MR2100Marketing 2

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In This chapter we will:Learn Product oriented termsLearn how to classify productsDefine product “newness”Learn about the contributing factors to a

product’s success and a product’s failure.Identify and learn the steps in the New

Product Development Process.

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A Product is...A gooda serviceor an idea

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A Product Line vs. A Product MixA Product Line is a group of products that are

closely related e.g. Apple has Portable Music players (Ipods),

Desktop Computers, Laptop Computers, a Tablet and phones (Iphones)

General Motors has the Chevy, Buick and Cadillac lines of vehicles.

A Product Mix is a combination of all of the product lines of a company. Bombardier offers a range of products from airplanes, to trains.

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Classifying ProductsProducts can be classified a number of ways.

Two key ways are:The Type of user. (Consumer or Industrial)The Degree of tangibility of the product. (Can

you touch it or not!)

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Classifying Consumer GoodsConvenience Goods - Goods that are available to the

consumer almost everywhere, that are relatively low valued and bought with relatively high frequency - A can of Coke.

Shopping Goods - Goods that must be compared with other goods. Usually higher priced, higher risk goods - Clothes.

Speciality Goods - Goods that are unique, special and available in limited locations. Usually high priced prestigious goods - Tilley Hats

Unsought Goods - Goods that you had no intention on buying but bought anyway. Tend to be lower priced - All stores that surround mall food courts tend to sell “unsought” items.

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Classifying Industrial GoodsProduction Goods - Raw materials used in

the production process.Support Goods - Supplies and services key

to but not used directly in the production process: Installations - factories Accessory Equipment - tools and office equipment Supplies - Paper Services - Legal & tax

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What is a “New” Product?A product is considered new if:

it is new relative to existing products on the market.It is new in legal terms ( e.g. it may have been

around for years but just patented)New from the company’s perspective –

Honda started making pickup trucks, but the pickup truck itself is not a new vehicle concept – It does however constitute 40% of all vehicle sales in North America

New from the consumer perspective. (the product may have existed in some markets for some time but may be new to a given market. (www.facebook.com)

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Innovation of New ProductsContinuous Innovation

new product but we use it in the same wayDynamically Continuous Innovation -

This type of innovation entails an evolution in the product and its use. Very few changes in usage methods are required. Eg. If you can drive a modern vehicle you can also drive a vehicle from the 1940’s

Discontinuous Innovation -Here new usage methods must be learned as the

product changes. Eg. the use of DOS is different than the use of Windows. This is the more challenging method for consumers to learn and the riskier method for manufacturers to choose.

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Why New Products Fail in the MarketplaceNot enough potential buyers.No real difference between the new product

and existing products.Poor product quality.Not sold in enough places.Poor timing in introducing the product.4P’s not well executed.

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The New Product ProcessWhat follows is an outline of the key

sequence of steps necessary to help ensure a new products success when it is first introduced to the marketplace.

Before anything, a organization must be innovative and seek out new product ideas. (by being both proactive and reactive) Without this key element, none of of the following steps are relevant. (Six Sigma protocols)

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Step 1 - Idea GenerationIdeas for new products come about in a

number of formal and informal ways. Key sources if ideas come from:Customer suggestionsEmployee/Co-Worker suggestionsFormal Research and Development (R&D)Analyzing competitor’s products

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Step 2 - Screening and Evaluation of New ProductsOnce new ideas have been generated, they

must be assessed for their appropriateness and value.

This assessment can be either: Internal Approach - using a formalized

evaluation procedure.External Approach - protesting the concept on

focus groups & customers

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Step 3 - Business AnalysisOnce a product or idea has made it through

the initial assessment then an analysis of its financial feasibility is completed.

Key concerns at this level is, what features should it have? And considering this can it make money?

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Step 4 - DevelopmentIf a product idea makes it past the business

analysis stage then initial development must take place.

This usually involves building Prototypes which are then evaluated for their functionality, ease of build and practicality.

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New Product Development in the real World:See the Good: Summary of Boeing 787First Flight The Boeing 787 Dreamliner See the Bad: Delays and Production Problems

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Step 5 - Market TestingOnce the prototype is built it is market

tested.At this stage changes are made based on

customer, supplier and manufacturers inputs.

Test marketing is a difficult stage because input may not be representative of the overall markets feelings, it is time and money consuming and plans can be revealed to the competition.

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Step 6 - CommercializationOnce a product has made it through the

market testing stage it gets mass produced and sold commercially.

The time and expense getting to this stage is great and cost may be increased when some retailers charge for display space for the product (Slotting fee) . If the product does not sell as well as the product that occupied the shelf space previously the retailer often attempts to recoup the lost revenues in the from of a Failure Fee.

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Step 6 - CommercializationOne way to speed up the road to commercialization

of a complicated product is through Parallel Development.

With parallel development key components of the new product are designed, tested and built separately but simultaneously. Boeing does this by designing and building the new 787 jet liner (www.boeing.com), while at the same time Roll Royce and Pratt & Witney design and build engines for the plane. Plane and engines are mated at the end of the process. See the Roll Royce Trent 1000 @ : http://www.youtube.com/watch?v=_AvzoXPEXxk

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