Transcript New Product Development

Chapter 10
Product Strategies:
Basic Decisions &
Product Planning
Chapter Outline
What Is a Product?
 New Product Development
 Market Segmentation
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Product Adoption
Chapter Outline
Theory of International Product Life Cycle
- Stages and Characteristics
- Validity of the IPLC
- Marketing Strategies
 Product Standardization vs. Product Adaptation
- Arguments for Standardization
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- Arguments for Adaptation
Chapter Outline
A Move Toward World Product: International or
National Product?
 Marketing of Services
- Importance of Services
- Types of Services
- The Economic and Legal Environment
- Marketing Mix and Adaptation
- Market Entry Strategies
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Product
Product is anything that can be
offered in a market for attention,
acquisition, use, or consumption
that might satisfy a need or want
New Product Development
There are six distinct steps in new product
development.
 generation of new product ideas
 screening of ideas
 business analysis
 product development
 test marketing

full-scale commercialization
New Product Development
The first step is the generation of new
product ideas. Such ideas can come
from any number of sources (e.g.,
salesperson, employees, competitors,
governments, marketing research
firms, customers).
New Product Development
The first step is the generation of
new product ideas. Such ideas can
come from any number of sources
(e.g.,
salesperson,
employees,
competitors, governments, marketing
research firms, customers).
New Product Development
The second step involves the
screening of ideas. Ideas must be
acknowledged and reviewed to determine
their feasibility. To determine suitability, a
new product concept may simply be
presented to potential users, or an
advertisement based on the product may
be drawn and shown to focus groups.
New Product Development
The third step is business analysis,
which is necessary to estimate product
features, cost, demand, and profit. Several
competing teams of designers produce a
prototype, and the winning model that
meets preset goals then goes to the
“product development” team.
New Product Development
The fourth step is product development,
which involves lab and technical tests as well
as manufacturing pilot models in small
quantities. At this stage, the product is likely to
be handmade or produced by existing
machinery rather than by any new specialized
equipment. Ideally, engineers should receive
direct feedback from customers and dealers.
New Product Development
The fifth step involves test marketing to
determine potential marketing problems and
the optimal marketing mix. Anheuser Busch
pulled Budweiser out of Germany after a sixmonth Berlin market test in 1981. Its Busch
brand was another disappointment in France,
where this type of beer did not yet correspond
to French tastes.
New Product Development
Finally, assuming that things go well, the
company is ready for full-scale commercialization by
actually going through with full-scale production and
marketing. In any case, so many new products are
tested and marketed each year. In Japan, because
consumers constantly demand fresh, new products,
some 700 to 800 drinks are launched annually. To
keep pace, Coca-Cola has built a product
development center which allows it to cut launch time
for new drinks from ninety days to a month, enabling
it to release fifty new beverages a year.
Market Segmentation
Market segmentation is a concept to which marketers
and academics like to pay a great deal of attention. For
example, Visa has designed its consumer credit
products and non-credit products for diverse market
segments. Some of its products are: Visa Classic, Visa
Gold, Visa Platinum, Visa Signature, Visa Infinite, Visa
check card, and Visa Buxx. Marketers fail to realize that
the purpose of segmentation is to satisfy consumer
needs more precisely – not to segment the market just
for the aim of the segmentation.
Market Segmentation
In breaking into a foreign market,
marketers should consider factors that
influence product adoption. As explained
by diffusion theory, at least six factors
have a bearing on the adoption process
Product Adoption
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relative advantage
compatibility
trialability/divisibility
observability
complexity
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price
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Relative advantage
For a product to gain acceptance, it
must demonstrate its relative advantage
over existing alternatives.
Compatibility
A product must also be compatible with
local customs and habits. In Asia and such
European countries as France and Italy, people
like to sweep and mop floors daily, and thus
there is no market for carpet or vacuum
cleaners. A new product should also be
compatible with consumers’ other belongings. If
a new product requires a replacement of those
other items that are still usable, product adoption
becomes a costly proposition.
Trialability/divisibility
A new product has an advantage if it is
capable of being divided and tested in small
trial quantities to determine its suitability and
benefits. This is a product’s trialability/divisibility
factor. Disposable diapers and blue jeans lend
themselves to trialability rather well, but when a
product is large, bulky, and expensive,
consumers are much more apprehensive about
making a purchase.
Observability
Observation of a product in public tends
to
encourage
social
acceptance
and
reinforcement, resulting in the product’s being
adopted more rapidly and with less resistance.
If a product is used privately, other consumers
cannot see it, and there is no prestige
generated by its possession.
Complexity
Complexity of a product or difficulty in
understanding a product’s qualities tends to
slow down its market acceptance. Perhaps this
factor explains why ground coffee has had a
difficult time in making headway to replace
instant coffee in many countries
Price
The first four variables are related positively to
the adoption process. Like complexity, price is
related negatively to product adoption. Prior to
1982, copiers were too big and expensive.
Canon then introduced personal copiers with
cartridges that customers could change. Its low
price (less than $1000) was so attractive to
consumers (but not to competitors) that Canon
easily dominated the market.
Theory of International Product
Life Cycle (IPLC)
The international product life cycle
theory, developed and verified by economists
to explain trade in a context of comparative
advantage, describes the diffusion process of
an innovation across national boundaries.
The life cycle begins when a developed
country, having a new product to satisfy
consumer needs, wants to exploit its
technological breakthrough by selling abroad.
Theory of International Product
Life Cycle (IPLC)
Other advanced nations soon start up
their own production facilities, and before
long less developed countries do the same.
Efficiency/comparative advantage shifts
from developed countries to developing
nations. Finally, advanced nations, no
longer cost- effective, import products from
their former customers..
Theory of International Product
Life Cycle (IPLC)
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Stage 0-- Local Innovation
Stage 1-- Overseas Innovation
Stage 2-- Maturity
Stage 3-- Worldwide Imitation
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Stage 4-- Reversal
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Stage 0-- Local Innovation
Regular and highly familiar product life
cycle in operation within its original market.
Innovations are most likely to occur in highly
developed countries because consumers in
such countries are affluent and have
relatively unlimited wants. From the supply
side, firms in advanced nations have both the
technological know-how and abundant capital
to develop new products.
Stage 1-- Overseas Innovation
As soon as the new product is well
developed, its original market well
cultivated, and local demands adequately
supplied, the innovating firm will look to
overseas markets in order to expand its
sales and profit. Thus this stage is known
as a “pioneering” or “international
introduction” stage.
Stage 2 – Maturity
Growing demand in advanced
nations provides an impetus for firms
there to commit themselves to starting
local production, often with the help of
their governments’ protective measures to
preserve infant industries. Thus these
firms can survive and thrive in spite of
relative inefficiency.
Stage 3 – Worldwide imitation
This stage means tough times for
the innovating nation because of its
continuous decline in exports. There is
no more new demand anywhere to
cultivate.
Stage 4 – Reversal
Not only must all good things end, but misfortune
frequently accompanies the end of a favorable situation.
The major functional characteristics of this stage are
product standardization and comparative disadvantage.
This innovating country’s comparative advantage has
disappeared, and what is left is comparative
disadvantage. This disadvantage is brought about
because the product is no longer capital-intensive or
technology-intensive but instead has become laborintensive – a strong advantage possessed by LDCs.
Product Standardization vs.
Product Adaptation
Arguments for Standardization
- simplicity and cost
- consistent company or product image
- musical recordings and works of art
- industry specifications
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- cultural universals
Product Standardization vs.
Product Adaptation
Arguments for Adaptation
- big-car syndrome
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- left-hand-drive syndrome
Mandatory Product Modification
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Government regulations
Electrical current standards
Measurement systems
Operating systems
Optional Product Modification
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Physical distribution
Local use conditions
Climatic conditions
Space constraint
Consumer demographics as related to physical
appearance
Optional Product Modification
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User's habits
Environmental characteristics
Price
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Limiting product movement across national
borders (gray marketing)
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Historical preference or local customs and
culture
International Product Strategies
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Standardized Product
- Domestic product introduced internationally, with
minor or no modification
 Localized Product
- Domestic product adapted for foreign markets
- Product designed specifically for foreign markets
International Product Strategies
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Global Product
- Product designed with international (not national)
markets in mind
- Product having universal features
- Product being adaptation-ready, when necessary