Copyright 2007 McGraw-Hill Australia Pty Ltd PPTs t/a Marketing: The Core by Kerin et al Slides prepared by Andrew Hughes, Australian National University.

Copyright 2007 McGraw-Hill Australia Pty Ltd PPTs t/a Marketing: The Core by Kerin et alSlides prepared by Andrew Hughes, Australian National University

CHAPTER 9DEVELOPING

NEW PRODUCTSAND SERVICES

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Copyright 2007 McGraw-Hill Australia Pty Ltd PPTs t/a Marketing: The Core by Kerin et alSlides prepared by Andrew Hughes, Australian National University

After reading this chapter you should be able to:

• Identify the ways consumer and business goods and services are classified and marketed.

• Explain the effects of different ways of viewing “newness” in new products and services.

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Copyright 2007 McGraw-Hill Australia Pty Ltd PPTs t/a Marketing: The Core by Kerin et alSlides prepared by Andrew Hughes, Australian National University

After reading this chapter you should be able to:

• Analyse the factors that contribute to the success or failure of a product or service.

• Describe the purposes of each step of the new-product process.

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Copyright 2007 McGraw-Hill Australia Pty Ltd PPTs t/a Marketing: The Core by Kerin et alSlides prepared by Andrew Hughes, Australian National University

Developing New Products and Services

• The essence of marketing is in developing products, such as fitness programs.

• A product is a good, service or idea consisting of a bundle of tangible and intangible attributes that satisfies consumers and is received in exchange for money or some other unit of value.

• Tangible attributes include physical characteristics such as colour or sweetness, and intangible attributes include those aspects of a product that can’t be ‘touched’, such as the way exercising makes you feel.

• The life of a company often depends on how it conceives, produces and markets new products.

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Copyright 2007 McGraw-Hill Australia Pty Ltd PPTs t/a Marketing: The Core by Kerin et alSlides prepared by Andrew Hughes, Australian National University

The Variations of Products• Products differ in terms of whether they are designed

for consumers or businesses.• For most organisations, the product decision—that is,

the choice about what products to offer—is not made in isolation because companies often offer a range of products.

• To better appreciate the product decision, let’s first define some terms pertaining to products.

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Copyright 2007 McGraw-Hill Australia Pty Ltd PPTs t/a Marketing: The Core by Kerin et alSlides prepared by Andrew Hughes, Australian National University

Product Line and Product Mix• A product line is a group of products—goods or

services—that are closely related because they satisfy a class of needs, are used together, are sold to the same customer group, are distributed through the same type of outlets, or fall within a given price range.

• Each product line has its own marketing strategy. • The product mix is the number of product lines

offered by a company.

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Copyright 2007 McGraw-Hill Australia Pty Ltd PPTs t/a Marketing: The Core by Kerin et alSlides prepared by Andrew Hughes, Australian National University

Classifying Products• Both governments and companies classify products,

but for different purposes. • The Australian and New Zealand governments’

classification method—Australian and New Zealand Standard Industrial Classification (ANZSIC)—helps them collect information on industrial activity.

• Companies classify products to help develop similar marketing strategies for the wide range of products offered.

• Two major ways to classify products are by type of user and degree of product tangibility.

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Copyright 2007 McGraw-Hill Australia Pty Ltd PPTs t/a Marketing: The Core by Kerin et alSlides prepared by Andrew Hughes, Australian National University

Type of user and degree of product tangibilityType of User• The first major type of product classification is according to the

user.• Consumer goods are products purchased by the ultimate

consumer, whereas business goods (also called industrial goods or organisational goods) are products that assist directly or indirectly in providing products for resale.

Product Tangibility• Classification by degree of tangibility divides products into one

of three categories. 1. Non-durable good, an item consumed in one or a few uses,

such as food products and fuel. 2. A durable good is an item that usually lasts over an extended

period of time3. Services are defined as intangible activities, benefits or

satisfactions offered for sale, such as marketing research, health care and education.

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Copyright 2007 McGraw-Hill Australia Pty Ltd PPTs t/a Marketing: The Core by Kerin et alSlides prepared by Andrew Hughes, Australian National University

The Uniqueness of Services• Services have become one of the most important

components of Australian and New Zealand economies.

• Services account for approximately 70 and 65 per cent of the gross domestic product (GDP) in Australia and New Zealand respectively.

• With the growing importance of services, there are four unique elements of services: 1. intangibility, 2. inconsistency, 3. inseparability 4. Inventory

• These are referred to as the four ‘I’s of services.

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Copyright 2007 McGraw-Hill Australia Pty Ltd PPTs t/a Marketing: The Core by Kerin et alSlides prepared by Andrew Hughes, Australian National University

Classifying Goods and Services - Classification of Consumer Goods

• As marketing focuses on the buyer—that is, the product user—it is important to closely at the two types of users and the way in which goods and services are classified as consumer or business products.

• The two types of users are consumer and business.

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Copyright 2007 McGraw-Hill Australia Pty Ltd PPTs t/a Marketing: The Core by Kerin et alSlides prepared by Andrew Hughes, Australian National University

Classifying Goods and Services - Classification of Consumer Goods

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Copyright 2007 McGraw-Hill Australia Pty Ltd PPTs t/a Marketing: The Core by Kerin et alSlides prepared by Andrew Hughes, Australian National University

Classifying Goods and Services - Classification of Business Goods

• As you saw from the previous slide, there are four types of consumer goods: 1. convenience

2. shopping

3. specialty

4. unsought

• They differ in terms of 1. effort the consumer spends on the decision,

2. attributes used in purchase and

3. frequency of purchase.

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Copyright 2007 McGraw-Hill Australia Pty Ltd PPTs t/a Marketing: The Core by Kerin et alSlides prepared by Andrew Hughes, Australian National University

Raymond Weil Watch Ad

What type of consumer good?

What type of consumer good?

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Copyright 2007 McGraw-Hill Australia Pty Ltd PPTs t/a Marketing: The Core by Kerin et alSlides prepared by Andrew Hughes, Australian National University

Classification of Business Goods• A major characteristic of business goods is that their

sales are often the result of derived demand; that is, sales of industrial products frequently result, or are derived, from the sale of consumer goods.

• Items used in the manufacturing process that become part of the final product are production goods.

• The second class of business goods is support goods, which are items used to assist in producing other goods and services.

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Copyright 2007 McGraw-Hill Australia Pty Ltd PPTs t/a Marketing: The Core by Kerin et alSlides prepared by Andrew Hughes, Australian National University

Classification of Services• Services can be classified in several ways,

according to:

1. whether they are delivered by people or equipment,

2. whether they are profit or non-profit or

3. whether or not they are government sponsored.

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Copyright 2007 McGraw-Hill Australia Pty Ltd PPTs t/a Marketing: The Core by Kerin et alSlides prepared by Andrew Hughes, Australian National University

Concept Check1. Explain the difference between product mix and

product line.

1. The product mix is the number of product lines offered by a company. A product line is a group of products or services that: satisfy a class of needs, are used together, are sold to the same customer group, are distributed through the same outlets, or fall within a given price range.

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Copyright 2007 McGraw-Hill Australia Pty Ltd PPTs t/a Marketing: The Core by Kerin et alSlides prepared by Andrew Hughes, Australian National University

Concept check2. What are the four main types of consumer

goods?

3. What are three ways to classify services?

2. Convenience goods, shopping goods, specialty goods, and unsought goods.

3. Delivery by people or equipment, profit or not-for-profit organisations, and government sponsored or not.

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Copyright 2007 McGraw-Hill Australia Pty Ltd PPTs t/a Marketing: The Core by Kerin et alSlides prepared by Andrew Hughes, Australian National University

New Products and why they Succeed or Fail• New products are the lifeblood of a company and keep it

growing, but the financial risks can be large.• What is a new product?• The term new is difficult to define. Is Sony’s PlayStation 3 new

when there was a PlayStation 1 and 2?• What does new mean for new-product marketing?• New can refer to a product being functionally different from

existing products.• Marketers often classify new products according to the degree

of learning required by a consumer in order to use the product properly.

• The three categories of new products are:1. continuous innovation,2. dynamically continuous innovation,3. discontinuous innovation.

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Copyright 2007 McGraw-Hill Australia Pty Ltd PPTs t/a Marketing: The Core by Kerin et alSlides prepared by Andrew Hughes, Australian National University

Product ‘newness’, as defined by the degree of consumer learning needed to use the product

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Copyright 2007 McGraw-Hill Australia Pty Ltd PPTs t/a Marketing: The Core by Kerin et alSlides prepared by Andrew Hughes, Australian National University

Why Products Succeed or Fail• We all know giant product successes—such as

Microsoft Windows, Swatch watches, or SkyTV. • Yet the thousands of failures every year that slide

quietly into oblivion cost businesses billions of dollars. • Recent research suggests that it takes about 3000

raw unwritten ideas to produce a single commercially successful new product.

• To learn marketing lessons and convert potential failures to successes, we analyse why new products fail and then study several failures in detail.

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Copyright 2007 McGraw-Hill Australia Pty Ltd PPTs t/a Marketing: The Core by Kerin et alSlides prepared by Andrew Hughes, Australian National University

Are these products new?

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Copyright 2007 McGraw-Hill Australia Pty Ltd PPTs t/a Marketing: The Core by Kerin et alSlides prepared by Andrew Hughes, Australian National University

Marketing Reasons for New-Product Failures• Both marketing and non-marketing factors contribute to new-

product failures. • Using the research results from several studies on new-product

success and failure. • We can identify critical marketing factors that often spell failure

for new-product launches:– Insignificant point of difference– Incomplete market and product definition before product

development starts– Too little market attractiveness– Poor execution of the marketing mix – Poor product quality or insensitivity to customer needs on critical

factors. – Bad timing– No economical access to buyers

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Copyright 2007 McGraw-Hill Australia Pty Ltd PPTs t/a Marketing: The Core by Kerin et alSlides prepared by Andrew Hughes, Australian National University

Example of a New Product• Did this new product

succeed or fail? • Why?• What sort of new product

would a product like this be classified as?

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Copyright 2007 McGraw-Hill Australia Pty Ltd PPTs t/a Marketing: The Core by Kerin et alSlides prepared by Andrew Hughes, Australian National University

Concept Check1. Describe the three kinds of innovations that

marketers use to categorise new products.2. What does ‘insignificant point of difference’

mean as a reason for new-product failure?

1. Continuous innovation, dynamically continuous innovation, and discontinuous innovation.

2. The product’s characteristics did not deliver benefits to the user that were uniquely superior to those of competitors or were not deemed important to users.

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Copyright 2007 McGraw-Hill Australia Pty Ltd PPTs t/a Marketing: The Core by Kerin et alSlides prepared by Andrew Hughes, Australian National University

The New-product Process• A company can increase its chances of success by

following a new product process. • The new product process, consists of seven stages a

firm goes through to identify business opportunities and convert them to a saleable good or service.

• This sequence begins with new-product strategy development and ends with commercialisation.

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Copyright 2007 McGraw-Hill Australia Pty Ltd PPTs t/a Marketing: The Core by Kerin et alSlides prepared by Andrew Hughes, Australian National University

The new product process

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Copyright 2007 McGraw-Hill Australia Pty Ltd PPTs t/a Marketing: The Core by Kerin et alSlides prepared by Andrew Hughes, Australian National University

New-Product Strategy Development

• For companies, new-product strategy development involves defining the role for a new product in terms of the firm’s overall corporate objectives.

• This step in the new product process has been added by many companies recently to provide a needed focus for ideas and concepts developed in later stages.

• Some of the key issues examined here are:– Identifying Markets and Strategic Roles– Cross-Functional Teams and New-Product Development

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Copyright 2007 McGraw-Hill Australia Pty Ltd PPTs t/a Marketing: The Core by Kerin et alSlides prepared by Andrew Hughes, Australian National University

Idea Generation• Idea generation, where a pool of concepts is

developed as possible new products, must build on the previous stage’s results.

• New product ideas are generated by consumers, suppliers, employees, basic R&D and competitors.

• Some of the other key issues examined at this stage are: – Customer and Supplier Suggestions– Employee and Co-Worker Suggestions– Research and Development Breakthroughs– Competitive Products

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Copyright 2007 McGraw-Hill Australia Pty Ltd PPTs t/a Marketing: The Core by Kerin et alSlides prepared by Andrew Hughes, Australian National University

Idea Generation• Most mobile phones now

incorporate different media devices, such as cameras and MP3 players.

• Where did the idea for this come from?

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Copyright 2007 McGraw-Hill Australia Pty Ltd PPTs t/a Marketing: The Core by Kerin et alSlides prepared by Andrew Hughes, Australian National University

Screening and Evaluation• The third stage of the new product process is screening and

evaluation, which involves internal and external evaluations of the new-product ideas to eliminate those that should not be developed further.

• Internal approach: Internally, the firm evaluates the technical difficulty of the proposal and whether the idea meets the objectives defined in the new-product strategy development step.

• External approach: Concept tests are external evaluations that consist of preliminary testing of the new-product idea, rather than the actual product, with consumers.

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Copyright 2007 McGraw-Hill Australia Pty Ltd PPTs t/a Marketing: The Core by Kerin et alSlides prepared by Andrew Hughes, Australian National University

Concept Check1. What step in the new-product process has been

added in recent years?2. What are four sources of new-product ideas?

1. New-product strategy development has been added recently by many companies to provide focus for ideas and concepts developed in later stages.

2. Customer and supplier suggestions, employee suggestions, R&D breakthroughs, and competitive products.

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Copyright 2007 McGraw-Hill Australia Pty Ltd PPTs t/a Marketing: The Core by Kerin et alSlides prepared by Andrew Hughes, Australian National University

Business Analysis• Business analysis involves specifying the features of

the product and the marketing strategy needed to commercialise it—that is, bring it to market—and making necessary financial projections.

• This is the last checkpoint before significant resources are invested in creating a prototype—usually, a full-scale operating model of the product.

• Assessing the ‘Business Fit’ of the New Product is a critical factor at this stage.

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Copyright 2007 McGraw-Hill Australia Pty Ltd PPTs t/a Marketing: The Core by Kerin et alSlides prepared by Andrew Hughes, Australian National University

Development• Product ideas that survive the business analysis proceed to

actual development, turning the idea on paper into a prototype. • This results in a demonstrable, producible product in hand. • Outsiders seldom understand the technical complexities of the

development stage, which involves not only manufacturing the product but also performing laboratory and consumer tests to ensure that it meets the standards set.

• Design of the product becomes an important element.• Some new products can be so important and costly that the

company is literally betting its very existence on success.

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Copyright 2007 McGraw-Hill Australia Pty Ltd PPTs t/a Marketing: The Core by Kerin et alSlides prepared by Andrew Hughes, Australian National University

Mattel’s BarbieWhy should laboratory and safety tests be done?

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Copyright 2007 McGraw-Hill Australia Pty Ltd PPTs t/a Marketing: The Core by Kerin et alSlides prepared by Andrew Hughes, Australian National University

Market Testing• The market testing stage of the new-product process

involves exposing actual products to prospective consumers under realistic purchase conditions to see if they will buy.

• Often a product is developed, tested, refined and then tested again to get consumer reactions through test marketing.

• Sometimes though test marketing does not work or is not appropriate to use.

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Copyright 2007 McGraw-Hill Australia Pty Ltd PPTs t/a Marketing: The Core by Kerin et alSlides prepared by Andrew Hughes, Australian National University

Commercialisation• Finally, the product is brought to the point of

commercialisation—positioning and launching a new product in full-scale production and sales.

• Companies proceed very carefully at the commercialisation stage because this is the most expensive stage for most new products, especially consumer products.

• To minimise the risk of financial failure, some companies use regional rollouts, introducing the product sequentially into different geographical regions to allow production levels and marketing activities to build up gradually.

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Copyright 2007 McGraw-Hill Australia Pty Ltd PPTs t/a Marketing: The Core by Kerin et alSlides prepared by Andrew Hughes, Australian National University

Marketing information and methods used in the new product process

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Copyright 2007 McGraw-Hill Australia Pty Ltd PPTs t/a Marketing: The Core by Kerin et alSlides prepared by Andrew Hughes, Australian National University

Concept Check1. Describe the business analysis stage of the new-product

process.2. What is a test market?

1. Business analysis involves specifying the features of the product and the marketing strategy needed to commercialise it—bring it to market—and making financial projections.

2. A test market is a city that is viewed as being representative of consumers in terms of demographics and brand purchase patterns, is far enough from big markets to allow low-cost advertising, and has tracking systems to measure sales.

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Copyright 2007 McGraw-Hill Australia Pty Ltd PPTs t/a Marketing: The Core by Kerin et alSlides prepared by Andrew Hughes, Australian National University

Concept Check3. What is commercialisation of a new product?

3. Commercialisation involves positioning and launching a new product in full-scale production and sales and is the most expensive stage for most new products.

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Copyright 2007 McGraw-Hill Australia Pty Ltd PPTs t/a Marketing: The Core by Kerin et alSlides prepared by Andrew Hughes, Australian National University

Finish• Questions?

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