9

Developing
LEARNING
OBJECTIVES
New Products
After reading this chapter
you should be able to:
and Services
Recognize the various
LO 9-1
terms that pertain to
products and services.

Identify the ways in

LO 9-2
which consumer and Apple: The World-Class New-Product Machine
business products and How does a company become the most admired and financially valuable organi-
services can be zation in the world? Just look to Apple Inc. and its legendary product innovations
classified. that have touched the lives of people on every continent for 40 years.

Describe four unique

LO 9-3 Apple’s New-Product Development Successes
elements of services.
Apple’s new-product successes, orchestrated by its late co-founder, Steve Jobs,
Explain the significance revolutionized five different industries: personal computing, music, smartphones,
LO 9-4
of “newness” in new tablet computing, and digital publishing. A sampling of Apple’s market-changing
innovations includes:
products and services
as it relates to the ∙ Apple II—the first commercial personal computer (1977).
degree of consumer ∙ Macintosh—the first personal computer with a mouse and a graphical user
learning involved. interface (1984).
Describe the factors ∙ iPod—the first and most successful MP3 music player (2001).
LO 9-5
contributing to the ∙ iPhone—the world’s best multitouch smartphone and media player with more
success or failure of a than 1 million apps (2007).
new product or service. ∙ iPad (2010) and iPad mini (2012)—the thin tablet devices that allow users to
Explain the purposes read books, newspapers, magazines, and even textbooks.
LO 9-6
of each step of the ∙ CarPlay—a device that allows you to use your iPhone while driving your
new-product car to make calls, listen to music, and access messages by voice or touch
development process. (2014).
∙ Apple Watch—a smartwatch that is a market share leader in wearable
technology (2015).
∙ Apple AirPods—wireless Bluetooth earbuds that revolutionized the
headphone market (2017).
∙ HomePod—a Siri-powered premium speaker and smart home hub (2018).
 Source: Motor Trend 237

Apple’s New-Product Development Stumbles

But Apple has stumbled at times too in its relentless pursuit of innovation. Examples of
notable failures are:
∙ Apple III (1980) and Apple Lisa (1983)—two products intended for business users
that failed due to design flaws. Each product was discontinued four years after
introduction.
∙ Apple Newton (1987)—a personal digital assistant (PDA) that featured handwriting
recognition software. Newton was discontinued 10 years later because of its limited
battery life and hard-to-read screen.
∙ Macintosh Portable (1989)—Apple’s first attempt to create a battery-powered
portable computer. Its high price, coupled with an “un-portable” weight of 16
pounds, led to its demise two years later.
∙ “Hockey Puck” Mouse (1998)—the first commercially released Apple Mouse to
use a USB connection. The mouse’s round shape made it difficult to hold and use.
It was discontinued in 2000.
These examples illustrate that new-product development is a challenge, even for
Apple. Apple learned from each stumble and applied valuable insights from its failures
to produce subsequent successes. In short, when a new-product development effort
fails, Apple fails wisely. For example, the Macintosh was born from the failure of
 Apple Lisa. Apple’s iPhone was a direct result of Apple’s failed original music phone,
produced in conjunction with Motorola.

The Next Chapter in Apple’s Story: An Apple-Enabled iCar?

What major innovation is next on Apple’s product development horizon? A car? Yes, an
Apple-enabled iCar may debut by 2020 with a list price of $55,000.
According to industry insiders, Apple has assembled a team of automotive, design, and
computer software engineers to become a player in the automotive industry. The team has
the task of applying expertise that Apple has honed in developing its iPhones—in areas
such as batteries, sensors, and hardware-software integration—to the next generation of
automobiles.
Details on Apple’s development efforts are sketchy. It is thought that Apple will partner
with an existing car manufacturer to build the actual car. Apple is currently testing its tech-
nology on Lexus sport-utility vehicles and Volkswagen vans. The car will have distinctive
features: the ability to work with other Apple devices and autonomous capability, including
driving, parking, and braking. Expect to learn more about Apple’s plans and progress at its
newly registered Internet domain name, www.AppleCar, when it goes live.
Independent automotive engineers have provided Motor Trend magazine with their concep-
tualization of what an Apple-enabled iCar might look like. These features are vividly dis-
played in a recent issue of the magazine, which is also available online. Is the image shown on
the Motor Trend magazine cover what you might expect from Apple’s design engineers?
The life of an organization depends on how it conceives, produces, and markets new
products and services. This chapter describes the nature of products and services, high-
lights why new products succeed or fail, and details the new-product development process.
Chapter 10 will discuss how organizations manage existing products, services, and brands.1

WHAT ARE PRODUCTS AND SERVICES?

Recognize the
The essence of marketing is in developing products and services to meet buyer needs.
LO 9-1 various terms that A product is a good, service, or idea consisting of a bundle of tangible and intangible
pertain to products attributes that satisfies consumers’ needs and is received in exchange for money or
and services. something else of value. Let’s clarify the meanings of goods, services, and ideas.

A Look at Goods, Services, and Ideas

A good has tangible attributes that a consumer’s five senses can perceive. For example,
p
the Apple Watch can be touched and its features can be seen and heard. A good also
m have intangible attributes consisting of its delivery or warranties and em-
may
b
body more abstract concepts, such as becoming healthier or wealthier. Goods
a
also can be divided into nondurable goods and durable goods. A nondurable
g
good is an item consumed in one or a few uses, such as food products and fuel.
A durable good is one that usually lasts over many uses, such as appliances,
c
cars, and smartphones. This classification method also provides direction for
m
marketing actions. For example, nondurable goods, such as Wrigley’s gum, rely
h
heavily on consumer advertising. In contrast, costly durable goods, such as cars,
g
generally emphasize personal selling.
Services are intangible activities or benefits that an organization provides to
Nondurable goods like ssatisfy consumers’ needs in exchange for money or something else of value.
chewing gum are easily Services have become a significant part of the U.S. economy and often augment prod-
consumed and rely on ucts. For example, a product is Apple’s iPhone and Verizon is a wireless network ser-
consumer advertising. vice provider.
©McGraw-Hill Education/Mike Finally, in marketing, an idea is a thought that leads to a product or action, such as
Hruby, photographer a concept for a new invention or for getting people out to vote.

238
 Throughout this book, product generally includes not only physical goods but ser-
vices and ideas as well. When product is used in its narrower meaning of “goods,” it
should be clear from the example or sentence.

Identify the ways in Classifying Products

LO 9-2 which consumer Two broad categories of products widely used in marketing relate to the type of user.
and business
Consumer products are products purchased by the ultimate consumer, whereas
products and
services can be
business products (also called B2B products or industrial products) are products
classified. organizations buy that assist in providing other products for resale. Some products can
be considered both consumer and business items. For example, an Apple iMac

Developing New Products and Services

computer can be sold to consumers for personal use or to business firms for office use.
product Each classification results in different marketing actions. Viewed as a consumer prod-
A good, service, or idea uct, the iMac would be sold through Apple’s retail stores or directly from its online
consisting of a bundle of
store. As a business product, an Apple salesperson might contact a firm’s purchasing
tangible and intangible
attributes that satisfies
department directly and offer discounts for large volume purchases.
consumers’ needs and is
received in exchange for Consumer Products The four types of consumer products shown in Figure 9–1
money or something else of differ in terms of (1) the effort the consumer spends on the decision, (2) the attributes
value. used in making the purchase decision, and (3) the frequency of purchase. Convenience
services products are items that the consumer purchases frequently, conveniently, and with a
Intangible activities or minimum of shopping effort. Shopping products are items for which the consumer
benefits that an organization compares several alternatives on criteria such as price, quality, or style. Specialty

CHAPTER 9
provides to satisfy products are items that the consumer makes a special effort to search out and buy.
consumers’ needs in Unsought products are items that the consumer does not know about or knows about
exchange for money or but does not initially want.
something else of value. Figure 9–1 shows how each type of consumer product stresses different marketing
consumer products mix actions, degrees of brand loyalty, and shopping effort. But how a consumer prod-
Products purchased by the uct is classified depends on the individual. One consumer may view a smartphone as a
ultimate consumer. shopping product and visit several stores and websites before deciding on a brand,
business products whereas another consumer may view a smartphone as a specialty product and make a
239
Products organizations buy special effort to buy only an iPhone.
that assist in providing other
products for resale. Also Business Products A major characteristic of business products is that their sales
called B2B products or are often the result of derived demand; that is, sales of business products frequently
industrial products. result (or are derived) from the sale of consumer products. For example, as consumer
convenience products demand for General Motors cars (a consumer product) increases, the company may
Items that the consumer increase its demand for paint spraying equipment (a business product).
purchases frequently, Business products may be classified as components or support products. Compo-
conveniently, and with a nents are items that become part of the final product. These include raw materials such
minimum of shopping effort. as lumber, as well as assemblies such as a Toyota car engine. Support products are
shopping products items used to assist in producing other products and services. These include:
Items for which the
consumer compares several ∙ Installations, such as buildings and fixed equipment.
alternatives on criteria such ∙ Accessory equipment, such as tools and office equipment.
as price, quality, or style. ∙ Supplies, such as stationery, paper clips, and brooms.
specialty products
∙ Industrial services, such as maintenance, repair, and legal services.
Items that the consumer Strategies to market business products reflect both the complexities of the product
makes a special effort to involved (paper clips versus private jets) and the buy-class situations discussed in
search out and buy.
Chapter 5.
unsought products
Items that the consumer
does not know about or Classifying Services
knows about but does not
Services can be classified according to whether they are delivered by (1) people or
initially want.
equipment, (2) business firms or nonprofit organizations, or (3) government agencies.
 TYPE OF CONSUMER PRODUCT

BASIS OF CONVENIENCE SHOPPING SPECIALTY UNSOUGHT

COMPARISON PRODUCT PRODUCT PRODUCT PRODUCT

Toothpaste, cake Cameras, TVs, Rolls-Royce cars, Burial insurance,

Product mix, hand soap, briefcases, Rolex watches, thesaurus
ATM cash withdrawal airline tickets heart surgery

Relatively Fairly expensive Usually very Varies

Price
inexpensive expensive

Widespread; many Large number of Very limited Often limited

Place (distribution)
outlets selective outlets

Price, availability, Differentiation from Uniqueness of Awareness is

Promotion and awareness competitors brand and status essential
stressed stressed stressed

Aware of brand Prefer specific Very brand loyal; Will accept

Brand loyalty of
but will accept brands but will will not accept substitutes
consumers
substitutes accept substitutes substitutes

Frequent Infrequent Infrequent Very infrequent

Purchase behavior purchases; little purchases; needs purchases; needs purchases; some
of consumers time and effort much comparison extensive search comparison
spent shopping shopping time and decision time shopping

FIGURE 9–1 Organizations in each of these categories often use significantly different kinds of
How a consumer product marketing mix strategies to promote their services.
is classified significantly
affects which products Delivery by People or Equipment Figure 9–2 shows the great diversity of
consumers buy and the organizations that offer services. People-based professional services include those
marketing strategies used. offered by advertising agencies or medical doctors. Best Buy utilizes skilled labor to
offer appliance repair services. Broadview Security uses relatively unskilled labor to
provide its security guard services. The quality of all these people-based services
FIGURE 9–2
Services can be classified
as people-based or Services
equipment-based.

People-based Equipment-based

Operated by
Automated Operated by
Unskilled labor Skilled labor Professionals relatively unskilled
(self-service) skilled operators
operators

) Lawn care ) Appliance ) ATMs ) Electric

) Management ) Motion picture
) Security repair consultants ) Online utilities
theaters
guards
) Plumbers ) Accountants
brokerages ) Airlines
) Automated ) Dry cleaners
) Janitorial ) Caterers ) Lawyers ) Computer
services car washes ) Taxis networks

240
 can vary significantly depending on the abilities of the person delivering the
service.
Figure 9–2 also suggests that equipment-based services do not have the mar-
keting concern of inconsistent quality because employees generally do not have
direct contact when providing the service to consumers. Instead, consumers
usually receive these automated services without interacting with any service
employees, such as doing self check-in at Southwest Airlines, watching a movie
at a local theater, or using Schwab’s online stock trading platform.

Delivery by Business Firms or Nonprofit Organizations As dis-

cussed in Chapter 2, privately owned companies must make profits to survive,

Developing New Products and Services

whereas nonprofit organizations seek to satisfy clients and be efficient. The
Southwest Airlines is an kinds of services each offers affect their marketing activities. Recently, many
example of an equipment- nonprofit organizations, such as The American Red Cross, have used marketing
based service. to improve their communications and better serve those in need.
©PSL Images/Alamy Stock Photo
Delivery by Government Agencies Governments at the federal, state, and
local levels provide a broad range of services. These organizations also have adopted
many marketing practices used by business firms. For example, the United States
Postal Service website, www.usps.com, operates much like an online retailer and its
delivery practices are designed to allow it to compete with UPS, FedEx, and DHL in
the U.S. and global package delivery business.

CHAPTER 9
The Uniqueness of Services
Describe four
Four unique elements distinguish services from goods. These are intangibility, incon-
LO 9-3 unique elements sistency, inseparability, and inventory—referred to as the four I’s of services.
of services.
Intangibility Being intangible, services can’t be touched or seen before the pur-
chase decision. Instead, services tend to be a performance rather than an object, which
four I’s of services makes them much more difficult for consumers to evaluate. To help consumers assess
241
The four unique elements and compare services, marketers try to make them tangible or show the benefits of us-
that distinguish services ing the service. For example, American Airlines attempts to make the benefits of fly-
from goods: intangibility, ing on its airline more tangible by running an ad showing and emphasizing the comfort
inconsistency, inseparability, of its reclining seats.
and inventory.
Inconsistency Services depend on the people who provide them. As a result, their
quality varies with each person’s capabilities and day-to-day job performance. Incon-
sistency is more of a problem in services than it is with tangible goods. Tangible prod-
ucts can be good or bad in terms of quality, but with modern production lines, their
quality will at least be consistent. On the other hand, the Philadelphia Phillies baseball
team may have great hitting and pitching one day and the next day lose by 10 runs.
Organizations attempt to reduce inconsistency through standardization and training.

Inseparability Inseparability means that the consumer cannot distinguish the ser-
vice provider from the service itself. For example, the quality of large lectures at your
university or college may be excellent, but if you don’t get your questions answered,
find the advising services poor, or do not receive adequate library assistance, you may
not be satisfied with the entire educational experience delivered. Therefore, you prob-
ably won’t separate your perception of the “educational experience”—the service
idle production capacity itself—from all the people delivering the educational services for that institution.
Occurs when the service
provider is available but Inventory Many goods have inventory handling costs that relate to their storage,
there is no demand for the
perishability, and movement. With services, these costs are more subjective and are
service.
related to idle production capacity, which is when the service provider is available
 but there is no demand for the service. For a service, inventory cost involves paying
the service provider along with any needed equipment. If a physician is paid to see
patients but no one schedules an appointment, the idle physician’s salary must be paid
regardless of whether the service was performed. In service businesses that pay
employees a commission, such as a part-time sales associate at The Home Depot, the
sales associate’s work hours can be reduced to lower Home Depot’s idle production
capacity.
Today, many businesses find it useful to distinguish between their core product—
either a good or a service—and supplementary services. U.S. Bank has both a core
service (a checking account) and supplementary services, such as deposit assistance,
parking, drive-throughs, and ATMs. Supplementary services often allow service
providers to differentiate their offerings from those of competitors to add value for
consumers.

Assessing and Improving Service Quality

Once a consumer tries a service, how is it evaluated? Primarily by comparing expecta-
tions about a service to the actual experience a consumer has with the service. Differ-
ences between the consumer’s expectations and his or her actual experiences are
identified through gap analysis. This analysis asks consumers to assess their expecta-
tions and experiences on dimensions of service quality. For airline customers, three
dimensions of service quality and the kinds of questions airline customers might ask to
evaluate them are as follows:
∙ Reliability—Is my flight on time?
∙ Tangibility—Are the gate, the plane, and the baggage area clean?
∙ Responsiveness—Are the flight attendants willing to answer my questions?
Expectations are influenced by word-of-mouth communications, personal needs,
past experiences, and promotional activities, while actual experiences are determined
by the way an organization delivers its service.2 What if someone is dissatisfied and
complains? Research suggest that customers who experience a “service failure” will
increase their satisfaction if the service provider makes a sincere attempt to address the
complaint.3
For services in which consumers are simply observers—such as music concerts,
zoos, or art museums—conducting marketing research to improve service quality is
especially difficult. As shown in the photo, the Detroit Institute of Arts (DIA) observes
and interviews visitors to make its galleries more appealing. It discovered that visitors
were often confused by the museum’s panels—the written descriptions next to the art.
So it made the panels more user-friendly by:
∙ Moving them closer to the art.
∙ Reducing the maximum word count from 250 to 150.
∙ Increasing readability by breaking up blocks of text with bullet points, subheadings,
color, and graphics.
The result: These changes have significantly increased the “readership” of these de-
scriptive panels, some of which in the past were read by only 2 percent of gallery visitors.
To further engage patrons, the DIA now offers augmented reality tours in its art galleries.4

Product Classes, Forms, Items, Lines, and Mixes

Most organizations offer a range of products and services to consumers. Each set of
product item offerings can be categorized according to the product class or industry to which they
A specific product that has a
belong, like the iPad, which is classified as a tablet device. Products can exist in
unique brand, size, or price.
various product forms within a product class (see Chapters 2 and 10). A product item

242
For how the Detroit Institute of
Arts uses direct observation
and interviews to measure the
results of its marketing actions,
see the text.
©Fabrizio Costantini

Developing New Products and Services

product line
A group of product or
service items that are
closely related because they
satisfy a class of needs, are
used together, are sold to
the same customer group,
are distributed through the
same outlets, or fall within a
given price range.

CHAPTER 9
product mix
Consists of all the product is a specific product that has a unique brand, size, or price. For example, Ultra Downy
lines offered by an softener for clothes comes in different forms (liquid for the washer and sheets for the
organization.
dryer) and load sizes (40, 60, etc.). Each of the different product items represents a
separate stock keeping unit (SKU), which is a unique identification number that defines
an item for ordering or inventory purposes.
A product line is a group of product or service items that are closely related
Video 9-1
Crapola
because they satisfy a class of needs, are used together, are sold to the same customer 243
kerin.tv/cr8e/v9-1 group, are distributed through the same outlets, or fall within a given price range.
Nike’s product lines include shoes and clothing, whereas the Mayo Clinic’s service
lines consist of inpatient hospital care and outpatient physician services. Each product
line has its own marketing strategy.
The “Crapola Granola” product line started as an edgy party joke from Brian and
Andrea Strom, owners of tiny Brainstorm Bakery. The dried CRanberries and APples
granOLA—hence the “Crapola” name—also contains nuts and five organic grains
sweetened with maple syrup and honey. Its package promises that Crapola “Makes
Even Weird People Regular.”
Crapola is sold in retail outlets in the Midwest, California, and Oregon as well as
online at www.crapola.us. Currently, the company offers other recipes: “Number
Two,” “Colon-ial Times,” and “Kissapoo.” These product line extensions enable both
consumers and retailers to simplify their buying decisions. So a family liking Crapola
might buy another product in the line. With a broader product line, the Stroms may
obtain distribution in supermarket chains, which strive to increase efficiencies by deal-
ing with fewer suppliers.5
Many firms offer a product mix, which consists of all of the product lines offered
What company cheerfully by an organization. For example, Cray Inc. has a small product mix of three lines
tells its customers to “Have (supercomputers, storage systems, and a “data appliance”) that are mostly sold to
a crappy day”? Read the text governments and large businesses. Procter & Gamble, however, has a large product
to find out about this “tasty” mix that includes product lines such as beauty and grooming (Crest toothpaste and
offering! Gillette razors) and household care (Downy fabric softener, Tide detergent, and
Source: Brainstorm Bakery Pampers diapers).
 9-1. What are the four main types of consumer products?
learning review
9-2. What are the four I’s of services?
9-3. What is the difference between a product line and a product mix?

NEW PRODUCTS AND WHY THEY SUCCEED OR FAIL

Explain the
New products are the lifeblood of a company and keep it growing, but the financial
LO 9-4 significance of risks can be large. Before discussing how new products reach the market, we’ll begin
“newness” in new by looking at what a new product is.
products and
services as it relates
to the degree of
What Is a New Product?
consumer learning The term new is difficult to define. Was Sony’s PlayStation 5 new when there was
involved. already a PlayStation 4? Perhaps—because the PlayStation 5, Nintendo’s Wii U, and
Microsoft’s Xbox One X all positioned their consoles as entertainment “hubs” rather
than just game consoles. What does new mean for new-product marketing? Newness
from several points of view are discussed next.

Newness Compared with Existing Products If a product is functionally

different from existing products, it can be defined as new. Sometimes this newness is
revolutionary and creates a whole new industry, as was the case with the Apple smart-
phone. At other times, more features are added to an existing product to try to appeal
to more customers. And as smart TVs, smartphones, smart cars, smartwatches, and
tablet devices become more sophisticated, consumers’ lives can get far more compli-
cated. This proliferation of extra features—sometimes called product “feature bloat”—
FIGURE 9–3 overwhelms many consumers and creates an unintended consequence: namely,
The degree of “newness” consumer “feature fatigue.” The Marketing Matters box describes the causes of feature
in a new product affects bloat and the effect of feature fatigue.6
the amount of learning
effort consumers must Newness from the Consumer’s Perspective A second way to define new
exert to use the product
products is in terms of their effects on consumption. This approach classifies new products
and the resulting
marketing strategy.
according to the degree of learning required by the consumer, as shown in Figure 9–3.

LOW Degree of New Consumer Learning Needed HIGH

BASIS OF CONTINUOUS DYNAMICALLY DISCONTINUOUS

COMPARISON INNOVATION CONTINUOUS INNOVATION INNOVATION

Requires no new learning Disrupts consumer’s normal Requires new learning

Definition by consumers routine but does not require and consumption
totally new learning patterns by consumers

New improved Electric toothbrush, LED Wireless router, digital video

Examples shaver, detergent, HDTVs, and smartphones recorder, and electric car
and toothpaste

Gain consumer Advertise points of Educate consumers

Marketing
awareness and wide difference and benefits through product trial
strategy
distribution to consumers and personal selling

244
Marketing Matters Customer Value
Too Much of a Good Thing: Feature Bloat and Feature Fatigue
in New-Product Development
Adding more features to a product to satisfy more Feature Fatigue
consumers seems like a no-brainer strategy for success. But, research shows that while feature bloat can increase
Right? the capability of a new product (relative to existing prod-
ucts) and encourage a purchase, the actual usage experi-
Feature Bloat
ence after purchase can result in consumer dissatisfaction,

Developing New Products and Services

In fact, most marketing research with potential buyers or feature fatigue. According to researchers at the Univer-
of a product shows that while they say they want more sity of Maryland, feature fatigue occurs because “consum-
features, in actuality they are overwhelmed with the mind- ers give more weight to capability and less weight to
boggling complexity—or “feature bloat”—of some new usability before use (of the product) than after use (of the
products. Feature bloat is the tendency for some product product), they tend to choose overly complex products that
developers to add unnecessary features or functionality do not maximize their satisfaction when they use them.”
to a product that are not of any benefit to most consumers A common result of feature fatigue is annoyance and a
and unnecessarily add to the cost of the product. reduced likelihood of repurchase and consumer retention.
For example, consumers today can purchase a single This phenomenon has been observed in the domain of
product that functions as a cell phone, game console, wearable technology, including digital watches and smart
calculator, text-messaging device, wireless Internet glasses. The figure shows the feature bloat to feature
connection, digital camera, MP3 player, and global fatigue trajectory from a consumer’s point of view. The
positioning system. The addition of each feature allows critical tipping point occurs when the addition of another

CHAPTER 9
product developers to make claim to a new product . . . feature annoys rather than engages a consumer.
and rightly so!

The feature bloat to fatigue trajectory

High

Bloat tipping
point to fatigue
“OK, but no big deal.”
Consumer satisfaction

245
“Awesome!”
“Whoa, I’m
overwhelmed!”
“Just what I
needed!” “Hmm, I’d better look
at the manual.”
“I’m glad they “Now I can’t even
added this.” do the one thing
I bought this gadget
for!”
“Nice, but I wish
I could do more.”
Low
Few Number of features Many

With a continuous innovation, consumers don’t need to learn new behaviors. Tooth-
paste manufacturers can add new attributes or features like “whitens teeth” or “removes
plaque” when they introduce a new or improved product, such as Colgate Total
Advanced Gum Defense toothpaste. But the extra features in the new toothpaste do not
require buyers to learn new tooth-brushing behaviors, so it is a continuous innovation.
The benefit of this simple innovation is that effective marketing mainly depends on
generating awareness, not re-educating customers.
With a dynamically continuous innovation, only minor changes in behavior are re-
quired. Procter & Gamble’s Swiffer WetJet all-in-one mopping solution is a successful
 d
dynamically continuous innovation. Its novel design eliminates mess,
eelbow grease, and heavy lifting of floor cleaning materials without
rrequiring any substantial behavioral change. So the marketing strategy
hhere is to educate prospective buyers on the product’s benefits, advan-
ttages, and proper use. Procter & Gamble did this with Swiffer. The result?
A billion dollars in annual sales.
A discontinuous innovation involves making the consumer learn en-
ttirely new consumption patterns to use the product. Have you bought a
““smart home” gadget from Amazon or Google that controls household
ssystems like security, heating, and lighting? Congratulations if you suc-
ccessfully installed it yourself! Best Buy’s Geek Squad and Amazon’s
S
Smart Home Services have a thriving business installing and activating
tthese gadgets because they can be complicated to set up and operate
aappropriately.7 Marketing efforts for discontinuous innovations usually
iinvolve not only gaining initial consumer awareness but also educating
cconsumers on both the benefits and proper use of the innovative product.
Newness in Legal Terms
N The U.S. Federal Trade Commission
((FTC) advises that the term new be limited to use with a product up to six
mmonths after it enters regular distribution. The difficulty with this sugges-
ttion is in the interpretation of the term regular distribution.
The te
textt describes the Newness
Newn
Ne wnes
ess from
f the Organization’s Perspective Successful organizations
potential benefits and dangers view newness and innovation in their products at three levels. The lowest level, which
of an incremental innovation usually involves the least risk, is a product line extension. This is an incremental im-
such as Purina’s Elegant provement of an existing product line the company already sells. For example, Purina
Medleys, its restaurant- added its “new” line of Elegant Medleys, a “restaurant-inspired food for cats,” to its
inspired food for cats. existing line of 50 varieties of its Fancy Feast gourmet cat food. This has the potential
Source: Nestlé benefit of adding new customers but the twin dangers of increasing expenses and can-
nibalizing products in its existing line.
At the next level is (1) a significant jump in innovation or technology or (2) a brand
extension involving putting an established brand name on a new product in an unfamil-
iar market. In the first case, the significant jump in technology might be when a manu-
facturer offers new smartphones or digital cameras.
The second case—using an existing brand name to introduce a new product into an
unfamiliar market—looks deceptively easy for companies with a powerful, national
brand name. Colgate thought so. It puts its brand name on a line of frozen dinners
called Colgate’s Kitchen Entrees. The product line died quickly. A marketing expert
calls this “one of the most bizarre brand extensions ever,” observing that the Colgate
brand name, which is strongly linked to toothpaste in people’s minds, does not exactly
get their “taste buds tingling.”8
The third and highest level of innovation involves a radical invention, a truly revo-
lutionary new product. The 3D printer, invented and commercialized by Chuck Hull,
the founder of 3D Systems, is an example of a radical invention. Effective new-product
development in firms exists at all three levels.

protocol Why Products and Services Succeed or Fail

A statement that, before
product development We all know the giant product and service successes—such as Apple’s iPhone and
begins, identifies (1) a Netflix. Yet the thousands of product failures every year that slide quietly into oblivion
well-defined target market; cost American businesses billions of dollars. Ideally, a new product or service needs a
(2) specific customers’ precise protocol, a statement that, before product development begins, identifies (1) a
needs, wants, and well-defined target market; (2) specific customers’ needs, wants, and preferences; and
preferences; and (3) what
(3) what the product will be and do to satisfy consumers.
the product will be and do to
satisfy consumers.
Research reveals how difficult it is to produce a single commercially successful new
product, especially among consumer packaged goods (CPG) that appear on

246
 supermarket shelves one month and are gone forever a few months later. Most
American families buy the same 150 items over and over again—making it difficult to
gain buyers for new products. So less than 3 percent of new consumer packaged goods
exceed first-year sales of $50 million—the benchmark of a successful CPG launch.9
To learn marketing lessons and convert potential failures to successes, we can
analyze why new products fail and then study several failures in detail. As we go
through the new-product development process later in the chapter, we can identify
ways such failures might have been avoided—admitting that hindsight is clearer than
foresight.

Developing New Products and Services

Describe the
Marketing Reasons for New-Product Failures Both marketing and
LO 9-5 factors contributing nonmarketing factors contribute to new-product failures. Using the research results
to the success or from several studies on new-product success and failure, we can identify the critical
failure of a new marketing factors—which sometimes overlap—that often separate new-product
product or service. winners and losers:10
1. Insignificant point of difference. Research shows that a distinctive point of dif-
ference is the single most important factor for a new product to defeat competing
The Keurig Kold cold ones—having superior characteristics that deliver unique benefits to the user.
beverage maker produced Consider General Mills’s launch of Fingos, a sweetened cereal flake about the
great-tasting carbonated size of a corn chip, with a $34 million promotional budget. Consumers were
drinks. So why did it fail? Read supposed to snack on them dry, but they didn’t.11 The point of difference was not
the text to find out. important enough to get consumers to stop eating competing snacks such as

CHAPTER 9
©Suzanne Kreiter/The Boston popcorn and potato chips.
Globe via Getty Images 2. Incomplete market and product protocol before product development starts.
Without this protocol, firms try to design a vague product for a phantom market.
Developed by Kimberly-Clark, Avert Virucidal tissues contained vitamin C deriva-
tives scientifically designed to kill cold and flu germs when users sneezed,
coughed, or blew their noses into them. The product failed in test marketing.
People didn’t believe the claims and were frightened by the “cidal” in the brand
name, which they connected to words like suicidal. A big part of Avert’s failure
247
was its lack of a product protocol that clearly defined how it would satisfy
consumer wants and needs.12
3. Not satisfying customer needs on critical factors. Overlapping somewhat with
The Hewlett-Packard Tablet point 1, this factor stresses that problems on one or two critical factors can kill
was late in its introduction and the product, even though the general quality is high. Consider the failure of
a generation behind in Kold made by Keurig Green Mountain, Inc. The company discontinued its
functionality compared to the Kold-brand countertop soda machine that allowed users to make chilled Coca-
Apple iPad 2. The result? Cola, Dr Pepper, and other carbonated beverages at home. Despite making a
Discontinuance two months great-tasting cold carbonated drink, Kold didn’t deliver on other factors con-
after its introduction. sumers considered critical. The machine was too large to fit on most kitchen
©David Paul Morris/Bloomberg via countertops, the time necessary to produce the drink was too long, and the price
Getty Images
was too high. Kold was priced at $370 and the cost per
8-ounce drink was $1.25.13
44. Bad timing. This results when a product is introduced too soon,
too late, or when consumer tastes and preferences are shifting
dramatically. Bad timing gives new-product managers night-
mares. Hewlett-Packard, for example, introduced its HP Tablet
a few years after Apple launched its original iPad, about the
same time Apple introduced its next-generation iPad 2 that
featured multiple apps. Hewlett-Packard was late and its HP
Tablet was significantly behind in apps compared to the iPad 2.
Failure to deliver a product that satisfied consumer preferences
in a timely manner caused Hewlett-Packard to abandon its HP
Tablet two months after its launch.
 55. No economical access to buyers. Grocery products pro-
vide an example of this factor. Today’s mega-supermarkets
carry more than 60,000 different SKUs. With about
40,000 new consumer packaged goods (food, beverage,
health and beauty aids, household, and pet items) intro-
duced annually in the United States, the cost to gain access
to retailer shelf space is huge. Because shelf space is
judged in terms of sales per square foot, Thirsty Dog! (a
zesty, beef-flavored, vitamin-enriched, mineral-loaded,
lightly carbonated bottled water for your dog) must dis-
place an existing product on the supermarket shelves, a
difficult task with the high sales-per-square-foot demands
of these stores. Thirsty Dog! and its companion product
Thirsty Cat! failed to generate enough sales to meet these
requirements.
What dog or cat wouldn’t want 66. Poor execution of the marketing mix: brand name, package, price, promotion,
to drink vitamin-enriched, distribution. Somewhere in the marketing mix there can be a showstopper that
carbonated bottled water? As kills the product. Introduced by Gunderson & Rosario, Inc., Garlic Cake was
it happens, we may never supposed to be served as an hors d’oeuvre with sweet breads, spreads, and meats,
know. Due to a lack of demand but somehow the company forgot to tell this to potential consumers. Garlic Cake
by their human companions, died because consumers were left to wonder just what a Garlic Cake is and when
the product was short-lived on on earth a person would want to eat it.
supermarket shelves. 7. Too little market attractiveness. The ideal is a large target market with high
©Patrick Farrell/KRT/Newscom
growth and real buyer need. But often the target market is too small or competi-
tive to warrant the huge expenses necessary to reach it. OUT! International’s
Hey! There’s A Monster In My Room spray was designed to rid scary creatures
from a kid’s bedroom and had a bubble-gum fragrance. While a creative and cute
product, the brand name probably kept the kids awake at night more than their
fear of the monsters because it implied the monster was still hiding in the
bedroom. Also, was this a real market?
8. Poor product quality. This factor often results when a product is not thoroughly
tested. The costs to an organization for poor quality can be staggering and include
the labor, materials, and other expenses to fix the problem—not to mention the
lost sales, profits, and market share that usually result. Consider self-balancing
Product quality has hampered scooters, commonly referred to as “hoverboards.” After gaining widespread atten-
the commercial potential of tion with the media, as well as popularity with teens, hoverboards made by a
hoverboards. Sales variety of manufacturers were found to catch fire or explode. Needless to say,
plummeted after product hoverboard sales suffered greatly as a result.14
safety issues were discovered.
©B Christopher/Alamy Stock Simple marketing research could have revealed the problems in these new-product di-
Photo sasters. Developing successful new products may sometimes involve luck, but more often
it involves having a product that really meets a need and has
s
significant points of difference over competitive products.

Organizational Inertia in New-Product Failures

O
O
Organizational problems and attitudes can also cause
nnew-product disasters. Two key ones are:
∙ Encountering “groupthink” in task force and com-
mittee meetings.15 Someone in the new-product
planning team meeting knows or suspects the prod-
uct concept is a dumb idea. But that person is afraid
to speak up for fear of being cast as a “negative
thinker” or “not a team player” and then ostracized
from real participation in the group. Do you think
someone on the Life Savers new-product team
suspected a Life Savers soda wasn’t a good idea but

248
 Applying Marketing Metrics
Which States Are Underperforming?
In 2015, you started your own company to sell a nutritious, Annual Percentage Change in Unit Volume,
high-energy snack you developed. It is now January 2019. by State
As a marketer, you ask yourself, “How well is my business
growing?”
NH
Your Challenge WA VT
MT ME
ND MN
The snack is sold in all 50 states. Your goal is 10 percent OR MA

Developing New Products and Services

ID SD WI NY RI
annual growth. To begin 2019, you want to quickly solve WY MI
IA PA NJ CT
any sales problems that occurred during 2018. You know NV NE
UT IL IN OH DE
that states whose sales are stagnant or in decline are off- CO WV VA MD
CA KS MO KY
set by those with greater than 10 percent growth. TN NC
AZ OK AR SC
Studying a table of the sales and percentage change NM
MS AL GA
versus a year ago in each of the 50 states would work but LA
TX
it also would be very time-consuming. A good graphic is FL
better. You choose the following marketing metric, where AK
“sales” are measured in units:
HI
Annual %
= (2018 Sales − 2017 Sales) × 100
sales change 2017 Sales
You want to act quickly to improve sales. In your map,
Your Action
growth that is greater than 10 percent is green, 0 to

CHAPTER 9
10 percent growth is orange, and decline is red. Notice Marketing is often about grappling with sales shortfalls.
that you (1) picked a metric and (2) made your own rules You’ll need to start by trying to identify and correct the
that green is good, orange is bad, and red is very bad. problems in the largest volume states that are underper-
forming—in this case in the northeastern United States.
Your Findings You’ll want to do marketing research to see if the prob-
You see that sales growth in the northeastern states is lem starts with (1) an external factor involving consumer
weaker than the 10 percent target, and sales are actually tastes or (2) an internal factor such as a breakdown in
declining in many of the states. your distribution system.
249

was afraid to speak up? Probably yes, but they didn’t, and the soda failed. In the
same way, a strong public commitment to a new product by its key advocate may
make it difficult to kill the product even when new negative information comes to
light. Groupthink can be minimized when team leaders encourage team members
to challenge assumptions, express constructive dissent, and offer alternatives.
∙ Avoiding the “NIH problem.” A great idea is a great idea, regardless of its
source. Yet in the bureaucracy that can occur in large organizations, ideas from
outside often get rejected simply because they come from outside—what has
been termed the “not-invented-here (NIH) problem.” Forward-looking compa-
nies attempt to deal with this problem by embracing the policy of open innova-
open innovation tion. Open innovation consists of practices and processes that encourage the use
Practices and processes that of external as well as internal ideas and internal as well as external collaboration
encourage the use of when conceiving, producing, and marketing new products and services.
external as well as internal Approaches to open innovation are highlighted in the description of the new-
ideas and internal as well as product development process discussed shortly.
external collaboration when
conceiving, producing, and These organizational problems can contribute to the eight marketing reasons for
marketing new products and new-product failures described above.
services.
How Applying Marketing Metrics Can Monitor
New-Product Performance
The Applying Marketing Metrics box illustrates how marketers measure actual market
performance versus the goals set in new-product planning. In the scenario described,
 you have developed a new snack and set a goal of 10 percent annual growth. You have
chosen a marketing metric of “annual % sales change” to measure the annual growth
rate from 2017 and 2018 for each of the 50 states.
Your special concerns are the states shown in red, where sales have actually
declined. As shown in the box, having identified the northeastern United States as a
problem region, you can now conduct in-depth marketing research to lead to corrective
actions. For example, is the decline in sales in this region due to an external factor,
such as consumer preference? Perhaps consumers in the northeastern United States
prefer more regional snack tastes or think your snack is too sweet. Or perhaps the
problem is due to your own internal marketing strategy, such as poor distribution,
prices that are too high, or ineffective advertising.

9-4. What kind of innovation would an improved electric toothbrush be?

learning review
9-5. Why can an “insignificant point of difference” lead to new-product
failure?
9-6. What marketing metric might you use in a marketing dashboard to
discover which states have weak sales?

THE NEW-PRODUCT DEVELOPMENT PROCESS

Explain the purposes

To develop new products efficiently, companies such as General Mills and 3M use a
LO 9-6 of each step of the specific sequence of steps to make their products ready for market. Figure 9–4 shows
new-product the new-product development process, the seven stages an organization goes
development through to identify opportunities and convert them into salable products or services.
process. Today many firms use a formal Stage-Gate® process to evaluate whether the results at
each stage of the new-product development process are successful enough to warrant
proceeding to the next stage. If problems in a stage can’t be corrected, the project
new-product development doesn’t proceed to the next stage and product development is killed.16
process
The seven stages an
organization goes through
Stage 1: New-Product Strategy Development
to identify opportunities and For companies, new-product strategy development is the stage of the new-product
convert them into salable development process that defines the role for a new product in terms of the firm’s
products or services. overall objectives. During this stage, the firm uses both a SWOT analysis (Chapter 2)
and environmental scanning (Chapter 3) to assess its strengths and weaknesses relative
to the trends it identifies as opportunities or threats. The outcome not only defines the

FIGURE 9–4 1. New-product strategy

development
Carefully using the seven
stages in the new-product 2. Idea generation
development process
increases the chances of 3. Screening and
evaluation
new-product success.
4. Business analysis

5. Development

6. Market testing

7. Commercialization

250
new-product strategy
vital “protocol” for each new-product idea but also identifies the strategic role it might
development serve in the firm’s business portfolio.
The stage of the new- Occasionally a firm’s Stage 1 activities can be blindsided by a revolutionary new
product development product or technology that completely disrupts its business, sometimes called a
process that defines the role “disruptive innovation.” For example:
for a new product in terms
∙ Wikipedia. This free and community-edited online encyclopedia caused Ency-
of the firm’s overall
objectives. clopedia Britannica to cease print production after 244 years.
∙ Digital photography. Even though they were invented by Kodak, digital cameras
made film and film cameras obsolete by the mid-2000s and drove Kodak into
bankruptcy. Kodak did not actively market its digital cameras because it wanted

Developing New Products and Services

to protect its film business.
Clearly, a firm’s new-product strategy development must be on the lookout for
innovative products or technology that might disrupt its plans.
New-product development for services, such as buying a stock or airline ticket or
watching a National Football League game, is often difficult. Why? Because services
are intangible and performance-oriented. Nevertheless, service innovations can have a
huge impact on our lives. For example, the online brokerage firm E*TRADE revolu-
tionized the financial services industry through its online investment trading.

Stage 2: Idea Generation

idea generation Idea generation, the second stage of the new-product development process, involves

CHAPTER 9
The stage of the new- developing a pool of concepts to serve as candidates for new products, building upon
product development the previous stage’s results. Many forward-looking organizations have discovered that
process that develops a they are not generating enough useful new-product ideas. One internal approach for
pool of concepts to serve as getting ideas within the firm is to train employees in the art and science of asking spe-
candidates for new
cific, probing questions. The goal in generating new-product ideas and strategies is to
products, building upon the
previous stage’s results.
move from “what is” questions that describe the present situation to “what if” ques-
tions that focus on solutions and marketing actions.17 The following discussion sug-
gests methods of generating new-product ideas both internally and externally, the latter
251
often using open innovation.

Video 9-2
Suggestions from Employees and Friends Businesses often get successful
Life Is Good new-product ideas from employees who ask the “what if” question. For example, a jani-
kerin.tv/cr8e/v9-2 tor at a Frito-Lay manufacturing plant asked himself, “What if I put chili on a Cheeto?”
He then tinkered with a spicy and hot chili-powder recipe at home in his kitchen and
asked senior Frito-Lay executives to taste his flavor. The result? Flamin’ Hot Cheetos
Brothers John and Bert Jacobs
became one of the best-selling snack products in the company's history. As for the jani-
are constantly looking for
tor, Richard Montanez, he is now an executive vice president at the company.18
positive, upbeat messages to
The breakthrough for the Life Is Good T-shirt business started with a keg party the
print on their Life Is Good
company founders, brothers Bert and John Jacobs, had with friends. At their parties
T-shirts.
the brothers often posted drawings with sayings for possible T-shirt ideas on their liv-
©Michael Dwyer/AP Images
ing room wall and asked their friends to jot down their reactions on the
19
drawings.
d At one party the drawing of a smiling, beret-wearing stick
ffigure with the phrase “Life is good” got the most favorable comments.
TThey named the character “Jake,” printed 48 T-shirts with a smiling Jake
aand the words “Life is good,” and sold out in less than an hour at a local
sstreet fair. Today Life Is Good, with its positive, upbeat messages, has
$$100 million in annual sales. The company sells Life Is Good T-shirts,
hhats, and other items for men, women, children, and pets in 4,500 retail
sstores and online in 30 countries.20

Customer and Supplier Suggestions

C Firms ask their sales-
ppeople to talk to customers and ask their purchasing personnel to talk to
 suppliers to discover new-product ideas. Whirlpool gets ideas from customers on ways
to standardize components so that it can cut the number of different product platforms
to reduce costs. Business researchers tell firms to actively involve customers and sup-
pliers in the new-product development process. This means the focus should be on
what the new product will actually do for them rather than simply what they want.
A. G. Lafley, former CEO of Procter & Gamble (P&G), gave his executives a revo-
Video 9-3
P&G’s Tide Pods
lutionary thought: “Look outside the company for solutions to problems rather than
Ad insisting P&G knows best.” When he ran P&G’s laundry detergent business, he had to
kerin.tv/cr8e/v9-3 redesign the laundry boxes so they were easier to open. Why? While consumers said
P&G’s laundry boxes were “easy to open,” cameras they agreed to have installed in
their laundry rooms showed they opened the boxes with screwdrivers!21
With a $150 million marketing budget, P&G launched Tide Pods, a revolutionary
three-chamber liquid dose of detergent that cleans, fights stains, and brightens. P&G
describes Tide Pods as “its biggest laundry innovation in more than a quarter
century.” P&G says the Tide Pods product has produced the highest
consumer-satisfaction scores the company has ever seen for a new
laundry product. Following its successful new-product launch, how-
ever, P&G redesigned its packaging after discovering that some
children thought the pods were candy and tried to eat them. How
successful has Tide Pods been for P&G? After its first year, the
product garnered a 73 percent share of the “unit dose” segment of
the detergent market on estimated sales of $500 million—making it
one of the company’s most successful product launches!22
“Crowdsourcing” is another creative idea generation method if an
R&D marketing team wants ideas from 10,000 or 20,000 customers or
Procter & Gamble’s new Tide
suppliers. Crowdsourcing involves generating insights leading to actions based
Pods launch shows how it has
on ideas from massive numbers of people. This open innovation practice requires a
improved both planning and
precise question to focus the idea generation process. Dell Technologies used crowd-
implementation by involving
sourcing to develop an online site to generate 13,464 ideas for new products as well as
consumers earlier in its
website and marketing improvements, of which 402 were implemented.23
innovation activities.
©McGraw-Hill Education/Mike
Hruby, photographer
Research and Development Laboratories Another source of new products
is a firm’s own research and development laboratories. Apple’s sleek, cutting-edge
designs for the iPad, iPhone, iMac, Apple Watch, and AirPods came out of its Apple
Industrial Design Group, guided by its chief design officer, Jonathan Ive. What is the
secret to Apple’s world-class ability to convert vague concepts into tangible products?
An action-item list from every meeting that focuses on who does what by when!24
Professional R&D and innovation laboratories that are outside the walls of large
corporations are also sources of open innovation and can provide new-product ideas.
IDEO is a world-class new-product development firm that uses “design thinking,”
which involves incorporating human behavior as well as building upon the ideas of
others in the innovation-design process. As the most prolific and influential design
firm in the world, IDEO has created thousands of new products for its clients. Brain-
storming sessions conducted at IDEO can generate 100 new ideas in an hour!
IDEO designs include developing the standing Crest Neat Squeeze toothpaste
dispenser and improving the original Apple mouse. Recently, Fresh Express asked
IDEO to design an innovative single-serve package for salads. IDEO’s solution: A
five-section package—one large section for the salad greens and four smaller ones for
proteins, dressings, and so on—with each section sealed in plastic (see the photo).25
An IDEO innovation: A five-
section, single-serve package Competitive Products Analyzing the competition can lead to new-product
for salads. Visit IDEO’s website ideas. General Motors targeted Tesla Motors as a reference for its Chevrolet Bolt—a
(www.ideo.com) to view its $30,000 all-electric vehicle. The Bolt is capable of driving 200 miles in a single charge
recent innovations. and features a hatchback design to look more like a crossover vehicle. According to a
Source: IDEO General Motors executive, the Bolt will “completely shake up the status quo for

252
 electric vehicles as the first affordable long-range EV in
the market.” The Bolt was designed to be a direct com-
petitor to Tesla’s Model 3 priced at $35,000.26

Smaller Firms, Universities, and Inventors

Many firms look for outside visionaries that have inven-
tions or innovative ideas that can become products. Some
sources and outcomes of this open innovation strategy
include:27
∙ Smaller, nontraditional firms. Small technology firms

Developing New Products and Services

and even small, nontraditional firms in adjacent indus-
tries provide creative advances. General Mills part-
nered with Weight Watchers to develop Progresso
Light soups, the first consumer packaged product in
Inventor Aaron Krause has the
any grocery category to carry the Weight Watchers
distinction of introducing the
endorsement.
most successful new product
∙ Universities. Many universities have technology transfer centers that often part-
on the TV reality show Shark
ner with businesses to commercialize faculty inventions. The first-of-its-kind
Tank.
carbonated yogurt Go-Gurt Fizzix was launched as a result of General Mills
©John Ziomek/Courier-Post via
USA TODAY NETWORK
partnering with Brigham Young University to license the university’s patent to
put the “fizz” into yogurt.
Crowdfunder Kickstarter.com ∙ Inventors. Many lone inventors and entrepreneurs develop brilliant new-product

CHAPTER 9
enabled Pebble to develop ideas—like Aaron Krause’s Scrub Daddy. This sponge, in the shape of a smiley
and market one of the first face, changes its texture in water: hard in cold, soft in hot. Scrub Daddy was
commercially successful pitched on the TV reality show Shark Tank and became the most successful
smartphone-connected product introduced on the program, with total revenues surpassing $100 million.
smartwatches two years Early-stage financing is almost always a problem for inventors and those starting a
before the Apple Watch. new business because of the risk involved. Crowdfunding is a way to gather an online
©Neil Godwin/T3 Magazine via community of supporters to financially rally around a specific project that is unlikely
Getty Images
to get resources from traditional sources such as banks or venture capital firms. For
253
example, Kickstarter.com raised $1.2 million for start-up SmartThings to in-
troduce a product that allows users to monitor their homes by remote
control. But its biggest crowdfunding success was for the Pebble
smartwatch with iPhone and Android smartphone integration.
More than 70,000 backers contributed over $30 million to develop
and market this product between 2012 and 2016. Nevertheless,
Pebble became insolvent in 2016 and its assets were acquired by
Fitbit. If you are interested in crowdfunding projects, you should
know that for every $10 pledged, about $1 goes toward failed
projects. The average Kickstarter donor gives $25.28
Great ideas can come from almost anywhere—a central idea behind
open innovation. The challenge is recognizing and implementing them.

Stage 3: Screening and Evaluation

screening and evaluation Screening and evaluation is the stage of the new-product development process that
The stage of the new- internally and externally evaluates new-product ideas to eliminate those that warrant
product development no further effort.
process that internally and
externally evaluates Internal Approach In this approach to screening and evaluation, a firm’s em-
new-product ideas to ployees evaluate the technical feasibility of a proposed new-product idea to determine
eliminate those that warrant whether it meets the objectives defined in the new-product strategy development stage.
no further effort. For example, 3M scientists develop many world-class innovations in the company’s
labs. A recent innovation was its microreplication technology—one that has 3,000 tiny
 Marketing Matters Technology
Was the Google Glass Half Full or Half Empty?
How did the Google Glass morph from being one of Time chic eyeglass technology for a broader audience? How
magazine’s best inventions of the year in 2012 to an em- would wearers use the technology? As it happened, users
barrassing flop in 2015? Perhaps, Google’s product devel- immediately embraced the photo and video capabilities,
opment team failed to ask three simple questions: How and Google Glass wearers were thrown out of clubs and
would consumers perceive Google Glass? Who would banned from theaters because of privacy and intellectual
use it? and How would it be used? property concerns. More troubling, Google Glass wearers
Google Glass resembled a pair of eyeglasses with a were derisively called “Glassholes.”
small screen visible to the wearer (see the photo). Its nota- The result? Google Glass was withdrawn from the mar-
ble features included a touchpad that allowed the wearer ket in January 2015. A new version of Google Glass, called
to “see” current and past events, such as phone calls, pho- Glass Enterprise Edition, was introduced in 2018 for use by
tos, and updates, and a camera to take pictures and record tech workers at a price of $1,828. Stay tuned on its success.
video. The sound, video, and graphics accessed through
the screen created an augmented reality that overlaid the
physical, real-world environment at the same time.
Google started selling a prototype (not the finished
product) to 8,000 qualified “Glass Explorers” in April 2013
for $1,500. The intent was to collect feedback on the
device and then quickly update and fix problems before a
planned launch of the product in May 2014 for the same
price. Unfortunately, by releasing Google Glass widely,
and charging $1,500, the public believed the device to be
a finished product, not a prototype. It quickly became ap-
parent that the prototype suffered from a short battery life,
poor sound quality, and distorted images.
The technical problems could be fixed. But Google
Glass had more severe problems—all of which related to
incomplete concept testing. For example, Google never
really understood how consumers would perceive the
device. Was it simply a “cool” geeky gadget or wearable, ©Seth Wenig/AP Images

gripping “fingers” per square inch. An internal assessment showed 3M that this tech-
nology could be used to improve the gripping of both batting and work gloves.
Organizations that develop service-dominated offerings need to ensure that employ-
ees have the commitment and skills to meet customer expectations and sustain cus-
tomer loyalty—an important criterion in screening a new-service idea. This is the
essence of customer experience management (CEM), which is the process of manag-
ing the entire customer experience within the company. Marketers must consider em-
ployees’ interactions with customers so that the new services are consistently delivered
and experienced, clearly differentiated from other service offerings, and relevant and
valuable to the target market.

External Approach Firms that take an external approach to screening and evalu-
ation use concept tests, external evaluations with consumers that consist of prelimi-
nary testing of a new-product idea rather than an actual finished product. Generally,
these tests are more useful with minor modifications of existing products than with
new, innovative products with which consumers are not familiar.
Concept tests rely on written descriptions of the product but may be augmented with
sketches, mockups, or promotional literature. Key questions for concept testing include:
How does the customer perceive the product? Who would use it? and How would it be
used? Failure to address these questions can lead to disastrous results. Consumer
response to Google Glass is a case in point, as detailed in the Marketing Matters box.29

254
 9-7. What is the new-product strategy development stage in the new-
learning review product development process?
9-8. What are the main sources of new-product ideas?
9-9. How do internal and external screening and evaluation approaches
differ?

Developing New Products and Services

Stage 4: Business Analysis
business analysis Business analysis specifies the features of the product or service and the marketing
The stage of the new- strategy needed to bring it to market and make financial projections. This is the last
product development checkpoint before significant resources are invested to create a prototype—a full-scale
process that specifies the operating model of the product or service. The business analysis stage assesses the
features of the product and total “business fit” of the proposed new product with the company’s mission and
the marketing strategy
objectives—from whether the product or service can be economically produced to the
needed to bring it to market
and make financial
marketing strategy needed to have it succeed in the marketplace.
projections. This process requires not only detailed sales and profit financial projections but also
assessments of the marketing and product synergies related to the company’s existing
operations. Will the new product require a lot of new equipment or technology to

CHAPTER 9
produce it or can it be made using existing machines? Will the new product cannibal-
ize sales of existing products or will it increase revenues by reaching new market seg-
ments? Can the new product be protected with patents or copyrights?
development Carmakers in North America, Europe, and Asia had to address these and other
The stage of the new- questions when the initial business analysis for driverless vehicles began a decade ago.
product development The business analysis included R&D and manufacturing expenditures, investments in
process that turns the idea the acquisition of technology, and production scheduling and product marketing
on paper into a prototype. timelines.
255

The Cruise AV is designed to Stage 5: Development

operate safely on its own, with Development is the stage of the new-product development process that turns the idea
no driver, steering wheel, on paper into a prototype. This results in a demonstrable, producible product that in-
pedals, or other manual volves not only manufacturing the product efficiently but also performing laboratory
controls when it goes on the and consumer tests to ensure the product meets the standards established for it in the
road in 2019 or 2020. protocol.
Source: General Motors Google’s driverless car initiative is an extreme ex-
a
ample of the complexity of the Stage 5 development
p
process for a durable consumer good. The Google de-
v
velopment team relies on a fleet of vehicles as test
m
models, among them the Toyota Prius and the Lexus
R 450h. Google’s driverless cars have completed
RX
o
over 3 million miles of driving. These miles are
“
“driven” by a nonhuman driver with an impressive
d
driving record behind the wheel and a Google engi-
n
neer in the passenger seat. A spinning, roof-mounted
l
laser range finder and sophisticated software navigated
t streets of San Francisco and the curvy Pacific
the
C
Coast Highway.
In 2017, the Google driverless car became part of
W
Waymo, a subsidiary of Google’s parent company,
A
Alphabet. Waymo will not commercialize the vehicle
 itself but intends to market the self-driving technology to carmakers, such as Fiat
Chrysler. But there is more to the story. General Motors will introduce the Cruise
AV, the first mass-produced self-driving car built from the ground up in 2019 or
2020. This car will have no steering wheel, gas or brake pedals, or other manual
controls.30

Stage 6: Market Testing

market testing Market testing is the stage of the new-product development process that involves
The stage of the new- exposing actual products to prospective consumers under realistic purchase condi-
product development tions to see if they will buy. If the budget permits, consumer packaged goods firms
process that exposes actual often do this by test marketing, which involves offering a product for sale on a lim-
products to prospective ited basis in a defined area for a specific time period. The three main kinds of test
consumers under realistic
markets are (1) standard, (2) controlled, and (3) simulated.31 Because standard test
purchase conditions to see
if they will buy.
markets are so time-consuming and expensive and can alert competitors to a firm’s
plans, some firms skip test markets entirely or use controlled or simulated test
markets.

Standard Test Markets In a standard test market, a company develops a

product and then attempts to sell it through normal distribution channels in a num-
ber of test-market cities. Test-market cities must be demographically representative
of markets targeted for the new product, have cable TV systems that can deliver
different ads to different homes, and have retailers with checkout counter scanners
to measure sales. A distinguishing feature of a standard test market is that the pro-
ducer sells the product to distributors, wholesalers, and retailers, just as it would do
for other products.
Depending on the results of a test market, companies will take one of three actions.
If the results don’t meet expectations, a product is discontinued. If the results are favor-
able, a full-fledged national product introduction may be undertaken. Alternatively, a
company may choose to undertake a regional rollout, in which a product is introduced
sequentially into geographical areas to allow production levels and marketing activities
to build up gradually to support the product.

Controlled Test Markets A controlled test market involves contracting the

Consumer products, such as
entire test program to an outside service. The service pays retailers for shelf space
those from General Mills, often
and can therefore guarantee a specified percentage of the test product’s potential
use controlled test markets to
distribution volume. IRI is a leader in supplying controlled test markets to consumer
assess the likely success of
packaged goods firms like General Mills. Its service uses demographically represen-
new-product, promotional, or
tative cities to track sales made to a panel of households. In some cases the effective-
pricing strategies.
ness of different TV commercials and other direct-to-consumer promotions can be
Courtesy of Bolin Marketing
measured.

Simulated Test Markets To save time

and money, companies often turn to simu-
lated (or laboratory) test markets (STMs), a
technique that somewhat replicates a full-
scale test market. STMs are often run in
shopping malls, to find consumers who use
the product class being tested. Next, qualified
participants are shown the product or the
product concept and asked about usage, rea-
sons for purchase, and important product at-
tributes. They then see the company’s and
competitors’ ads for the test product. Finally,
participants are given money and allowed to

256
 choose between buying the firm’s product or the products of competitors in a real or
simulated store environment.

Stage 7: Commercialization
commercialization Finally, the product is brought to the point of commercialization—the stage of the
The stage of the new-product new-product development process that positions and launches a new product in full-
development process that scale production and sales. This is the most expensive stage for most new products. If
positions and launches a competitors introduce a product that leapfrogs the firm’s own new product or if
new product in full-scale cannibalization of its own existing products appears significant, the firm may halt the
production and sales.
new-product launch. Companies can face disasters at the commercialization stage,

Developing New Products and Services

regardless of whether they are selling business products or consumer products.
Examples are Boeing’s 787 Dreamliner and Burger King’s french fries, which are
discussed next.

The Boeing 787 Dreamliner Experience When

Boeing announced the design for its Boeing 787 Dream-
liner commercial airplane, its technical advances would
mean the plane would burn 20 percent less fuel and cost
30 percent less to maintain than present airliners. Boeing
invested billions of dollars in the 787’s development, and
airlines subsequently placed orders for almost 1,300
Dreamliners. But there is more to the story.

CHAPTER 9
As the Dreamliner entered its commercialization
stage, airlines around the world began taking deliveries.
But with all the new technology in the Dreamliner, the
new airplane was plagued by technical nightmares—
even after extensive testing. Its wings, made with
Takeaway new-product lesson plastic-reinforced carbon fiber instead of aluminum,
from the Boeing 787 proved difficult to produce and attach to the fuselage.
Dreamliner: “Innovation . . . can And the Dreamliner’s new “high-tech skin” failed to dissipate lightning like the old
257
get messy.” See the text for aluminum skin. But an even more serious problem arose: Lithium-ion batteries,
details. which provide electrical power, caught fire on two Dreamliner aircraft, prompting
©KiyoshiOta/Bloomberg via regulators to ground all Dreamliners in service around the world. Perhaps The Wall
Getty Images Street Journal gave the best new-product lesson from the Boeing 787 Dreamliner
example: “Innovation—for all its value—doesn’t come as easily as a catch-
phrase. It can get messy.”32

Burger King’s French Fries: The Complexities of Commer-

cialization McDonald’s french fries are considered the gold standard
against which all other fries in the fast-food industry are measured. But
that didn’t deter Burger King in taking on McDonald’s fries. The company
spent millions of R&D dollars developing a french fry designed to retain heat longer
and add crispiness.
The result was a thick-cut french fry. It had a new “coating” on the outside to create
a “crispy, golden-brown deliciousness” while retaining the heat longer—for at least
To discover the downs and 10 minutes—because 75 percent of customers eat their fries “on the go” in their cars,
ups of commercializing a new offices, or homes. Burger King also launched the largest TV advertising campaign in
product, see the text its history to promote the new fries. The launch turned into a disaster. The reason:
discussion of Burger King’s Except under ideal conditions, the new fry proved too complicated to get right day
multiyear search for a french after day in Burger King restaurants.
fry recipe that can compete Then, Burger King introduced its “Satisfries” as the french fries in its kids meals.
with McDonald’s. These were intended to help address concerns about nutrition for and obesity in
©McGraw-Hill Education/Mike chil-dren. Satisfries had about 20 percent fewer calories and 25 percent less fat
Hruby, photographer than its regular fries. But Burger King’s effort failed. Burger King discontinued its
Satisfries at most of its restaurants because it couldn’t communicate a meaningful
point of difference to its customers and Satisfries cost more than its regular fries.