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Why Do Firms Introduce New Products

Why Do Firms Introduce New Products 23
New Products Session 12 Marketing Management Prof. Natalie Mizik Agenda  What is a New Product  Why do firms introduce new products  Why do some good product ideas go bad  What factors affect customers’ adoption of new products  Creativity in NPD 2 Prof. Natalie Mizik – 2010 MIT 15.810New to the World Total Total Fresh Stripe 2 in 1 toothpaste mouthwash Sparkling White Sensation Whitening Sensitive Maximum Strength Tartar Control Tartar Control Plus Whitening Baking Soda Peroxide Whitening Tartar Control with Baking Soda Peroxide Cavity Protection Star Wars Barbie toothpaste Looney Tunes toothpaste My First Colgate Toothpaste with Barney Only about 5 10 of new products are truly new 3 Prof. Natalie Mizik – 2010 MIT 15.810Types of New Products M A R K E T Newness H L M Cost L Reductions Repositionings Not Very New 11 7 Product Line M Extensions 26 Moderately New New Product New to the World Lines 10 H Very New 20 4 Prof. Natalie Mizik – 2010 MIT 15.810 F I R M CUSTOMER Why Do Firms Introduce New Products  Support additional usage  Better meet needs of slightly different subsegments through differentiation  Address needs of potential emerging segments  Encourage variety seeking  Enhance sales of current products  Counter encroachment by alternative products  Control shelf space COMPETITION  Alter brand image  Replacing and improving mature products is a key success factor for a firm COMPANY 5 Prof. Natalie Mizik – 2010 MIT 15.810The lowcarb trend 9 4000 Aspen Edge by Coors 8 (March 2004) 7 3000 6 5 2000 4 3 Michelob Ultra 1000 2 (Sept. 2002) 1 1972 2000 2001 2002 2003 2004 2005 Image by MIT OpenCourseWare. Prof. Natalie Mizik – 2010 MIT 15.810 Number of lowcarb new products of Americans on Atkins/South Beach dietEnhance Sales of Current Products Asymmetric Dominance Effect competitor Attribute 1 A target B decoy C Attribute 2 Adding a dominated alternative can increase the probability of choosing the dominating alternative. (Huber, Payne and Puto 1982) 7 Prof. Natalie Mizik – 2010 MIT 15.810At the Movies… Compromise Effect The share of a product is enhanced when it is the intermediate option in the choice set and is diminished when it is an extreme option. (Simonson 1989) Prof. Natalie Mizik – 2010 MIT 15.810 Why do Products Fail Project Newprod: A study of over 200 industrial products  “Better mousetrap nobody wanted” 28 of failures  “Metoo product meeting competitive brick wall” 24  “Technical dog product” 15  “Competitive oneupmanship” 13  “The price crunch” 15  “Environmental ignorance” 7 Source: Cooper and Calantone (1979). 9 Prof. Natalie Mizik – 2010 MIT 15.810Why Good Ideas Go Bad Why Good Ideas Go Bad Problems with Product Quality or Product Attributes 10 Prof. Natalie Mizik – 2010 MIT 15.810Why Good Ideas Go Bad Problems with Product Quality or Product Attributes 10 Prof. Natalie Mizik – 2010 MIT 15.810Problems with Distribution (Place) Problems with Promotion 12 Prof. Natalie Mizik – 2010 MIT 15.810What percentage of new products fail Industrial 1990 50 50 PDMA 1990 42 PDMA 1995, 2004 41 AC Nielsen 2003 80 AC Nielsen 2001 93 Deloitte and Touche 1998 95 100 0 Prof. Natalie Mizik Prof. Natalie Mizik – – 2010 MIT 15.810 2010 MIT 15.810SShaped Diffusion Curve of New Products Personal Computers Personal Computers 35000 Cordless Phones 30000 14000 12000 25000 10000 20000 8000 15000 6000 10000 4000 5000 2000 0 0 1975 1980 1985 1990 1995 2000 1975 1980 1985 1990 1995 2000 14 Prof. Natalie Mizik – 2010 MIT 15.810Product Life Cycle and the Chasm 34 34 Late Early Majority Majority 1 1 2 /2 13 /2 16 Innovators Early Laggards Adopters Time of adoption for innovations Reference: Geoffrey A. Moore (1991), Crossing the Chasm, HarperBusiness. 15 Prof. Natalie Mizik – 2010 MIT 15.810Factors Affecting Customer Adoption  Advantage “Apple iPod Grabs 82 US Retail Market Share”  Compatibility Oct 12, 2004 (The Register)  Complexity  Observability  Risk  Divisibility Prof. Natalie Mizik – 2010 MIT 15.810Strategy: Product Life Cycle Sales Profit Introduction Growth Maturity Decline Time Image by MIT OpenCourseWare. 17 Prof. Natalie Mizik – 2010 MIT 15.810 Sales and profits () Main Takeaways: New Products  Why do firms introduce new products  Think of the 5Cs…  Why do some good product ideas go bad  Think of the 4Ps…  What factors affect customers’ adoption of new products  Think of ACCORD 18 Prof. Natalie Mizik – 2010 MIT 15.810HW 4: Why has No One thought about THIS yet Due: Session 13 Describe a product (or service), which does not exist on the market today, but would benefit consumers, and has potential for commercialization.  Who are your potential consumers (i.e., your target market)  What benefit/value does your product provide to the consumers  What is the best way to inform consumers, promote advertise it  What should your price be Why  How do you propose to distribute your product  What do you think are the major challenges/ possible problems with bringing this product to the market (12 page max) Prof. Natalie Mizik – 2010 MIT 15.810Creativity in NPD … an Alternative View Prof. Natalie Mizik – 2010 MIT 15.810Increased expenditures Decreasing uncertainty A Typical NPD Process Opportunity Identification: Market definition, Idea Generation Screening Concept tests Design: Customer needs, Product positioning, Segmentation, Sales forecasting, Engineering, Marketing mix. Testing: Product tests, Market tests, Pretest and Prelaunch forecasting, Tests marketing. Introduction: Launch planning, Tracking the launch. 21 Source: Hauser and Urban, “New Product Development” Prof. Natalie Mizik – 2010 MIT 15.810A Mortality Curve of New Product Ideas No. of Ideas Screening One Successful New Product Development Business Testing Analysis Commercialization Cumulative Time 22 Prof. Natalie Mizik – 2010 MIT 15.810The Prevailing Paradigm on sources for creative ideas Ideas for a really new product 23 Prof. Natalie Mizik – 2010 MIT 15.810Customers  “If I had asked the public what they wanted, they would have asked for a faster horse” Henry Ford  I don’t know who discovered the sea, but it sure wasn’t a fish. an old Arab saying Experts “In order to get a C in this course, the idea has to be feasible” Yale econ professor on Fred Smith’ paper outlining FedEx idea Prof. Natalie Mizik – 2010 MIT 15.810November 15, 1876: Expert committee’s response to Hubbard Bell’s telephone patent application “Technically, we do not see that this device will be ever capable of sending recognizable speech over a distance of several miles…” “The idea is idiotic on the face of it. Furthermore, why would any person want to use this ungainly and impractical device when he can send a messenger to the telegraph office and have a clear written message sent to any large city in the United States” “Mr. G.G. Hubbard's fanciful predictions, while they sound rosy, are based on wildeyed imagination and lack of understanding of the technical and economic facts of the situation, and a posture of ignoring the obvious limitations of his device, which is hardly more than a toy.” 25 Prof. Natalie Mizik – 2010 MIT 15.810The market cannot indicate a need, if it is not aware that such a need exists If we wish to find a creative, surprising new product there is no point to look for it in the market 26 Prof. Natalie Mizik – 2010 MIT 15.810The Famous “Getting out of the box” Puzzle Image by MIT OpenCourseWare. • In the 70’s only 20 solved this riddle • In a replication (1989), participants have received further instructions: "In order to solve the riddle intersections of lines out of the imaginary square should be created.“ Only 25 solved it with instructions 27 Prof. Natalie Mizik – 2010 MIT 15.810The Close(d) World Principle Thinking Inside the Box 28 Prof. Natalie Mizik – 2010 MIT 15.810Preschoolians Shoes Young children can not tell us that their shoes are too tight and the age old method of pressing on toes does not work. Preschoolers curl their toes when their toes are pressed on, making it seem that shoes are larger than they are. A study conducted by the Glasgow Caledonian University reveals that 83 percent of preschoolers are wearing shoes that are too small. This problem might seem minor, but unfortunately, tight shoes lead to foot problems later in life. A breakthrough invention by Preschoolians allows a parent to make sure shoes are never too tight. Preschoolians shoes look like ordinary children's footwear except for one thing: they have seethrough bottoms to help ensure proper fit. Like the rest of the sole, the viewing window is made of durable polyvinyl acetate, and the parts are heat fused to prevent cracks or splits. 29 Prof. Natalie Mizik – 2010 MIT 15.810Beware of the Bizarre © source unknown. All rights reserved. This content is excluded from our Creative Commons license. For more information, see http://ocw.mit.edu/fairuse. 30 How large is the market potential for this cup Prof. Natalie Mizik – 2010 MIT 15.810“Creativity” Science Is Rather Young • Goldenberg J. and D. Mazursky. 2002. Creativity in product innovation. • Connolly T., Routhieaux R. L., Schneider S.K. (1993). On the Effectiveness of Groups Brainstorming: Test of One Underling Cognitive Mechanism. Small Group Research, 24, 490503. • Dasgupta Subrata (1994), Creativity In Invention And Design Computational and Cognitive Explorations of Technological Originality. Cambridge University Press. • Diehl M., Stroebe W. (1987) Productivity Loss in Brainstorming Groups Toward the Solution of the Riddle. Journal of Personality and Social Psychology, 53 p. 497509 • Finke Ronald A , Thomas B. World and Steven M. Smith (1992), Creative cognition. MIT Press Cambridge Massachusetts. • Perkins D.N (1981 ) The mind’s best work, Harvard University Press • Weisberg Robert W. (1992), Creativity Beyond The Myth Of Genius. W.H. Freeman Company NY. 31 Prof. Natalie Mizik – 2010 MIT 15.81015.828 Design and Marketing New Products  New product development may be the greatest source of profitability in the next 10 years as growth returns to the world’s economy. Innovation earns extra profits and ROI by filling new customer needs with products that command premium margins. However the process of new product development is fraught with risk.  In this course we study the process of design and marketing new products and how new analytic methods can reduce risk and improve innovation. We organize our learning around the basic steps of development: 1. opportunity identification, 2. product design, 3. testing, 4. launch and life cycle management. We study the process in the context of large, startups, consumer, and industrial companies.  In addition to lectures and guest speakers, the course uses an intensive project on designing an alternative fuel vehicle. The problem is how to design and market a car people “need” (low emissions and high efficiency), but may not “want” (most buyers want large size and power). The obvious solution is to build and economy car, but this market is small (Prius sells 150,000 of over 10 million autos sold in the USA and most people do not buy it because it is “green”, but because it gives better mileage). Your problem is to build an alternative fuel vehicle (hybrid plug in, all electric, or hydrogen) that people will buy at a premium price. Teams will define an entry strategy (type of fuel and car type – SUV, sports car, sedan, economy, truck, etc), design a vehicle (target segment, brand, product positioning, specs, price dealers, etc), test it with consumers (real concept test will be done during the course), and develop a launch plan (advertising, selling/distribution, price, etc) esent Ford, GM, or Toyota and Your goal is to repr build a line of green cars that create a business of les by 2017 and of one million vehicles a 500,000 vehic year by 2022. You are given assumptions that make this feasible, but this is a deep dive into new product design and marketing. Do not take this course unless you want an intensive active learning project course. Each team will meet with Professor Urban each week. Prof. Natalie Mizik – 2010 MIT 15.810MIT OpenCourseWare http://ocw.mit.edu 15.810 Marketing Management Fall 2010 For information about citing these materials or our Terms of Use, visit: http://ocw.mit.edu/terms.
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