Marketing Ch. 10 Lecture

Front 1

How much of a company's revenue should come from new products and services?

Back 1

50%

There has to be constant innovation

Front 2

List in order where the best places to get product ideas from

Back 2

1. Customers
2. Co-workers and employees
3. R&D
4. Competitive products

Front 3

Where is the #1 place to get a new product idea?

Back 3

CUSTOMERS

They will tell you ways to create

Front 4

Where is the #2 place to get a new product idea?

Back 4

co-workers and employees.

- You have to talk to everyone you work with from every level to get their ideas.

Front 5

Where is the #3 place to get a new product idea?

Back 5

research and development

- R&D identifies what the company’s future needs are
- A lot of ideas come out of the military. They created airplanes, microwave popcorn, internet, and spam

Front 6

Where is the #4 place to get a new product idea?

Back 6

competitive products
- We are always looking at our competitors for new ideas.

Front 7

What is another way to get a new product idea that isn't part of the top 4?

Back 7

outside the box and thinking proactively

- Weather permitting (“It’s raining so I can’t go”) and thinking outside of the box piss Dave off.
- We beat the creativity out of people
o Ex: Someone gets a great idea and they present it to the boss and he says no, no... and then they come the next week and he says no, no… then they don’t even bother coming back when they have an idea, and then they don’t even have the idea the next time.
 Create a system in the company where the ideas are considered and respected.
 We don’t know what we are going to need in the future until it is invented.
o Ex: When asked, kids say they are an artist, singer, musician, etc. When asked, adults don’t say they are any of those things.

Front 8

What kind of a process is product development?

Back 8

Cross-functional

When we do come up with teams of people. We need many types of people from different walks of the company

Front 9

5 types of teams dedicated to product development

Back 9

- Functional
- Balanced matrix
- Project team
- Functional matrix
- Project matrix

Front 10

What is skunk works?

Back 10

Group of people that we are going to take out of the office and we are going to get them away from everyone else and they are going to come up with idea for the far future. We take them out of the company so they don’t deal with the politics of the present. They aren’t paid to think like the company. They are paid to think past the company.
- Refrigerator example. They wanted to make a new refrigerator. A skunk worker at Whirlpool will come up with a refrigerator for food preservation in 2020.

Front 11

Process of creating a new product

List the process

Back 11

NOT LINEAR. We have to constantly go back and change things

1. New product strategy development
2. idea generation
3. screening and evaluation
4. business analysis
5. development
6. market testing

Front 12

new product strategy development

Back 12

New products, for new customers. Diversification. Expanding the market

Front 13

*Screening and evaluation

Back 13

Determine which ideas we are going to spend more time on, which will end up on the shelf, and what will be thrown out. We go back to the mission statement. Then we ask, “Do we think this will solve the need of the customer?”

- Screening process takes out the big chunks. Do we have the core competency to do this? Is this in our strategic plan?

Front 14

Business analysis

Back 14

The # one question we ask is “is this going to make us money?” “How much will it cost to make this product?” Parts cost, labor costs, machinery. Everyone gets to play, finance, accounting, and marketing. Marketing has to figure out what the demand is and how many people will buy. What the customers are willing to pay for the product. We then determine if it will be PROFITABLE.
o We have to decide which ideas we are going to use. Go back to our mission statement and see if the idea fits with our core competency. Then think if this is something the customer will like. Then we create a business analysis where “everyone gets to play” (accounting, marketing, design, etc). Number 1 question to ask is if this product will make money. How much will it cost to create the product? What are our labor costs (accounting)? What are the customers willing to pay for it?

Front 15

Development

Back 15

o Some products we can develop AND test
o We can develop convenience products, shopping products, etc.

Front 16

Market testing

Back 16

Number one reason we do market testing is to Reduce the risk

Front 17

List the types of test marketing

Back 17

- Standard test market
- Controlled test market
- Simulated test market

Front 18

Standard test market

Back 18

is the practice of offering a new product through normal distribution channels.
- Conducive to convenience goods. Roll out product in the marketing mix, and see if “ the dogs will eat the dog food” (see if consumers will buy the product with the product, price promotion, and distribution).

Front 19

Demographic test markets

Cedar Rapids example

Back 19

Part of standard test markets

Cedar Rapids is one of the top test markets because it represents all of America equally to get a good cross-section of America.
 One of the greatest worst test markets was in Cedar Rapids. Procter & Gamble created Olestra as a fat substitute. It caused intestinal disorder. P&G referred to this problem as “minor anal leakage” (EW!) and put it on the label.

Front 20

3 types of test markets

Back 20

o Standard test markets
 Represent the population of the country
o Control test markets
 Go into Wal-Mart and say if you give us this shelf space, we’ll reimburse you
o Simulated test markets
 Virtual reality

Front 21

Product lifestyle

List the stages

Back 21

- Products/services grow, mature, and decline just like a living thing

- Stages: Introduction, growth, maturity, decline

Front 22

Stage one of the product life cycle: Introduction

Back 22

a. Our marketing objective in this stage is gaining awareness

b. The market usually only has one product at this stage. Example: there was only Redbull in the introduction stage

c. Pricing: Skimming and Penetration pricing
d. Companies have to build demand for the product category in order to sell their products
e. Distribution: It is limited because it takes time to sell a new product category
i. Most companies sell products to specialty stores when there is a new product category
1. Example: new dog food sells to pet stores where veterinarians recommend their product.

Front 23

Skimming pricing

Back 23

start the price high, and begin to lower the price over time
1. New technology uses this pricing strategy. TVs are expensive when they first come out
2. Reasons:
a. You can reimburse the costs of first creating the product by charging a high price
3. AOL wanted to get as many customers as they could so they created CDs to send out to customers. AOL has sent out so many CDs that if they were stacked, they would be higher than the Sears tower. Everyone started using AOL so it was too hard for customers to get online. Moral: If you have a high price at the beginning, you can increase your demand by lowering the price.

Front 24

Penetration pricing

Back 24

start the price low and raise the price as we go along
1. Reasons:
a. We can reduce the risk for the consumer to buy the product
b. Company made an organic stain remover that used live bacteria to remove stains and it worked very well. Dave went to the manufacturing plant and they told him it only takes 37 cents to make and they sell it to Hyvee for $8. He didn’t get it patented but wasn’t worried about other people taking his idea. Moral: penetration pricing acts as a natural barrier to competition. People don’t get into the business because they think it is not profitable.

Front 25

Stage 2 of the product life cycle: Growth

Back 25

a. As products grow, companies differentiate their products more
b. Example: Redbull used simple sugars instead of complex sugars so in the growth stage they focused on telling the customers that their products are healthier

Front 26

Stage 3 of the product life cycle: Maturity

Back 26

a. Example: Redbull created different sizes and types such as Redbull Cola and energy shots
b. Once a product reaches the mature stage, companies need to redefine their product category. This redefinition takes the company back to the introduction stage.
c. Example: when textbooks reached the mature stage, Cengage created a new type of textbook which was in a magazine style. When Dave was looking for a book to use for Intro to Marketing, he used a sample of students and TAs and found that the Cengage MKTG book was liked the most. When this book became successful, Cengage came out with a management book called MGMT (growth stage). Point: Cengage had to go back to the introduction stage and gain new customers.

Front 27

Stage 4 of the product life cycle: Decline

Back 27

a. VCRs are in the decline stage. They started out with only a few products at high prices (introduction), then had lots of differentiated products (growth/maturity), then only a few products (decline).
b. Minimum promotion in this stage

Front 28

What is continuous innovation?

Back 28

o Example: if you go buy a vibrated 5 blade razor, you don’t need to re-learn how to use it.
o Example: microwaves had a new way of cooking and food preparation. Customers had to re-learn how to prep their food for a microwave

Front 29

What is a high-learning product?

Back 29

Customers have to re-learn how to operate the product

the introduction stage is long and goes through the other stages fast

Microwaves are an example

Front 30

What is a low-learning product?

Back 30

Customers don't have to re-learn how to operate the new product

each stage of the life cycle is distributed evenly through time and the product grows and declines normally

Razorblades are an example

Front 31

What is a fashion product?

Back 31

Popularity changes with time

Ex: medical shows, bell bottoms

The product goes through each stage several times and grows and declines several times

Front 32

What is a fad product?

Back 32

Generally doesn't have a maturity stage

Ex: Snuggie

only goes through the introduction stage and declines during the growth stage

Front 33

What are the 5 categories of adopters in the diffusion process?

Back 33

- Innovators/inventors
- Adverse risk
- Laggards
- Early majority
- Late majority

Front 34

Innovators/inventors

Back 34

Ex: o Bill Gates and Steve Jobs wanted a smaller computer so instead of settling and buying an existing product, they invented one that fit their needs

Front 35

Adverse risk

Back 35

o These are people who wear new fashion clothes when they just come out

Front 36

Laggards

Back 36

o These are people who buy products way later than they were fashionable. Basically they are behind in the times.
o Example: someone who doesn’t buy an iPod for another 20 years.

Front 37

Early majority

Back 37

higher risk. Someone who buys a new computer from a specialty store like Best Buy and receives expert service
o Adverse risk people are the early majority

Front 38

Late majority

Back 38

lower risk. Someone who buys a not-so-new computer at Wal-Mart
o These are laggers

Front 39

What are the 4 I's of services:?

Back 39

-Intangibility
- Inconsistency
- Inseparability
- Inventory/perishability

Front 40

Intangibility

Back 40

o We can’t see/touch a product until we buy the service

Front 41

Inconsistency

Back 41

o Services can’t follow the same procedures every single time like computers can
o There are variations in services

Front 42

Inseparability

Back 42

o Customers have to like the person who is performing the service in order to want to purchase the service
o Example: Dave didn’t like his doctor so he didn’t think the service would be good

Front 43

Inventory/Perishability

Back 43

o Services have to do a better job of managing inventory
o Example: While Dave was on vacation with his wife and mother-in-law, he sat next to three college girls on the airplane. An announcement was made that the airline was offering free lodging for 7 people to give up their seats. The three girls wanted to do it but Dave told them to wait. 5 minutes later another announcement was made that they were offering free lodging and a free ticket to anywhere in the country. The girls ended up getting that and $250 for giving up their seats. Airlines know that their probability of getting caught overbooking is low so they manage their perishability by overbooking.
o Example: movie theaters offer matinee prices to fill seats
o Example: bed and breakfasts are cheaper during the weekdays
o To manage perishability, companies use pricing and overbooking