Chapter 8: Developing New Products
Product: anything that is of value to a consumer and can be offered through a marketing exchange -goods, services, place, ideas, organizations, people, or communities all create value
Why do firms innovate?
Innovation: the process by which ideas and transformed into new products 1. changing customer needs
2. market saturation
3. managing risk through diversity: a product doing bad can be offset by a product doing good 4. fashion cycles: industries such as books, software, apparel depend on sales of new products 5. innovation and value: pioneers: new product introductions, new-to-word product add tremendous value to firms, establish completely new market, changes rules of competition and consumer preferences (ex. iPod, eBay’s auction model, Internet, BlackBerry, Intel microprocessor). Pioneers have the advantage of being first movers (readily recognizable to consumers and establishing an early market share lead. Many new products fail because they offer few benefits compared to existing products, take a substantial time to learn, and may be introduced in a bad timing. Even if they succeed, the product is adopted through the population in a process known as adoption of innovation
¬Adoption of Innovation
Diffusion of Innovation: the process by which the use of an innovation, whether a product or service, spreads throughout a market group over time and over various categories of adopters
Innovators: buyers who want to be the first to have the new product or service. They enjoy taking risks, have strong knowledge about the product/service, and are not price sensitive. Help the product gain market acceptance and help bring early adopters into the market through word of mouth, etc. For example, these would be the people who lineup for the midnight release of a new Harry Potter movie.
Early adopters: they don’t like to take as much risk as innovators, they wait and purchase the product after careful reviews. They are crucial for bringing in the next three buyers into the market, if the early adopter group is small, the number of people who will ultimately adopt the innovation is likely to be small. For example, this group would wait until the reviews of the Harry Potter movie comes out before purchasing ticket, even so, they will go a week or two after it opens.
Early majority: few products/services can be profitable until this large group buys them. They don’t enjoy taking risks and wait till the “bug s” of the product are fixed. For example, they would be the group that would rent the latest Harry Potter movie from the video store when it first comes out on video.
Late majority: the last group of buyers to enter the new product market, at this point the product has reached its full potential. They would wait till the latest movie is always in stock then they would watch it. By the time this group enters the market, the sales tend to level off or be in decline
Laggards: group that avoids change and like to rely on traditional products until they are no longer available. For example, they would watch the Harry Potter movie when it shows up regularly on TV networks. They will use outdated products, few companies actively pursue these customers
Factors Affecting Product Diffusion
Relative Advantage: if a product is perceived to be better than substitutes then diffusion will be relatively quick. (BlackBerry chosen over other phones because of business convenience)
Compatibility: business professionals have to make decisions in a timely manner and be able to communicate them something which the BlackBerry does. People in Canada enjoy drinking coffee and is part of the culture so Starbucks acquired its customers quickly.
Observability: when a product is easily observed, their benefits or uses are also easily communicated to other enhancing the diffusion process . For example, Botox...