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LEARNING OBJECTIVES

Learning Objectives

How can firms create value through innovation? What is the diffusion of innovation theory, and

how can managers use it to make product line decisions?

How do firms create new products and services? What is a product life cycle, and how can the

concept be applied to product line decisions?

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Innovation and Value

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New Product Introductions

Pioneers radically change competition

and consumer preferences.

Pioneers radically change competition

and consumer preferences.

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Diffusion of Innovation

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Using the Diffusion of Innovation Theory

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How Firms Develop New Products

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Idea Generation

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Internal R&D

Crystal Pepsi Commercial

High product development costs

Often the source of technological products

Often the source of breakthrough products

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R&D Consortia

Lower costs and risks; firms join together

Form research consortiums

Benefits spread to all firms

Example, pharmaceutical industry research

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Licensing

Firms purchase the rights to technology or ideas from other research-intensive firms

University research centers also often provide such licenses

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Groups work together to generate ideas No idea can be immediately dismissed

IDEO Website

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Competitors’ Products

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Customer Input

As much as 85% of new business to business products come from customers

Lead users modify existing products according to their own specific needs

© 2007 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin

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Concept Testing

Concept is a brief written description of the product

Customers reactions determine whether or not it goes forward

Triggers the marketing research process

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Product Development

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Market Testing

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Dodge Commercial

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How do firms know what market tests need to be performed to ensure a

successful product?

How do firms know what market tests need to be performed to ensure a

successful product?

Market Testing

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Product Launch

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New Product Marketing Mix

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Launching a New Product

How do firms launch a new product innovation?How do firms launch a new product innovation?

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Evaluation of Results

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Product Life Cycle

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Stages in the Product Life Cycle

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Exhibit 11.6

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Strategies Based on the Product Life Cycle: Some Caveats

Theoretically they are bell shaped but in reality they can take many shapes

Managers do not know exactly what the shape each product’s life cycle will take so there is no way to know precisely what stage they are in.

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Inventables

Build a living showcase of what’s possible to

deliver inspiration and innovation to the

dreamers of the world.

Inventables Website

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Introduction

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The introduction stage of the PLC

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Growth

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The growth stage of the PLC

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Maturity

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The maturity stage of the PLC

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Decline

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A behavior in the decline stage?

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1. What are the five groups depicted in the diffusion of innovation curve?

2. What factors enhance the diffusion of a good or service?

Check Yourself

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1. What are the steps in the new product development process?

2. Identify different sources of new product ideas.

Check Yourself

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1. What are the stages in the product life cycle?

2. How do sales and profits change during the various stages?

Check Yourself

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Glossary

Alpha testing is testing where the firm attempts to determine whether the product will perform according to its design and whether it satisfies the need for which it was intended.

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Glossary

Beta testing uses potential consumers, who examine the product prototype in a “real use” setting to determine its functionality, performance, potential problems, and other issues specific to its use.

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Glossary

Firms with products in the decline stage either position themselves for a niche segment of diehard consumers or those with special needs or they completely exit the market.

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Glossary

Diffusion of innovation is the process by which the use of an innovation spreads throughout a market group, over time and over various categories of adopters.

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Glossary

The growth stage of the product life cycle is marked by a growing number of product adopters, rapid growth in industry sales, and increases in both the number of competitors and the number of available product versions.

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Glossary

Innovation is the process by which ideas are transformed into new products and services that will help firms grow.

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Glossary

The introduction stage for a new, innovative product or service usually starts with a single firm, and innovators are the ones to try the new offering.

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Glossary

The maturity stage of the product life cycle is characterized by the adoption of the product by the late majority and intense competition for market share among firms.

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Glossary

Pioneers or breakthroughs are new product introductions, especially new-to-the-world products that create new markets.

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Glossary

Premarket tests are conducted by firms before they actually bring a product or service to market to determine how many customers will try and then continue to use the product or service according to a small group of potential consumers.

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Glossary

The product life cycle defines the stages that new products move through as they enter, get established in, and ultimately leave the marketplace and thereby offers marketers a starting point for their strategy planning.

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Glossary

A prototype is the first physical form or service description of a new product, still in rough or tentative form, that has the same properties as a new product but is produced through different manufacturing processes—sometimes even crafted individually.

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Glossary

Reverse engineering involves taking apart a product, analyzing it, and creating an improved product that does not infringe on the competitors’ patents, if any exist.

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Glossary

Test marketing introduces the offering to a limited geographical area prior to a national launch.

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