Spring 2022-2023 - PIM - Chapter 2 - Introducing New Market Offerings

Product Innovation and Management
Chapter # 2
Introducing New Market Offerings Stanley Rodrick
Senior Assistant Professor,
Department of Marketing,
Faculty of Business Administration, AIUB
1
Forewords…
New-product development shapes the company’s future.
 Improved or replacement products and services can maintain or build
sales; new-to-the-world products and services can transform industries and
companies and change lives.
 Companies that challenge industry norms and apply imaginative solutions
will delight and engage consumers.
2
NEW-PRODUCT OPTIONS
There are a variety of types of new products and ways to create them.
Make or Buy
A company can add new products through acquisition or development.
When acquiring, the company can buy other companies, buy patents from other companies, or buy a
license or franchise from another company.
Swiss food giant Nestlé has increased its presence in North America by acquiring a variety of different
brands such as Carnation, Stouffer’s, Ralston Purina, Dreyer’s Ice Cream, Jenny Craig, Gerber, Poland
Springs, and PowerBar.
But firms can successfully make only so many acquisitions.
At some point, they need organic growth—the development of new products from within.
For product development, the company can create new products in its own laboratories, or it can contract
with independent researchers or new-product development firms to develop specific new products or new
technology.
Firms such as Samsung, GE, Diageo, Hershey, and USB have engaged new-product consulting boutiques
to provide fresh insights and points of view.
3
CATEGORIES OF NEW PRODUCTS
New-to-the-World Products
New-Product Lines
Additions
Improvements
Repositioning
Cost Reductions
4
CATEGORIES OF NEW PRODUCTS (CONTD.)
New products range from new-to-the-world items that create an entirely new market to minor
improvements or revisions of existing products.
Most new-product activity is devoted to improving existing products.
Some recent product launches in the supermarket were brand extensions, such as Tide To Go Stain Eraser,
Gillette Fusion ProGlide Styler, Dawn Power Clean, Crest 3D White Glamorous White Toothpaste, and
Coconut Delight Oreo Fudge Cremes.
At Sony, modifications of established products accounted for more than 80 percent of new product activity.
Once a running- shoe manufacturer, Nike now competes with makers of all types of athletic shoes, clothing,
and equipment.
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 New-to-the-World Products
New-to-the-world products are those products that create an entirely new market.
 New-Product Lines
If a company can enter an established market for the first time with a product it is
called new-product line.
 Additions to Existing Product Lines
New products that supplement a company’s established product lines are called
additions to existing product lines.
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 Improvements in / Revisions to Existing Products
New products that provide improved performance or greater perceived value and
replace existing products are referred to as improvements in/revisions to existing
products.
 Repositioning
Repositioning is modifying the existing products/brands in some way so as to
widen their appeals or direct appeals to other market segment (s).
 Cost Reductions
New products that provide similar performance at lower cost is termed as a cost
reduction.
7
Fewer than 10 percent of all new products are truly innovative and new to the world.
These products incur the greatest cost and risk.
And while radical innovations can hurt the company’s bottom line in the short run, if they succeed,
they can improve the corporate image, create a greater sustainable competitive advantage than
ordinary products, and produce significant financial rewards.
Companies typically must create a strong R&D and marketing partnership to pull off a
radical innovation.
The right corporate culture is another crucial determinant; the firm must prepare to cannibalize
existing products, tolerate risk, and maintain a future market orientation.
8
High-tech firms in telecommunications, computers, consumer electronics, biotech, and software in
particular seek radical innovation.
They face a number of product-launch challenges:

 high technological uncertainty
 high market uncertainty
 fierce competition
 high investment costs
 short product life cycles
 scarce funding sources for risky projects
Successes abound, however. Goggle has launched a number of path-breaking products and is
looking for more.
9
THE INNOVATION IMPERATIVE
In an economy of rapid change, continuous innovation is a necessity.
Companies that fail to develop new products leave themselves vulnerable to changing
customer needs and tastes, shortened product life cycles, increased domestic and
foreign competition, and especially new technologies.
Google, Dropbox, update their software daily.

Highly innovative firms are able to repeatedly identify and quickly seize new market
opportunities.
They create a positive attitude toward innovation and risk taking, routinize the
innovation process, practice teamwork, and allow their people to experiment and even
fail.
10
NEW-PRODUCT SUCCESS
Most established companies focus on incremental innovation, entering new markets by
changing products for new customers, using variations on a core product to stay one
step ahead of the market, and creating interim solutions for
industry-wide problems.
With the widespread adoption of smart phones, mobile apps are becoming a lucrative
business, as the creators of Angry Birds video game have found, securing their
leadership with continual innovation.
Newer companies create disruptive technologies that are cheaper and more likely to
alter the competitive space.
Established companies can be slow to react or invest in these disruptive technologies
because they threaten their investment.
Then they suddenly find themselves facing formidable new competitors, and many fail.
11
NEW-PRODUCT FAILURE
New products continue to fail at rates estimated as high as 50 percent or even 95
percent in the United States and 90 percent in Europe.
The reasons are many:
 Ignored or Misinterpreted Market Research
 Overestimates of Market Size
 High Development Costs
 Poor Design or Ineffectual Performance
 Incorrect Positioning, Advertising, or Price
 Insufficient Distribution Support
 Competitors Who Fight Back Hard
 Inadequate ROI or Payback
12
NEW-PRODUCT FAILURE (CONTD.)
 Fragmented Markets
 Social, Economic, and Governmental Constraints
 Cost of Development
 Capital Shortages
 Shorter Required Development Time
 Poor Launch Timing
 Shorter Product Life Cycles
 Lack of Organizational Support
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Some additional drawbacks new-product launches face are:
 Fragmented Markets
Companies must aim their new products at smaller market segments than before, which can
mean lower sales and profits for each product.
 Social, Economic, and Governmental Constraints
New products must satisfy consumer safety and environmental concerns and stringent
production constraints.
 Cost of Development
A company typically must generate many ideas to find just one worthy of development
and thus often faces high R&D, manufacturing, and marketing costs.
 Capital Shortages
Some companies with good ideas cannot raise the funds to research and launch them.
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 Shorter Required Development Time
Companies must learn to compress development time with new techniques, strategic partners,
early concept tests, and advanced marketing planning.
 Poor Launch Timing
New products are sometimes launched too late, after the category has already taken off, or too
early for sufficient interest to have gathered.
 Shorter Product Life Cycles
Rivals are quick to copy success. At one time, Sony enjoyed a three-year lead on its new
products, but Matsushita and others learned to copy them within six months, leaving Sony with
barely time to recoup its investment.
 Lack of Organizational Support
The new product may not mesh with the corporate culture or receive the financial or other
support it needs.
15
NEW-PRODUCT PLANNING
 In most markets, progress marches on.
 So it is essential for a firm to develop new products or modify its current products to
meet changing customer needs and competitors’ actions.
 Not having an active new-product development process means that consciously, or
subconsciously, the firm has decided to milk its current products and eventually go out of
business.
 New-product planning is not an optional matter.
 It has to be done just to survive in today’s dynamic markets.
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Types of new products from the customer’s point of view
New products, or innovations, can be loosely grouped into three categories based on
the extent to which customers have to change their behavior to adopt the new product.
The Three Categories are:
 Continuous Innovations
 Dynamically Continuous Innovations
 Discontinuous Innovations
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 Continuous Innovations
Do not require customers to learn new behaviors.
Such products usually entail minor variations on existing products.
A new toothpaste flavor, a low-calorie iced tea, or a new style of earring would fit in this
category.
Customers can easily understand and use these new products.
Promotion for this type of innovation emphasizes awareness—often with new packaging
or advertising that hypes an added feature.
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 Dynamically Continuous Innovations

Require minor changes in customer behavior.
For example, 3M developed a Bluetooth-enabled stethoscope, which works like a
traditional stethoscope, except that it wirelessly records and stores the sounds of the
heart, lung, and other body parts in digital computer files.
The innovation requires new behaviors by removing the need to key in information.
Doctors can attach the sound files to computer records, as well as send them to other
doctors or specialists for help diagnosing and treating patients.
Promotion for dynamically continuous innovations needs to clearly communicate the
benefits of the innovation.
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 Discontinuous Innovation
Requires that customers adopting the innovation significantly change their behavior.
This type of innovation often results in a completely new product-market and new product life cycle.
Appliance maker Godrej needed to think differently about refrigeration in rural India.
In this part of the world, where most families make less than $5 a day and electricity is unreliable or
unavailable, there is little demand for the major appliances Godrej produces.
Customers generally don’t purchase food that requires staying cool for more than a couple of hours.
These consumers have basic needs—they would like to keep milk, vegetables, and fruit cool for a day or
two. Then they could shop less frequently and prepare a broader range of meals.
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 Discontinuous Innovation (Contd.)

For this market, Godrej engineers created ChotuKool (“little cool” in Hindi), a portable cooler which runs
on DC current or an external battery.
The design minimizes heat loss and power usage.
The innovation is life-altering for people in this part of the world and changes how they shop and cook.
Promotion for a discontinuous innovation like ChotuKool usually requires personal selling and product
demonstrations to educate customers about new behaviors.
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ORGANIZING NEW-PRODUCT DEVELOPMENT
STAGE-GATE SYSTEMS
Many top companies use the stage-gate system to divide the innovation process into stages,
with a gate or checkpoint at the end of each.
The project leader, working with a cross-functional team, must bring a set of known
deliverables to each gate before the project can pass to the next stage.
To move from the business plan stage into product development requires a convincing
market research study of consumer needs and interest, a competitive analysis, and a technical
appraisal.
Senior managers review the criteria at each gate to make one of four decisions:
go, kill, hold, or recycle.
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STAGE-GATE SYSTEMS
The stages in the new-product development process are shown in the next slide.
Many firms have parallel sets of projects working through the process, each at a different
stage.
Think of the process as a funnel.
A large number of initial new-product ideas and concepts are
examined down to a few high-potential products that are ultimately
launched.
But the process is not always linear.
Many firms use a spiral development process that recognizes the
value of returning to an earlier stage to make improvements before
moving forward.
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STAGE-GATE SYSTEMS
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NEW-PRODUCT DEVELOPMENT: A TOTAL COMPANY EFFORT
New-Product Development Success Factors
25
THE CONSUMER-ADOPTION PROCESS
Adoption is an individual’s decision to become a regular user of a product and is
followed by the consumer loyalty process.
New-product marketers typically aim at early adopters and use the theory of innovation
diffusion and consumer adoption to identify them.
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Stages in the Adoption Process
Awareness Interest Evaluation Trial Adoption
An innovation is any good, service, or idea that someone perceives as new, no matter how long its history.
Everett Rogers defines the innovation diffusion process as “the spread of a new idea from its source of invention or
creation to its ultimate users or adopters.”
The consumer-adoption process is the mental steps through which an individual passes from first hearing about an
innovation to final adoption.
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Stages in the Adoption Process (Contd.)
They are:
 Awareness
The consumer becomes aware of the innovation but lacks information about it.
 Interest
The consumer is stimulated to seek information about the innovation.
 Evaluation
The consumer considers whether to try the innovation.
 Trial
The consumer tries the innovation to improve his or her estimate of its value.
 Adoption
The consumer decides to make full and regular use of the innovation.
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Stages in the Adoption Process (Contd.)
The new-product marketer should facilitate movement through these stages.
A water filtration system manufacturer might discover that many consumers are stuck in
the interest stage; they do not buy because of their uncertainty and the large investment
cost.
But these same consumers would be willing to use a water filtration system at home on a
trial basis for a small monthly fee.
The manufacturer should consider offering a trial-use plan with option to buy.
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FACTORS INFLUENCING THE ADOPTION PROCESS
Marketers recognize the following characteristics of the adoption process: differences in
individual readiness to try new products, the effect of personal influence, differing rates of
adoption, and differences in organizations’ readiness to try new products.
Some researchers are focusing on use-diffusion processes as a complement to adoption
process models to see how consumers actually use new products.
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Readiness to Try New Products and Personal Influence
Everett Rogers defines a person’s level of innovativeness as “the degree to which an
individual is relatively earlier in adopting new ideas than the other members of his social
system.”
Some people are the first to adopt new clothing fashions or new appliances; some doctors
are the first to prescribe new medicines.
31
Readiness to Try New Products and Personal Influence (Contd.)
The five adopter groups differ in their value orientations and their motives for adopting or
resisting the new product.
32
Readiness to Try New Products and Personal Influence (Contd.)
 Innovators are technology enthusiasts; they are venturesome and enjoy tinkering with new
products and mastering their intricacies. In return for low prices, they are happy to conduct alpha
and beta testing and report on early weaknesses.
 Early Adopters are opinion leaders who carefully search for new technologies that might
give them a dramatic competitive advantage. They are less price sensitive and are willing to adopt
the product if given personalized solutions and good service support.
 Early Majority are deliberate pragmatists who adopt the new technology when its benefits
have been proven and a lot of adoption has already taken place. They make up the mainstream
market.
 Late Majority are skeptical conservatives who are risk averse, technology shy, and price
sensitive.
 Laggards are tradition-bound and resist the innovation until the status quo is no longer
defensible. 33
Characteristics of the Innovation
Some products catch on immediately (roller blades), whereas others take a long time to gain
acceptance (diesel engine autos).
Five characteristics influence an innovation’s rate of adoption. We consider them for digital video
recorders (DVRs) for home use.
 Relative Advantage
The degree to which the innovation appears superior to existing products. The greater the
perceived relative advantage of using a DVR, say, for easily recording favorite shows, pausing live
TV, or skipping commercials, the more quickly it was adopted.
 Compatibility
The degree to which the innovation matches consumers’ values and experiences. DVRs are highly
compatible with the preferences of avid television watchers.
34
Characteristics of the Innovation (Contd.)
 Complexity
The degree to which the innovation is difficult to understand or use. DVRs are somewhat complex
and therefore took a slightly longer time to penetrate into home use.
 Divisibility
The degree to which the innovation can be tried on a limited basis. This provided a sizable
challenge for DVRs - sampling could occur only in a retail store or perhaps a friend’s house.
 Communicability
The degree to which the benefits of use are observable or describable to others. The fact that
DVRs have some clear advantages helped create interest and curiosity.
Other characteristics that influence the rate of adoption are cost, risk and uncertainty, scientific credibility, and social
approval. The new-product marketer must research all these factors and give the key ones maximum attention in
designing the product and its marketing program.
35
MANAGING PRODUCTS OVER THEIR LIFE CYCLES
Revolutionary products create new product-markets.
But competitors are always developing and copying new ideas and products—making existing
products out of date more quickly than ever.
Products, like consumers, go through life cycles.
The product life cycle describes the stages a really new product idea goes through from beginning
to end.
The product life cycle is divided into four major stages:
(1) market introduction, (2) market growth, (3) market maturity, and (4) sales decline.
The product life cycle is concerned with new types (or categories) of products in the market, not
just what happens to an individual brand.
A particular firm’s marketing mix usually must change during the product life cycle.
There are several reasons why customers’ attitudes and needs may change over the product life
cycle. The product may be aimed at entirely different target markets at different stages.
36
MANAGING PRODUCTS OVER THEIR LIFE CYCLES (CONTD.)
These general relationships can be seen in the Figure below.
Note that sales and profits do not move together over time.
37
In the Market Introduction Stage, sales are low as a new idea is first introduced to a
market.
Customers aren’t looking for the product.
Even if the product offers superior value, customers don’t even know about it.
Informative promotion is needed to tell potential customers about the advantages and
uses of the new product concept.
Even though a firm promotes its new product, it takes time for customers to learn that
the product is available.
Most companies experience losses during the introduction stage because they spend so
much money for Product, Place, and Promotion development.
Of course, they invest the money in the hope of future profits.
38
In the Market Growth Stage, industry sales grow fast—but industry profits rise and
then start falling.
The innovator begins to make big profits as more and more customers buy.
But competitors see the opportunity and enter the market.
This is the time of biggest profits for the industry.
It is also a time of rapid sales and earnings growth for companies with effective
strategies.
But it is toward the end of this stage when industry profits begin to decline as
competition and consumer price sensitivity increase.
39
The Market Maturity Stage occurs when industry sales level off and competition
gets tougher.
Many aggressive competitors have entered the race for profits— except in oligopoly
situations. Industry profits go down throughout the market maturity stage because
promotion costs rise, and some competitors cut prices to attract business.
Less efficient firms can’t compete with this pressure—and they drop out of the market.
There is a long-run downward pressure on prices.
New firms may still enter the market at this stage—increasing competition even more.
40
During the Sales Decline Stage, new products replace the old.
Price competition from dying products becomes more vigorous—but firms with strong
brands may make profits until the end because they have successfully differentiated
their products.
As the new products go through their introduction stage, the old ones may keep some
sales by appealing to their most loyal customers or those who are slow to try new ideas.
These conservative buyers might switch later—smoothing the sales decline.
41
PRODUCT LIFE CYCLES VARY IN LENGTH
How long a whole product life cycle takes—and the length of each stage—varies wildly across
products.
The cycle may vary from 90 days—in the case of toys like the Incredibles movie line—to more
than 100 years for gas-powered cars.
The product life-cycle concept does not tell a manager precisely how long the cycle will last.
But a manager can often make a good guess based on the life cycles for similar products.
Sometimes marketing research can help too.
However, it is more important to expect and plan for the different stages than to know the
precise length of each cycle.
42
Some products move quickly…
A new-product idea will move through the early stages of the life cycle more quickly when it has
certain characteristics.
For example, the greater the comparative advantage of a new product over those already on the
market, the more rapidly its sales will grow.
Sales growth is also faster when the product is easy to use and if its advantages are easy to
communicate.
If the product can be tried on a limited basis—without a lot of risk to the customer—it can
usually be introduced more quickly.
Finally, if the product is compatible with the values and experiences of target customers, they
are likely to buy it more quickly.
43
Product life cycles are getting shorter…
Although the life of different products varies, in general product life cycles are getting shorter.
This is partly due to rapidly changing technology.
One new invention may make possible many new products that replace old ones.
Tiny electronic microchips led to thousands of new products.
44
Pioneer or follower—which strategy works best?...
The product life cycle means that firms must be developing new products all the time. Further,
they must try to use marketing mixes that will make the most of the market growth stage—
when profits are highest.
The question becomes, is it better to be the pioneer — the first to market with a new-product
idea—or a follower ?
On average, pioneers tend to be less profitable over the long-run—in part because many do not
survive.
That said, there are some real success stories among pioneers.
45
Pioneer or follower—which strategy works best?... (Contd.)
For example, FedEx invented overnight delivery and remains the market leader.
More often, though, there is an advantage to being the second-mover —one that quickly follows
the pioneer.
Second- movers that have a strong customer focus and respond quickly with a superior
marketing mix can build market share during the market growth stage.
There are many examples of successful second-movers.
While many consider Apple to be an innovator, the iPod, iPhone, and iPad were not the first of
their kind to market.
Yet Apple responded quickly with a better marketing mix in each of these product categories.
Likewise, Amazon wasn’t the first online bookstore. Bookstacks launched the online books.com
three years before Amazon.
46
The short happy life of fashions and fads…
The sales of some products are influenced by fashion —the currently accepted or popular style.
Fashion-related products tend to have short life cycles.
What is currently popular can shift rapidly.
A certain color or style of clothing—baggy jeans, miniskirts, or four-inch-wide ties—may be in
fashion one season and outdated the next.
Marketing managers who work with fashions often have to make really fast product changes.
A fad is an idea that is fashionable only to certain groups who are enthusiastic about it.
47
STYLE, FASHION, AND FAD LIFE CYCLES
We need to distinguish three special categories of product life cycles:
 styles,  fashions, and  fads
A style is a basic and distinctive mode of expression appearing in a field of human
endeavor.
Homes can be colonial, ranch, or Cape Cod;
Clothing is formal, business casual, or sporty;
Art is realistic, surrealistic, or abstract.
A style can last for generations and go in and out of vogue.
48
A fashion is a currently accepted or popular style in a given field.
Fashions pass through four stages: distinctiveness, emulation (imitation), mass fashion,
and decline.
The length of a fashion cycle is hard to predict.
One view is that fashions end because they represent a
compromise, and consumers start looking for the missing
attributes.
49
Fads are fashions that come quickly into public view, are adopted with great zeal, peak
early, and decline very fast.
Their acceptance cycle is short, and they tend to attract only
a limited following searching for excitement or wanting to
distinguish themselves from others.
Fads decline because they don’t normally satisfy a strong
need.
The marketing winners are those who recognize fads early
and leverage them into products with staying power.
50
END OF THE CHAPTER…
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Product Innovation and Management

These products incur the greatest cost and risk.

They face a number of product-launch challenges:

Google, Dropbox, update their software daily.

 Dynamically Continuous Innovations

 Discontinuous Innovation (Contd.)

Awareness Interest Evaluation Trial Adoption

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