1. © McGraw-Hill Companies, Inc., McGraw-Hill/Irwin

2. Learning Objectives
LEARNING OBJECTIVES
 How can firms create value through innovation?
 What is the diffusion of innovation theory, and
how can managers use it to make product line
decisions?
 How do firms create new products and services?
 What is a product life cycle, and how can the
concept be applied to product line decisions?
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3. Innovation and Value
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4. New Product Introductions
Pioneers radically
change competition
and consumer
preferences.
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5. Diffusion of Innovation
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6. Using the Diffusion of
Innovation Theory
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7. How Firms Develop New Products
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8. Idea Generation
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9. Internal R&D
 High product
development costs
 Often the source of
technological products
 Often the source of
breakthrough products
Crystal Pepsi Commercial
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10. R&D Consortia
 Lower costs and risks;
firms join together
 Form research
consortiums
 Benefits spread to all
firms
 Example, pharmaceutical
industry research
© McGraw-Hill Companies, Inc., McGraw-Hill/Irwin 11-10

11. Licensing
 Firms purchase the rights to technology or ideas
from other research-intensive firms
 University research centers also often provide
such licenses
© McGraw-Hill Companies, Inc., McGraw-Hill/Irwin 11-11

12.  Groups work together to generate ideas
 No idea can be immediately dismissed
IDEO Website
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13. Competitors’ Products
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© 2007 McGraw-Hill 11-13

14. Customer Input
 As much as 85% of new
business to business
products come from
customers
 Lead users modify
existing products
according to their own
specific needs
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© 2007 McGraw-Hill 11-14

15. Concept Testing
 Concept is a brief
written description of
the product
 Customers reactions
determine whether or
not it goes forward
 Triggers the marketing
research process
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© 2007 McGraw-Hill 11-15

16. Product Development
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© 2007 McGraw-Hill 11-16

17. Market Testing
Dodge Commercial
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© 2007 McGraw-Hill 11-17

18. Market Testing
How do firms know what market tests need to
How do firms know what market tests need to
be performed to ensure a successful product?
be performed to ensure a successful product?
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19. Product Launch
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© 2007 McGraw-Hill 11-19

20. New Product Marketing Mix
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© 2007 McGraw-Hill 11-20

21. Launching a New Product
How do firms launch a new product innovation?
How do firms launch a new product innovation?
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© 2007 McGraw-Hill 11-21

22. Evaluation of Results
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© 2007 McGraw-Hill 11-22

23. Product Life Cycle
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© 2007 McGraw-Hill 11-23

24. Stages in the Product Life Cycle
Exhibit 11.6
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© 2007 McGraw-Hill 11-24

25. Strategies Based on the Product
Life Cycle: Some Caveats
 Theoretically they are bell shaped but in reality
they can take many shapes
 Managers do not know exactly what the shape
each product’s life cycle will take so there is no
way to know precisely what stage they are in.
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© 2007 McGraw-Hill 11-25

26. Inventables
Build a living showcase of
what’s possible to deliver
inspiration and innovation
to the dreamers of the
world.
Inventables Website
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27. Introduction
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© 2007 McGraw-Hill 11-27

28. The introduction stage of the PLC
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29. Growth
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© 2007 McGraw-Hill 11-29

30. The growth stage of the PLC
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31. Maturity
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© 2007 McGraw-Hill 11-31

32. The maturity stage of the PLC
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33. Decline
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© 2007 McGraw-Hill 11-33

34. A behavior in the decline stage?
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35. Check Yourself
1. What are the five groups depicted in the
diffusion of innovation curve?
2. What factors enhance the diffusion of a
good or service?
© McGraw-Hill Companies, Inc., McGraw-Hill/Irwin 11-35

36. Check Yourself
1. What are the steps in the new product
development process?
2. Identify different sources of new product
ideas.
© McGraw-Hill Companies, Inc., McGraw-Hill/Irwin 11-36

37. Check Yourself
1. What are the stages in the product life
cycle?
2. How do sales and profits change during
the various stages?
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38. Glossary
Alpha testing is testing where the firm attempts to
determine whether the product will perform
according to its design and whether it satisfies the
need for which it was intended.
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39. Glossary
Beta testing uses potential consumers, who
examine the product prototype in a “real use”
setting to determine its functionality,
performance, potential problems, and other
issues specific to its use.
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© McGraw-Hill Companies, Inc., McGraw-Hill/Irwin 11-39

40. Glossary
Firms with products in the decline stage either
position themselves for a niche segment of
diehard consumers or those with special needs or
they completely exit the market.
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© McGraw-Hill Companies, Inc., McGraw-Hill/Irwin 11-40

41. Glossary
Diffusion of innovation is the process by which the
use of an innovation spreads throughout a market
group, over time and over various categories of
adopters.
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© McGraw-Hill Companies, Inc., McGraw-Hill/Irwin 11-41

42. Glossary
The growth stage of the product life cycle is marked
by a growing number of product adopters, rapid
growth in industry sales, and increases in both the
number of competitors and the number of
available product versions.
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© McGraw-Hill Companies, Inc., McGraw-Hill/Irwin 11-42

43. Glossary
Innovation is the process by which ideas are
transformed into new products and services that
will help firms grow.
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© McGraw-Hill Companies, Inc., McGraw-Hill/Irwin 11-43

44. Glossary
The introduction stage for a new, innovative
product or service usually starts with a single firm,
and innovators are the ones to try the new
offering.
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© McGraw-Hill Companies, Inc., McGraw-Hill/Irwin 11-44

45. Glossary
The maturity stage of the product life cycle is
characterized by the adoption of the product by
the late majority and intense competition for
market share among firms.
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© McGraw-Hill Companies, Inc., McGraw-Hill/Irwin 11-45

46. Glossary
Pioneers or breakthroughs are new product
introductions, especially new-to-the-world
products that create new markets.
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47. Glossary
Premarket tests are conducted by firms before they
actually bring a product or service to market to
determine how many customers will try and then
continue to use the product or service according
to a small group of potential consumers.
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© McGraw-Hill Companies, Inc., McGraw-Hill/Irwin 11-47

48. Glossary
The product life cycle defines the stages that new
products move through as they enter, get
established in, and ultimately leave the
marketplace and thereby offers marketers a
starting point for their strategy planning.
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© McGraw-Hill Companies, Inc., McGraw-Hill/Irwin 11-48

49. Glossary
A prototype is the first physical form or service
description of a new product, still in rough or
tentative form, that has the same properties as a
new product but is produced through different
manufacturing processes—sometimes even
crafted individually.
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© McGraw-Hill Companies, Inc., McGraw-Hill/Irwin 11-49

50. Glossary
Reverse engineering involves taking apart a
product, analyzing it, and creating an improved
product that does not infringe on the
competitors’ patents, if any exist.
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© McGraw-Hill Companies, Inc., McGraw-Hill/Irwin 11-50

51. Glossary
Test marketing introduces the offering to a limited
geographical area prior to a national launch.
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© McGraw-Hill Companies, Inc., McGraw-Hill/Irwin 11-51