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Chapter 8: Creating the Product

“Build it and they will come!” (NOT) Value proposition

– A statement capturing why a person should buy the product (benefits she will receive) compared to competitors’ products

Product: – Tangible good or intangible service that satisfies

customer needs• We can see, touch, smell, hear, taste, or possess tangible goods

– Intangible products • services, ideas, people, places

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Layers of the Product

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The Core Product= Benefits

Consists of all the benefits the product will provide for consumers or business customers

A customer purchases a 1/2” drill bit. What does s/he want? – A 1/2” hole!

Marketing is about supplying benefits, not products. It’s not about the product – it’s what the product DOES for the consumer.

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The Actual Product

Consists of the physical good or delivered service that supplies the desired benefit

Example:– A washing machine’s core product is the ability to get

clothes clean, but the actual product is a large, square, metal apparatus

Actual product also includes appearance, styling, packaging, and the brand

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The Augmented Product

Consists of the actual product plus other supporting features such as warranty, credit, delivery, installation, and repair service after the sale– A key way to differentiate many products– Consistent with long-term customer

relationships

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Classifying Consumer Products

By how long they last

– Durable

– Nondurable

By how consumers buy them

– Convenience

– Shopping

– Specialty

– Unsought

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Durable vs. Nondurable Durable

– Benefits accrue to consumer over period of months, years, decades

– High involvement – Understand

augmented product issues

– FAQ

Nondurable– The good is

consumed in the short-run

– Low involvement– Focus on brand/price/ distribution – Decision made based

on past experience

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Classifying Goods: How Do Consumers Buy the Product?

Convenience product: frequently purchased with minimum of comparison and effort– Staples (milk)– Impulse products (candy bar)– Emergency products (drain opener)

Marketing implications?

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Classifying Goods: (cont’d)

Shopping product: purchased with considerable time and effort considering price, attributes, quality – Use of multi-attribute model

Narrow choices and tend to compare alternatives – Evoked set

Marketing implications?

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Classifying Goods: (cont’d)

Specialty products: have unique characteristics important to some buyers at any price

Consumers may be highly brand loyal– But only consumer who place value on that product

Consumers may not be willing to accept substitutes– Rolex watches / Land Rover / Dooney & Burke

Marketing implications?

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Classifying Goods: (cont’d)

Unsought products: those in which consumers have little interest until a need arises– Renter’s insurance, retirement plans, disability

insurance

Requires a good deal of advertising or personal selling

May also require a good deal of education

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The Process of Innovation: Creating New Products

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.

Customer perspective: Innovation is 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. Failure rate is very high. New products can contribute to society.

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Innovation Continuum

Continuous Dynamically Discontinuous Continuous

Little to no change in CB Extreme changes

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Innovation Continuum

Continuous Dynamically Discontinuous Continuous

Little to no change in CB Extreme changes

Latest Blackberry Droid new to market Smart phones introduced

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Continuous Innovations

Continuous innovations– Offer slight modifications to an existing product

Most common form of innovation– Consumers don’t need to learn anything new; change is minimal – New flavors, new sizes, new styling—all are

considered continuous innovations– Examples: brand extensions, line extensions – Knockoffs copy (with slight modification) the design

of an original product

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Dynamically Continuous Innovation

Dynamically continuous innovation:– A pronounced modification to an existing product – Requires a *moderate* amount of learning or

behavior change – Convergence:

• The coming together of two or more technologies to create a new system with greater benefits than its parts

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Discontinuous Innovations Discontinuous innovation:

– A totally new product– Radical/breakthrough/disruptive– Creates major changes in the way we live– Consumers must engage in a great deal of new

learning– May radically alter lifestyles

• Microwave ovens in the 70s

• PCs in 80s

• Cell phones in early 90s

• Tablet technology

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Developing New Products

New-product development – continuous process of looking for entirely new

products or for ways to make an existing product better

Successfully introducing new products is becoming more difficult– R&D costs are enormous– Products become obsolete faster– Slotting fees are high

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New Product Development Process: “Stage Gate” (Funnel)

Idea Generation Product Concept Development / Screening Marketing Strategy Development Business Analysis Technical Development Market Testing Commercialization

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Steps in the New-Product Development Process

Phase 1: Idea generation – Brainstorm products that provide customer benefits and which are compatible with the firm’s mission

• Customers (Example: Sensual Edible line)• Salespeople• Service providers• Anyone with direct customer contact

– Research: trend-spotters, lead users, etc.

Phase 2: Product-concept development / screening– Expand product concepts – Test for technical and commercial success

• Test markets

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Best & Worst Test Market Cities

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Steps in New-Product Development

Phase 3: Marketing strategy development– Developing a strategy to introduce the product to the

marketplace– Identify the target market– Estimate its size– Determine how the product can be positioned– Plan pricing, distribution, and promotion expenditures

necessary for roll-out– May involve green marketing

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Phases in New-Product Development

Phase 4: Business analysis– The product’s commercial viability is assessed in this

phase• **Develop pro-forma statements, compute

payback periods, NPV, and ROI– Assess how the new product will fit into the firm’s total

product mix• Cannibalization (Ch. 9)

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Phases in New-Product Development

Phase 5: Technical development – Firm engineers refine and perfect the new product– Develop one or more prototypes or test versions of

proposed product (in R&D department).– Evaluate prototypes with prospective customers– If applicable, apply for a patent

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Phases in New-Product Development

Phase 6: Test marketing– The complete marketing plan is tested in a small

geographic area similar to the larger market

Phase 7: Commercialization – The new product is launched into the market– Full-scale production, distribution, advertising, and

sales promotion are begun

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Adoption and Diffusion Processes

Adoption: process by which a customer begins to buy and use a new good, service, or idea

Diffusion: describes how the use of a product spreads throughout a population– How an innovation is communicated and adopted

throughout the marketplace– “The Tipping Point”

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Categories of Adopters

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Innovators 2.5% – the first to accept a new idea or product Venturesome and willing to take risks Well educated; younger; affluent They like to be first!

– Willing to pay more – not price sensitive

Cosmopolites: willing to seek social relationships outside of their local peer group

Rely heavily on impersonal information sources

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Early Adopters

13.5% – the second to adopt an innovation Heavy media users Tend to be concerned with social acceptance Opinion leaders primarily come from the early

adopter group

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Early Majority

34% adopt the product prior to the mean time of adoption

Deliberate and cautious Spend more time in the innovation decision

process Middle class: Slightly above average in

education and social status

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Late Majority 34% in this adoption category Older, more conservative Peers are the primary source of new ideas Below average in education, income, and

social status Wait to purchase until product has become a

necessity and/or peers pressure to adopt

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Laggards

16% – last to adopt an innovation Lower in social class than other categories Bound by tradition Product may have already been replaced by

another innovation

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5 Factors Affecting the Rate of Adoption

Relative Advantage: – Benefits of the new innovation relative to its costs

Compatibility: – Consistent with existing behaviors and practices, as

well as cultural norms

Complexity: – Difficulty in using/learning to use the new innovation

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Rate of Adoption Factors (Cont.)

Trialability: – Can the new product be easily “tried” or

“sampled?

Observability: – Visibility of the benefits of the product to user,

AND visibility to others