Developing and Managing Products

1. Developing and Managing Products Chapter 11

2. “When you innovate, you’ve got to be prepared for everyone telling you you’re nuts.” Larry Ellison, Founder Oracle Corporation http://www.achievement.org/autodoc/page/ell0bio-1

3. First flight! Dec. 17th 1903, Orville at the controls, 12 seconds, 120 feet.

4. How do we create value through innovation? • Over half of all growth in the United States comes from new products and services • The greatest rewards go to companies that create new business models • First mover advantage • And we are happy-..er…

5. Types of innovations • ……………innovations - normal upgrading, no change in user behaviors. • New to the market • New to seller • New to producer • ………………..innovations/Destructive creation – require users to change behaviors. New-to-the-world products.

6. New Product Development Process 4. ................... 5. ……….marketing 3. Business Analysis Alternative versions, describe in consumer terms 6. Commercialization Physical product, $$$ 2. ........... Screening Reduce # quickly 1. Idea Generation By many -- employees, customers, suppliers, distributors, competitors

7. New Product Development Process 2. Idea Screening (what do we have? +/-) • In pharmacy, 1 of 5,000 new drug ideas is common • In autos, 1 of 20 new car concepts is made to prototype • Point? Brainstorm, then cut via research • Short and long run $ performance • Social issues: • Consumer welfare (Ben and Jerry’s) • Safety ( Marlboro cigarettes) – liability (McDonald’s hot coffee)

8. New Product Development Process 3. Business Analysis • Examine consumer perceptions • Consider view of retailers and wholesaler 4. Development (can go hand-in-hand with analysis) • Product tests (New Coke, movies) • Risky: (leaks, skewed results) • Virtual product development: examine without construction • Prototype product and marketing strategy • Longest process (Minute Rice took 18 years!)

9. A test to evaluate a new-product idea, usually before any prototype has been created. Concept Test Concept Test

10. Test Marketing +Costs +Brand Equity -Jamming -Duplication Standard Test Market Limited introduction in a small market supported by a full-fledged marketing campaign to gauge customer reactions

11. Product Life Cycle:PLC A concept that provides a way to trace the stages of a product’s acceptance, from its introduction (birth) to its decline (death).

12. Introduction ………… ………….. Decline Industry ……….. Industry ………. Dollars 0 Time Product Life Cycles

13. GROWTH MATURITY DECLINE INTRODUCTION Product Strategy Limited models Frequent changes More models Frequent changes. Large number of models. Eliminate unprofitable models LimitedWholesale/retail distributors Expanded dealers. Long- term relations Phase out unprofitable outlets Extensive. Margins drop. Shelf space Distribution Strategy Sales Phase outpromotion Promotion Strategy Advertise. Promote heavily Awareness. Stimulate demand.Sampling Aggressive ads. Stimulatedemand Pricing Strategy Fall as result of competition &efficient produc- tion. Prices fall (usually). Prices stabilize at low level. High to recoupdevelopment costs Product Life Cycles Strategies Time

14. Examples

15. Some misconceptions about PLC • At the level of the category and not the brand – Cell phones not CINGULAR wireless. However, in practice is used both ways.. • Different products go through the stages differently. • Timing of stages may vary substantially. • What other advantages do you see for a M. Manager?

17. GROWTH MATURITY DECLINE INTRODUCTION Product Strategy Limited models Frequent changes More models Frequent changes. Large number of models. Eliminate unprofitable models LimitedWholesale/retail distributors Expanded dealers. Long- term relations Phase out unprofitable outlets Extensive. Margins drop. Shelf space Distribution Strategy Sales Phase outpromotion Promotion Strategy Advertise. Promote heavily Awareness. Stimulate demand.Sampling Aggressive ads. Stimulatedemand Pricing Strategy Fall as result of competition &efficient produc- tion. Prices fall (usually). Prices stabilize at low level. High to recoupdevelopment costs Product Life Cycles Time

19. Extending the PLC • Change product   • Change product use  • Change product image  • Change product positioning • What already presented tool can help us out here?

20. Product Life Cycle • Factors that may speed products through PLC: • Ease of trial • Ease of use • Easy to communicate advantages • Compatible with customer experience

21. The Consumer Adoption Process • Adoption process: series of stages for which consumers decide whether or not to become a regular user of a new product, including: • Awareness • Interest • Evaluation • Trial • Adoption or rejection

22. Diffusion The process by which the ………….of an innovation spreads. Diffusion

23. Adopter Categories …. ….

24. Introduction Growth Decline Maturity Product life cycle curve Sales Early majority Late majority Early adopters Innovators Laggards Diffusion curve Diffusion Process and PLC Curve

25. How do we use the Diffusion of innovation theory? • - MM can predict which types of customers will buy their products immediately after introduction or later • Can develop effective MMix

26. Complexity Compatibility Relative Advantage Observability Trialability Product Characteristics and the Rate of Adoption