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Creating the Product

Chapter 9

Lecture Slides

Solomon, Stuart, Carson, & Smith

Your name here

Course title/number

Date

©Copyright 2003 Pearson Education Canada Inc. 9-2

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Chapter Learning Objectives

When you have completed your study of this chapter, you should be able to:

• Explain the layers of a product.

• Describe the classifications of products.

• Explain the importance of new products.

• Describe how firms develop new products.

• Explain the process of product adoption and the diffusion of innovations.

©Copyright 2003 Pearson Education Canada Inc. 9-3

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Introduction to the Topic

• It was once said that if you built a better mousetrap, the world would beat a path to your door. Whoever said this was certainly not familiar with today’s hyper-competitive marketing environments!• This chapter looks at the new product development process, as well as different ways to classify products.

• Goods: tangible products we can see, touch, smell, hear, or taste.

• But we get more than just the physical product when we buy something.

©Copyright 2003 Pearson Education Canada Inc. 9-4

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Layers of the Product Concept

• Core product: all of the benefits the product will provide for consumers or business customers. The core product of a winter coat is warmth and protection from the elements.

• Actual product: is the physical good or the delivered serve that supplies the desired benefit.

• Augmented product: the actual product plus other supporting features such as warranty, credit, delivery, installation, and repair service after the sale. These features add value for the consumer.

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Classifying Products

• Marketers group products into different categories to help them understand how buyer behaviour differs for them, and to assist in the new product development process.

• Products can be grouped based on how long they last.

• Durable goods: consumer products that provide benefits over a period of time, such as cars, furniture, and appliances.

• Nondurable products: consumer products that provide benefits for a short time because they are consumed (such as food) or are no longer useful (such as newspapers).

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Classifying Products by Behaviour

• Convenience product: a consumer good or service that is usually low priced, widely available, and purchased frequently with a minimum or comparison and effort.

• Convenience products can be a/an:– Staple, which are basic necessities that

consumers do not perceive much different between brands, such as mik, bread, and gasoline.

– Impulse product, which is a product that people often buy on the spur of the moment, usually because it looks interesting, such as a magazine.

– Emergency product, which is a product that is purchased when the consumer is in dire need, such as an antacid for heartburn, or drain opener.

©Copyright 2003 Pearson Education Canada Inc. 9-7

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Classifying Products by Behaviour

• Shopping product: a good or service for which consumers spend considerable time and effort gathering information and comparing alternatives before making a purchase.

• Casual clothing is a good example.

• Specialty product: a good or service that has unique characteristics, that is important to the buyer, and for which the buyer will devote significant effort to acquire.

• Luxury items such as jewelry, a fur coat, or artwork are examples.

• Level of involvement with these types of products will vary, but will tend to increase as the value of the good increases, as discussed in Chapter 6.

©Copyright 2003 Pearson Education Canada Inc. 9-8

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Business-to-Business Products

• Marketers classify business-to-business products based on how organizational customers use them.

• Equipment: expensive goods an organization uses in its daily operations that last for a long time.

• Maintenance, repair, and operating products: goods that a business customer consumes in a relatively short time.

• Specialized services: services purchased from outside suppliers that are essential to the operation of an organization but are not part of the production of a product.

©Copyright 2003 Pearson Education Canada Inc. 9-9

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Business-to-Business Products (continued)

• Raw materials: products of the fishing, lumber, agricultural, and mining industries that organizational customers purchase to use in their finished products.

• Processed materials: products created when firms transform raw materials from their original state.

• Component parts: manufactured goods or subassemblies of finished items that organizations need to complete their own products.

• Magna International is a good example of a successful Canadian component manufacturer.

©Copyright 2003 Pearson Education Canada Inc. 9-10

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Understanding Innovations

• Innovation: a product that consumers perceive to be new and different from existing products.

• Developing new products is important to an organization for the following reasons:

– To remain competitive

– To keep up with new technology

– To follow changing consumer preferences

– To replace dying products

– To diversify its product offering and lower risk

• Using new product development as a marketing strategy can be a sustainable competitive advantage, provided that the company can maintain the pace.

©Copyright 2003 Pearson Education Canada Inc. 9-11

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Understanding Innovations (continued)

• We can classify innovations by the amount of learning required of consumers, which will affect the new product’s rate of adoption.• Continuous innovation: a modification of an existing product that sets one brand apart from its competitors.

• This is mostly incremental improvement of an existing product, such as a adding an extra set of heads to a video player for better picture quality, or a microwaveable version of Kraft Dinner.

• Knock-off: a new product that copies with slight modification the design of an original product.

©Copyright 2003 Pearson Education Canada Inc. 9-12

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Understanding Innovations (continued)

• Dynamically continuous innovation: a change in an existing product that requires a moderate amount of learning or behaviour change.

• Getting customers to switch from VCR’s to DVD technology would be an example.

• Discontinuous innovation: a totally new product that creates major changes in the way we live. This type of innovation requires the most amount of learning on the part of the consumer.

• The personal computer changed the way we live and work, while asking men to remove facial hair using a cream instead of shaving would also be considered a discontinuous innovation.

©Copyright 2003 Pearson Education Canada Inc. 9-13

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Phases in New Product Development

©Copyright 2003 Pearson Education Canada Inc. 9-14

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Developing New Products

• Test marketing: testing the complete marketing plan in a small geographic area that is similar to the larger market the firm hopes to enter.

• Product adoption: the process by which a consumer or business customer begins to buy and use a new good, service, or idea.

• Diffusion: the process by which the use of a product spreads throughout a population.

• Not all consumers are willing to risk buying a new product.

©Copyright 2003 Pearson Education Canada Inc. 9-15

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Diffusion of Innovation

• Innovators: the first segment (roughly 2.5%) of a population to adopt a new product, usually those highly involved in the category.

• Early adopters: those who adopt an innovation early in the diffusion process but later than the innovators.

• Early Majority: those whose adoption of a new product signals a general acceptance of the innovation.

• Each successive group is larger in number than the previous one, until the curve peaks.

Figure 9.5

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Diffusion of Innovation (continued)

• Late majority: the adopters who are willing to try new products when there is little or no risk associated with the purchase, when the purchase becomes an economic necessity, or when there is social pressure to purchase.

• Laggards: the last consumers to adopt an innovation. These people are now buying those new-fangled VCR’s.

• Marketers can use this information to design promotional strategies to reach each successive group.

Figure 9.5

©Copyright 2003 Pearson Education Canada Inc. 9-17

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Influences on Rate of Adoption

• The factors that influence the rate of adoption of innovations are:

• Relative advantage: perceived difference between new product and existing alternative ways to satisfy the same need. Need (at least) a just noticeable difference.

• Compatibility: the fit between the new product and people’s present habits.

• Complexity: ease of understanding

• Divisibility: the risk of trying the product can be reduced if it can be purchased and tried in stages.

• Communicability: is the product visible to others, and can its usage be described?

• Other considerations: initial and ongoing costs, risk, uncertainty, availability, and social approval.

©Copyright 2003 Pearson Education Canada Inc. 9-18

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Famous Last Words…

• New product development is important to an organization because it helps them remain competitive in today’s fast-paced marketing environments.

• New product development is also highly risky, which tends to discourage many firms from attempting to lead in this area.