Creating the Product. 2 Chapter Objectives Explain the layers of a product Describe the classifications of products Understand the importance of new products.

Creating the Product

2

Chapter Objectives

• Explain the layers of a product

• Describe the classifications of products

• Understand the importance of new products

• Show how firms develop new products

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

3

Real People, Real Choices

• Black and Decker (Eleni Rossides)

• Considering the results of a survey, Black and Decker needed to decide what to do with its ScumBusterOption 1: if it ain’t broke, don’t fix itOption 2: emphasize value for your moneyOption 3: ramp up the ScumBuster’s features

4

Build a Better Mousetrap: The Value Proposition

• Value proposition: benefits the consumer will receive if she buys the product

• Product: tangible good, service, idea that satisfies customer needs

• Good: a tangible product, something we can see, touch, smell, hear, taste, or possess

• Intangible products: services, ideas, people, places

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Layers of the Product Concept

• Core product: basic benefits the product will provide

• Actual product: physical good or delivered service that supplies the benefits

• Augmented product: actual product plus supporting features’ such as warranty, repair, installation, customer support

6

Classifying Products

• Products are either consumer products or B2B products.

• Categories differ in how consumers and business customers feel about products and how they purchase them.

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Classifying Goods: How Long Does the Product Last?

• Durable goods: provide benefits over a period of months, years, decadesExample: automobile

• Nondurable goods: consumed in the short termExample: newspapers

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Classifying Goods: How Do Consumers Buy the Product?

• Convenience product: frequently purchasedStaples (milk) Impulse products (candy bar)Emergency products (drain opener)

• Shopping product: purchased with considerable time and effortAttribute based (shoes)Price-based (water heater)

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Classifying Goods: How Do Consumers Buy the Product? (cont’d)

• Specialty products: have unique characteristics important to buyers Rolex watch

• Unsought products: those in which consumers have little interest until a need arises insurance

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Business-to-Business Products

• Classified by how organizational customers use themEquipment Maintenance, repair, and operating (MRO) productsRaw materialsProcessed materials and special servicesComponent parts

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The Process of Innovation

• The FTC says : --A product must be entirely new or changed

significantly to be called new, and --A product may be called new for only six months.

• Innovation: anything that customers perceive as new and different

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It’s Important to Understand How Innovations Work

• Technology is advancing at a dizzying pace.

• New products are expensive to develop and even more costly if they fail.

• New products can contribute to society.

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Types of Innovations

• Innovations differ in degree of newness --Continuous innovations --Dynamically continuous innovations --Discontinuous innovations

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Continuous Innovations

• A modification to an existing product

• --Consumer doesn’t have to learn anything new.

• --Knockoffs copy, with slight modification, the design of an original product.

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Dynamically Continuous Innovation

• A pronounced modification to an existing product

• --Requires a modest amount of learning or behavior change. Convergence: the coming together of two or more

technologies to create a new system with greater benefit than its parts.

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Discontinuous Innovations

• A totally new product

• --Creates major changes in the way we live.

• --Consumer must engage in a great deal of learning.

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Developing New Products

• New-product development can be creating totally new products or making an existing product better.

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Phases in New-Product Development

• Phase 1: Idea generation Brainstorm for products that provide customer

benefits.

• Phase 2: Product-concept development and screeningTest product ideas for technical and commercial

success.

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Phases in New-Product Development (cont’d)

• Phase 3: Marketing strategy developmentDecide how to introduce the product to the

marketplace.

• Phase 4: Business analysisAssess a product’s commercial viability.

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Phases in New-Product Development (cont’d)

• Phase 5: Technical development Refine and perfect new product.Develop prototypes or test versions of proposed

product (in R&D department).

• Phase 6: Test marketingTest complete marketing plan in a small geographic

area similar to larger market.

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Phases in New-Product Development (cont’d)

• Phase 7: Commercialization Launch new product into the market.Begin full-scale production, distribution, advertising,

sales promotion.

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Adoption and Diffusion

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

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

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Stages in Consumer Adoption of a New Product

• Awareness: learning the innovation exists

• Interest: seeing how the new product might satisfy an existing or newly realized need

• Evaluation: weighing costs/benefits of new product

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Stages in Consumer Adoption of a New Product (cont’d)

• Trial: experiencing or using product for the first time

• Adoption: buying the good or agreeing with the new idea

• Confirmation: weighing expected versus actual benefits and costs

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The Diffusion of Innovations

• Adopter categories InnovatorsEarly adoptersEarly majorityLate majorityLaggards

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Product Factors AffectingRate of Adoption

• Relative advantage

• Compatibility

• Complexity

• Trialability

• Observability

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How Organizational Differences Affect Adoption

• Innovators: are new, smaller, or younger firms• Early-adopter firms: are market-share leaders• Late-majority firms: prefer the status quo and

have large investments in existing production technology

• Laggard firms: are probably already losing money

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Real People, Real Choices

• Black and Decker (Eleni Rossides)

• Eleni chose Option 3: ramp up the ScumBuster’s featuresThe company continues to modify the basic concept

with new features and new applications to “clean up” against the competition

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Marketing in Action Case:You Make the Call

• What is the decision facing Kodak?

• What factors are important in understanding this decision situation?

• What are the alternatives?

• What decision(s) do you recommend?

• What are some ways to implement your recommendation?

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Keeping It Real: Fast Forward to Next Class Decision Time at Grendha

• Meet Angelo Daros, VP of Grendha Shoes, a major Brazilian shoe manufacturer

• Plan: to launch the Rider brand in the U.S. market

• The decision: How to position the Rider brand for the United States