Chapter Eight

Product I: Innovation
and New Product Development

Marketing: Real People, Real Choices, 8e

Solomon, Marshall, and Stuart
Copyright © 2016 Pearson Education, Inc. 8-1
 Chapter Objectives
• Explain how value is derived through different product layers
• Describe how marketers classify products
• Understand the importance and types of product innovations
• Show how firms develop new products
• Explain the process of product adoption and diffusion of new
innovations

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 Real People, Real Choices:
Decision Time at Under Armour
• Which option should Neil pursue?
­ Option 1: Approach the decision as a product problem, building
new product offerings to get into retail ASAP
­ Option 2: Approach the decision as a marketing problem. Stay
the course with the current product line and invest resources into
ramping up its messaging to target markets
­ Option 3: Start over with a new business plan and rebuild the
Baselayer product from the ground up

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 Build a Better Mousetrap …
and Create Value
• “Build a better mousetrap and the world will beat a path to your
door.”
• Old adage, but not always true!
• Woodstream Company’s “Little Champ” failure …
• Next set of chapters relate to developing value propositions for the
customer
• Emphasis on the word develop

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 Layers of the Product Concept
• A product represents all
that a customer receives
in an exchange
• Marketers distinguish
among three distinct
“layers” of the product:
­ Core product
­ Actual product
­ Augmented product

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Figure 8.1: Layers of the Product

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 How Marketers Classify Products
• How do products differ from each other?
• Marketers classify products into categories because they represent
differences in how consumers feel about, purchase, and consume
products
• Categories relate to:
­ How long do products last?
­ How do consumers buy products?
­ How do businesses buy products?

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 How long do products last?
• Durable goods are consumer products that provide benefits
over a period of months, years, or even decades
­ Cars
­ Furniture
­ Appliances
• Nondurable goods are consumed over the short term
­ Magazines
­ Sushi

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Figure 8.2: Classification of Products

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Figure 8.3: How do Consumers Buy
Products?
• Marketers also classify
products based on where
and how consumers buy
the product
• Similar to how consumer
decisions differ in terms of
effort they put into
habitual decision making
vs. limited problem solving
vs. extended problem
solving (Ch. 6)

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 Convenience Products
• Convenience products are typically nondurable goods or services
bought with minimal effort
­ Staples (e.g., milk, bread)
­ FMCG
­ Impulse products
­ Emergency products
• Consumers expect convenience products to be low priced and widely
available

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 Shopping Products
• Shopping products are goods and services for which consumers will
spend time and effort to gather information on price, product
attributes, and product quality
­ Computers
­ TVs
­ Appliances
• Consumers are more likely to compare alternatives before they buy

CNET.com
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 Specialty Products
• Specialty products have unique characteristics that are
important to buyers at almost any price
­ Generally, an extended problem-solving purchase that requires a
lot of effort to choose
­ Marketers have to go to a lot of effort to make their products
stand out
­ Customers tend to be very loyal

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 Unsought Products
• Unsought products are goods and services for which a
consumer has little awareness or interest until a need arises
­ Burial plots
­ Life insurance for young people
• Often require a good deal of advertising or personal selling
to interest buyers

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Business to Business Products
• Marketers classify B2B
products based on how
organizations use them
• Knowledge of customer
product use enables
marketers to:
­ Improve product designs
­ Craft an appropriate
marketing mix

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 Categorizing B2B Products
• Equipment is used in daily operations
• Maintenance, repair, and operating (MRO) goods are
consumed relatively quickly
• Raw materials are products of fishing, lumber,
agricultural, and mining industries used to
manufacture finished goods

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 Categorizing B2B Products
• Processed materials are produced by firms when they
transform raw materials from their original state
• Specialized services are those which are essential to the
organization buy are not a part of the actual production of a
product
• Component parts are manufactured goods or subassemblies
of finished items that firms need to complete their own
goods

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 Classification of Consumer
and B2B Products
• Categorizing consumer and B2B products helps marketers to:
­ Develop better new products
­ Improved marketing mixes
• Product durability, purchase process, and product use
provide useful information

Are consumer product classifications for a given product permanent?

Can you think of products that have moved from one class to
another?
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 New and Improved:
The Process of Innovation
• Innovation is a hot topic in the boardroom today!
• For marketers, an innovation is anything customers perceive
as new or different
­ May be a minor or game changing alteration to an existing good or
service
­ May be a brand new product entirely

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Types of Innovations

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 Continuous Innovation
• A continuous innovation is a modification to an existing
product
­ Most common form of innovation
• A knockoff is a new product that copies, with slight
modification, the design of an original product
­ Harder to legally protect designs than technological innovations

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Dynamically Continuous Innovation
• A dynamically
continuous
innovation is a
pronounced
modification to an
existing product
­ Requires a modest
amount of learning
for consumers to use

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 Convergence
• Convergence is the
coming together of two
or more technologies to
create a new system
• One of the most talked
about forms of
dynamically continuous
innovation

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 Discontinuous Innovation
• To qualify as a discontinuous innovation, the product must create
major change in the way people live
­ Consumers have to learn a great deal in order to be able to
effectively use the product

What’s the next “killer app?”

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 New Product Development
• The new product development model is based on categories
of R&D expenditures
­ In most organizations, this process is well-defined and systematic
• R&D is a central metric for measuring and organization’s
commitment to innovation relative to its rivals

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Figure 8.4: Phases in New
Product Development

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New Product Development
• Phase 1: Idea generation
­ Marketers use a variety of
sources to come up with ideas
for new products
­ Value creation via collaboration
with customers, salespeople,
service personnel and other
stakeholders

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New Product Development
• Phase 2: Product concept
development and screening
­ Product ideas are tested for
technical and commercial success
• Phase 3: Marketing strategy
development
­ Developing a plan to deliver the
product to the marketplace

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New Product Development
• Phase 4: Business analysis
­ The product’s commercial
viability is assessed
• Phase 5: Technical
development
­ Engineers work to develop and
refine a working prototype
­ Firm may need to apply for a
patent

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Technical Development
• Even continuous
innovations such as new
beverage flavors may
require multiple
prototypes and
consumer tests as part
of the technical
development phase

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New Product Development
• Phase 6: Test marketing
­ The complete marketing plan is
tested in a small geographic area
similar to the larger market
• Phase 7: Commercialization
­ The new product is launched into
the market
­ Full-scale production,
distribution, advertising, and sales
promotion are begun
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Table 8.1: Products Yesterday
and Beyond

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 Ethical/Sustainable Decisions in the Real
World
• New product development is a greater challenge today as
marketers must also keep sustainability in mind
• Adidas systematically applies environmental and health
considerations at the design stage
• One new Adidas shoe, the Element Voyager, is made from
sustainable fabrics and recycled polyester.

Do you believe marketers are doing enough to create sustainable

products?
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 Adoption and Diffusion of
New Products
• Product adoption is the process by which a consumer or
business customer begins to buy and use a new good,
service, or idea
• Diffusion is the process by which a product or innovation
spreads throughout a population

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Figure 8.5: Adoption Pyramid

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Figure 8.6: Categories of Adopters

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 Product Factors that Affect
the Rate of Adoption
• Each product characteristic affects the speed of innovation
diffusion
­ Relative advantage
­ Compatibility
­ Complexity
­ Trialability
­ Observability

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 Relative Advantage
• Relative advantage is the degree to which a consumer
perceives a new product as offering superior benefits
­ The greater the relative advantage, the faster the product
should be adopted
­ Typically relates to functional benefits (e.g., higher quality,
speed, lower cost)
• Marketers should promote relative advantage of a new
offering such that its superiority is clear
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 Compatibility
• Compatibility is the extent to which an innovation is
consistent with existing cultural values, customs, practices,
and norms
­ Lack of perceived compatibility slows adoption
• Marketers can overcome perceptions of incompatibility
through careful planning of marketing communications

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 Complexity
• Complexity refers to the degree to which consumers
perceive a new product as difficult to understand and use
­ Higher the degree of perceived complexity, the slower the rate of
adoption
• Well-executed marketing communications can reduce
perceptions of complexity

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 Trialability
• Trialability refers to the ease of sampling a new product and
its benefits
­ Lower costs associated with trial usage can speed rate of adoption
• Sales demonstrations and sampling can help to improve
trialability
­ Some products do not lend themselves to trials, due to nature of
product or high costs

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 Observability
• Observability refers to the degree to which others can see
the new product and the benefits it provides
­ An innovation that is more visible will drive more word-of-mouth
communication
• Distinctive product features or brand elements can speed
diffusion (e.g., Apple iPod’s white headphones)

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 Real People, Real Choices:
Decision Made at Under Armour
• Neil chose option 3
• Implementation: After evaluating the negative sales performance,
Under Armour decided to rewrite the Baselayer business plan. The
new plan outlined a new design philosophy, pricing hierarchy, and
event/athlete integration.
• Measuring Success: Neil measured success in two ways. The first
approach assessed how retailers purchased the new product line.
The second meaure assessed market share captured by new
product development. Results were overwhelmingly positive on
both metrics.

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