Marketing Management – Lecture Notes

Lecture 8 – Thursday October 11, 2018

Challenges in New Product development

In an economy of rapid change, continuous innovation is a necessity. Highly innovative firms are able to identify and
quickly seize new market opportunities.

New Product Success

Companies which focus on incremental innovation are likely to achieve more new product success. Incremental innovation
can enable companies to enter new markets by tweaking current products. Product can be successful because of these
key reasons:

- Innovation
- Well defined product concept
- Unique superior Product

New Product Failure

New products continue to fall at a disturbing rate. New products can fail due to many reasons:
- Ignored or misinterpreted market research
- Overestimation of market size
- Poor design
- Incorrect positioning
- Wrong price
- Ineffective advertisement

Some additional factors hindering new product development are:

- Shortage of important ides in certain areas

- Fragmented markets
- Social and governmental constraints
- Cost of development
- Capital shortage
- Shorter product life cycles

Organizational Arrangements

Many companies use customer driven engineering to design new products. But the organization needs to make two very
important arrangements:

 Budgeting for New Product Development: Senior management must decide how much to budget for new-product
development. R&D outcomes are so uncertain that it is difficult to use normal investment criteria.
 Organizing New Product Development: Companies handle organization of new product development in several
ways. Many companies assign responsibilities of idea to product managers. Some companies have high level
management committee for it and large companies often establish a new product department.
Managing the Development Process

Consumer Adoption Process

Adoption is an individual’s decision to become a regular user of a product.

Stages in the Adoption Process

 Awareness: The consumer becomes aware of the product but lacks information.
 Interest: The consumer is stimulated to seek information about innovation.
 Evaluation: The consumer considers whether to try.
 Trial: The consumer tries the product to improve his or her estimate of its value.
 Adoption: The consumer decides to make full are regular use.

Factors Influencing the Adoption Process

Marketers recognize the following characteristics of the adoption process:

 Individual’s readiness to try new products

 Personal influence
 Characteristics of the innovation
 Organizations Readiness to Adopt Innovation
Individual’s readiness to try new products

Every person has a different readiness towards trying new things. People fall into the adopter catagories.

 Innovators (2.5%) – Innovators are the first individuals to adopt an innovation. Innovators are willing to take risks,
youngest in age, have the highest social class, have great financial lucidity, very social and have closest contact to
scientific sources and interaction with other innovators. Risk tolerance has them adopting technologies which may
ultimately fail. Financial resources help absorb these failures. (Rogers 1962 5th ed, p. 282)
 Early Adopters (13.5%) – This is the second fastest category of individuals who adopt an innovation. These individuals
have the highest degree of opinion leadership among the other adopter categories. Early adopters are typically
younger in age, have a higher social status, have more financial lucidity, advanced education, and are more socially
forward than late adopters. More discrete in adoption choices than innovators. Realize judicious choice of adoption
will help them maintain central communication position (Rogers 1962 5th ed, p. 283).
 Early Majority (34%) – Individuals in this category adopt an innovation after a varying degree of time. This time of
adoption is significantly longer than the innovators and early adopters. Early Majority tend to be slower in the
adoption process, have above average social status, contact with early adopters, and seldom hold positions of opinion
leadership in a system (Rogers 1962 5th ed, p. 283)
 Late Majority (34%) – Individuals in this category will adopt an innovation after the average member of the society.
These individuals approach an innovation with a high degree of skepticism and after the majority of society has
adopted the innovation. Late Majority are typically skeptical about an innovation, have below average social status,
very little financial lucidity, in contact with others in late majority and early majority, very little opinion leadership.
 Laggards (16%) – Individuals in this category are the last to adopt an innovation. Unlike some of the previous
categories, individuals in this category show little to no opinion leadership. These individuals typically have an aversion
to change-agents and tend to be advanced in age. Laggards typically tend to be focused on “traditions”, likely to have
lowest social status, lowest financial fluidity, be oldest of all other adopters, in contact with only family and close
friends, very little to no opinion leadership.

Personal Influence

Is the effect one person has on another’s attitude or purchase probability. Is significance is great in some situations and
for some individuals than others.

Characteristics of the Innovation

Some products catch on immediately, whereas others take a long time to gain acceptance. Five characteristics influence
the rate of adoption of innovation:
- Relative Advantage: The degree to which the innovation appears superior to existing product.
- Compatibility: The degree to which the innovation matches the values and experience of the individuals.
 - Complexity: The degree to which the innovation is relatively difficult to understand.
- Divisibility: The degree to which the innovation can be easily tried.
- Communicability: the degree to which the beneficial results of use are observable or describable.

Organization’s Readiness to Adopt Innovations

Adoption is associated with variables in the organization’s environment, the organization itself and the administrators.

Deciding Whether to Go Abroad

Most companies would prefer to stay domestic if their local markets were large enough. Yet several factors draw
companies into the international arena:

 Some international markets present higher profit opportunities.

 The company needs larger customer base to achieve economies of scale.
 The company wants to reduce its dependence on any one market.
 The company decides to counter attack global competitors.
 Customers going abroad require international service.

The international process typically has 4 stages:

 No regular export activity.

 Export via independent representative. (agents)
 Establishment of one or more sales subsidiaries
 Establishment of production facility abroad.

Which Markets to Enter

The important questions to be answered here are:

 How many markets to enter?

 Developed versus Developing Markets
 Evaluating Potential Markets

How many markets to enter

The company must decide how many markets to enter and how fast to expand. Typical entry strategies are:

- Waterfall approach: Waterfall market entry strategy is sequential business expansion to foreign markets. Its
main characteristic is the use of clearly defined entry stages and the sequential use of experience: the
knowledge obtained during one stage is used to enact the next one. In this case, each stage is represented by a
single foreign market. First, a company enters one foreign market, establishes itself, promotes the product and
builds a client base. When the company feels comfortable in this market and its position is stable, the business
can be expanded into the next market, using the previously gained knowledge. This reminds of a multi-layered
waterfall, where water passes through each stage before it reaches the final destination, hence the name of the
market entry strategy.
- Gradually entering countries in sequence.
- Sprinkler approach: entering many countries simultaneously.

Developed Versus Developing Markets

One of the sharpest distinction in global marketing is between developed and developing or less mature markets. The
unmet needs of emerging markets represent huge potential. The company must decide based on its own strengths and
attributes which market to enter.
Evaluation Potential Markets

One of the most famous techniques used to evaluate potential markets is PEST analysis. In general a company prefers to
enter countries:

1) That rank high on market attractiveness

2) That are low in market risk
3) Which possess a competitive advantage

Deciding How to Enter the Market

Indirect Export

Indirect export has two advantages: First, there is less investment. Second, there is less risk.

Direct Export

A company can carry on direct exporting several ways:

 Domestic based export department or division

 Overseas sales branch or subsidiary
 Travelling export sales representatives
 Foreign based distributors or agents

Licensing

Licensor issues a license to a foreign company to use a manufacturing process, trademark, patent, trade secret, or other
item of value for a fee or loyalty. Licensing has potential disadvantage:

- The Licensor has less control over the licensee than it does over its own production.
- If the licensee is very successful the firm has given up its own profits.
- At the end of the contract period the firm might find the licensee as a competitor.
Joint Venture

Foreign investors join with local investors to create joint venture Company in which they share ownership and control.

Direct Investment

The ultimate form of foreign involvement is direct ownership of foreign-based assembly or manufacturing facilities.

Deciding on the Marketing Program

International companies must decide how much to adapt their marketing strategy to local conditions.

Product and communication

Price

Multinationals face several pricing problems when selling abroad. Companies have three choices for setting prices in
different countries:

1. Set a uniform price everywhere.

2. Set a market-based price in each country.
3. Set a cost based price in each country.

Deciding on the Marketing Organization

Companies manage their international marketing activities in three ways.

1. Export Department: a firm normally gets into international marketing by simply shipping its goods.
2. International Division: Many companies engage in several international markets and ventures. International division
is headed by a division president who sets goals and budgets and is responsible for the company’s international
growth.
3. Global Organization: Their top corporate management and staff plan worldwide manufacturing facilities, marketing
policies, financial flows, and logistical systems.