specifications, sizing, and descriptions.
Selection
Selection involves winnowing the alternatives to a
manageable number to conduct a more detailed product
evaluation.
Fulfillment
Fulfillment involves the selection of the purchase channel and
then the actual purchase.
PRICE COMMUNICATION If there is little or no change in demand, it is

Pricing Strategy said to be price inelastic.

Pricing brings in the revenue. If there is significant change in demand, then

This is the only element in the marketing mix that brings in the it is said to be price elastic.
revenues. All the rest are costs.
Demand is less likely to be elastic when:
Price communicates the value positioning of the product.
There are few or no substitutes.
The Pricing Objectives:
Buyers readily do not notice the higher price.
1. To survival
Buyers are slow to change their buying habits.
2. To maximize current profit
Buyers think that the higher prices are justified.
3. To maximize market share
Examples of Discounts and Allowances
4. To maximize market skimming
Early payment
5. To ensure product-quality relationship
Off – season
Determining Demand
Bulk purchase
Each price will lead to a different level of demand and have a
different impact on a company’s marketing objectives. Retail discount

Demand and price are inversely related i.e. The higher the price, Cash discount
lower the demand.
Trade in allowance
Company needs to consider :
When do we Initiate Price Cuts?
1. Price Sensitivity
Excess plant capacity
2. Price Elasticity
Competition
What Influences Price Sensitivity?
Aggressive pricing
Shared cost ( part of cost is borne by other party )
When do we Initiate Price Increases?
Sunk investment (product used is required as a complement to
When demand exceeds supply
earlier purchase )
When costs go up
Inventory effect ( buyers cannot store the product )
Govt. policies
Items bought more frequently ( more sensitive ) / infrequently
( less sensitive ) Reduce or remove discounts and rebates
Unique value effect ( quality , prestige or exclusiveness ) Indirect Price Increases
Substitute awareness by buyers Shrinking pack size for same price
Difficult comparison by buyers Substituting less expensive raw materials
End benefit ( expenditure small part of total income ) Reducing product features
Total expenditure ( purchase cost is insignificant compared Removing product services
to the cost of end product ) Using less expensive packaging material
Low – cost items (less sensitive ) / high cost items ( more Reducing the no. of packs and sizes offered
sensitive )
Creating new economy brands
What is Price Elasticity
Reaction to Price Changes
This determines the changes in demand with unit change in
price. Customer reaction
 Competitor reaction

How to Respond to Competitor Price Change

Maintain price

Maintain price and add value

Reduce price

Increase price and quality

Launch a low price fighter

How to Introduce Price Change to your Customers?

1. Contact them directly.

2. Let customers know well in advance.

3. Remind them that higher prices mean better quality.

4. Explain the reasoning behind the price increase.

5. Ensure the entire organization is aware of the price

increase before announcing it to customers.

6. Allow customers to reach out with further questions or

concerns.