Chapter 8

Group C Nina Mols Irma Sefrinta Maartje Slot Mai Ngan Ha

Essence
Developing new products and services Dimensions of a product The core of products and benefits Role of product design Innovation and evolution of markets New products

1 Understand the three objectives in managing new product development (NPD). Product performance
Refers to the extent to which a product meets its customer-based performance specifications or how well a product is rated in the eyes of the customer.
Speed to market Is measured as the time which elapses between an unsatisfied need appearing in the market and a product being made available to a customer to satisfy this need.

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Product cost Refers to the total cost of delivering the product to the customer. A product with a low manufactured cost but a high marketing cost may still be a failure.

In designing and developing new product all three criteria must be fulfilled.

2 Outline how the core benefit is augmented and developed into a commercially viable product.
Core benefit First and central dimension Involves the physical appearance of the product, its quality and its ability to satisfy user needs including functional utility. Allows customers to solve problems and satisfy basic needs.

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Convert core benefit into generic or basic version. Generic product concepts evolve with time. Are easy to recognize. The names by which they are known immediately convey a sense of recognition for most people
A race horse A bicycle A cup A hair cut

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Expected products Generally reflects the minimum acceptable standards in a particular product market. Augmented product Additional benefits and service that help to distinguish the companys product from those of competitors and form the basis for product differentiation.

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Product differentiation allows the organization to segment the market one segment that competes on the basis of augmented products and another which competes on the basis of the expected product.

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Product differentiation is related to the image in the market of the organizations products and its ability to charge a price premium. Potential product Refers to the evolutionary process through which the product may pass.

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Objective 3 Trace the role played by product design in NPD, particularly in regard to product packaging Product design means searching for a set of key features or appeals that are special or even unique to the product or customer group It is considered as the designation of the key benefits the product is to provide, the psychological positioning of these benefits versus competitive products, and the fulfillment of the product promises by physical features

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Product Design and Quality Quality is what the customer thinks it is, and design contributes to it Quality contributes to customer satisfaction but the organization must also benefit from providing quality products and services
Next Slide : Example of integration between design and quality in product development

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Special position of packaging in product design Prepackaging can make direct contact with customers through the medium of the package, creating images and appeals to stimulate purchase Design image product = the organization attempts to preserve that image for as long as possible to provide assurance to customers that a consistent level of quality is being delivered Packaging is not just in its protective role but as a vehicle to carry information and as a way to promote the product through the creation of a unique image

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Three factors contribute to image formation: the outline design of the package the use of strong color the overall shape

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Promotional advantages which stem from effective design, shape and color = it helps to identify products especially at point of purchase. The advertising copy on the package lasts as long as the product remains in the package. For some products the package is the only way to differentiate the product contained. In photocopying paper, for example, one brand is considered as good as another, so the package may be used to differentiate one supplier from another.

Objective 4 Highlight the special nature of high technology products

Rapidly change industry Focus should be on the customer benefits and problem solving Depend on how well the organization anticipates future requirements that customers may not be able to articulate in the present Says Law (the supply of a product can create its own demand) appears right on target Example : Cell phone, before its introduction, it is unlikely that conventional consumer research studies would have indicated a need or want for such products.

Objective 5 Describe the process of diffusion and adoption of innovation at macro and micro level Innovation = The adoption of a new idea, product or process which is prospectively useful Diffusion is the process by which a new idea or new product is accepted by the market Adoption is similar to diffusion except that it deals with the psychological processes an individual goes through, rather than an aggregate market process

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The greater the perceived complexity of the innovation, the slower the rate of adoption Providing the innovation in small quantities, if that is possible, may reduce risk and encourage product trial and adoption If the customer can observe the benefits of the innovation, it is more likely to be adopted; Product innovations that can be easily and frequently communicated through the media are likely to be adopted much more rapidly than innovations which require strong sales and extensive merchandising support.

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Macro Level Diffusion Generally follows a S-shaped pattern relate the diffusion of an innovation to classify adopters into categories according to when they first try the product that consist of five stages

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Innovators are the first customers to adopt a new product. Venturesome, willing to take risks; they may be outward looking, communicative, and sometimes thought of as socially aggressive, and involved in many networks of people. Customers in this category form only a small proportion of the total population in the market

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Early adopters enjoy the prestige and respect that early purchasing of an innovation brings. They tend to be opinion leaders, who influence others through word of mouth to purchase. This group represents larger proportion of society

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The mass market for a product is divided into two customer groups. Early majority customers are generally thought of as having status within their social class and are gregarious, communicative and attentive to sources of information. Represent a large proportion of the total population. Late majority customers, also a large part of the total population, tend to be less cosmopolitan and responsive to change Tend to be less well off, older and usually belong to one of the lower socioeconomic groupings.

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The laggards may be a relatively substantial proportion of the population Tend to be price conscious, suspicious of novelty and change, have low incomes and are conservative in most of their behavior. Most products have reached the maturity stage of the life cycle, i.e. a saturated market, before being purchased by laggards.

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Micro Level Diffusion Potential buyers are viewed as passing through an adoption process for the product or service that results in a trial and eventually may culminate in a purchase It involves six stages

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aware of a product or brand when they learn of its existence but do not have any further information the customer takes an interest in the product and is motivated to seek information evaluate the product and the customer decides whether to try it

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At the trial stage the customer purchases the product to test it. Adoption is said to have occurred when the customer uses the product on a regular basis. During the confirmation stage the buyer seeks reinforcement of the adoption decision but may reverse it if for any reason a dissonance arises.

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Products are considered to be relatively easy to adopt if they: are compatible with existing lifestyles are relatively unimportant in total purchases are suitable for mass advertising and distribution are consumed quickly are easy to use can be tried in small quantities have desirable attributes which are obvious

6 Outline the NPD process and specify the nature and significance of each of the stages in the process.

Process of bringing new products to the market can be very risky and often involves large investments of money and time Calculating cost: R&D, plant & equipment, warehousing & distribution, packaging & advertising development, launch & promotional support NPD process can be divided into six stages

Figure 8.7: Process of new product development

New product development strategy Ideas generation refinement Screening

Technical feasibility

Research and development Market research Business and markets plan Physical product design, packaging & Performance

Commercial feasibility

Commercialisation

6 Outline the NPD process and specify the nature and significance of each of the stages in the process.
1. Idea generation and screening Involves a continuous search for new product opportunities Customers are the best source of new ideas, followed by competitors and the sales force Refine the new concepts/ideas and screen them using criteria: product features, market opportunities, competitive situation, organization capability, availability of finance Further stages of refinement:
Identity of market segment Product description Technical features Customer benefits Competitive advantage Manufacturing process to be used

6 Outline the NPD process and specify the nature and significance of each of the stages in the process.
2. Concept development and testing Commercial feasibility study: judge if the new idea proposed is commercially viable
Financial projections Market analysis Sales projections Estimates of profit margins Likely costs

Technical feasibility study: determine if the appropriate technical requirements and standards can be met Produce designs samples for quantitative research Possibility of making mistakes:
Not proceed with a new product development idea that is taken up successfully by a competitor Proceed with an idea which turns out to be a failure

6 Outline the NPD process and specify the nature and significance of each of the stages in the process.

3. Business and marketing analysis In order to produce a marketing plan Financial and sales projections Estimates of profit margins Development costs Detailed description of target market Positioning of new product Likely market shares Marketing mix specified

6 Outline the NPD process and specify the nature and significance of each of the stages in the process.

4. Product market testing Product is developed and tested Functional tests, selected consumer tests are administered Two main activities:
Deciding appropriate packaging requirements, design, test of performance Product design, technical and production factors involved in production planning and development of sample product

6 Outline the NPD process and specify the nature and significance of each of the stages in the process.

5. Physical product design, packaging & performance Product and the proposed mix of marketing activities are introduced into authentic buyer settings to test product acceptance and market size Quantitative research through consumer surveys and interviews Revisions are possible at this stage

6 Outline the NPD process and specify the nature and significance of each of the stages in the process.
6. Commercialization of a new product Contract for manufacturers/build or rent manufacturing site Launch the product in the market
Timing Geographic segments to be served Target customer groups Introductory marketing strategy Prospects for sales and profits Capital or investment cost associated with the new venture Competitive feasibility Strategic desirability

4 criteria to evaluate new product development ideas

7 Draw attention to the danger of NPD myopia and avoid the various traps in new product development. New product development myopia Understanding customers needs is a costly and inexact process Even if customers know what they want, transferring that information is difficult Pressure for short-term returns and speed to market has led to abandon efforts to exactly understand what products customers want

7. Draw attention to the danger of NPD myopia and avoid the various traps in new product development.

Competitive delusion
New product development traps

Market scope

Marketing analysis and strategy

Capability
Illusory innovations

7 Draw attention to the danger of NPD myopia and avoid the various traps in new product development. Traps in new product development 1. Competitive delusion: companies believe their approach is right and that they can capture a large share of the market without much opposition adopt a roll-out sequence through a series of smaller test markets first before going national or tackling large international markets

7 Draw attention to the danger of NPD myopia and avoid the various traps in new product development. Traps in new product development 2. Market scope: organization adapts an overly restricted market scope design the product in such a way that without heavy modifications, it can be subsequently introduced into wider markets

7 Draw attention to the danger of NPD myopia and avoid the various traps in new product development. Traps in new product development 3. Capability: weak companys competence in the area and cost structure do not attack market leaders, if the company does not have a distinct competence in a number of areas (cost leadership, quality or access to distribution outlets)

7 Draw attention to the danger of NPD myopia and avoid the various traps in new product development. Traps in new product development 4.Illusory innovations: develop products based on technology push which have no real points of superiority sufficient research and testing beforehand

7 Draw attention to the danger of NPD myopia and avoid the various traps in new product development. Traps in new product development 5. Weak marketing analysis and incorrect marketing strategy: inadequate market research and sales projections are overly optimistic sufficient research and testing beforehand

Whats new
Core benefit of the products: generic product, expected product, augmented product, potential product. Role of product design; packaging in product design Position of high technology products Process of new product development; traps in new product development

Applicable to the project

Product design and packaging: Even though Aanenuitbesteden provide online service but they still can pay attention to the design of their website or the design of the brochure. Applying new technology on product innovation: improving the tendering database
*Since Aanenuitbesteden does not plan to develop new product, there are not a lot for applicable

Quiz!
1. What is one of the characteristics to define if products are considered to be relatively easy to adopt: A. Compatible with existing lifestyles B. Cheap C. Totally unique in the market D. Having a good brand image

2. How many stages are there in the new product development process: A. More than 7 B. 6 1. New idea/Concept generation and screening C. 5 2. Development and testing of new idea/concept 3. Business and marketing analysis D. 4 4. Product development and testing 5. Test marketing E. 3 6. Commercialization F. 2 G. 1

3. In order to evaluate new product development ideas, how many important criteria are there (as mentioned in the book) ? A. 3 B. 5 C. 2 1. Prospects for sales and profits 2. Capital or investment cost associated with the D. 4 new venture
3. Competitive feasibility 4. Strategic desirability

4. Competitive delusion, Market Scope, Capability, Marketing Analysis and Strategy, Illusory innovation are the traps in new product development True or False