Transcript Chapter 8: Creating the Product

Chapter 8: Creating the Product
 “Build it and they will come!” (NOT)
 Value proposition
– A statement capturing why a person should buy the
product (benefits she will receive) compared to
competitors’ products
 Product:
– Tangible good or intangible service that satisfies
customer needs
• We can see, touch, smell, hear, taste, or possess
tangible goods
– Intangible products
• services, ideas, people, places
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Layers of the Product
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The Core Product= Benefits
 Consists of all the benefits the product will
provide for consumers or business
customers
 A customer purchases a 1/2” drill bit. What
does s/he want?
– A 1/2” hole!
 Marketing is about supplying benefits, not
products. It’s not about the product – it’s
what the product DOES for the consumer.
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The Actual Product
 Consists of the physical good or delivered
service that supplies the desired benefit
 Example:
– A washing machine’s core product is the ability to get
clothes clean, but the actual product is a large,
square, metal apparatus
 Actual product also includes appearance,
styling, packaging, and the brand
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The Augmented Product
 Consists of the actual product plus
other supporting features such as
warranty, credit, delivery, installation,
and repair service after the sale
–  A key way to differentiate many products
–  Consistent with long-term customer
relationships
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Classifying Consumer Products
 By how long they
last
 By how consumers
buy them
– Durable
– Nondurable
– Convenience
– Shopping
– Specialty
– Unsought
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Durable vs. Nondurable
 Durable
– Benefits accrue to
consumer over period
of months, years,
decades
– High involvement
– Understand
augmented product
issues
– FAQ
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 Nondurable
– The good is
consumed in the
short-run
– Low involvement
– Focus on brand/price/
distribution
– Decision made based
on past experience
Classifying Goods: How Do
Consumers Buy the Product?
 Convenience product: frequently purchased
with minimum of comparison and effort
– Staples (milk)
– Impulse products (candy bar)
– Emergency products (drain opener)
 Marketing implications?
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Classifying Goods: (cont’d)
 Shopping product: purchased with
considerable time and effort considering
price, attributes, quality
– Use of multi-attribute model
 Narrow choices and tend to compare
alternatives
– Evoked set
 Marketing implications?
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Classifying Goods: (cont’d)
 Specialty products: have unique characteristics
important to some buyers at any price
 Consumers may be highly brand loyal
– But only consumer who place value on that product
 Consumers may not be willing to accept
substitutes
– Rolex watches / Land Rover / Dooney & Burke
 Marketing implications?
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Classifying Goods: (cont’d)
 Unsought products: those in which
consumers have little interest until a need
arises
– Renter’s insurance, retirement plans, disability
insurance
 Requires a good deal of advertising or
personal selling
 May also require a good deal of education
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The Process of Innovation:
Creating New Products
 The FTC says :
– A product must be entirely new or changed
significantly to be called new, and
– A product may be called new for only six months.
 Customer perspective: Innovation is
anything that customers perceive as new
and different
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It’s Important to Understand
How Innovations Work
 Technology is advancing at a dizzying pace.
 New products are expensive to develop and
even more costly if they fail.
 Failure rate is very high.
 New products can contribute to society.
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Innovation Continuum
Continuous
Dynamically
Continuous
Little to no change in CB
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Discontinuous
Extreme changes
Innovation Continuum
Continuous
Latest Blackberry
Dynamically
Continuous
Droid new to market
Little to no change in CB
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Discontinuous
Smart phones introduced
Extreme changes
Continuous Innovations
 Continuous innovations
– Offer slight modifications to an existing product
 Most common form of innovation
– Consumers don’t need to learn anything new;
change is minimal
– New flavors, new sizes, new styling—all are
considered continuous innovations
– Examples: brand extensions, line extensions
– Knockoffs copy (with slight modification) the design
of an original product
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Dynamically Continuous Innovation
 Dynamically continuous innovation:
– A pronounced modification to an existing product
– Requires a *moderate* amount of learning or
behavior change
– Convergence:
• The coming together of two or more technologies to create a
new system with greater benefits than its parts
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Discontinuous Innovations
 Discontinuous innovation:
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A totally new product
Radical/breakthrough/disruptive
Creates major changes in the way we live
Consumers must engage in a great deal of new
learning
– May radically alter lifestyles
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Microwave ovens in the 70s
PCs in 80s
Cell phones in early 90s
Tablet technology
Developing New Products
 New-product development
– continuous process of looking for entirely new
products or for ways to make an existing product
better
 Successfully introducing new products is
becoming more difficult
– R&D costs are enormous
– Products become obsolete faster
– Slotting fees are high
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New Product Development Process:
“Stage Gate” (Funnel)
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Idea Generation
Product Concept Development / Screening
Marketing Strategy Development
Business Analysis
Technical Development
Market Testing
Commercialization
Steps in the
New-Product Development Process
 Phase 1: Idea generation
– Brainstorm products that provide customer benefits
and which are compatible with the firm’s mission
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Customers (Example: Sensual Edible line)
Salespeople
Service providers
Anyone with direct customer contact
– Research: trend-spotters, lead users, etc.
 Phase 2: Product-concept development / screening
– Expand product concepts
– Test for technical and commercial success
• Test markets
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Best & Worst Test Market Cities
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Steps in New-Product Development
 Phase 3: Marketing strategy development
– Developing a strategy to introduce the product to the
marketplace
– Identify the target market
– Estimate its size
– Determine how the product can be positioned
– Plan pricing, distribution, and promotion expenditures
necessary for roll-out
– May involve green marketing
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Phases in New-Product Development
 Phase 4: Business analysis
– The product’s commercial viability is assessed in this
phase
• **Develop pro-forma statements, compute
payback periods, NPV, and ROI
– Assess how the new product will fit into the firm’s total
product mix
• Cannibalization (Ch. 9)
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Phases in New-Product Development
 Phase 5: Technical development
– Firm engineers refine and perfect the new product
– Develop one or more prototypes or test versions of
proposed product (in R&D department).
– Evaluate prototypes with prospective customers
– If applicable, apply for a patent
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Phases in New-Product Development
 Phase 6: Test marketing
– The complete marketing plan is tested in a small
geographic area similar to the larger market
 Phase 7: Commercialization
– The new product is launched into the market
– Full-scale production, distribution, advertising, and
sales promotion are begun
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Adoption and Diffusion Processes
 Adoption: process by which a customer begins
to buy and use a new good, service, or idea
 Diffusion: describes how the use of a product
spreads throughout a population
– How an innovation is communicated and adopted
throughout the marketplace
– “The Tipping Point”
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Categories of Adopters
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Innovators
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2.5% – the first to accept a new idea or product
Venturesome and willing to take risks
Well educated; younger; affluent
They like to be first!
– Willing to pay more – not price sensitive
 Cosmopolites: willing to seek social
relationships outside of their local peer group
 Rely heavily on impersonal information
sources
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Early Adopters
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13.5% – the second to adopt an innovation
Heavy media users
Tend to be concerned with social acceptance
Opinion leaders primarily come from the early
adopter group
Early Majority
 34% adopt the product prior to the mean
time of adoption
 Deliberate and cautious
 Spend more time in the innovation decision
process
 Middle class: Slightly above average in
education and social status
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Late Majority
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34% in this adoption category
Older, more conservative
Peers are the primary source of new ideas
Below average in education, income, and
social status
 Wait to purchase until product has become a
necessity and/or peers pressure to adopt
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Laggards
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16% – last to adopt an innovation
Lower in social class than other categories
Bound by tradition
Product may have already been replaced by
another innovation
5 Factors Affecting the Rate of Adoption
 Relative Advantage:
– Benefits of the new innovation relative to its costs
 Compatibility:
– Consistent with existing behaviors and practices, as
well as cultural norms
 Complexity:
– Difficulty in using/learning to use the new innovation
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Rate of Adoption Factors (Cont.)
 Trialability:
– Can the new product be easily “tried” or
“sampled?
 Observability:
– Visibility of the benefits of the product to user,
AND visibility to others
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