MARK1012 Lecture Notes - Observability, Diffusion Process, Test Market
WHY DO FIRMS CREATE NEW PRODUCTS?
• All firms must innovate to meet the needs of the market
• Innovation: process by which ideas get transformed into new
offerings, including products, services, processes and branding
concepts
o Represents firm’s commitment to investing in their long-term
competitiveness and growth
o Without innovation firms can: continue to market current
products to current customers or take same product to
another market with similar customers
o Growth trajectories widen with innovation
Changing customer needs
• Firms create and deliver value more effectively by satisfying the
changing needs of their current and new customers or by keeping
customers from getting bored with current product offering and
thereby switching to other brands
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Market Saturation
• The longer a product exists in the marketplace, the more likely it is
that the market will become saturated
• Without new goods or service, value of the firm will decline
Managing Risk Through Diversity
• Through innovation → firms create broader portfolio of products →
diversify risk and enhance firm value better than a single product
can
• If some products perform poorly others may do well
• Multiple products → better withstand external shocks (e.g.
changes in consumer preference or intensive competitive activity)
Fashion Cycles
• Industries that rely on fashion trends experience short product life
cycles (e.g. apparel, arts, books and software markets)
• Most sales come from new products
Improving Business Relationships
• May be used to improve relationships with suppliers and other
intermediaries to enhance value creation
DIFFUSION OF INNOVATION
• Refers through the process where the use of an innovation
spreads throughout a market group over time and across various
categories of adopters
• Theory relating to this helps marketers understand the rate at
which consumers are likely to adopt a new product
o Means to identify potential markets for their products and
predict potential sales
o Firm can develop effective promotion, pricing and other
marketing strategies to push acceptance among each
customer group
o As different products diffuse at different rates → must
understand diffusion curve and characteristics of target
customers in each stage of the diffusion
• Pioneers (breakthroughs) → radical innovations
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o Establish a completely new market or radically changes both
the rules of competition and consumer preferences in a
market
o First movers: first to create the market or product category
▪ Easily recognisable to consumers
▪ Establish a commanding and early market share lead
o Paves the way for followers → who spend less marketing
effort creating demand for the product line and focus directly
on creating demand for their specific brand
o Often has less sophisticated design and highly priced
▪ Leaves room for better and lower-priced competitive
products
o 95% of all new consumer goods fail and products across all
markets and industries suffer failure rates of 50-80%
• Innovators: want to be the first on the block to have new
product
find more resources at oneclass.com
find more resources at oneclass.com
Document Summary
Changing customer needs: firms create and deliver value more effectively by satisfying the changing needs of their current and new customers or by keeping customers from getting bored with current product offering and thereby switching to other brands. Market saturation: the longer a product exists in the marketplace, the more likely it is that the market will become saturated, without new goods or service, value of the firm will decline. Fashion cycles: industries that rely on fashion trends experience short product life cycles (e. g. apparel, arts, books and software markets, most sales come from new products. Improving business relationships: may be used to improve relationships with suppliers and other intermediaries to enhance value creation. Less likely to see people talk about jewellery: complexity and trialability, relatively less complex products are also relatively easy to use diffuse more quickly and lead to greater/faster adoption. How firms develop new products: idea generation: can use a variety of sources.
