Chapter Objectives
LEARNING OBJECTIVES
LO1 Identify the reasons firms innovate
LO2 Describe the diffusion of innovation theory
and how managers can use it to make
product line decisions
LO3 Explain the stages involved in developing
new products and services
LO4 Describe the product life cycle and
summarize how it is used to make product
line decisions
8-1
LO3
How Firms Develop New Products
1
2
4
5
3
6
8-2
LO3
1. Idea Generation
Internal
R&D
Customer
Input
Licensing
Source
of Ideas
Competitor’s
Products
Brainstorming
8-3
LO3
Internal R&D
• High product
development costs
• Often the source of
technological products
• Often the source of
breakthrough products
8-4
LO3
Licensing
• Firms purchase the
rights to technology or
ideas from other
research-intensive firms
• University research
centers also often
provide such licenses
8-5
LO3
Brainstorming
• Groups work together
to generate ideas
• No idea can be
immediately dismissed
IDEO Website
8-6
LO3
Competitors’ Products
• Reverse
engineering
• “Me Too” or copycat
products
8-7
LO3
Customer Input
• As much as 85% of
new business to
business products
come from customers
• Lead users modify
existing products
according to their own
specific needs
8-8
LO3
2. Concept Testing



Concept is a brief written
description of the product
Customers’ reactions
determine whether or not
it goes forward
Triggers the marketing
research process
8-9
LO3
3. Product Development
1. Prototype
2. Alpha testing
3. Beta testing
8-10
LO3
4. Market Testing
Premarket
tests
Test
marketing
Customers
exposed
Mini product
launch
Customers
surveyed
More expensive
than premarket
tests
Firm makes
decision
Market demand
is estimated
Dodge Commercial
8-11
LO3
5. Product Launch
Kellogg’s
Drink’n
Crunch
Portable
Cereals
• An inner cup contains the
cereal and the outer cup
contains the milk
Minute
Maid
Premium
Heart Wise
Orange
Juice
• Each 8 oz. serving of the
juice contains 1 gram of
plan sterols that can reduce
cholesterol levels
Aquafresh
Floss ‘N’
Cap
Fluoride
Toothpaste
• The cap of the toothpaste
contains floss
8-12
LO3
Entrepreneurial Marketing 8.1 Gourmantra



Identified need
Introduced product to
market via sampling
and local fairs
Later launched in
retail stores: A&P,
Sobeys, Dominion,
Food Basics, WalMart, and more
8-13
LO3
New Product Marketing Mix
Promotion
Timing
New
Product
Place
Price
8-14
LO3
6. Evaluation of Results
Satisfaction of technical
requirements
Customer acceptance
Satisfaction of the firm’s financial
requirements
8-15
LO3
Why do new products fail?
• Too small target
market
• Poor design
• Low product quality
• Incorrect positioning
• Wrong price strategy
• Poor marketing
communication
• Competition
8-16