Kotler Summary – Chapter 11: Developing New Products

When do you develop new products in business process?

Segment Market ⇒ Choose Target Customer Groups ⇒ Identify Target Market Customer Needs ⇒ Determine Market Positioning ⇒ Develop and Launch New Products

Marketing Dept. should play an active role at all stages of product development. Remember (we) are the tie to the consumer.

Organizing Product Development (Various Structures)

• Product Managers: Existing product managers lead the process: usually a bad idea because they don’t have time
• New-Product Managers: Have managers specifically for new products: can be a bad idea because, like product managers. they think in terms of product modifications and line extensions, not creatively
• New-Product Committees: High-level management committees (cross-functional)
• New-Product Departments: More formalized committee, larger. Used by large corporations
• New-Product Venture Teams: The new thing: used by 3M, DOW, “intrapeneurs relieved of other duties are brought together from various departments to work exclusively on a specific product. The are given a budget, time frame, and a “skunkworks” setting. “Skunkworks” are informal workplaces

Eight Stages in New Product Development Process

1. Idea Generation: includes: need/problem analysis, brainstorming, other techniques from OB
2. Idea Screening: use a variety of product rating devices to limit the chance of Type I(Go) error and Type II(Drop) errors
3. Concept Development and Testing: develop specific concepts which would be aimed at specific target markets; start doing test marketing with focus groups; can use conjoint analysis: a research method for deriving the utility that consumers attach to varying levels of a products attributes.
4. Marketing Strategy Development: craft a marketing strategy plan which includes:
• target market size, structure and behavior, the planned product positioning & sales, share & profit goals for the first few years.
• Products planned price, distribution strategy and marketing budget
• Long -run sales and profit goals and long term marketing mix
5. Business Analysis: Evaluate the marketing plan will special emphasis on sales , cost, profit estimates. Must pass the business test criteria for further development.
6. Product Development: Develop prototypes. Now using CAD-CAM to help. First have functional tests then consumer tests.
7. Market Testing: Big time testing with brand name attached and packaging developed.

Simulated Test Marketing is when you find 30 or 40 shoppers at a shopping center, show them some ads, give them some money , and then see which brand they buy.
Controlled Test Marketing relies on a panel of real stores to carry the new products for a fee. Sales are measured through scanners.
Test Markets are the ultimate way to test a new product. Company puts forth a full scale advertising and marketing plan for selected cities/regions. Can uses diff strategies in diff cities to compare effectiveness.

8. Commercialization: With commercialization one has to ask three core strategic questions: WHEN, WHERE, HOW
• When(Timing)–can be first entry, parallel entry, or late entry (late entry can be good because the second firms can piggy-back on the first firm’s advertising, can take advantage if there is a problem with the first entry’s product, and can learn market size.
• Where(Geographical strategy)–start out regionally, or nationally, or internationally
• How (Introductory market strategy)–marketing mix (ads, big party, dealer incentives etc.)

The idea is to generate an efficient process to test new products. It is important to set clear standards for acceptance at each stage so that bad ideas don’t get through and good ideas aren’t quashed by conservatism. Very few initial ideas ever make it to commercialization stage.

Customer Adoption Process: How do new customers learn about/try new products?

Today most firms focus on heavy-user target marketing where the product is aimed initially at heavy users or even better use early-adopter target marketing where they are able to focus on the early adopters within the heavy user group. With today’s new direct marketing techniques, it’s easier to focus on this group.

There are stages in the customer adoption process including:
Awareness ⇒ interest ⇒ evaluation ⇒ trial ⇒ and finally adoption (Consumer decides to make full and regular use of the product)

Factors affecting the adoption process include:

1. People/Organizations differ markedly in their readiness to try new products (only about 16% are early adopters)
2. Personal Influence plays a large role in adoption of new products
3. The Characteristics of the Innovation affect its rate of adoption

You want to have high relative advantage over existing products, high compatibility with other products, low complexity, easy communication of its benefits