Chapter # 15

Introducing New Market

Offerings
 New Product Options
Make or Buy
The company can add new products through acquisition or
development. When acquiring, the company can buy other
companies, buy patents from other companies or buy license
or franchise from another company.
For product development, the company can create new
products in its own laboratories, or it can contract with
independent researcher or new product development firms.
 New Product Options
Types of New Products
New products range from new-to-the world items that create
an entirely new market to minor improvements or revisions of
existing product.
 Challenges in New Product Development
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.
 Challenges in New Product Development
New Product Failure
50 to 95 percent new product fail in US and 90 percent in
Europe. The reasons are many: ignored or misinterpret market
research, overestimate market size, high development cost,
poor design and performance, competitor who fight back hard,
incorrect positioning, advertising, or price, insufficient
distribution support, and inadequate ROI or payback. Some
additional drawbacks new product launch faces are:
 Challenges in New Product Development
New Product Failure

Fragmented markets
Safety concerns
Cost of development
Capital shortage
Longer development time
Shorter product life cycle
Lack of organizational support
 Organizational Arrangements
New product development requires senior management to define the
business domain, product category, and specific criteria. One company
established the following criteria:
• The product can be introduced within five years.
• The new product has a market potential of at least 50 million and a 15 percent
growth rate.
• The product can provide at least 30 percent return on sale and 40 percent
return on investment.
• The product can achieve technical or market leadership.
 Organizational Arrangements
Budgeting for New Product Development
Some companies simply finance as many projects as possible,
hoping to achieve a few winners.
Others apply a conventional percentage of sales figures, while
others spend what the competitor spends. Still, others decide
how many successful new products they need and work
backward to estimate the required investment
 Organizational Arrangements
Organizing New Product Development
Companies handle the organizational aspect of new product
development in several ways. Many assign responsibilities to
product managers. But product managers are often busy with the
existing product lines and may lack the skills and knowledge to
develop the new product.
Large companies often develop new product department.
Some companies establish an innovation center in new
geographic locations.
 Organizational Arrangements
Organizing New Product Development
Cross-Functional Team
The cross-functional team charged with developing a specific
product or business. These “intrapreneurs” are relieved of other
duties and given a budget and time frame.
Crowdsourcing
The internet lets companies engage external participants in the
new-product development process in rich and meaningful ways.
 Organizational Arrangements
Organizing New Product Development
Stage-Gate System
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.
 Managing the Development Process: Ideas
Generating Ideas
The new product development process start with the search for
ideas. Some marketing experts believe that best possible technique
is focusing on unmet customer needs. New product development
ideas can in fact come from interacting with various groups.
Interacting with Employees
Employees can be a source of idea for new product, services and
improving existing products.
 Managing the Development Process: Ideas
Generating Ideas
Interacting with outsiders
New idea can also be generated by interacting with outsiders like
customers, scientists, engineers, university and commercial
laboratories, industrial consultants, channer members, marketing and
advertising agencies. Cocreation
Studying Competitors
Companies can find good ideas by researching the products and
services of competitors and other companies. They can find out what
customers like and dislike about competitors products.
Brainstorming
 Managing the Development Process:
Using Idea Screening
In screen ideas, the company must avoid two types of error.
• Drop-error
• Accept-error

The purpose of screening is to drop poor ideas as early as possible.

The rational is that product-development cost rise substantially at
each successive development stage.
 Managing the Development Process: Concept to
Strategy
Attractive ideas must be refined into product concepts. A product idea is a
possible product the company might offer to the market.
Concept Development and Testing
Concept development is a necessary but not sufficient step for new product
success. The marketer must also distinguish the winning concept from the
losers by testing.
Concept Development
Concept Testing
 Managing the Development Process: Concept to
Strategy
Concept Development and Testing
Conjoint Analysis
Consumer preferences for alternative product concepts can be measured by
conjoint analysis. Through this method, we derive the utility values that
consumers attach to the varying level of product attributes.
Suppose the new product marketer is considered five design elements
• Three package design (A, B, and C)
• Three brand name (K2R, Glory, Bissell)
• Three prices (1.19, 1.39, 1.59)
• A possible good housekeeping seal (No, Yes)
• A possible money back guarantee (No, Yes)
Managing the Development Process: Concept to
Strategy
Managing the Development Process:

Marketing Strategy Development

 Managing the Development Process:
Business Analysis
Management needs to prepare sales, cost, and profit projection
to determine whether they satisfy the company objective. If
they do, the concept can move to the development stage.
Estimating Total Sales
Total estimated sales are the sum of estimated first time sales,
infrequent/replacement sales, and repeat sales.
Estimate Costs and Profits
Costs are estimated by the R&D, manufacturing, marketing,
and finance department.
Managing the Development Process: Development
to Commercialization
Product Development
Physical Prototypes – The goal of the R&D department is to develop
a prototype that contains all the important attributes, performs safely under
use conditions, and can be produced within budgeted manufacturing cost.
Sophisticated virtual reality technology and the internet now permit rapid
prototyping and flexible development processes.
Customer Testing
When the prototypes are ready, they much be put through rigorous
functional and customer tests before they enter the marketplace. Alpha
testing tests the product within the firm to see how it performs in different
applications. After refining the prototype further, the company moves to beta
testing with customers.
Managing the Development Process: Development
to Commercialization
Marketing Testing
After management is satisfied with the functional and psychological
performance, the product is ready to be branded with name, logo, and
packaging and goes into a market test, if desired.
How much marketing testing should be done?

Test Markets
The ultimate way to test a new consumer product is to put it into full-
blown test markets. Test marketing also measures the impact of
alternative marketing plans by implementing them in different cities.
Managing the Development Process: Development
to Commercialization
Marketing Testing
Test Markets
In designing a test market, management faces several decisions:
1. How many test cities?
2. Which test cities?
3. Length of the test?
4. Which information to collect?
5. What action to take?
Managing the Development Process: Development
to Commercialization
Marketing Testing
Business-Goods Marketing Testing
Business goods can also benefit from market testing. Expensive
industrial goods and new technologies will normally undergo alpha and
beta testing. During beta testing, the company’s technical people
observe how customers use the product, it will expose unanticipated
problems of safety and servicing and alerts the company to customer
training and servicing requirements.
At trade shows the company can observe how much interest buyers
show in the new product, and how many express purchase intentions or
place orders.
Managing the Development Process: Development
to Commercialization
Commercialization
A mix of market communication tools are used to build awareness and
ultimately preference, choice, and loyalty.
When
First entry
Parallel entry
Late entry
If a new product replaces an older product, the company might delay
until the old product’s stock has been drawn down. If the product is
seasonal, it might wait until the season arrives.
Managing the Development Process: Development
to Commercialization
Commercialization
Where
Small companies select an attractive city and then enter other
cities. Large companies introduce their product into a whole
region and then move to the next.
To Whom
Within the market, the company must target initial distribution
and promotion to the best prospect groups.
How – because new-product launches often take longer and
cost more than expected, many potentially successful offerings
suffer from underfunding. Critical path scheduling
 The Consumer-Adoption Process
Adoption is an individual decision to become a regular user of a product
and is followed by the consumer-loyalty process.
Stages in the Adoption Process
The consumer-adoption process is the mental steps through which an
individual passes from first hearing about an innovation to final
adoption. They are:
Awareness
Interest
Evaluation
Trial
Adoption
 The Consumer-Adoption Process
Factors influencing the Adoption Process

Individual Readiness to Try New Product

Characteristics of the Innovation
 The Consumer-Adoption Process
Factors influencing the Adoption Process
Individual Readiness to Try New Product
The degree to which an individual is relatively earlier in adopting new
ideas than the other members of his social system.
Five adopter groups differ in their value orientations and their motives
for adopting or resisting the new product.
Innovators
Early adopters
Early majority
Late majority
Laggards
 The Consumer-Adoption Process
Factors influencing the Adoption Process
Characteristics of the Innovation
Some products catch on immediately, whereas others take a long time to
gain acceptance. Five characteristics influence an innovation’s rate of
adoption.
Relative advantage
Compatibility
Complexity
Divisibility
Communicability