Lecture 5 Part 2: Developing new products, product development process, idea generation

Why do firms create new products?

Innovation → ideas are transformed into new offerings: products, services, processes, branding concepts

Reasons to innovate:

• changing customer needs

• market saturation

• managing risk through diversity

• fashion cycles

• improving business relationships

What is diffusion of innovation?

Time people try a new product → process where the use of innovation spreads throughout a market group over time & across categories

• pioneers/breakthroughs are new products that are first movers to establish new market

• influencer consumer preferences

• change rules of competition (phone z flip/fold)

What is the diffusion of innovation curve?

• Innovators

• late majority

• early adopters

• laggards

• early majority

How can you use the diffusion of innovation theory?

Factors affecting product diffusion:

• relative advantage

• compatility

• observability

• complexity & trialability

What is the product development process (6 stages)?

Not usually linear → go back & redraft

1. Idea generation - develop new product ideas

2. Concept testing - test new ideas among potential customers

3. Product development - develop prototypes/product

4. Market testing - test actual products in test markets

5. Product launch - full-scale commercialization

6. Evaluation of results - analyze performance of new product & modify

What are the 7 sources of new product ideas?

1. Internal R&D

2. R&D consortia

3. Licensing

4. Brainstorming

5. Outsourcing

6. Competitors’ products

7. Consumer input

What is idea generation: 1. Internal R&D?

Internal scientists & engineers work to solve complex problems & develop new ideas

• often source of technological & breakthrough products

What is idea generation: 2. R&D consortia

Companies that collaborate → firms join to form research consortiums:

• lower costs & risks

• benefits spread to all firms

• ex. pharmaceutical industry research

What is idea generation: 3. licensing?

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

• university research centers provide these licenses

What is idea generation: 4. Brainstorming

Groups work together to generate ideas:

• no idea immediately accepted rejected

• moderators may channel attention to specific product features, performance expectations, packaging

• members vote on best idea/combination of ideas

What is idea generation: 5. Outsourcing?

Hiring an outside firm to help generate ideas & develop new products & services

• design firms can help clients generate new product & service ideas in industries (health care, toys, computers)

What is idea generation: 6. Competitors’ products?

Firms can draw inspiration from competitors’ product through process of reserve engineering:

• taking apart product

• analyzing product

• creating improved product that doesn’t infringe on patents

• copycat product-development is a widespread practice

What is idea generation: 7. customer input?

Listening to the customer → especially lead users in both B2B & B2C markets can lead to successful idea generation

What is concept testing?

A concept is a brief written description of the product

• the process where the concept is presented to potential buyers/users to obtain their reactions

What is product development?

Balancing various engineering, manufacturing, marketing, economic considerations to develop a product’s form & features

Prototype:

• alpha testing - firm attempts to determine whether product will perform according to design & if it satisfies the need

• beta testing - uses potential consumers who examine the prototype in real use setting to determine functionality, performance, potential problems, other issues

What is market testing?

Premarket tests

• customers exposed → surveyed → firm makes decision

Test marketing

• mini product launch → more expensive → estimated demand

What is a product launch?

Require a lot of financial resources & extensive coordination of all marketing mix aspects

• firm confirms target market, decides how product will be positioned, finalizes remaining marketing mix variables, & marketing budget

• Timing of launch can be critical

What is the evaluation of results (3 stages)?

1. Satisfaction of technical requirements

2. Degree of customer acceptance

3. Satisfaction of firm’s financial requirements

What is the product life cycle?

Defines stages that products move through as they enter, get established in, & leave the marketplace

• reflects marketplace trends

Shape: curve is bell-shaped, products move through cycle at different rates, some move more rapidly

What are the 4 stages of the product life cycle?

1. Introduction - firm takes initial losses due to high start-up costs & low sales

2. Growth - growth in product adopters, industry sales, competitors, available product versions

3. Maturity - adoption of product by late majority & intense competition for market share, entry into new markets/segments, new products

4. Decline - laggards have not tried the product/service enter the market here