Chapter 8

Question 1

Why is introducing new products so important?

Answer 1

If you don’t introduce new products, you will not survive in the marketplace. More than 50% of revenue comes from new products

Question 2

What is the downside of introducing new products?

Answer 2

New products tend to be very risky and expensive. New products fail in the market around 35 to 40% of the time.

Less than 10% of products are successful.

However one successful new product can entirely change the course of your business.

Question 3

What are the causes of new product failures?

Answer 3

1) Overestimation of market size

2) Product design problems

3) Product incorrectly positioned, priced, or advertised

4) Product may have been pushed despite poor marketing research findings

5) Cost of product development

6) Competitive actions

Question 4

What is the New Product Development (NPD) Process?

Answer 4

1) Idea Generation (come up with ideas)

2) Idea screening (choose best idea)

3) Concept Development & Testing (Elaborate on your idea)

4) Marketing Strategy (Target customers? Positioning? 4Ps)

5) Business Analysis (Evaluate your business, your industry)

6) Product Development (Fully create you product)

7) Test Marketing (distibute product to a limited number of real customers and ask what they think, see reactions)

8) Commercialization (Fully release product)

Question 5

What are some sources of idea generation?

Answer 5

Customers, Marketing Research competitors, employees, distributors

Question 6

How do we screen for ideas?

Answer 6

Based strengths and weaknesses, fit with objectives, market trends, rough ROI estimates.

Question 7

Concept Dev & Testing - Product Ideas vs Product Concept

Answer 7

Product Ideas = A possible product the company might offer to the market

Product Concept = An elaborated version of the idea expressed a meaningful consumer terms (What consumers will buy)

Question 8

How we turn an idea into a product concept?

Answer 8

The company needs to identify

1) Potential Users (who can use product and in what situation)

2) Usage occasions

3) Benefits

Question 9

Provide a concept example:

Answer 9

A tasty snack (benefit) drink for children (potential users) to drink as a midday refreshement (usage occasions)

A health supplement benefit for older adults potential users to drink in the late evening before they go to bed (usage occasions)

Question 10

Concept Testing

Answer 10

presenting the product concept to the appropriate target consumers and getting their reactions/intention to buy

the concept can be presented either physically or symbolically

Question 11

What are some potential questions you may ask people for concept testing?

Answer 11

Are the benefits clear to you and believable?
> Communicability and believability

Do you see this product solving a problem or filling a need for you
> Need level

Do other products currently meet this need and satisfy you?
> Gap level

Is the price reasonable in relation to the value?
> Perceived value

Would you (definitely, probably, probably not, definitely not) buy the product?
> Purchase intention

.Who would use this product, and when and how often will the product be used?
> User targets, purchase occasion, and purchasing frequency

Question 12

Marketing Strategy Development Steps?

Answer 12

1) Target market, Positioning, Sales, Market Share, profit goals for first few years

2) Price, Place + marketing budget

3) Planned LT sales, profit goals, marketing mix strategy

Question 13

Business Analysis?

Answer 13

• Review sales, costs and profit projections
• min & max sales to evaluate risks

Question 14

product dev?

Answer 14

uhm…nth?

Question 15

Test Marketing?

Answer 15

you’re distributing the real actual product (not just the concept)

Problem:
- your competitors know about your product now (may allow competitors to gain advantages) = BIG PROBLEM

• costs a lot
• No guaranteed success

Pro: because a new product requires a huge investment, Test marketing reduces risk

Question 16

Types of test marketing?

Answer 16

1) Standard test marketing: typical sampling procedure

2) Simulated test marketing: creates figstore, recruit participants Give them a shopping list including your product. (Solution to competitors seeing your product since it’s not in a real marketplace)

3) Controlled test marketing: every week, the company changes the marketing mix. (example: week 1 = 50$, week 2 = 100$ —> what do people think about these prices)

• helps with finding optimal marketing strategy, otherwise it’s the same as standard testing.

Question 17

trial = low, repurchase rate = low, action = ?

Answer 17

DROP PRODUCT

Question 18

trial = high, repurchase rate = low, action = ?

Answer 18

DROP = product bad

Question 19

trial = low, repurchase rate = high, action = ?

Answer 19

Modify 4Ps (pricing or promotion)

Question 20

trial = high, repurchase rate = high, action = ?

Answer 20

COMMERCIALIZE PRODUCT

Question 21

What is the product lifecycle and what are some key assumptions?

Answer 21

Def: how you will manage the product over time

Assumptions

• A product has a limited life
• Sales pass through distinct stages, each posing different opportunities, challenges, and problems to the seller
• Profits rise and fall at different stages of the PLC
• Products require different marketing strategies in each stage of their life cycle

Question 22

Name each stage

Answer 22

Product Development Stage

Introduction

Growth

Maturity

Decline

Question 23

Describe the Product Development Stage

Answer 23

You spend money on the development of the product, putting you at a loss (so revenues = negative)

Question 24

Describe the Introduction stage

Answer 24

Sales = Low

Marketing Cost = High per customer (cuz you have less customers, so marketing cost is divided amongst very few customer)

Profit = negative (but you’ll break even somewhere b/w into and growth)

Actions
______________________________
Marketing Objectives = Create prorduct awareness & trial

Product = keep it basic

Price = Skimming or Penetration

Distribution = Selective

Advertising = Build product awareness amongst early adopters and dealers

Question 25

What is Skimming Pricing Strategy? When would you use it?

Answer 25

Skimming pricing involves setting a high initial price for a new or innovative product before competitors enter the market. The strategy aims to "skim" revenue from customers willing to pay a premium, typically early adopters who value innovation, exclusivity, or status. Over time, the price is gradually reduced. STEPS: Identify your core competencies that give you a competitive advantage. Ex: Your brand + tech You can charge a higher price in the market because of this. This means your profit margin will be higher. You will reinvest this profit in advertising and R&D to develop sustainable competitive advantage. CONDITIONS 1) Product quality/image must support the HIGH PRICE 2) Cost of producing a small volume should not be too high (or else you'll cancel the advantage of charging more) 3) Competitors should not be able to undercut the high price

Question 26

What is a penetration marketing strategy? What are the two benefits?

Answer 26

company sets an initially low price to quickly attract customers, gain market share, and establish a competitive foothold. - Build a scale of production, manufacturing experience effects - Maintaining continuous demand is the most critical factor If you lower the can sell more, you can produce more, meaning your quantity goes up, your fixed costs go down, and your unit costs go down.

Question 27

What is the Unit Cost Formula

Answer 27

Unit Cost (UC) = Variable Cost (VC) + Fixed Cost (FC) / Quantity (q)

Question 28

What happens to unit cost when q goes down and FC goes way up

Answer 28

UC goes up

Question 29

What is scale of production and how is it achieved?

Answer 29

When your manufacture volume goes up (you can make more) because unit costs have dropped. How? q goes down, FC goes up, UC goes down. Note that since fixed costs don't increase as manufacturing volume increases, your unit costs will immediately go down.

Question 30

What are manufacturing experience effects? And how is it achieved?

Answer 30

When your experience goes up because your costs of dropped. Manufacturers over time know how to better allocate their resources You produced so much that labor skills go up, and you allocate resources better so your costs go down.

Question 31

Describe the Growth Stage

Answer 31

Sales = rapidly rising sales Marketing Cost = Avg cost per customer (cuz you more customers now, so marketing cost is divided amongst very a larger number of customer) Profit = rising profits Actions ______________________________ Marketing Objectives = maximize market share (depends, if your goal is to sell more, then yes this is your goal. But if you just wanna build brand image forget abt it.) Product = offer product extensions, service, and warranty Price = same or slightly go down to penetration strat to remain competitive Distribution = build intensive distribution Advertising = same or slightly increase to build awareness and interest in the mass market (instead of target)

Question 32

What are strategies to implement for the Growth Stage?

Answer 32

Market Expansion Strategies: - improve product quality - add new models - search for new market segments - increased distribution coverage (selective to mass distribution) - Advertising = product awareness (stress brand name, new features of the product, use celebrities) - need to choose between high market share versus. high profit strategies

Question 33

Maturity

Answer 33

Sales = peak sales Marketing Cost = low cost per customer (cuz you have soooooo much more customers now, so marketing cost is divided amongst very a very large number of customer) Profit = high but declining Actions ______________________________ Marketing Objectives = maximize profit while defending your market share Product = diversify brand and models Price = price to match or beat competitors (ex: coca cola and their new flavors) Distribution = build intensive distribution Advertising = stress brand differences or benefits (cuz u gotta fight competitors)

Question 34

what are the three strategies for the maturity stage?

Answer 34

1) market modification = Turn non Users to Users Or persuade existing customers to use more Volume = Number of Brand Users * Usage rate per user 2) product modification 3) marketing mix modification

Question 35

Describe Decline Stage

Answer 35

Sales = declining sales Marketing Cost = low cost per customer (you're not spending much on marketing anymore) Profit = declining profits Actions ______________________________ Marketing Objectives = reduce expenditure and milk the brand Product = phase out weak items Price = cut price Distribution = selective (phase out unprofitable outlets because now you don't have a lot of customers so managing so many stores doesn't make sense) Advertising = Reduce to level needed to retain hard-core loyal customers

Question 36

What are strategies used in the decline stage?

Answer 36

increase/maintain/decrease investment or harvesting/divesting

Question 37

Describe the 3 distribution strategies?

Answer 37

1) exclusive distribution = Limited number of dealers (example: luxury items like Ferraris or Chanel) 2) selective distribution = good amount of stores (example = cell phones, which are not very rare, but not unlimited) 3) intensive distribution = you have so many stores in your distribution (Coca Cola or pepsi = you can easily buy it from any convenience store or vending machine)