Why do firms create new products?

March 12, 2017 | Author: Edgar Warner | Category: N/A
Share Embed Donate

Short Description

Download Why do firms create new products?...


MKT2280 Principles of marketing

Why do firms create new products? 1. Changing Customer Needs: When they add products, services, and processes to their offerings, firms can create and deliver value more effectively by satisfying the changing needs of their current and new customers by keeping customers from getting bored with the current products or service offering.

2. Market Saturation: The longer a product exists in the marketplace, thee more likely it is that the market will become saturated.

3. Managing Risk through Diversity:

Firm often create a

broader portfolio of products, which help them diversity their risk and enhance firm value better than a single product can.

4. Fashion Cycles: In industries that rely on fashion trends and experience short product life cycles-including apparel, arts, books, and software markets-most sales come from new products.

5. Improving Business Relationships: Sometimes they function to improve relationship with suppliers.

Diffusion of innovation The process by which the use of an innovation-whether a product, a service, or a process-spreads throughout a market group, over time and across various categories of adopters.

MKT2280 Principles of marketing

Truly new product introductions, that is, new-to-theworld products that create new markets, can add tremendous value to firms. Pioneers have the advantage of being first mover; as the first to create the market or product category, they become readily recognizable to consumers and thus establish a commanding and early market share lead.

Diffusion of innovation curve

1. Innovators: These buyers enjoy taking risks and are regarded as highly knowledgeable.

MKT2280 Principles of marketing

2. Early Adopters: They generally don’t like to take as much risk as innovators do but instead wait and purchase the product after careful review.

3. Early Majority: Its members don’t like to take as much risk and therefore tend to wait until the bugs are worked out of a particular product or service.

4. Late Majority: When they do, the product has achieved its full market potential.

5. Laggards: These consumers like to avoid change and rely on traditional products until they are no longer available.

Using the Diffusion of Innovation Theory Firms can predict which types of customers will but their new product or service immediately after its introduction, as well as later as the product gets more and more accepted by the market. 1.

Relative Advantage: If a product or service is perceived to be better than substitutes, then the diffusion will be relatively quick.

2. Compatibility: A diffusion process may be faster or slower, depending on various consumer features, including international cultural differences.

3. Observability: When products are easily observed, their benefits or uses are easily communicated to others.

4. Complexity and Trialability: Products that are relatively less complex are also relatively easy to try.

MKT2280 Principles of marketing

How Firms Develop New Products Idea Generation

Concept Testing

Development of viable new product ideas.

Testing the new product idea among a set of potential customer

Market Testing Testing the actual product in a few test markest.

Product Launch Full-scale commercialization of the product.

Product Development Development of prototypes and/or the product.

Evaluation of results Analysis of the performance of the new product and making appropriate modifications.

MKT2280 Principles of marketing

Sources of New Product Ideas

Customer input

Competitors’ Products

Internal R&D R&D consortia

Source of ideas


The Product Life Cycle



MKT2280 Principles of marketing

Characteristics of Different Stages of the product life cycle

The Service-Product Continuum

Service Marketing Differs From Product Marketing 1. Intangible:

cannot be touched

MKT2280 Principles of marketing

2. Inseparable production and consumption:


are produced and consumed at the same time

3. Heterogeneous: 4. Perishable:


cannot be store

The five Cs of pricing 1. Company Objective  Profit orientation:  Sales orientation:

focus on profit focus on sales

 Competitor orientation:  Customer orientation:

focus on competitor

focus on customer

2. Customer(skip) 3. Cost  Variable costs are those costs, primarily labor and materials, that vary with production volume.  Fixed costs are those costs that remain essentially at the same level, regardless of any changes in the volume of production. 4. Competition(skip)

MKT2280 Principles of marketing

5. Channel Members(skip)

Considerations for Setting Price Strategies 1. Cost-Based Methods:

Determine the final price to

charge by starting with the cost.

2. Competition-Based Methods:

They may set their prices

to reflect the way they want consumers to interpret their own prices, relative to competitors’ offerings.

3. Value-Based Methods(skip)

Pricing Strategies (long term) 1. Everyday Low Pricing(EDLP): ex. Big C, Tesco Lotus 2. High/Low Pricing: ex. The mall, Robinson 3. New Product Pricing Strategies  Market Penetration Pricing: encourage consumer to purchase  Price skimming: high price, Innovation ex. Mobile

Pricing Tactics (short term) Pricing Tactics Aimed at Consumer

MKT2280 Principles of marketing

1. Markdowns are the reductions retailers take on the initial selling price of the product or service. 2. Quantity Discounts: buy more units the price will be cheap 3. Seasonal Discounts price reduction during off-peak season 4. Coupons encourage to repurchase 5. Rebates usually mailed to the consumer at some later date 6. Leasing pay fee for right to use the product 7. Price Bundling selling more than one product for a single and lower price 8. Leader Pricing attempt to build store traffic 9. Price Lining

Business Pricing Tactics and Discounts 1. Seasonal Discounts 2. Cash Discounts 3. Allowances 4. Quantity Discounts 5. Uniform Delivered versus Zone Pricing

The Importance of Marketing Channel/Supply Chain Management But even if firms execute these activities flawlessly, unless they can secure the placement of products inappropriate outlets in sufficient quantities exactly when customers want them, they are likely to fail.

MKT2280 Principles of marketing

Marketing Channels can add value for manufacturer, and produced and distributed in the right quantity, the right location and the right time.

Designing Marketing Channels 1. Direct Marketing Channels: There are no intermediaries between the buyer and seller. 2. Indirect Marketing Channels: One or more intermediaries work with manufacturers to provide goods and services to customers. Direct Channels

Indirect Channels Indirect Channels 1 intermediary

2 intermediary

Manufacturer Manufacturer








Managing the Marketing Channel and Supply Chain Channel Conflict 1. Vertical Channel Conflict:

Supply chain members that

buy and sell to one another are not in agreement about their goals, roles, or rewards.

2. Horizontal Channel conflict: It will occur when there is disagreement or discord among members at the same level

MKT2280 Principles of marketing

of marketing channel, such as two competing retailers or two competing manufacturers.

Vertical versus Horizontal Channel Conflict

Vertical Conflict


Retailer 1

Retailer 2

Managing the Marketing and Supply Chain through

Retailer 3


Horizontal conflict


Marketing Systems(VMS) 1. Independent or conventional marketing channel: Several independent members-a manufacturer, a wholesaler, and a retailer-each attempts to satisfy its own objectives and maximize its profits, often at the expense of the other members. 2. Vertical Marketing Channel: a marketing channel in which the members act as a unified system.  Administered Vertical Marketing System  Contractual Vertical Marketing System  Corporate Vertical Marketing System

MKT2280 Principles of marketing

Retailing is defined as the set of business activities that add value to products and services sold to consumers for their personal or family use. A multichannel Strategy involves selling in more than one channel (e.g., store, catalog, and Internet).

Factors for Establishing a Relationship with Retailers 1. Choosing Retailing Partners: When choosing retail partners, manufacturers look at the basic channel structure, where their target customers expect to find the products, channel member characteristics, and distribution intensity.  Channel Structure  Customer Expectations  Channel Member Characteristics  Distribution Intensity 2. Identify Types of Retailers Food

General Merchandise



Full-line discount


Auto rental


Category specialist


Health spa




Vision center

Warehouse club

Extreme value


MKT2280 Principles of marketing

3. Developing a Retail Strategy Using the Four PS(skip) 4. Managing a multichannel strategy(skip)

Integrated Marketing Communications (IMC) represents the Promotion P of the four Ps. It encompasses a variety of communication disciplines-advertising, personal selling, sales promotion, public relations, direct marketing, and online marketing including social media-in combination to provide clarity, consistency, and maximum communicative impact. There are three elements n any IMC strategy: the consumer, the channels through which the message is communicated, and the evaluation of the results of the communication.

Communicating With Consumers The communication process Noise From the environment

Sender (Firm)

Transmitter encodes message



channel (Media)

(Consumer) decodes message


MKT2280 Principles of marketing

The AIDA Model Marketing communications move consumers stepwise through a series of mental stages, for which there are several models. The most common is AIDA model, which suggests that Awareness leads to Interest, which leads to Desire, which leads to Action.

The AIDA Model


of Integrated

Marketing Communications Strategy 1. Advertising 2. Public relation(PR) 3. Sales promotion 4. Personal selling 5. Direct marketing 6. Online marketing

Planning For and Measuring IMC Success (Skip)

MKT2280 Principles of marketing

Advertising is a paid form of communication, delivered through media form an identifiable source, about an organization, product, service, or idea, designed to persuade the receiver to take some action, now or in the future. Steps in Planning and Executing an Ad Campaign Step 1

Step 2

Step 3

Identify target audience

Set advertising objectives

Determine the advertising budget

Step 4

Step 5

Step 6

Convey the message

Evaluate and select media

Create advertisements

Step 1 Identify Target Audience Firm conduct research to identify their target audience, then use the information they gain to set the tone for the advertising program and help them select the media they will use to deliver the message to that audience.

Step 2 Set Advertising Objectives In advertising to consumers, the objective is a pull strategy and push strategies. Pull strategy: the goal is to get consumers to pull the product into the marketing channel by demanding it. Push strategies: are designed to increase demand by focusing on wholesaler, retailer, or salesperson.

Assess impact

MKT2280 Principles of marketing

Informative Advertising is a communication used to create and build brand awareness. Persuasive Advertising occurs in the growth and early maturity stages of the product life cycle. Reminder Advertising is a communication used to remind or prompt repurchases, especially for product that have gained market acceptance and are in the maturity stage of their life cycle.

Step 3 Determine the Advertising Budget (skip) Step 4 Convey the Message Marketers determine what they want to convey about the product or service. First, the firm determines the key message it want to communicate to the target audience. Second, the firm decides what appeal would most effectively convey the message. The message: it provides the target audience with reasons to respond in the desired way. The appeal: 1. Informational appeals help consumer make purchase decisions by offering factual information that encourages consumers to evaluate the brand favorably on the basis of the key benefits it provides. 2. Emotional appeals aims to satisfy consumers’ emotional desires rather than their utilitarian needs. The key to a successful

MKT2280 Principles of marketing

emotional appeal is the use of emotion to create a bond between the consumer and the brand.

Step 5 Evaluate and Select Media Media planning refers to the process of evaluating and selecting the media mix-the combination of the media used and the frequency of advertising in each medium-that will deliver a clear, consistent, compelling message to the intended audience. Media buy is the actual purchase of airtime or print pages, is generally the largest expense in the advertising budget.

Step 6 Create Advertisements (skip) Step 7 Assess Impact Using Marketing Metrics (skip)

View more...


Copyright � 2017 SILO Inc.