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Principles of Marketing

Chapter 9- Developing and Managing Offerings

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New Offering Development Process

• Idea Generating• Idea Screening• Feature Specification• Development• Testing • Launch• Evaluation

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Idea Generation

• Basic idea is created and described– Can be a shift or improvement on a current product• Apple computer/Xerox Star• Dyson/Other vacuums

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Idea Generation

• Basic idea is created and described– Can be a new invention from employees since they

are constantly around the product• Machine shop friend percentage of sales example

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Idea Generation

• Basic idea is created and described– Can come from customers since they are in

constant contact with your product (cocreation again)• Trouble is who to listen to

– Lead users are those customers who are good at generating new product ideas and applications

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Idea Generation

• Basic idea is created and described– Can come from suppliers since they too are

involved in the process• Corrugate crossbar accidental redesign example

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Idea Generation

• Basic idea is created and described– Can come from competitors• Most tech companies do this. When one innovates, the

others copy.

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Idea Screening

• Not all ideas are good (in fact, most aren’t)–Meatwater– “New” Coke– Chevy Colorado

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Idea Screening

• The point of idea screening is to weed-out the bad ideas early.

• The longer the idea goes in the process, the greater cost

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Idea Screening

• This step attempts to answer the following questions:– Does the proposed product add value for the

customer? Does it satisfy a market need?

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Idea Screening

• This step attempts to answer the following questions:– Can the product be made within a stated time

period to make it to market when needed?• This is especially important with the fast-paced world

of today. • Imagine being on the 50 Shades bandwagon and not

having your product shipped to stores before April.

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Idea Screening

• This step attempts to answer the following questions:– How many units of it will sell and at what price?• If we are only going to sell a small amount of units, is it

worth the effort? (this is completely situational)– It may be beneficial in the long-run to offer something at a loss

to keep consumers happy» Beat the Pro example

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Idea Screening

• This step attempts to answer the following questions:– Can we manufacture and sell the product within

budget and still make money?• Sometimes there is demand, there is the ability to

supply, but the margins just aren’t there– Generally a question in a competitive market since prices are

lower which is generally associated with lower margins

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Idea Screening

• This step attempts to answer the following questions:– Do we need to provide the customer with after-

sales service? If so, do we have the resources to do that?• This depends on the product. High-end refrigerator,

probably a good idea. Dishwasher, probably not.• This is also a strategy question since, as service

increases, so does the cost.

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Idea Screening

• This step attempts to answer the following questions:– Does the product fit out image and corporate

strategy? • Ford adding a new line of trucks versus adding a line of

smaller racing style cars. Same question for Suzuki

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Idea Screening

• Concept testing– Running the idea by possible consumers• Focus groups- small group with open dialogue • Depth interviews- generally done with individuals to

find a greater amount of information– Should be taken for a grain as sometimes consumers aren’t

truthful or will try to make something out of nothing» Consumers will say they like something when they don’t

just because they don’t want to be negative» Consumers will say what they think the researcher wants

to hear to be compliant

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Idea Screening

• Process feasibility– The degree to which the company can actually

make and service the product • McDonalds making farm-to-table food (strategic fit)• Friend the knife maker and chef’s knives

– A direct tie to financial feasibility or the ability of the offering to make money

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Idea Screening

• Types of risk at this point :– Investment risk- will the company make the

appropriate return on the money and effort– Opportunity risk- risk that there is a better product

being ignored due to investment in in this idea• Focusing on MiniDisks (1992) instead of MP3 (1995)

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Feature Specification• This step is to narrow down the

product’s features– This could be just getting one product

with the “correct” mix, or setting the features for the different price points

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Feature Specification

• Quality function deployment (QFD)– Starts with consumer’s desires then designs the

offering based on these desires• Often this is very difficult• Running watch example

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Development

• Actual design of the offering starts– Specs, prototypes are created, feasibilities are

determined• How similar do we make it to the previous versions?

– XBone, looking at you… (really, no backwards compatibility?)

– iPhones, what does the next iteration actually get you?• How do we deal with spec problem?

– Consumers want 3 terabytes in their phones…how?

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Testing

• Offering is actually created and started testing– Alpha testing is lab testing and possibly a very

select group of consumers• Friend with food altitude problems

– Beta testing is consumers using offering in real-world conditions • Sometimes this step is skipped and the market decides

what changes need to be made (iPhone 4?)

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Launch or Commercialization

• All tests are run, decisions have been made, now it’s time to introduce the product to the market

• Rolling launch- releasing across markets one by one– If this is an international offering, it could be by

country– If just one country, it could be regional

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Launch or Commercialization

• If a company tests a complete launch of a product, it is a market test–Market tests are designed to ensure that it reaches

buyers, gets positive reactions, and generates sales– Tulsa, OK being very average

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Evaluation

• Per the usual, we need some metric to determine the success or failure of an offering– Box office numbers from first week• A good indicator of future sales• Can lead to decisions on increasing promotions, pulling

advertising, etc. (both for the movie in theatres and later for the release)

– Sell-through rate was my best indicator for best seller, but awful for other categories

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Managing New Products: PLC

• Product life cycle– All products have a life cycle unique to themselves– The stages are similar to life-phases and equally as

dynamic– Depending on the stage, a firm has different

objectives, obligations, and options.

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Managing New Products: PLC

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Managing New Products: PLC• PLC for Coke versus PLC for Zhu Zhu pets (2009)

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Introduction Stage

• Marketing costs are higher than other stages (since no one has heard of this before)– Good analogy is the space shuttle fuel requirement

at launch• Profits are generally low in this stage since

R&D costs need to be recouped and advertising and promotion are very high

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Introduction Stage

• Like all stages, the time a product spends in the introduction stages is unique to the firm– Law states that the term “new” can only be used on a

product for six months• In a fad market, this is probably very steep since it

“takes off” in the market• In a commoditized market, this is probably a long,

shallow slope since consumers will need more time to accept the new offering since other brands are already at the top of their mind

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Introduction Stage

• Like all stages, the time a product spends in the introduction stages is unique to the firm– Law states that the term “new” can only be used on a

product for six months• In a fad market, this is probably very steep since it

“takes off” in the market• In a commoditized market, this is probably a long,

shallow slope since consumers will need more time to accept the new offering since other brands are already at the top of their mind

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Introduction Stage

• In this stage, distribution is paramount since demand can be high and there may not be a second attempt at a second chance– Autohammer out at *store* and my never making

a purchase

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Introduction Stage

• It is rare in this stage to start making a profit–Most all up-front costs are still being recouped, but

that isn’t a reason to abandon the product. It is a war of attrition to some degree, especially depending on the pricing strategy

– Penetration pricing- offering a low price initially to capture market share. Commodities• (Different than predatory since predatory is below cost)

– Skimming pricing- Set prices high to recoup costs early. High-end products

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Growth Stage

• Once a product is accepted, it enters the growth stage– Increase in sales now that there is a demand– Recouping of costs can occur since sales increase– Similarly, some profits may be had– Drawback is more competition• This is especially true in innovative products

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Growth Stage

• Promotions change in this stage from an introduction to a focus on benefits– Introduction- “Hey, we exist!”– Growth- “Here is how we are better than the

competition”• Increase in distribution as more outlets are

interested in the offering. – This increase is where some of the possibilities are

going

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Maturity Stage

• As the market reaches an equilibrium, new customers decline, sales begin leveling off, competitors leave, and the maturity stage begins

• Here, most purchases are repeat customers• Number of firms generally falls to between

one and five*– How many processor companies are there?

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Maturity Stage

• Marketing focuses on developing new strategies by finding new consumers, new product uses, and other changes in previous strategies.

• 100 calorie packs (downsizing)

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Maturity Stage

• New markets abroad– Fast food in developing countries–Must determine if the product should be

standardized or adapted• Standardized is the product staying the same across

markets– Commoditized products (like steel beams)

• Adapted is changing the product to meet the needs of the local culture– Big Macs around the world

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Decline Stage

• Sales decrease continuously• Can be due to: technology changes• Preference changes• Better alternatives

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Decline Stage

• Strategies for decline stage– Harvesting- gradually reducing all costs spent on

the offering. Ideally, this means that investments and inventory shrink and margins grow.• Decline stage doesn’t have to mean that the offering

isn’t profitable– Riding out the demand example

– Divesting- Get rid of a product, service, or business (cut losses)

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Stages

• Where do the following offerings fit into the PLC?– Apple iPod

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Stages

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Stages

• Where do the following offerings fit into the PLC?– Diet Coke

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Stages

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Stages

• Where do the following offerings fit into the PLC?– Coke

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Stages

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Stages

• Where do the following offerings fit into the PLC?– Epson Printers

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Stages

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Stages

• Where do the following offerings fit into the PLC?– Tesla Cars

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Stages

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Stages

• Where do the following offerings fit into the PLC?– Google Glass

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Stages

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Stages

• Where do the following offerings fit into the PLC?– Ninja Blender

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Stages

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Stages

• Where do the following offerings fit into the PLC?– Oculus Rift

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Stages