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POMLecture 7-a
BBA 2K10
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1. New-Product
Development Strategy2. New-Product
Development Process3. Managing New-Product
Development4. Product Life-Cycle
Strategies5. Additional Product and
Service Considerations
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A firm can obtain new products through:
AcquisitionNew-product development
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Acquisition refers to the buying of a whole
company, a patent, or a license to
produce someone elses product
New product development refers tooriginal products, product
improvements, product modifications,and new brands developed from thefirms own research and development
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As director of consumer Web products Marissa Mayer is a championof innovation. She favors new product launches that are early andoften.
She joined Google in early 1999 as a programmer when theworkforce totaled 20. By 2007 Google had 5,700 employees with
expected sales of $16 billion.How Google Innovates
The search leader has earned a reputation as one of the mostinnovative companies in the world of technology. A few of the ways
Google hatches new ideas: FREE (THINKING) TIME
Google gives all engineers one day a week to develop their own petprojects, no matter how far from the companys central mission. Ifwork gets in the way of free days for a few weeks, they
accumulate. Google News came out of this process.
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THE IDEAS LISTAnyone at Google can post thoughts for new technologies ofbusinesses on an ideas mailing list, available company wide for inputand vetting. But beware: Newbies who suggest familiar or poorlythought-out ideas can face an intellectual pummeling.
OPEN OFFICE HOURSThink back to your professors office hours in college. Thats prettymuch what key managers, including Mayer, do two or three times aweek, to discuss new ideas. One success born of this approach wasGoogles personalized home page.
BIG BRAINSTORMSAs it has grown, Google has cut back on brainstorming sessions.Mayer still has them eight times a year, but limits hers to 100engineers. Six concepts are pitched and discussed for 10 minutes
each. The goal: to build on the initial idea with at least onecomplementary idea per minute. ACQUIRE GOOD IDEAS
Although Google strongly prefers to develop technology in-house, ithas also been willing to snap up small companies with interestinginitiatives. In 2004 it bought Keyhole, including the technology that
let Google offer sophisticated maps with satellite imagery.Source: Managing Googles Idea Factory, BusinessWeek, October 3, 2005, 88-90.
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Reasons for new product failure
Overestimation of market sizePoor designIncorrect positioningWrong timingPriced too highIneffective promotion
Management influenceHigh development costsCompetition
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1. Idea generation2. Idea screening3. Concept
development andtesting
4. Marketing strategydevelopment
5. Business analysis
6. Product development7. Test marketing8. Commercialization
M ajor Stages in New-Product Development
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I dea Generation
Internal sources refer to the companys own
formal research and development,management and staff, and intrapreneurialprograms
External sources refer to sources outside thecompany such as customers, competitors,distributors, suppliers, and outside designfirms
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Concept Development and Testing
Product idea is an idea for a possible product thatthe company can see itself offering to themarket
Product concept is a detailed version of the ideastated in meaningful consumer terms
Product image is the way consumers perceive anactual or potential product
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Concept testing refers tonew-product conceptswith groups of targetconsumers
Concept Development and Testing
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Marketing strategydevelopment refers tothe initial marketingstrategy for introducingthe product to the
market
Marketing strategy statementincludes:
Description of the targetmarketProduct positioning, sales,market share, and profitgoalsPrice, distribution, andbudgetLong-term sales, profitgoals, and marketing mixstrategy
M arketing Str ategy Development
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M arketing Str ategy Development
Business analysis involves a review of thesales, costs, and profit projections tofind out whether they satisfy thecompanys objectives
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M arketing Str ategy Development
Product development involves the creationand testing of one or more physicalversions by the R&D or engineeringdepartments
Requires investment
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M arketing Str ategy Development
Test marketing is the stage at which theproduct and marketing program areintroduced into more realistic marketingsettings
Provides the marketer with experience intesting the product and entiremarketing program before fullintroduction
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When firms test market
New product with largeinvestment
Uncertainty aboutproduct or marketingprogram
When firms may not test
marketSimple line extension
Copy of competitor product
Low costsManagement confidence
M arketing Str ategy Development
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Approaches to testmarketingStandard test marketsControlled test
marketsSimulated testmarkets
M arketing Str ategy Development
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M arketing Str ategy and Development
Standard test markets are small representative
markets where the firm conducts a fullmarketing campaign and uses store audits,consumer and distributor surveys, and othermeasures to gauge product performance.Results are used to forecast national sales andprofits, discover product problems, and fine-tune the marketing program.
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M arketing Str ategy Development
Controlled test markets are panels ofstores that have agreed to carry newproducts for a feeLess expensive than standard test
marketsFaster than standard test marketsCompetitors gain access to the newproduct
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M arketing Str ategy Development
Simulated test markets are events wherethe firm will create a shoppingenvironment and note how manyconsumers buy the new product andcompeting products. Provides measureof trial and the effectiveness ofpromotion. Researchers can interviewconsumers.
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M arketing Str ategy Development
Commercialization is the introductionof the new product
When to launchWhere to launch
Planned market rollout
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The process by which the adoption of aninnovation spreads.
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P e r c e n
t a g e o f
A d
o p
t e r s
Time
Innovators2.5%
EarlyAdopters
13.5%
LateMajority
34%
EarlyMajority
34%Laggards
16%
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Trialability
Observability
Relative Advantage
Compatibility
Complexity
ProductCharacteristicsPredict Rate of
Adoption
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Direct fromMarketer
Word of Mouth
CommunicationAids the
Diffusion Process
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Situation involving one product takingsales from another offering in a productline
Cannibalization occurs when sales of anew product cut into (reduce) the sales ofa firms existing products.