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CHAPTER

DEVELOPING NEW PRODUCTS AND SERVICES

Copyright 2007 by The McGraw-Hill Companies, Inc. All Rights Reserved.

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AFTER READING THIS CHAPTER YOU SHOULD BE ABLE TO: 1. Recognize the various terms that pertain to products and services. 2. Identify the ways in which consumer and business goods and services can be classified.

3. Explain the significance of newness in new products and services as it relates to the degree of consumer learning involved.
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AFTER READING THIS CHAPTER YOU SHOULD BE ABLE TO: 4. Describe the factors contributing a new products or services success or failure. 5. Explain the purposes of each step of the new-product process.

Copyright 2007 by The McGraw-Hill Companies, Inc. All Rights Reserved.

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3MS NEW GREPTILE GRIP GOLF GLOVE: HOW TO GET TO THE TOP OF THE LEADER BOARD
The Product?
The Target Market? The Special Marketing Task?

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THE VARIATIONS OF PRODUCTS Product

Product Line and Product Mix


Product Line
Product Item
Stock Keeping Unit (SKU)

Product Mix

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Little Remedies
How does an extensive product line benefit both consumers and retailers?

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THE VARIATIONS OF PRODUCTS Classifying Products


Type of User
Consumer Goods Business Goods

Degree of Tangibility
Nondurable Good Durable Good Services

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THE VARIATIONS OF PRODUCTS The Uniqueness of Services


The Four Is of Services
Intangibility

Inconsistency
Inseparability

Inventory
Idle Production Capacity

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FIGURE 10-1 Importance of services in the U.S. gross domestic product (GDP)

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FIGURE 10-A The 4 Is of services

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CLASSIFYING GOODS AND SERVICES

Classifying Consumer Goods


Convenience Goods Shopping Goods Specialty Goods Unsought Goods

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FIGURE 10-2 Classification of consumer goods

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Raymond Weil Watch


What type of consumer good?

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CLASSIFYING GOODS AND SERVICES

Classifying Business Goods


Derived Demand Production Goods Support Goods
Installations Accessory Equipment Supplies Industrial Services

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CLASSIFYING GOODS AND SERVICES

Classifying Services
Delivery by People or Equipment Profit or Nonprofit Organizations Government Sponsored

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FIGURE 10-B Service classifications

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Concept Check

1. Explain the difference between product mix and product line. A: The product mix is the number of product lines
offered by a company. A product line is a group of products that are closely related because they satisfy a class of needs, are used together, are sold to the same customer group, are distributed through the same type of outlets, or fall within a given price range.
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Concept Check

2. What are the four main types of consumer goods? A: convenience, shopping, specialty, and unsought

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Concept Check

3. What are three ways to classify services? A: (1) delivered by people or equipment, (2) profit or nonprofit, and (3) government sponsored or not

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NEW PRODUCTS AND WHY THEY SUCCEED OR FAIL

What is a New Product?


Functionally Different from Existing Products FTC: Newness = 6 Months or less After Regular Distribution Company: Simply Anything Different

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Sonys PlayStation 3 and Microsofts Xbox


How does the term new apply?

PS3
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Xbox
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NEW PRODUCTS AND WHY THEY SUCCEED OR FAIL

What is a New Product?


Newness from the Consumers Perspective
Continuous Innovation Dynamically Continuous Innovation Discontinuous Innovation

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FIGURE 10-3 Product newness, as defined by the degree of consumer learning needed to use the product

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NEW PRODUCTS AND WHY THEY SUCCEED OR FAIL

Why Products Succeed or Fail


Marketing Reasons for New-Product Failures
Insignificant Point of Difference

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FIGURE 10-D What it takes to launch one commercially successful new product

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General Mills Fingos


Why did this product fail?

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NEW PRODUCTS AND WHY THEY SUCCEED OR FAIL

Why Products Succeed or Fail


Marketing Reasons for New-Product Failures
Incomplete Market and Product Definition Before Product Development Starts
Protocol

Too Little Market Attractiveness Poor Execution of the Marketing Mix: Name, Price, Promotion, and Distribution
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NEW PRODUCTS AND WHY THEY SUCCEED OR FAIL

Why Products Succeed or Fail


Marketing Reasons for New-Product Failures
Poor Product Quality or Insensitivity to Customer Needs on Critical Factors Bad Timing No Economic Access to Buyers

A Look at Some Failures

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Thirsty Dog! and Thirsty Cat!


Why did these products fail?

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FIGURE 10-4 Why did these new products fail?

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Concept Check

1. From a consumers viewpoint, what kind of innovation would an improved electric toothbrush be?

A: continuous innovation

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Concept Check

2. What does insignificant point of difference mean as a reason for new-product failure?

A: The product must have superior characteristics that deliver unique benefits to the user compared to those of competitors.
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THE NEW-PRODUCT PROCESS New-Product Process

New-Product Strategy Development


Objectives of the Stage: Identify Markets and Strategic Roles 3M: Cross-Functional Teams and Six Sigma
Cross-Functional Teams Six Sigma

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FIGURE 10-5 Stages in the new-product process

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FIGURE 10-E Strategic roles of most successful new products

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THE NEW-PRODUCT PROCESS Idea Generation


Customer and Supplier Suggestions
Employee and Co-Worker Suggestions

Research and Development Breakthroughs


Competitive Products

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Volvos YCC
How are new-product ideas generated?

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THE NEW-PRODUCT PROCESS Screening and Evaluation


Internal Approach
External Approach
Concept Tests

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Frito-Lay Natural Snacks


How are new-product ideas screened & evaluated?

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Concept Check

1. What are the seven stages in the newproduct process? A: These are: (1) new-product strategy development; (2) idea generation; (3) screening and evaluation; (4) business analysis; (5) development; (6) market testing; and (7) commercialization.
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Concept Check

2. What are main sources of newproduct ideas? A: Customer and supplier suggestions, employee suggestions, R&D breakthroughs, and competitive products.

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THE NEW-PRODUCT PROCESS Business Analysis


Prototype
Assessing the Business Fit of the New Product Big G plus Pillsbury: Finding Synergies, Segments, and Partners

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Pillsbury
What synergies, segments, or partners?

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THE NEW-PRODUCT PROCESS Development


Failure Analysis
Safety Tests

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Mattels Barbie
Why should laboratory and safety tests be done?

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THE NEW-PRODUCT PROCESS Market Testing


Test Marketing
When Test Markets Dont Work

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FIGURE 10-6 Six important U.S. test markets and the demographics winner: Wichita Falls, Texas, metropolitan statistical area

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THE NEW-PRODUCT PROCESS Commercialization


Regional Rollouts
Burger Kings French Fries: The Complexities of Commercialization Winning Strategies in Commercializing Services

Speed as a Factor in New-Product Success


Time to Market (TtM) Parallel Development
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Fast Prototyping

FIGURE 10-7 Marketing information and methods used in the new-product process

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Burger King French Fries


Why is commercialization risky?

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Hewlett-Packard Cross-Functional Team


Why is time to market (TtM) important?

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Concept Check

1. How does the development stage of the new-product process involve testing the product inside and outside the firm?
A: Internally, laboratory tests are done to see if the product achieves physical, quality, and safety standards; externally, consumer tests are done.
Copyright 2007 by The McGraw-Hill Companies, Inc. All Rights Reserved. Slide 10-52

Concept Check

2. What is a test market?

A: A test market is a city that is viewed as


being representative of U.S. consumers in terms of demographics and brand purchase behaviors, is far enough from big markets to allow low-cost advertising, and has tracking systems to measure sales.
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Concept Check

3. What is commercialization of a new product? A: Commercialization involves positioning and launching a new product in full-scale production and sales and is the most expensive stage for most new products.

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GOING ONLINE
JALAPEO SODA, ANYONE?

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Going Online

1. Access the NewProductWorks website. Study the Hits and Misses categories: We Expect Them to be Successes, Jury is Out, Failures, and Favorite Failures. Pick two of the failed products and identify the reasons that led to their failure.

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Going Online

2. Contrast these failed products with those that are deemed successes to learn why they became sure-fire winners.

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VIDEO CASE 10
3M GREPTILE GRIP GOLF GLOVE: GREAT GRIPPING!

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VIDEO CASE 10
3M

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VIDEO CASE 10
3M

1. What are the characteristics of the target market for the 3M Greptile Grip golf glove?

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VIDEO CASE 10
3M

2. What are the key points of difference of the 3M Greptile Grip golf glove when compared to competitors products, such as FootJoy and Nike? Substitute products, such as golf grips?

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VIDEO CASE 10
3M

3. How does the Greptile Grip golf glove meet 3Ms three criteria for new products?

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VIDEO CASE 10
3M

4. Since 3M has no prior products for the golf market, what special promotion and distribution problems might 3M have?

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VIDEO CASE 10
3M

5.

How would you rate the 3M Greptile Grip golf glove on the following reasons for success and failure: (a) significant points of difference; (b) size and growth of the golf market; (c) product quality; (d) market timing; (e) execution of the marketing mix; (f) synergy or fit with 3Ms R&D, manufacturing and/or marketing capabilities; and (g) access to consumers?
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SUPPLEMENTAL LECTURE NOTE 10-1


WHY NEW-PRODUCT DEVELOPMENT CAN BE A DICE ROLL: SOME FORECASTS
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FIGURE 10-C Why new-product development can be a dice roll: some forecasts

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SUPPLEMENTAL LECTURE NOTE 10-2


THE NEW-PRODUCT PROCESS AT 3M

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3M New-Product Idea
Ultrathon Insect Repellent

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IN-CLASS ACTIVITY 10-1


WHAT WERE THEY THINKING? ANALYZING SOME NEW PRODUCT DISASTERS

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Problem Product A: Adams Body Smarts

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Problem Product B: Coca Colas Surge

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Problem Product C: Wheaties Dunk-A-Balls

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Problem Product D: Garlic Cake

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Problem Product E: Kelloggs Special K Plus

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Problem Product F: Dr. Care Toothpaste

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IN-CLASS ACTIVITY 10-2


HOW CAN 3M ENTER THE PET CARE MARKET?

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3M Pet Care Product Lines: End of 2005

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3M Pet Care Liquid Bandage: Early 2006

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3M Pet Care Health Market Products: 2006

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Product

A product is a good, service, or idea consisting of a bundle of tangible and intangible attributes that satisfies consumers and is received in exchange for money or some other unit of value.

Copyright 2007 by The McGraw-Hill Companies, Inc. All Rights Reserved.

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Product Line

A product line is a group of products that are closely related because they satisfy a class of needs, are used together, are sold to the same customer group, are distributed through the same type of outlets, or fall within a given price range.

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Product Mix

The product mix is the number of product lines offered by a company.

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Consumer Goods

Consumer goods are products purchased by the ultimate consumer.

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Business Goods

Business goods are products that assist directly or indirectly in providing products for resale. Also called as B2B goods, industrial goods, or organizational goods.

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Services

Services are intangible activities or benefits that an organization provides to consumers in exchange for money or something else of value.

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Idle Production Capacity

Idle production capacity occurs when the service provider is available but there is no demand.

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New-Product Process

The new-product process consists of seven stages a firm goes through to identify business opportunities and convert them to a salable good or service.

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