Chapter 12 - Developing New Products

Innovation

The process by which ideas are transformed into new products and services that will help firms grow

Diffusion of Innovation

The process by which the use of an innovation, whether a product or a service, spreads throughout a market group over time and over various categories of adopters

Pioneers / Breakthroughs

New product introductions that establish a completely new market or radically change both the rules of competition and consumer preferences in a market

First Movers

Product pioneers that are the first to create a market or roduct category, making them readily recognizable to consumers and thus establishing a commanding and early market share lead

Innovators

Those buyers, representing approximately 2.5 percent of the population, who want to be the first to have the new product or service

Early Adopters

The second group of consumers in the diffusion of innovation model, after innovators, to use a product or service innovation who represent about 13.5 percent of the population. They generally don’t like to take as much risk as innovators but instead wait and purchase the product after careful review

Early Majority

A group of consumers in the diffusion of innovation model that represents approximately 34 percent of the population; members don’t like to take much risk and therefore tend to wait until bugs are worked out of a particular product or service; few new products and services can be profitable until this large group buys them

Late Majority

The last group of buyers to enter a new product market, representing approximately 34 percent of the population; when they do, the product has achieved its full market potential

Laggards

Consumers, representing approximately 16 percent of the population, who like to avoid change and rely on traditional products until they are no longer available. Sometimes, they never adopt a product or service

R&D Consortia

A group of firms and institutions, possibly including government and educational institutions, that explore new ideas or obtain solutions for developing new products

Licensing

A method used in developing new products in which a firm buys the rights to use a technology or idea from another firm

Brainstorming

A group activity used to generate ideas

Outsourcing

A practice in which the client firm hires an outside firm to facilitate some aspect of its business. In the context of new product development, the outsourced firm helps its client develop new products or services

Reverse Engineering

Taking apart a competitor’s product, analyzing it, and creating an improved product that does not infringe on the competitor’s patents, if any exist

Lead Users

Innovative product users who modify existing products according to their own ideas to suit their specific needs

Concept Testing

The process in which a concept statement that describes a product or a service is presented to potential buyers or users to obtain their reactions

Concept

Brief written description of a product or service; its technology, working principles, and forms; and what customer needs it would satisfy

Product Development / Product Design

Entails a process of balancing various engineering, manufacturing, marketing, and economic considerations to develop a product’s form and features or a service’s features

Prototype

The first physical form or service description of a new product, still in rough or tentative form, that has the same properties as a new product but is produced through different manufacturing processes, sometimes even crafted individually

Alpha Testing

An attempt by the firm to determine whether a product will perform according to its design and whether it satisfies the need for which it was intended; occurs in the firm’s research and development (R&D) department

Beta Testing

Having potential consumers examine a product product prototype in a real-use setting to determine its functionality, performance, potential problems, and other issues specific to its use

Premarket Tests

Conducted before a product or service is brought to market to determine how many customers will try and then continue to use it

Test Marketing

A method of determining the success potential of a new product; it introduces the offering to limited geographical area prior to a national launch

Product Life Cycle

Defines the stages that new products move through as they enter, get established in, and ultimately leave the marketplace, and thereby offers marketers a starting point for their strategy planning

Introduction Stage

Stage of the product life cycle when innovators start buying the product

Growth Stage

Stage of the product life cycle when the product gains acceptance, demand and sales increase, and competitors emerge in the product category

Maturity Stage

Stage of the product life cycle when industry sales reach their peak, so firms try to rejuvenate their products by adding new features or repositioning them

Decline Stage

Stage of the product life cycle when sales decline and the product eventually exits the market