UCSI UNIVERSITY
MARKETING PROCESSES 11
INTRODUCING NEW MARKET OFFERINGS
New product options
1. Make or buy
A company can add new products through acquisition or development. The
acquisition route can take three forms: (1) the company can buy other companies, (2)
it can acquire patents from other companies, and (3) it can buy a license or franchise
from another company.
The development route can take two forms: (1) It can develop new products in its
own laboratories or (2) it can contract with independent researchers or new-product
development firms to develop new products or provide new technology.
2. Types of new products
We can identify six categories of new products:
a. New-to-the-world products. New products that create an entirely new market.
b. New product lines. New products that allow a company to enter an established
market for the first time.
c. Additions to existing product lines. New products that supplement established
product lines (package sizes, flavours, and so on).
d. Improvements and revisions of existing products. New products that provide
improved performance or greater perceived value and replace existing
products.
e. Repositioning. Existing products that are targeted to new markets or market
segments.
f. Cost Reductions. New products that provide similar performance at lower
cost.
Less than 10 percent of all new products are truly innovative and new to the world.
These products involve the greatest cost and risk because they are new to both the
company and the marketplace.
Companies typically must create a strong R&D and marketing partnership to pull off
a radical innovation. Focus group will provide some perspectives on customer interest
and need, but marketers may need to use a probe-and-learn approach based on
observation and feedback of early users’ experiences and other means such as online
chats.
Challenges in new-product development
1. The innovation imperative
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In an economy of rapid change, continuous innovation is necessary. Companies that
fail to develop new products are putting themselves at risk. Existing products are
vulnerable to changing customer needs and tastes, new technologies, shortened
product life cycles, and increased domestic and foreign competition.
2. New product success
Most established companies focus on incremental innovation, entering new markets
by tweaking products for new customers, using variations on a core product to stay
one step ahead of the market, and creating interim solutions for industry-wide
problems.
Newer companies create disruptive technologies that are cheaper and more likely to
alter the competitive space. Established companies can be slow to react or invest in
these disruptive technologies because they threaten their investment.
3. New product failure
New products can fail for many reasons: Ignoring or misinterpreting market research,
Overestimating market size, High development costs, Poor design, Incorrect
positioning, Ineffective advertising, Wrong price, Insufficient distribution support,
Competitors who fight back. Several factors also tend to hinder new product
development:
a. Shortage of important ideas in certain areas. There may be few ways left to
improve some basic products (such as steel or detergents).
b. Fragmented markets. Companies have to aim their new products at smaller
market segments, and this can mean lower sales and profits for each product.
c. Social and governmental constraints. New products have to satisfy consumer
safety and environmental concerns.
d. Cost of development. A company typically has to generate many ideas to find
just one worthy of development, and often faces high R&D, manufacturing
costs.
e. Capital shortage. Some companies with good ideas cannot raise the funds
needed to research and launch them.
f. Shorter development time. Companies must learn how to compress
development time by using new techniques, strategic partners, early concept
tests, and advanced marketing planning.
g. Poor launching time. New products are sometimes launched after the
category has already taken off or when there is still insufficient interest.
h. Shorter product life cycles. When a new product is successful, rivals are quick
to copy it.
i. Organisational support. The new product may not mesh with the corporate
culture or receive the financial or other support it needs.
Organisational arrangements
Many companies today use customer-driven engineering to design new products,
incorporating customer preferences in the final design. New product development
requires senior management to define business domain, product categories, and
specific criteria.
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1. Budgeting for New-Product Development
Some companies solve this problem by financing as many projects as possible, hoping
to achieve a few winners. Others apply conventional percentage of sales figures or
spend what the competition spends.
Table 20.1 shows how a company might calculate the cost of new product
development. One successful idea cost the company $5,721,000 to develop. The total
cost for the successful product was $13,984,000
2. Organizing New-product Development
Companies handle the organizational aspect of new-product development in several
ways. Many companies assign responsibility for new product ideas to product
managers. But product managers are often so busy managing existing lines that they
give little thought to new products other than line extension.
Kraft and Johnson & Johnson have new-product manager who report to category
managers. Some companies have a high-level management committee charged with
reviewing and approving proposals. Large companies often establish a new-product
department headed by a manager who has substantial authority and access to top
management.
Cross-functional teams
3M, Dow, and General Mills often assign new-product development work to venture
teams. A venture team is a cross-functional group charged with developing a specific
product or business. These skunk-works are informal places where intrapreneurial
teams attempt to develop new products. Cross-functional teams can collaborate and
use concurrent new-product development to push new products to market.
Stage-gate systems
Some companies use the stage-gate system to divide into stages the innovative
process with a gate or checkpoint at the end of each stage. Senior managers review
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the criteria at each gate to judge whether the project deserves to move the next stage.
The gatekeepers make one of four decisions: Go, Kill, Hold, or Recycle.
The stages in the new-product development process are shown in Figure 20.1. The
process can be depicted as a funnel: a large number of initial new-product ideas and
concepts are winnowed down to a few high-potential products that are ultimately
launched. Many firms use a spiral development process that recognises the value of
returning to an earlier stage to make improvements before moving forward.
The consumer-adoption process
Adoption is an individual’s decision to become a regular user of a product and is
followed by the consumer-loyalty process. New-product marketers now aim at
consumers who are early adopters and use the theory of innovation diffusion and
consumer adoption to identify them.
1. Stages in the Adoption Process
An innovation is any goods, service, or idea that is perceived by someone as new, no
matter how long its history. Rogers defines the innovation diffusion process as “the
spread of a new idea from its source of invention or creation to its ultimate users or
adopters.” Adopters of new products have been observed to move through five
stages:
a. Awareness - The consumer becomes aware of the innovation but lacks
information about it.
b. Interest - The consumer is stimulated to seek information about the
innovation.
c. Evaluation - The consumer considers whether to try the innovation.
d. Trial - The consumer tries the innovation to improve his or her estimate of its
value.
e. Adoption -The consumer decides to make full and regular use of the
innovation.
The new-product marketers should facilitate movement through these stages.
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2. Factors Influencing the Adoption Process
Marketers recognize the following characteristics of the adoption process: differences
in individual readiness to try new products; the effect of personal influences; differing
rates of adoption; and differences in organizations’ readiness to try new products.
Readiness to Try New Products and Personal Influence
Rogers defines a person’s level of innovativeness as “the degree to which an
individual is relatively earlier in adopting new ideas than the other members of his
social system”. People can be classified into these adopter categories:
a. Innovators are technology enthusiasts and are venturesome and enjoy
tinkering with new products and mastering their intricacies.
b. Early adopters are opinion leaders who carefully search for new technologies
that might give them a dramatic competitive advantage.
c. Early majority are deliberate pragmatists who adopt the new technology when
its benefits are proven and a lot of adoption has already taken place.
d. Late majority are sceptical conservatives who are risk averse, technology shy,
and price sensitive.
e. Laggards are tradition-bound and resist the innovation until they find that the
status quo is no longer defensible.
Figure 20.7 shows the different adopter categories based on the relative adoption
times for an innovation. Each of the five groups must be approached with a different
type of marketing if the firm wants to move its innovation through the full product life
cycle.
Personal influence is the effect that one person has on another’s attitude or purchase
probability. Its significance is greater in some situations and for some individuals than
for others. Personal influence is more important in the evaluation stage of the
adoption process than in the other stages.
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It has more influence on late adopters than early adopters. It also is more important in
risky situations. Companies often target innovators and early adopters with product
rollouts.
Characteristics of the Innovation
Some products catch on immediately, whereas others take a long time to gain
acceptance. Five characteristics influence the rate of adoption of an innovation:
a. Relative advantage—the degree to which the innovation appears superior to
existing products.
b. Compatibility—the degree to which the innovation matches the values and
experiences of the individuals.
c. Complexity—the degree to which the innovation is relatively difficult to
understand or use.
d. Divisibility—the degree to which the innovation can be tried on a limited
basis.
e. Communicability—the degree to which the beneficial results of use are
observable or describable to others.
Other characteristics that influence the rate of adoption are: Costs, Risk and
uncertainty, scientific credibility, Social approval. The new-product marketer has to
research all these factors and give the key ones maximum attention in designing the
new-product and marketing programs.
Organizations’ Readiness to Adopt Innovations
Adoption is associated with variables in the organization’s environment, the
organization itself, and the administrators. Other forces come into play in trying to get
a product adopted into organizations that receive: The bulk of their funding from the
government. A controversial or innovative product can be squelched by negative
public opinion.
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