Why do firms create new products?

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.

Truly new product introductions, that is,

new-to-the-world 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.

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.

How Firms Develop New Products

Idea Generation

Development of viable new product

ideas.

Concept Testing Testing the new product

idea among a set of potential customer

Product Development

Development of prototypes and/or the

product. Market Testing

Testing the actual product in a few test

markest. Product Launch Full-scale commercialization of the product. Evaluation of results

Analysis of the performance of the new product and

making appropriate modifications.

Sources of New Product Ideas

The Product Life Cycle

Source of

ideas

Customer

input

Internal R&D

R&D

consortia

Licensing

Brainstorming

Competitors’

Products

Outsourcing

Characteristics of Different Stages of the product life cycle

The Service-Product Continuum

Service Marketing Differs From Product Marketing

2.

Inseparable production and consumption

:

service are produced and consumed at the same time

3.

Heterogeneous

:

variability

4. Perishable:

cannot be store

The

five

Cs

of pricing

1. Company Objective



Profit orientation:

focus on profit



Sales orientation:

focus on sales



Competitor orientation:

focus on competitor



Customer orientation:

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.

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)

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 theycan secure the placement of products inappropriate outlets in sufficient quantities exactly when customers want them, they are likely to fail.

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

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

Customer Customer Customer Manufacturer Retailer Manufacturer Retailer Wholesaler Manufacturer

Manufacturer

Retailer 1

Retailer 2

Retailer 3

Ve rt ic al C onfl ic t Horizontal conflict

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

Vertical versus Horizontal Channel Conflict

Managing the Marketing

Channel

and Supply Chain through

Vertical

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

Supermarket Supercenter Convenience Warehouse club Full-line discount Category specialist Drug Specialty Department Off-price Auto rental Health spa Vision center Bank Extreme value

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

Noise From the environment Sender (Firm) Transmitter encodes message Communications channel (Media) Receiver (Consumer) decodes message Feedback

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

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

Element

of

Integrated

Marketing Communications Strategy

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

Identify target audience Set advertising objectives Determine the advertising budget Convey the message Evaluate and select media Create advertise-ments Assess impact 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.

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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.

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

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)